François-Henri Pinault, Chairman and Chief Executive Officer, commented: “Kering delivered a sound performance in the first half of 2014, with revenue up 4% and improved recurring operating margin on a comparable basis. The Luxury activities reported further sales growth, driven by a solid performance from directly operated stores, and their recurring operating income rose in the period. At the same time, the Sport & Lifestyle activities posted higher comparable sales – an encouraging trend as Puma’s ambitious relaunch is proceeding according to plan. Our overall performance during the period confirms the strength, appeal and strategic coherence of our brands. In an unsettled operating environment, we are pursuing the implementation of our strategy, all the while keeping tight control over costs and safeguarding our gross margins. This enables us to anticipate an improvement in our operating performance in the second half of the year.”
In a weaker economic climate, Kering’s revenue from continuing operations for the first half of 2014 amounted to EUR 4,747 million, up 1.5% on first-half 2013 as reported and 4% based on a comparable Group structure and exchange rates. The Group recorded revenue growth of 4.1% on a comparable basis in the first quarter of 2014 and 4% in the second quarter (1.2% and 1.8% respectively on a reported basis).
Exchange rate fluctuations had a negative EUR 196 million effect on revenue during the period.
The Luxury activities posted year-on-year revenue growth of 5.7% based on comparable data, reflecting solid performances by directly operated stores across all geographic areas. Revenue generated by the Sport & Lifestyle activities edged up 0.4% on a comparable basis in a persistently mixed operating environment and with ongoing difficult market conditions for Footwear in Western Europe.
The Group’s balance in terms of geographic presence and sales formats makes it more resilient to changes in the economic environment despite the volatility in the global economy over the last several quarters. Revenue generated outside the Eurozone climbed 4.9% in the first half of 2014 (based on comparable data) and accounted for 78% of the Group total, versus 79% in 2013 (on a reported basis). Growth in mature markets was sustained at 3.1% (based on comparable data), driven by Japan and North America. Emerging markets were up 5.6% on a comparable basis, and accounted for 38.1% of sales, including 26.2% generated in the Asia-Pacific region (excluding Japan).
In first-half 2014, Kering’s recurring operating income amounted to EUR 810 million, down 3.9% on the first half of 2013, but up 6.2% at comparable exchange rates. Recurring operating margin came in at 17.1% (versus 18.0% for the first six months of 2013 and 17.0% at comparable exchange rates).
At EUR 967 million, EBITDA was 1.7% lower than in first-half 2013 on a reported basis, but some 8% higher than in the first half of 2013 on a comparable exchange rate basis. The EBITDA margin stood at 20.4% in first-half 2014, down 0.6 points on a reported basis from the first half of 2013, but up 0.4 points at comparable exchange rates.
Net finance costs totaled EUR 105 million in the first half of 2014 and the cost of net debt decreased to just under EUR 87 million.
Net income, Group share came to EUR 185 million for the first six months of 2014, up 7% on the first-half 2013 figure of EUR 173 million. The Group reported a EUR 348 million net loss under discontinued operations during the period, of which EUR 300 million related to Redcats.
Net income, Group share from continuing operations came in at just under EUR 533 million versus nearly EUR 559 million in first-half 2013. Adjusted for non-recurring items net of tax, net income, Group share from continuing operations totalled EUR 555 million compared with EUR 582 million in first-half 2013.
Earnings per share amounted to EUR 1.47 in the first six months of 2014 (EUR 1.37 in first-half 2013). Earnings per share from continuing operations stood at EUR 4.23 (EUR 4.44 in first-half 2013). Excluding non-recurring items, earnings per share from continuing operations totaled EUR 4.41, versus EUR 4.63 in the six months ended June 30, 2013.
Highlights of first-half 2014
Kering reorganises its Luxury activities to accelerate the growth of its brands.
In order to foster the continuing expansion of its Luxury business resulting from both its organic growth and the acquisitions carried out in recent years, in April 2014, Kering announced the creation of two new divisions – “Luxury – Couture & Leather Goods” and “Luxury – Watches & Jewelry” – both reporting to François-Henri Pinault, the Group’s Chairman and Chief Executive Officer.
Marco Bizzarri has been appointed as CEO of “Luxury – Couture & Leather Goods” and Albert Bensoussan as CEO of “Luxury – Watches & Jewellery”. Gucci, whose Chairman and CEO is Patrizio di Marco, remains under the direct supervision of François-Henri Pinault.
Sale of La Redoute
On June 3, 2014, Kering announced that it had closed the sale of La Redoute and Relais Colis to Nathalie Balla, Chairman and CEO of La Redoute, and Eric Courteille, Chief Administrative Officer of Redcats.
In the first six months of 2014, Kering redeemed the remaining EUR 550.1 million of the bond that was issued in 2009 and matured in April 2014. This bond was originally issued in two tranches representing an aggregate EUR 800 million, of which EUR 249.9 million was redeemed in 2011. Also during the period, the Group redeemed the EUR 150 million bond issued in June 2009.
On July 30, 2014, Kering and Ulysse Nardin announced that they had signed an agreement under which Kering will acquire the haute horlogerie brand’s entire share capital. The brand will become part of Kering’s “Luxury – Watches & Jewelry” division, which is headed by Albert Bensoussan. The transaction is subject to the approval of the competition authorities and is expected to be finalised during the second half of 2014.
Kering will continue to implement its action plans aimed at stepping up the organic growth and operating cash flow generation of each of the brands of its Luxury activities. The results of these plans already began to feed through in the first six months of 2014 despite the difficult market context, and for Gucci in particular, they should lead to a return to positive revenue trends in the second half of the year.
Going forward, Kering will pursue its strategy of rigorously managing and allocating its resources which should enable the Group to improve its operating performance in the second half of 2014 in spite of the still unsettled business environment.
At its meeting on July 30, 2014, the Board of Directors, under the chairmanship of François-Henri Pinault, approved the condensed consolidated financial statements for the first half of 2014 that were subject to a limited review.