Hermès International Société

Mesdames et messieurs.

Ladies and gentlemen, welcome to the 2024 first half financial results. I'm now going to hand over the floor to Mr. Axel Dumas, Executive Chairman of Hermès, and Mr. Eric Huelgret, Executive VP for Finance. Gentlemen, over to you. Good evening, everyone. Thank you very much for joining us for the publication of our 2024 first half results, which take place just before the opening ceremony of the Olympics. I'm very happy today to share the robust H1 results with you against a more complex global economic and political backdrop. In H1, we have continued our strategic investment in production capacity in our network and also secured our supply chain. We've beefed up our teams. We currently have 23,200 people working for Hermès, 62% of which in France. Hermès carried on with its D&I initiatives and currently we have 7.12% of disabled employees above the legal requirements. These H1 results capture the loyalty of our customers all around the world, as well as the strength of our artisanal model and vertical integration and a strong local anchoring, unique know-how, boundless creativity, and exceptional materials. Our model relies on the commitment and enthusiasm of our teams, which I would like to thank today. Now, let's take a look at the highlights. H1 was marked by the creations of Pierre-Alexis Dumas' team across our 16 categories. For example, in small leather goods, on top of the classics, new products have come along, like the De La Caballeria Elan item, new travel items, a new RMS cargo suitcase. The men and women ready to wear were very well received all around the world with the show that took place for the women's ready to wear in New York. And the furniture was also very successful at the Salone del Mobile show in Milan. At the Watch and Wonders Geneva show in April, Hermès unveiled the Hermès 4, a dynamic sporty piece with its proprietary movement. And then we have the fine jewelry collection, the 8th, Les Fonts de la Couleur, designed by Pierre Hardy and revealed at the We carry on with our production capacity investments across all our divisions. We have four small lever goods workshop projects for the next four years. For example, that of Rion in the Puy-de-Dôme, which will open in September after renovating and repurposing the listed buildings. In this first semester, we also started the construction of the Ile des Pagnacs project, uh level workshop and lupin at the end of may they will be opening respectively in 25 and 26. we've ramped up our production activity in the other divisions with for example the hermes manufacturer the metal units they make metal and hardware items but we've also increased investments in perfumes and tableware we continue to work at securing our supply chain with our long-standing partners to support its growth the group pursues its investment in real estate, logistics, and IT. Moving on now to our distribution network, we have extended our network with new stores under our multi-local approach to bring our collections directly to our clients. For example, at Princeton in the US, in New Jersey, and in Asia with a new opening in Wuchi in China and two openings in Japan. And in France we also have Nantes and Beijing and Hong Kong Lee Garden which have been renovated and extended. Hermès is also very creative in its communication during the first half of 2024. Hermès in the making event allowed the general public to see firsthand our artisans at work and see their exceptional know-how in both Mexico and Korea and that during more than 44,000 visitors. We're also very glad to see our horse and riding enthusiasts at the 14th edition of the Saut Hermès at the Grand Palais Félaire in Paris. Now, let's take a look at our responsible strategy going forward. During the first half of 2024, the group remained true to its commitment as a responsible employer, with an increased headcount by 1,200 people for the H1, including 600 in France. In keeping with our model, the group paid out In February, a €4,000 bonus to all employees for 2023 so as to share the fruits of growth with those who make it happen every day. In July, the employees received the second and final round of 12 shares under the Free Action Plan of 2019. And I remind you that a new employee plan was announced last year. Hermès continues to act responsibly when it comes to climate change, to protecting biodiversity and natural resources. Our real estate charter is particularly stringent and is applied from the design stage and the construction stage of our new sites, which allow us to reduce significantly our CO2 emissions. Our production sites are also places of training. The École Hermès des Savoir-Faire, for example, was rolled out in Franche-Comté, and this place trains saddle makers, lever good artisans, and cutters. We remain committed to our involvement in the local area where we operate with a special focus on our environmental impact. We also abide by our science-based target for nature approach. We're currently at the third step of the project where we set science-based objectives in areas such as biodiversity, freshwater, forestry and soils. Hermès is one of the leading companies undertaking this initiative. In conclusion, Hermès' progress in non-financial ratings continues to increase this year and captures our commitments by way of example, our Moody ESG rating, which is up. And we also received the Compris, the top prize of the Transparency Awards, to reward the quality and transparency of our regulated information. Let's now take a look at our business. At the end of June 2024, Hermès posted a solid performance. At the end of June, the turnover stood at 7.5 billion euros, up 15% at constant exchange rate. driven by our loyal and new customer base. All regions recorded double-digit growth and the division recorded good progress in a more complex environment. In Q2, sales reached 3.7 billion euros, up 13% at constant exchange rate. In this more complex environment, all the regions continued with their incredible momentum. Now, let's take a look at a geographical breakdown. In the first half of 2024, all the regions continued recorded double-digit growth. Sales in France were up 15%, and Europe bar France, plus 18%, were particularly robust, thanks to the loyalty of our local customers and the dynamic tourism. Japan, plus 22%, driven by its loyal customer base, and Asia, excluding Japan, is growing at plus 10%. And there's growth in all the countries of the region despite the high comparison point in Q2 last year. America, plus 13%, with a strong progress in the US. And for the other line, that covers the activities in retail sales in Dubai and Abu Dhabi, who were previously labelled as wholesale. And the geographical breakdown remains stable year on year. Now let's take a look at the division breakdown.

End of June, all sectors are growing steadily. Despite increasing challenges, leather goods and saddlery enjoyed remarkable growth, driven by increased production capacities and sustained demand. Ready-to-wear and accessories plus 15% held its positive course with the success of its ready-to-wear collections and footwear. Silk and textiles plus 1% have sustained growth thanks to the diversity of creations, materials and sizes, formats. The perfume and beauty sector is on the rise, supported by latest launches such as Oud Alesan and H24 Herbevive. The watches sector has remained stable and finally the other MS products including jewellery and homeware plus 19% continue to grow strong. Strong growth in leather goods, unready to wear and accessories explains a change in distribution of sales per sector for H124. I give now the floor to Éric Duhal-Gouet, Executive VP Finance, for the financial results. Thank you, Axel. Welcome, and I have the pleasure of presenting our solid H1 performance. Our revenue exceeded €7.5 billion, despite the negative impact to €100 million. of exchange rates mainly due to the depreciation of Japanese yen and the Chinese yuan vis-à-vis the euro. The gross margin rate is 70.6%. It was 72.2% in H1-23. The 2023 H1 rate was exceptionally high due to the combined positive impact of currency hedges, leveraged effect of production fixed costs, and excellent sell-through. The H1 2024 gross margin rate is negatively impacted, and we forecast this, by currency hedges, and this will accelerate in H2 2024. Indeed, the impact was offset during H1 by the sale of products bought in 2023 by our distribution subsidiaries at favorable rates. We spent €272 million on communications, a 5% increase year on year, and full year we expect communication expenses to amount to €650 million with more spending plans for H2. Other administrative costs and costs of sales have grown slightly faster than revenue and stand at €1.4 billion. The group has reinforced its sales teams and support functions and is now accelerating its IT projects. Those costs are mainly accounted for as expenses as per the current accounting standards. The other products and expenses, 467 million euros, are mainly amortization of tangible and intangible assets and amortization of IP. The year-on-year increase is primarily linked to the cost of the free shares granted to all employees in June 2023. The recurring operating income for H1 2024 therefore stands at €3.1 billion plus 7% compared to H1 2023. The recurring operational profitability amounts to 42% of sales. That's close to the level in 2022. Our net financial income stands at €141 million. That includes the cost of currency, hedges and interest on lease debt, as well as financial proceeds. The €70 million increase compared to H1 2023 arises mainly from improved net cash income, €220 million for H1 2024. Our H1 tax rate is 28%. That's the level expected for full year 2024. Net income from associates dropped from 43 million H1 2023 to 16 million H1 2024 due to the consolidation and full integration of our UAE activities. Net income group share is just short of 2.4 billion euros. That's a 6% increase compared to H1 2023. Our net profitability is nearing 32%, not far off our H1 2023 record level. The group continues going from strength to strength, revenue doubled and net income tripled between 2019 and 2023. Despite the COVID crisis in 2020, our average annual growth rate for revenue and net income for the past decade stand at 15 and 19% respectively. The group invested 319 million euros in H124 compared to 250 million last year. 133 million funded renovation work and expansion of our distribution network, mainly in China, the US and Europe, with the new store coming soon on New Bond Street in London. 91 million were invested in production capacities, with new leather workshops in Rium, Loupe and Lille-les-Béniac, as well as upstream capacities for silk, metal hardware and perfumes. 94 million euros go to digital, IEV and real estate investments to support the growth of our sectors. Operating investments will accelerate during H2, to reach a total amount of €1 billion compared to €860 million in 2023. Our operating cash flow grew 8% year on year, more or less at the same pace as the operating income, reaching €2.8 billion. The change in working capital requirement reflects €600 million of cash consumed similarly to H1 2023. This is mainly due to increased stocks. After operating investments and repayment of lease liabilities, our adjusted available cash flow stands at 1.8 billion euros. Financial investments include the payment of our majority stake in retail activities in the UAE and minority stakes to increase our vertical integration. Dividends were paid to the amount of €2.6 billion. Hermes International did not repurchase any shares apart from the liquidity contract operations. As a result, our restated net cash position stands at €10 billion on June 30, 2024. Our cash flow makes up more than 45% of our total assets. Our equity stands at €15 billion, representing 75% of our liabilities. At the end of H1 2024, the group has consolidated its sound financial structure, therefore bolstering its independence and providing strong assurances for its long-term strategy. Thank you for your attention, and I now give the floor back to Axel to talk about the future. Thank you, Eric. Let's now look at the Hermès outlook. Our future remains unchanged. 2024 is a year marked by economic and geopolitical challenges, but we are confidently forging ahead, and we're keeping up the momentum with the unfailing enthusiasm of our staff around the world. H2 remains uncertain, but Hermès will continue creating jobs and investing in all its divisions. We will inaugurate the Rium leather workshop, adding a second site to the Auvergne hub, and expand our stores in Atlanta, U.S., Shenzhen, China, and Lille, France. H2 will also see the launch early fall of a new woman's fragrance. Hermes is mindful of its footprint and we will remain committed to our climate goals and natural resource preservation goals. By way of conclusion, I'd like to wholeheartedly thank our teams and clients for their loyalty the world over. We're now available to answer your questions. Ladies and gentlemen, you may now ask your questions. Please dial star 1. Please, only two questions per person, and make sure that you've muted the webcast before talking. The first question comes from Aubin Edouard from Morgan Stanley. Good evening. Thank you for taking my questions. I have two questions about revenue growth. One first question about leather goods. There's been a strong growth for leather H1 is beyond your guidance, which was 15%. Is the annual guidance maintained at 15%? We also see an increased number of days of stock. I believe it's 250. And will there be an increase, therefore, for full-year stocks in leather goods? So in parallel to the growth of leather goods, there seems to be a slowing of the pace of growth of other sectors, such as watches, that for the first time in a long time has seen its growth dwindle. Could you maybe provide some explanations? Do you want to answer about leather goods? Well, to answer on leather goods, We confirm our guidance for full year at around 15%, 16%, with a price effect of around 8% and a capacity effect of around 6%. With the Chinese New Year, we saw accelerated growth during H1. The increase in stocks is not linked to leather goods. We have more stocks for other products from other divisions, and I'll let Axel comment on that and explain what happened for the other sectors. Thank you. Indeed, we wanted to replenish our stocks. This was a deliberate activity with low stocks. We can't cater as well to our customers. And so we have aspirational customers, but the number of aspirational customers has dropped. We have our legacy customers, of course. We see new customers come in also. But it's the high-volume activities that see their stocks remain high, so silk and textile and fashion accessories. As for watches... you have on the one hand side manufacturing movements, complications and other watches that have a broader market and we've seen a diverging performance and for the luxury well Jewelry is doing very well, whereas watches, not quite as much. And this is true for watches in all companies. But I'm confident that Hermes Cut will set the trend for watches, and we can hope for improved performance. Next question from Luca. Solka from Bernstein. Good evening. I had a question about consumption trends depending on countries. You talked about China and the fact that there are increasing sales in Japan. Could you explain a the more you have close contact with these customers, and so it would be interesting to have your input. Also, I was reading in La Tribune, the Swiss publication, that Mr. Puech... may have lost 6.2% of his shares. Apparently those shares may have been stolen. Maybe you could provide us with more information. I'm not quite sure about that information. I'll answer the corporate question before answering the family question. So you've mainly given the answer in your question indeed we have a very locally based customer and in Japan we have a very local customer base and not very many tourists buying Hermès in Japan and the Chinese tend to buy in China There are a lot of tourist sales in Europe, including in France. These are mainly customers from China, the Middle East, and to a certain extent, the U.S. So that gives you an idea of where our customers are from. As for Nicolas Preche, as you may know, since 2016, we no longer publish Nikola Puresh's shares in our partner share figures because we cannot control and have no oversight on those shares.