LVMH financial report

LOUIS VUITTON

•

MOËT HENNESSY

Report Spring 2015 Financial Accounting

PROF. REDZEPAGINC !

Orna!BROMBECK! ! ! !

!

!

!

!

TABLE!OF!CONTENT! INTRODUCTION I. Analysis of LVMH a) Overview b) SWOT analysis c) Competitors II. LVMH Conceptual Framework a) Mission statement b) Board of directors c) Partners

III. Presentation of Financial statements and Analysis a) Quick ratio b) Current ratio

IV. Transactions V. Recorded inventory and merchandizing operations of LVMH VI. Possible investments and international operations VII. The statement of cash flows of LVMH CONCLUSION WORK CITED

! !

LVMH! LOUIS VUITTON - MOËT HENNESSY

! !

2!

INTRODUCTION! ! Louis Vuitton Moët Hennessy S.A – mostly known under the acronym of LVMH was founded in Paris in 1987, and chaired by the well-known Monsieur Bernard Arnault, the 10th wealthiest man in the globe. The Louis Vuitton Moët Hennessy Group is considered to be a world leader in high-quality products and has had since its start a very strong and dynamic financial growth is a French Multinational group that owns more than 60 prestigious and luxurious brands worldwide. LVMH’s main market of function is in the luxury goods industry. Indeed, LVMH’s focus is separated into five distinct categories: Fashion & Leather Goods, Perfumes & Cosmetics, Wines & Spirits, Watches & Jewellery, and Selective retailing. With the help of their outstanding brand development strategy, LVMH has had a phenomenal world expansion and financial growth. It kept its elegant brands reputation thru all those years by cherishing their values and heritages.

! !

! !

LVMH! LOUIS VUITTON - MOËT HENNESSY

! !

3!

I.

ANALYSIS OF LVMH a. OVERVIEW OF THE COMPANY

LVMH Moët Hennessy Louis Vuitton S.A – also known under the acronym of LVMH – is a French multinational group that functions in the luxury goods and retail market. Founded in Paris in 1987, and chaired by the well-known Monsieur Bernard Arnault, the Louis Vuitton Moët Hennessy Group is considered to be a world leader in high-quality products and has had since its start a very strong and dynamic financial growth. LVMH has a unique portfolio in its industry since it is the home of over 60 prestigious and luxurious brands. In fact, the LVMH group is active in five distinct sectors: Wines & Spirits, Fashion & Leather Goods, Perfumes & Cosmetics, Watches & Jewelry, and last but not least, Selective Retailing. The 60 brands acquired and merged by the LVMH group are listed in the following section. b. SWOT analysis LVMH Moet Hennessy Louis Vuitton SA (LVMH or ‘the company’) produces and markets luxury goods under various product categories and brands. The company has a strategically balanced product portfolio and revenue streams that reduce its business risk and provide cross-selling opportunities. However, increased counterfeit crime could affect sales of the company's brands and in turn its revenues.

Strengths

Weaknesses

M arket focus through strong brand portfolio Diversified business in term s of business segm ents and geographic presence Strong financial perform ance enhancing shareholders' confidence O pportunities Expansion through strategic acquisitions Growing m arket for luxury goods in Asia Pacific Positive outlook for the global fragrances m arket

High level of indebtedness

Threats Counterfeit products lead to tarnished brand im age and loss of sales Intense com petition Increasing labor cost in the US and Europe

Strengths Market focus through strong brand portfolio LVMH produces and sells its products under different brands. The company operates through a multi-brand concept. LVMH owns more than 60 brands and many of these brands have leading positions in their respective market segments. In wine and spirits segment, LVMH's Hennessy, Moet & Chandon and Veuve Clicquot brands were ranked third, ninth and 19th, respectively, in the top 50 drinks brands 2012 list by an industry source. Moet & Chandon was also ranked 77th in the top 100 best global brands 2011 list by one of the world's largest brand consultancies. Hennessy and Moet et Chandon were also ranked fifth and 17th in the top 100 world's most powerful spirits and wine brands 2012 list by an industry source. Further, the company's Chandon brand is the leader in the super-premium sparkling wine segment in the US and Australia. Terrazas de los Andes brand is one of the leading brands in the superpremium Argentine wine segment. In fashion and leather segment, Louis Vuitton brand was ranked 21st in the top 100 world's most trusted brands 2012 list by one of the leading global research agencies.

Weaknesses

High!level!of!indebtedness,!LVMH!has!substantial!amount!of!debt!on!its!balance!sheet.!The!net!financial! debt! of! the! company! stood! at! E4,261! million! (approximately! $5,479! million),! E4,660! million! (approximately! $6,488.6! million)! and! E2,678! million! (approximately! $3,728.8! million)! at! the! end! of! FY2012,!FY2011!and!FY2010!respectively.!High!debt!obligations!could!make!it!difficult!for!the!company! to! obtain! additional! financing! to! fund! future! working! capital,! capital! expenditures! and! other! general! corporate!requirements.!In!addition,!high!financial!obligations!limit!LVMH's!flexibility!in!planning!and!in! reacting!to!changes!in!business!and!industry.!!

! !

LVMH! LOUIS VUITTON - MOËT HENNESSY

! !

4!

!

Opportunities Expansion through strategic acquisitions, LVMH has been focusing on increasing its presence through strategic acquisitions. As part of this strategy, LVMH acquired an 80% stake in Italian cashmere clothing brand Loro Piana for about E2 billion (approximately $2.57 billion) in July 2013. Loro Piana operates a network of more than 130 exclusive boutiques where products are distributed under the Loro Piana brand name. Loro Piana is expected to achieve 2013 sales of E700 million (approximately $900 million), with EBITDA representing over 20% of sales. Further in July 2013, the company acquired Hotel Saint-Barth Isle de France located on the island of St. Barthelemy in the French West Indies from majority owner Adventurous Journeys Capital Partners (AJ Capital Partners) and others. LVMH also acquired an 80% stake in the business, which controls the Pasticceria Cova cafe in Milan in June 2013. Growing market for luxury goods in Asia Pacific The global luxury goods market has been growing at a fast pace driven by strong growth in the Asian markets. China, and to some extent India, are responsible for the region's strong performance. Owing to the rapid economic development and higher disposable income in the hands of customers, the demand for luxury goods in China and India has been registering strong growth. China has become a key market for luxury retailers with an attractive growth rate because of its large population, high number of densely populated large cities, growing affluence, and local consumers' appetite for luxury as well as for globally recognized brands. According to industry estimates, the Chinese luxury market has been growing at an annual rate ranging from 25%-30%. Moreover, China is expected to become. Threats Counterfeit products lead to tarnished brand image and loss of sales. The counterfeit market has been growing in recent years driven by the Internet counterfeit market. The abundance of counterfeit goods and accessories is adversely affecting the sales of branded products. With the advent of digital channels there has been a surge in the sale of counterfeit products. The spread of counterfeit goods has become global and the range of goods subject to infringement has increased significantly. According to the Intellectual Property Rights (IPR) Seizure Statistics by Customs and Border Protection (CBP) Office of International Trade, the number of IPR seizures in 2012 reached 22,848. The counterfeit trade in watches/jewelry accounted for 15% of the total manufacturer's suggested retail price of the seizures in 2012. Counterfeits of LVMH's brands are available in the market. For instance, in 2010, Philippine law-enforcers seized over 28,000 pieces of counterfeit Louis Vuitton goods worth more than $4 million. The seized products included handbags, pouches, leather cases, shoulder bags and other accessories bearing the company's logo. Counterfeit products, low on quality could hurt customer loyalty when they buy such products by mistake. LVMH was in legal battles with some of the most popular retailers such as eBay and Wal-Mart relating to sale of counterfeit products. Such events could hurt the company's relations with the retailers. Brands being its main assets, LVMH will have to divert significant amount of resources to protect its brands in the backdrop of rising counterfeit crimes. Intense competition The markets for fashion and accessories, perfumes, cosmetics, watches, and jewelry are highly competitive. In each of its geographic markets, the company faces significant competition from global and regional branded apparel, perfumes, cosmetics, watches, and jewelry companies. In the watches and jewelry segment, the company's main competitor is Compagnie Financiere Richemont whereas in fashion and leather goods segment it competes mainly with Gucci Group (a division of PPR). LVMH also competes with independent brands such as Ralph Lauren, and Burberry, which have lower priced collections. Apart from this, the company's key competitors also include Signet Jewelers Limited and Tiffany in the jewelry segment. The key competitive factors in the industry include the performance and reliability of products, new product development, price, product identity, and customer support and service. Further, the company also faces significant competition from some of its large wholesale customers as they sell fashion and accessories, perfumes, cosmetics, watches and jewelry under their own private labels. High level of competition in the market place could negatively impact the market share of the company. Increasing labor cost in the US and Europe. In recent years, labor costs have risen in the US and Europe. The tight labor markets increased overtime, government mandated increases in minimum wages and a higher proportion of full-time employees are resulting in an increase in labor costs. The federal minimum wage rate in the US, which remained at $5.15 per hour since 1998, increased to $5.85 per hour in 2008. Further, it increased to $6.55 per hour in 2009 and to $7.25 per hour in 2010.

! !

LVMH! LOUIS VUITTON - MOËT HENNESSY

! !

5!

Additionally, many states and municipalities in the country have minimum wage rate higher than the federal minimum wage rate due to higher cost of living. According to Eurostat, the hourly labor costs in the EU27 zone (includes Belgium, Bulgaria, the Czech Republic, Denmark, Germany, Estonia, Ireland, Greece, Spain, France, Italy, Cyprus, Latvia, Lithuania, Luxembourg, Hungary, Malta, Austria, Poland, the Netherlands, Portugal, Romania, Slovenia, Slovakia, Finland, Sweden and the UK) increased by 1.3% in the year up to the fourth quarter of 2012. Similarly, the hourly labor costs in the EA17 zone (includes Belgium, Germany, Estonia, Ireland, Greece, Spain, France, Italy, Cyprus, Luxembourg, Malta, the Netherlands, Austria, Portugal, Slovenia, Slovakia and Finland) increased by 1.3% in the year up to the fourth quarter of 2012. LVMH has 45% and 23% of its employees in Europe and the US, respectively. Hence, the increase in labor costs in its key markets could affect the company's margins. c. Competitors Pinault-Printemps-Redoute – Gucci’s Fashion group and now called Kering – Compagnie Financière Richemont, and the Valentino Fashion group are the most suitable competitors for the Louis Vuitton Moët Hennessy group – the common point being that they offer luxurious goods in the same market and own multiple prestigious brands. Kering is a French luxury group similar to LVMH founded in 1963 by François Pinault. The Kering group has a portfolio of brands that carry brands such as Gucci, Balenciaga, Yves Saint Laurent, and Bottega Veneta. Compagnie Financière Richemont SA is a Swiss luxury goods company that was founded in 1988 by Johann Rupert. The Richemont group owns brands such as Dunhill, Jaeger-LeCoultre, Cartier, Van Cleef & Arpels, and Montblanc. The Valentino Fashion group is an Italian luxury goods company founded in 2005 by the Marzotto group. The Valentino Fashion group holds brands such as Hugo Boss, Valentino, M Missoni, and Marlboro Classics. Other competitors can be any other brand, group, or company that offers luxury goods in the luxury industry – for instance Polo Ralph Lauren, Burberry, Tiffany & Co., Mulberry, Coach, Chanel, Dolce & Gabbana, etc.

II.

LVMH Conceptual Framework a. Mission Statement

! The LVMH Moët Hennessy Louis Vuitton S.A group shines in its market since its debut because of its impeccable and irreproachable group mission statement and values. LVMH’s group mission and values is stated to be on their official website as follows – the mission statement under is extracted directly from lvmh.com. The mission of the LVMH group is to represent the most refined qualities of Western "Art de Vivre" around the world. LVMH must continue to be synonymous with both elegance and creativity. Our products, and the cultural values they embody, blend tradition and innovation, and kindle dream and fantasy. In view of this mission, five priorities reflect the fundamental values shared by all Group stakeholders: ! Be creative and innovate ! Aim for product excellence ! Bolster the image of our brands with passionate determination ! Act as entrepreneurs ! Strive to be the best in all we do Be creative and innovate Group companies are determined to nurture and grow their creative resources. Their long-term success is rooted in a combination of artistic creativity and technological innovation: they have always been and always will be creators. Their ability to attract the best creative talents, to empower them to create leading-edge designs is the lifeblood of our Group. The same goes for technological innovation. The success of the companies' new products - particularly in cosmetics - rests squarely with research & development teams. This dual value - creativity/innovation - is a priority for all companies. It is the foundation of their continued success.

! !

LVMH! LOUIS VUITTON - MOËT HENNESSY

! !

6!

Aim for product excellence Group companies pay the closest attention to every detail and ensure the utter perfection of their products. They symbolize the nobility and perfection of traditional craftsmanship. Each and every one of the objects their customers buy and use exemplifies our brands' tradition of impeccable quality. Never should Group companies disappoint, but rather continue to surprise their customers with the quality, endurance, and finish of their products. They never compromise when it comes to product quality. Their search for excellence go well beyond the simple quality of their products: it encompasses the layout and location of our stores, the display of the items they offer, their ability to make their customers feel welcome as soon as they enter our stores... All around them, their clients see nothing but quality. Bolster the image of our brands with passionate determination Group brands enjoy exceptional reputation. This would not amount to much, and could not be sustained, if was not backed by the creative superiority and extreme quality of their products. However, without this aura, this extra dimension that somewhat defies logic, this force of expression that transcends reality, the sublime that is the stuff of our dreams, Dior would not be Dior, Louis Vuitton would not be Louis Vuitton, Moët would not be Moët... The power of the companies' brands is part of LVMH's heritage. It took years and even decades to build their image. They are an asset that is both priceless and irreplaceable. Therefore, Group companies exercise stringent control over every minute detail of their brands' image. In each of the elements of their communications with the public (announcements, speeches, messages, etc.), it is the brand that speaks. Each message must do right by the brand. In this area as well, there is absolutely no room for compromise. Act as entrepreneurs The Group's organizational structure is decentralized, which fosters efficiency, productivity, and creativity. This type of organization is highly motivating and dynamic. It encourages individual initiative and offers real responsibilities - sometimes early on in one's career. It requires highly entrepreneurial executive teams in each company. This entrepreneurial spirit requires a healthy dose of common sense from managers, as well as hard work, pragmatism, efficiency, and the ability to motivate people in the pursuit of ambitious goals. One needs to share and enjoy this entrepreneurial spirit to - one day - manage a subsidiary or company of the LVMH group. Strive to be the best in all we do Last but not least is our ambition to be the best. In each company, executive teams strive to constantly improve, never be complacent, always try to broaden our skills, improve the quality of our work, and come up with new ideas. The Group encourages this spirit, this thirst for progress, among all of its associates. Code of Conduct In 2010, to provide a set of simple principles and behaviours that should guide the Group and each of us in the everyday conduct of business, LVMH officially adopted a Code of Conduct. LVMH has a global dimension and the world in which we do business is changing at a rapid pace. In the context of this continually evolving business environment, this Code of Conduct constitutes a common benchmark to guide individual initiatives and ensure greater consistency in practices across the Group's companies and geographies. In 2010, the Group also adopted self-regulatory on line marketing principles, aligned with the World Federation of Advertisers.

b. Board of Directors ! ! ! ! ! ! ! !

! !

Bernard Arnault Chairman and Chief Executive Officer Pierre Godé Vice-Chairman Antonio Belloni Group Managing Director Antoine Arnault Delphine Arnault Nicolas Bazire Bernadette Chirac(1) Nicholas Clive Worms(1)(2)

LVMH! LOUIS VUITTON - MOËT HENNESSY

! !

7!

! ! ! ! ! ! ! ! !

Charles de Croisset(1)(2)(3) Diego Della Valle(1) Albert Frère(1)(3) Marie-Josée Kravis(1) Lord Powell of Bayswater Marie-Laure Sauty de Chalon(1) Yves-Thibault de Silguy(1)(2)(3) Francesco Trapani Hubert Védrine(1)

c. Partners LVMH Moët Hennessy - Louis Vuitton is a luxury goods group active in five segments: fashion and leather goods, perfumes and cosmetics, watches and jewellery, wines and spirits, and selective retailing. It has over 60 brands, including Louis Vuitton, Fendi, Guerlain, Givenchy, Parfums Christian Dior, Bulgari, TAG Heuer, Chaumet, Moët & Chandon, Dom Pérignon, Château d'Yquem, Le Bon Marché, Sephora and DFS.

! !

LVMH! LOUIS VUITTON - MOËT HENNESSY

! !

8!

III.

Presentation of Financial Statement Analysis

(lvmh.com) a. Quick Ratio

Quick ratio: Quick ratio = (current assets – inventories) / current liabilities LVMH’s Quick Ratio = (18100- 9475)/ 12175= 0,7 The higher the quick ratio, the better the company’s liquidity position. It means that LVMH have enough cash and liquid assets to cover its short-term debt obligations. b. Current Ratio

The current ratio is a liquidity ratio that measures a company's ability to pay short-term obligations. The Current Ratio formula is:

Also known as "liquidity ratio", "cash asset ratio" and "cash ratio". Current ratio = Current assets / current liabilities LVMH current ratio: 18100 / 12175 = 1

! !

LVMH! LOUIS VUITTON - MOËT HENNESSY

! !

9!

IV.

Transactions

“Announced 12/10/14 Wine and Co S.A. Merger/Acquisition Compagnie Financiere Europeenne De Prises De Participation SA along with Bernard Le Marois acquired Wineandco.com from LVMH Moet Hennessy Louis Vuitton SA (ENXTPA:MC) and Millesima S.A. on December 10, 2014. Wineandco reported sales of €12 million in 2013. The current head of Wineandco.com, Bernard Le Marois, will continue at the helm and has taken a minority stake in the company. Arnaud Dubois, Gwenaël de Sagazan, Axel Riquet and Julian Dykiert of DC Advisory SAS acted as a financial advisor to LVMH Moet Hennessy Louis Vuitton SA (ENXTPA:MC) and Millesima S.A. Collapse Detail MOH's price was unchanged after the transaction was announced on 12/10/14. Investor / Buyer Compagnie Financiere Europeenne De Prises De Participation SA Creditor / Lender LVMH Moët Hennessy Louis Vuitton SA Millesima S.A” (http://www.bloomberg.com/research/stocks/transactions/transactions.asp?ticker=MOH:GR)

V.

! !

Recorded inventory and merchandizing operations of LVMH

LVMH! LOUIS VUITTON - MOËT HENNESSY

! !

10!

(lvmh.com)

VI.

Possible investments and international operations

After the defeat of Bernard Arnault into acquiring some parts of the Hermes group and after 4 years of battle between those 2 groups, « The Hermes family closed ranks and created a holding company binding family members into an agreement not to sell stock to outsiders until 2040 (http://www.breakingviews.com/lvmhhermes-in-five-year-handbag-peace/21162586.article) but has we know LVMH is a big firm and will wait until 2040 to acquire some parts of it’s first concurrent HERMES. Bernard Arnault will be watching for any weakening of the family part. “Moet-Hennessy and LVMH Corporation is planting 30 hectares of grapes in the mountainous regions, called Shangri-La, in southern Yunnan province. DBR is investing 100 million Yuan, which represent $16.3 million. The aim is to grow thirst for premium in the wine market. China is currently the fifth largest wine consumer according to WINEEXPO study. China’s new policies against corruption can only improve the French winemakers. Of course, the LVMH group studied the region, according to the humidity and ground to make a competitive wine and target the Chinese wealthiest group.” (French Wine Labels Such As LVMH Moet Hennessy Louis Vuitton SA (LVMH) Are Investing In China. (n.d.). Retrieved April 1, 2015)

! !

LVMH! LOUIS VUITTON - MOËT HENNESSY

! !

11!

VII.

The statement of cash flows of LVMH

(lvmh.com) Net cash from operating activities is determined on the basis of operating profit, adjusted for non-cash transactions. Additionally, as from December 31, 2014: - dividends received are presented according to the nature of the underlying investments; thus, dividends from joint ventures and associates are presented in Net cash from operating activities, while dividends from other unconsolidated entities are presented in Net cash from financial investments; - tax paid is presented according to the nature of the transaction from which it arises: in Net cash from operating activities for the portion attributable to operating transactions; in Net cash from financial investments for the portion attributable to transactions in available for sale financial assets, notably tax paid on gains from their sale; in Net cash from transactions relating to equity for the portion attributable to transactions in equity, notably distribution taxes arising on the payment of dividends. The cash flow statements for the fiscal years ended December 31, 2013 and 2012 have been restated to reflect this new presentation of dividends received and tax paid (previously presented in Net cash from operating activities)

! !

LVMH! LOUIS VUITTON - MOËT HENNESSY

! !

12!

CONCLUSION The luxury goods industry has persisted quite well through the years despite the financial challenges the world was facing. While some divisions grow slower than others, the luxury goods industry as a unit is predicted to sprout in the future, short term as well as long term. The luxury industry is an industry that is constantly changing and that necessitates solid cash flows, really low levels of debt, and high profit margins. After analyzing as a whole, for the continuous prosperity of the LVMH group, it is crucial that LVMH management focuses on its competitive advantage that is its brands. The brands owned by LVMH need to be safeguarded and constantly perfected. Such a wide product portfolio makes it challenging to keep with the quick paced world of the luxury goods industry. Developing further high quality brands add value and trust to the portfolio, as it is also essential to focus on the benefit that will be added from the acquisition, and the future investment of the group.

! !

LVMH! LOUIS VUITTON - MOËT HENNESSY

! !

13!

WORK CITED

! !

1.

LVMH MOET HENNESSY VUITTON (MC:Euronext Paris): Financial Statements. (n.d.). Retrieved April 1, 2015, from http://www.bloomberg.com/research/stocks/financials/financials.asp?ticker=MC:FP

2.

LVMH MOET HENNESSY LOUIS VUI (MOH:Frankfurt): Transactions. (n.d.). Retrieved April 1, 2015, from http://www.bloomberg.com/research/stocks/transactions/transactions.asp?ticker=MOH:GR

3.

Exceptional distribution in kind of shares of Hermès International. (n.d.). Retrieved April 1, 2015, from http://www.businesswire.com/news/home/20141103005788/en/Exceptionaldistribution-kind-shares-Hermès-International#.VRwrEjusVy9

4.

LVMH: World leader in high-quality products, prestigious brands - Louis Vuitton Moët Hennessy. (n.d.). Retrieved April 1, 2015, from http://www.lvmh.com/

5.

LVMH: World leader in high-quality products, prestigious brands - Louis Vuitton Moët Hennessy. (n.d.). Retrieved April 1, 2015, from http://www.lvmh.com/

6.

LVMH, Hermes in five-year handbag peace. (n.d.). Retrieved April 1, 2015, from http://www.breakingviews.com/lvmh-hermes-in-five-year-handbag-peace/21162586.article

7.

(n.d.). Retrieved April 1, 2015, from http://www.lvmh.com/uploads/assets/Comfi/Documents/en/Reports/LVMH_Consolidated_Financial_Statements_2014_V

8.

(n.d.). Retrieved April 1, 2015, from http://www.lvmh.com/uploads/assets/Comfi/Documents/en/Reports/LVMH_RA2014_GB.pdf

9.

French Wine Labels Such As LVMH Moet Hennessy Louis Vuitton SA (LVMH) Are Investing In China. (n.d.). Retrieved April 1, 2015, from http://www.ibtimes.com/french-wine-labels-suchlvmh-moet-hennessy-louis-vuitton-sa-lvmh-are-investing-china-1370043

LVMH! LOUIS VUITTON - MOËT HENNESSY

! !

14!