PARIS — That’s some luxury nest egg.
This story first appeared in the February 16, 2012 issue of WWD. Subscribe Today.
As of Dec. 31, LVMH Moët Hennessy Louis Vuitton’s stake in Hermès International was worth 5.4 billion euros, or $6.99 billion, based on exchange rates and share prices for that day.
What’s more, the market value of the investment swelled by 1.7 billion euros last year, or $2.37 billion, based on average exchange rates for the year.
LVMH spent 447 million euros, or $622.4 million, in 2011 to increase its Hermès stake to 22.4 percent from 20.2 percent. The world’s biggest luxury group has repeatedly characterized itself as a “friendly” shareholder with no plans for a full takeover — even as the Hermès family created a nonlisted holding company grouping more than 50 percent of its share capital in a bid to ward off that possibility.
Those figures are among interesting tidbits to be found in LVMH’s financial documents, which were released along with its full-year results earlier this month.
The 64-page report also details the costs involved in one of the largest acquisitions in LVMH’s history — the Roman jeweler Bulgari — along with smaller operations.
For example, LVMH said it acquired a 51 percent stake in Singapore crocodile tannery Heng Long International for 47 million euros, or $65.4 million, at average exchange rates for 2011.
For its 100 percent stake in ArteCad SA, a Swiss maker of watch dials, LVMH paid 60 million Swiss francs, or $67.9 million, 14 million euros, or $15.8 million, of which is to be paid in 2015.
The latter two deals signaled that LVMH chairman and chief executive officer Bernard Arnault is eager to secure suppliers of the rare and vital ingredients that underpin robust global demand for luxury goods.
Last year, LVMH also increased its stake in Ile de Beauté, the Russian perfumery chain, to 65 percent from 45 percent, for an investment amount of 40 million euros, or $55.7 million. The financial documents note that Ile de Beauté holds an option to sell the remaining 35 percent to LVMH “in tranches from 2013 to 2016.”
Last year, tangible and intangible fixed assets at LVMH increased by 5.6 billion euros, or $7.80 billion. “This relates primarily to Bulgari, whose brand was provisionally valued at 2.1 billion euros, with goodwill amounting to 1.5 billion euros,” the document says.
Last March, LVMH purchased 50.4 percent of Bulgari from the company’s largest shareholder, the Bulgari family, in a cash-and-share swap valued at more than $6 billion. That deal made the Bulgari family the second-largest family shareholder in the French firm, with a 3.3 percent stake behind Arnault.
LVMH subsequently launched a tender offer for minority shareholders and said it had received 31.3 percent of Bulgari’s shares from minority shareholders by the deadline last September, bringing it to a 98.1 percent stake in Bulgari. The document notes LVMH subsequently launched a squeeze-out procedure giving it a 100 percent stake as of Dec. 31.
The acquisition of Bulgari represented a cash outflow of 2.03 billion euros, or $2.82 billion, the document states. Some 705 million euros ($981.6 million) of that represents acquisitions of shares on the market in the first half, with 1.45 billion euros ($2.02 billion) corresponding to acquisitions of shares in the second half via the tender offer.
LVMH consolidated all of Bulgari’s activities in its watches and jewelry business group, including Bulgari’s perfumes and cosmetics operations, which accounted for consolidated revenue of 142 million euros, or $197.7 million.
The financial document reveals how Arnault invested heavily in areas other than acquisitions.
“Operating investments” in his galaxy of luxury brands — spanning leather goods, fashion, liquor, retail chains and beauty products — resulted in a net cash outflow of 1.73 billion euros, or $2.41 billion, compared to 976 million euros, or $1.36 billion, in 2010.
“They consisted mainly of real estate investments for commercial use or rental purposes, investments by Louis Vuitton, DFS and Sephora in their retail networks, and investments by the group’s Champagne houses and Parfums Christian Dior in their production facilities,” the report notes.
Last year, Vuitton inaugurated its first Maison flagship store in Southeast Asia on a man-made island at the Marina Bay complex in Singapore. The brand also unveiled a vastly expanded location on Via Montenapoleone in Milan, with an opening bash attended by Vuitton’s artistic director Marc Jacobs.
Sephora, meanwhile, continued to chart expansion in France, the U.S., the Middle East and Southeast Asia, with two new stores in Kuala Lumpur, Malaysia. Sephora also opened two units in Mexico.
LVMH remains a big spender on advertising and promotions. Last year, these expenses rose by 19.6 percent to total 2.71 billion euros, or $3.77 billion. This line item includes the cost of producing advertising, purchasing media space, manufacturing samples and publishing catalogues — in short, “the cost of all activities designed to promote the group’s brands and products.” This includes “personnel costs dedicated to this function,” the document notes.
In 2011, revenues at LVMH advanced 16 percent to 23.66 billion euros, or $32.94 billion, as reported.