2011 Half-Year Results

Very satisfactory performance and continuation of the Group’s strategic transformation process

• Recurring net income, Group share*, up 24%
• Recurring operating income up 15%
• Revenue up 7% to €7.2 billion

PPR made strides in implementing its strategy in the first half of 2011. The PPR and Gucci Group teams were combined in order to more effectively bolster the growth of the brands through a more integrated organisational structure and stronger support functions. In parallel, the brands reaped the benefits of the action plans put in place to energise their sales performance, in particular Gucci, which grows by 23 % on the second quarter. Additionally, the Group launched PPR HOME – a new, ambitious sustainable development initiative. Finally, the Group strengthened its two strategic pillars, Sport & Lifestyle and Luxury Goods, with the acquisition of Volcom and the purchase of a controlling interest in Sowind.

François-Henri Pinault, Chairman and CEO, noted: “The first half of 2011 marks an important period in PPR's development. Our brands and banners continued to successfully implement their action plans and I would like to thank our teams for the hard work they have put in. Overall, our revenue climbed 7%, with growth picking up pace in the second quarter. We posted a robust increase in recurring operating income which drove up recurring operating margin into double digits. Revenue growth for Luxury Goods and Sport & Lifestyle brands taken as a whole topped 18%, fuelling an outstanding performance in terms of their recurring operating margin. I am confident that in the second half of the year we will be able to deliver sustained revenue growth and achieve a higher full-year financial performance than in 2010.”

Operating performance

The revenue from continuing operations for the first half of 2011 amounted to €7,217 million, up 7.3% on the first half of 2010 as reported and 7.4% on a comparable basis. Thanks to the powerful image and robust momentum of its Luxury Goods and Sport & Lifestyle brands, PPR continued to realise its strong growth potential in the second quarter, with revenue accelerating 5.4% during the period as reported and 8.4% on a comparable basis. Excluding Retail activities, consolidated revenue climbed 17.4% in first-half 2011 based on comparable data.

Against a backdrop of global economic slowdown and considerable uncertainty, emerging countries continued to grow at a steady pace and PPR stepped up its expansion in these markets. Revenue generated by the Group's Luxury Goods and Sport & Lifestyle brands advanced 26.5% on a comparable basis in these markets, which accounted for 37.2% of the brands' total revenue in first-half 2011. The Asia-Pacific region (excluding Japan) was one of the main contributors to these brands’ sales in the first six months of 2011, representing 24.7% of the total against 22.2% in the first half of 2010 (based on comparable data).

For the Group as a whole, in the first half of 2011, revenue generated in emerging countries advanced 24.4% as reported and 23.8% on a comparable basis, whereas revenue in mature markets rose 3.5% and 3.8%, respectively.

The Group is becoming less reliant on the European economy and the Group's variety of sales formats and geographic presence makes it less sensitive to regional economic changes in general. Revenue generated outside the eurozone moved up 12.7% in the first half of 2011 based on comparable data, and represented 52.3% of the Group total, versus 49.8% in first-half 2010.

The proportion of revenue generated by international operations continued to grow in first-half 2011, representing 69.8% of the Group total, versus 67.5% in the corresponding period of 2010 (on a comparable basis).

Internet sales continued to grow during the first six months of 2011, with online revenue coming in at €1,176 million, up 10.9% year-on-year as reported and 12.4% based on comparable data. In the second quarter, PPR’s online sales rose by 11.2% on a comparable basis. E-commerce accounted for 16.3% of total Group revenue for the first six months of 2011, versus 15.6% in first-half 2010 on a comparable basis.

Gross margin for the period amounted to €3,833 million, up €374 million or 10.8% on first-half 2010 as reported and 9.5% based on a comparable basis, while operating expenses increased by 10% and by 9%, respectively.
In first-half 2011, PPR’s recurring operating income came to just over €749 million, up 14.5% on the equivalent period of 2010. At comparable exchange rates, recurring operating income climbed 11.3% in first-half 2011 and operating margin improved by 40 basis points.

EBITDA for first-half 2011 advanced 13.3% year-on-year as reported and 10.8% on a comparable basis, coming in just below €919 million. This drove a significant improvement in the EBITDA margin, which rose to 12.7% from 12.1%.

Financial performance
In first-half 2011, net finance costs amounted to €109 million and the Group's cost of net debt came in at just under €111 million, 1.7% lower than in the same period of 2010. Average outstanding net debt was scaled back by 18.3% compared with first-half 2010.

The €11 million negative swing in other financial income and expenses was mainly attributable to accounting adjustments recorded in accordance with IAS 39 and IAS 19.

Net income, Group share advanced 16.1% to €450 million in first-half 2011, from €388 million in the first six months of 2010. Adjusted for the post-tax impact of non-recurring items, attributable net income from continuing operations climbed 23.8%, coming in at close to €466 million versus €376 million one year earlier.

Earnings per share stood at €3.56 in the first six months of 2011, up 16.3% on the first-half 2010 figure of €3.06. Excluding non-recurring items, earnings per share from continuing operations amounted to €3.69, 24.2% higher than the €2.97 reported for the first half of 2010.

Financial position

In first-half 2011, free cash flow from operations totalled €125 million compared with €301 million in the first six months of 2010.

The Group’s net debt is traditionally higher at the end of the first half than at December 31 due to the seasonal nature of its business and the dividend payout date. PPR's net debt stood at €3,710 million as of June 30, 2011.

The Group has a very sound financial structure, as reflected in Standard & Poor’s "BBB-" rating, which was affirmed in May 2011 with the outlook upgraded from “stable” to “positive”.

Highlights

• Acquisition of Volcom
On May 11, 2011, PPR launched a friendly cash tender offer for Volcom, Inc. Following the completion of PPR's tender offer and a short-form merger, PPR owns all of Volcom, Inc.'s ordinary shares. Volcom is an iconic apparel and accessories brand with a heritage in skateboarding, snowboarding and surfing.

• Launch of PPR HOME
On March 21, 2011, PPR announced the launch of PPR HOME, an ambitious and multi-tiered new sustainability initiative. PPR HOME will bring expertise, support and creativity to all PPR brands. An annual €10 million budget, in addition to the PPR brands' own initiatives, will be allocated to PPR HOME and this will be indexed to changes in the dividend paid by PPR. The creation of PPR HOME demonstrates the PPR Group's commitment to limiting its impact on the environment by taking proactive steps to implement best business practices. PPR HOME will not only focus on working towards mitigating the Group's social and environmental impacts, it will also develop opportunities for the benefit of people and their environment in its business areas. PPR HOME promotes a new business paradigm whereby the attainment of sustainability is driven by creativity and innovation, and vice versa, to build businesses that deliver long-term financial, social and environmental returns.

• Enhanced financial strength
On January 14, 2011, PPR signed a €2.5 billion syndicated credit facility maturing in January 2016 to refinance its existing loans and to extend the maturity of its debt.
In April 2011, PPR successfully completed the partial redemption of its €800 million 8.625% bond issue expiring on April 3, 2014. The redemption was for a total amount of €250 million.

• Reorganisation and strengthening of support functions
On February 17, 2011, PRR announced a reorganisation of Luxury Goods. The division now reports directly to François-Henri Pinault, Chairman and CEO of PPR, and PPR and Gucci Group teams have been combined to better support brand growth. At the same time, cross-functional support functions have been strengthened, notably through the creation of a Group E-business Development Department. This reorganisation marks a new phase in the Group's strategy to further integrate its structure.

Subsequent events
On July 4, 2011, PPR announced it had acquired a controlling interest in Sowind Group through a 50.1% capital increase. Sowind Group, which is one of the last independent Swiss watchmaking manufacturers, has a presence in 60 countries, notably with the Girard-Perregaux and JeanRichard brands.

Outlook
Despite the continuing unsettled economic climate, PPR is confident that it will be able to deliver sustained revenue growth in the second half of 2011 and achieve a higher full-year financial performance than in 2010.

PRESENTATION
A live videocast (Real Player and Windows Media Player formats) of the presentation of the Half-year Results and the presentation slides will be available at 8:30 a.m. (Paris time) at www.ppr.com. A replay will be available later in the day.

You will also be able to listen to the conference by dialing:

French
Live conference +33 1 70 77 09 27
Replay dial-in details +33 1 72 00 15 01
Replay passcode: 273703#  

English
Live conference +44 203 367 94 53
Replay dial-in details +44 203 367 94 60
Replay passcode: 273708# 

The replay will be available until September 30, 2011.

CONTACTS
Press:
Charlotte Judet
+33 1 45 64 65 06
cjudet@ppr.com

Paul Michon
+33 1 45 64 63 48
pmichon@ppr.com 

Analysts/Investors:
Alexandre de Brettes
+33 1 45 64 61 49
adebrettes@ppr.com

Emmanuelle Marque
+33 1 45 64 63 28
emarque@ppr.com

Download the press release (.pdf 116.68 KB)