Louis Vuitton 2007 Annual Report Download - page 75

2007 LVMH
73
tage of consolidated revenue amounted to nearly 22%, 1 point
higher than its level a year earlier. As the level of general and
administrative expenses remained stable, this 1 point increase
reflects the improvement in the margin on revenue mentio-
ned above. It also results from the profitability gains posted by
all business groups, and in particular Watches and Jewelry
whose margin rose 6 points.
Exchange rate fluctuations had a negative net impact on the
Group’s profit from recurring operations of 255 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 20% compa-
red to 2006.
Profit from recurring operations for Wines and Spirits was
1,058 million euros, up 10% compared to the previous year.
This performance reflects sales volume growth, product mix
improvements and higher selling prices consistent with the
premium positioning of the Group’s products in addition to
supply constraints, notably affecting the champagne segment.
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 expenditure focused on strate-
gic markets. Operating margin as a percentage of revenue for
this business group increased by 0.7 point to 32.8%.
Fashion and Leather Goods posted profit from recurring opera-
tions of 1,829 million euros, up 12% compared to 2006.
Despite the strongly unfavorable effect of exchange rate fluc-
tuations, Louis Vuitton once again performed remarkably well.
Fendi continued to show profitable growth. The other brands
in a development or revitalization phase demonstrated their
strong potential and significantly enhanced their profitability.
Operating margin as a percentage of revenue for this business
group increased by 1.2 point to 32.5%.
Profit from recurring operations for Perfumes and Cosmetics
was 256 million euros, an increase of 15% compared to 2006.
Despite a higher level of advertising and promotional expen-
diture, and costs related to the new foray into the world of
perfume by Fendi and Pucci, tight control over product costs
and other operating expenses once again improved profitabi-
lity. Operating margin as a percentage of revenue for this busi-
ness group thus increased by 0.6 point to 9.4%. With the
exception of the new perfumes produced by Fendi and Pucci,
all of the business group’s brands contributed to this impro-
vement.
After having quadrupled in 2006, profit from recurring opera-
tions for Watches and Jewelry increased by 76% in 2007 to
141 million euros. This performance was driven by TAG Heuer
and by the improvement in the results of the other brands,
notably Chaumet. As mentioned above, operating margin as
a percentage of revenue for this business group soared 6 points
to 16.9%.
Profit from recurring operations for Selective Retailing was
439 million euros, up 10% compared to 2006. Despite the
weakness of the yen, which had a significant impact on the
buying power of Japanese tourists for a significant portion of
2007, DFS was able to increase its revenue on a constant
currency basis and its operating margin as a percentage of
revenue remained high. Sephora continued to improve its
operating margin, despite expenses resulting from its rapid
expansion in Europe, the US, China and the Middle East,
thus confirming its highly profitable growth momentum. Le
Bon Marché has firmly positioned itself as the most exclusive
luxury and prestigious department store in Paris and conti-
nued to post strong profits. Operating margin as a percentage
of revenue for the Selective Retailing business group as a whole
rose 0.2 point to 10.5%.
The net result from recurring operations of Other Activities and
eliminations was a loss of 168 million euros, compared to a loss
of 125 million euros in 2006. In addition to headquarters
expenses, Other Activities also includes the Media division.
Other operating income and expenses amounted to a net
expense of 126 million euros compared to a net expense of
120 million euros in 2006. In 2007, they comprised a net
expense of 81 million euros relating to the net loss on the sale
of La Tribune group, the logistics company Kami (Fashion
and Leather Goods) and Omas writing instruments; the remai-
ning expense includes: 16 million euros for depreciation, amor-
tization or accelerated depreciation of fixed assets, 25 million
euros for commercial and industrial reorganization costs
and 4 million euros for various non-recurring expenses and
provisions.
The Group’s operating profit was 3,429 million euros, repre-
senting a 12% increase over 2006.
The net financial expense was 252 million euros, compared
to a net financial expense of 53 million euros for 2006.
The cost of net financial debt was 207 million euros as of
December 31, 2007, up from 173 million euros the previous
year. The interest expense on net debt included in this amount
increased by 33 million euros to 211 million euros, reflecting
two opposing trends: the decline in the amount of the net
financial debt and the adverse impact of the rise in interest
rates on the financial expense related to the variable-rate
portion of the debt. The balance corresponds to the change
in the market value of interest rate hedging instruments.
Other financial income and expenses amounted to a net
expense of 45 million euros, compared to a net amount of
other financial income of 120 million euros for 2006. The
financial cost of foreign exchange operations had a negative
impact of 97 million euros for 2007; it had a negative impact
of 45 million euros in 2006. Capital gains realized on the sale
of various available for sale financial assets and dividends
received from unconsolidated investments amounted to
73 million euros in 2007 compared to 185 million euros in
2006.
The Group’s effective tax rate was 27% as of December 31,
2007, down from 28% for 2006. This 1 point reduction is
primarily attributable to the use or capitalization of tax loss
carryforwards and the effect of income tax rate reductions in
several European countries (Italy, UK, etc.) on the deferred
tax amounts recognized in the balance sheet.
Income from investments in associates was 7 million euros as
of December 31, 2007; it was 8 million euros in 2006.
Profit attributable to minority interests was 306 million euros,
compared to 281 million euros for 2006. This mainly includes
minority interests in Moët Hennessy and DFS.
The Group’s share of net profit was 2,025 million euros, up 8%
compared to 2006 and up 41% compared to 2005. As was
the case in 2006, it represented 12% of revenue.