Louis Vuitton 2008 Annual Report Download - page 75

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General and administrative expenses totaled 1,449 million
euros, up 4% based on published figures, and up 7% on a
constant currency basis. They represented 8% of revenue, a
level identical to that recorded in 2007.
The Group’s profit from recurring operations was 3,628 million
euros, 2% higher than in 2007. Operating margin as a percen-
tage of consolidated revenue amounted to nearly 21%, 1 point
lower than its level a year earlier.
Exchange rate fluctuations had a negative net impact on the
Group’s profit from recurring operations of 143 million euros
compared with the previous year. This total comprises the
following three items: the impact of changes in currency pari-
ties on export and import sales and purchases by Group compa-
nies; the change in the net impact of the Group’s policy of
hedging its commercial exposure to various currencies; and the
impact of exchange rate fluctuations on the consolidation of
profit from recurring operations of subsidiaries outside the
euro zone. On a constant currency basis excluding changes in
the net impact of currency hedges, the increase in the Group’s
profit from recurring operations would have been 6% compa-
red to 2007.
Profit from recurring operations for Wines and Spirits was
1,060 million euros, stable compared to the previous year. The
decline in sales volumes was offset by the maintenance of a
pricing policy consistent with the high-end positioning of this
business group’s brands. These price increases, together with
tight cost control, offset the adverse impact of exchange rate
fluctuations, expenses relating to the reinforcement of the
distribution network and advertising and promotional expen-
diture focused on strategic markets. Operating margin as a
percentage of revenue for this business group increased by 1.1
points to 33.9%.
Fashion and Leather Goods posted profit from recurring opera-
tions of 1,927 million euros, up 5% compared to 2007. Despite
the unfavorable impact of exchange rate fluctuations, Louis
Vuitton once again performed remarkably well. Both Fendi
and Marc Jacobs continued to show profitable growth. Other
brands that are currently the focus of development or revita-
lization strategies posted mixed results, which led to a slight
decline of 0.4 points in the operating margin as a percentage of
revenue for this business group, to 32.1%.
Profit from recurring operations for Perfumes and Cosmetics
was 290 million euros, an increase of 13% compared to 2007.
Despite a higher level of advertising and promotional expen-
diture, and costs related to a fresh foray into the world of
perfume by Fendi and Pucci, tight control over product costs
and other operating expenses once again improved profitability.
Operating margin as a percentage of revenue for this business
group thus increased by 0.7 points to 10.1%.
Following four years of strong growth and a remarkable turna-
round in its profitability
, in 2008 the Watches and Jewelry
business group recorded a decline in profit from recurring
operations to 118 million euros. Against the backdrop of a
slowdown in sales, operational profitability fell to 13.4%.
Profit from recurring operations for Selective Retailing was
388 million euros, down 9% compared to 2007. Sephora conti-
nued to improve its operating margin, despite expenses resul-
ting from its rapid expansion in Europe, the United States,
China and the Middle East, thus confirming its highly profi-
table growth momentum. Operating margin as a percentage
of revenue for the Selective Retailing business group as a whole
amounted to 8.9%.
The net result from recurring operations of Other activities
and eliminations was a loss of 155 million euros, stable compa-
red to the previous year. In addition to headquarters expenses,
this heading includes the results of the Media division and
those of the yacht builder Royal Van Lent, acquired in 2008.
Other operating income and expenses amounted to a net
expense of 143 million euros, compared to a net expense of
126 million euros in 2007. In 2008, they comprised capital
gains realized on the sale of various assets in the amount of
14 million euros and costs for the restructuring of industrial
and commercial processes in the amount of 83 million euros.
These amounts related to the discontinuation of certain
product lines, the closure of retail stores considered as insuffi-
ciently profitable and the reorganization of the operations of
Glenmorangie. The latter notably included the gradual with-
drawal from activities performed on behalf of third parties and
the disposal of certain assets, notably the industrial facility in
Broxburn (Scotland) as well as the Glen Moray brand and
distillery. The balance of other income and expenses consists
of accelerated depreciation and asset impairment in the amount
of 57 million euros, as well as various non-recurring expenses
or provisions amounting to 17 million euros.
The Group’s operating profit was 3,485 million euros, repre-
senting a 2% increase over 2007.
Net financial expense was 281 million euros, compared to 252
million euros in the prior year.
The cost of net financial debt was 257 million euros as of
December 31, 2008, up from 207 million euros the previous
year. This increase reflects the combined impact of rising market
rates of interest, the higher spreads applied in financial markets,
and the slight growth in average net debt during the year.
Other financial income and expenses amounted to a net
expense of 24 million euros, up from a net expense of 45
million euros in 2007. The financial cost of foreign exchange
operations had a negative impact of 64 million euros for 2008;
it had a negative impact of 97 million euros in 2007. The net
gain on current and non-current available for sale financial
assets and other financial instruments amounted to 53 million
euros, up from 44 million euros the previous year. In 2008,
this heading included the Group’s share in the capital gains
realized on the sale of the French video game retailer Micro-
mania and the recognition of impairment losses on current
and non-current available for sale financial assets, made neces-
sary by the economic climate at the balance sheet date. Other
financial expenses amounted to 24 million euros, up from
21 million euros in 2007.
The Group’s effective tax rate was 28% in 2008, compared to
27% in 2007, thus equivalent to its level in 2006. The 1 point
decrease in 2007 was primarily attributable to the use or capi-
talization of tax loss carryforwards and the effect of certain
income tax rate reductions in Europe on the deferred tax
amounts recognized in the balance sheet.
Income from investments in associates remained stable in 2008
at 7 million euros.
Profit attributable to minority interests was 292 million euros
as of December 31, 2008, compared to 306 million euros the
previous year. This total mainly includes profit attributable to
minority interests in Moët Hennessy and DFS.
The Group’s share of net profit was 2,026 million euros, stable
compared to 2007. As in 2007, it represented 12% of revenue.
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