Life's little luxuries prove profitable for LVMH

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LVMH, the Champagne and Cognac producer, posted a 29 per cent
increase in operating profit last year as consumers continued to
spend despite the recession.

Even at a time of global economic downturn, consumers it seems have cash to spend on life's little luxuries. The latest figures from French luxury goods group LVMH show that operating profits surged by 29 per cent in 2002 on the back of just a modest increase in sales, and the company is predicting further improvements in 2003.

Sales for the year improved from €12.2 billion to €12.7 billion, while operating profits reached just over €2 billion during the year. Furthermore, the company's performance improved as the year progressed, with growth of 19 per cent in the first half expanding to 37 per cent in the second six months of the year.

But he best improvement came from net profits, which surged from €334 million in 2001 to €818 million in 2002, largely due to a reduction in financial costs resulting from the lower level of debt.

The good performance was driven by all of the company's main brands, including Moët & Chandon Champagne and Hennessy Cognac as well as non-drinks brands such as Louis Vuitton and Parfums Christian Dior. Only the group's watches and jewellery operations failed to improve during the year.

Focusing specifically on the wines & spirits arm, LVMH said that operating profits had improved by 16 per cent during the year as a result of strong volume growth from the Champagne brands, notably Moët & Chandon, Veuve Clicquot and Krug. Like most Champagne houses, LVMH benefited in 2002 from the overall recovery in the market after nearly three years of depressed sales related to massive over-estimation of the millennium effect. Operating margins improved as a result of focusing on high-priced prestigious cuvees, the company said.

On the Cognac side of the business, volumes grew by a more modest 6 per cent, while operating income was 5 per cent higher at €328 million. The entire Hennessy range made progress compared to 2001, reinforcing its worldwide market leadership in Cognac, the company claimed. Steady growth for Hennessy in the United States and in Asia, China in particular, more than compensated for the lower sales in Japan, it added.

LVMH said that sales for the first two months of 2003 had confirmed that the strong growth seen in the latter half of 2002 had continued, but added that there was now a greater negative exchange rate impact. Good organic growth of 7 per cent had already prompted the company to revise its operating profit expectations for the year, and the French group said it expected to see a "tangible increase"​ in figures this year.

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