Omnidirectional Interpretation Of Hermes Group 2015 Annual Report

French Classics

Brand Herm s

It is the largest single in the world.

Luxury companies are now fully interpreting their full financial results in 2015.

As can be seen from the chart below, the annual sales growth rate of Hermes is quite stable during the period of 2003~2009, and fluctuated between 6% and 9%, and there was no obvious decline during the financial crisis.

However, in the 2010~2012 three years, Hermes has ushered in "explosive growth", the annual sales growth rate was 25%, 18%, 23%; the three year operating profit also showed a jump growth, and the operating profit in 2012 reached 2.4 times in 2009.

Over the past 2013-2014 years, the growth rate of Hermes sales has slowed down by the political and economic factors of global instability. However, it has maintained a relatively stable growth and stabilized at around 10%.

In 2015, despite the instability of the international environment, terrorist attacks and slowing economic growth in mainland China, many factors caused a great blow to the entire luxury industry. However, sales of Hermes successfully withstood the pressure of 4 billion 840 million euros, an increase of 18% over the current exchange rate, which is 10% higher than that in the past two years.

General operating profit also increased by 19% (31.8% of sales) and net profit margin reached 20%.

In terms of the expansion of sales channels, Hermes extended the strategy of cautious contraction in the past few years. The total number of retail outlets dropped from 307 in 2014 to 1.2% in 311, which was unchanged from 2014.

(Hermes sales outlets: Concessionnaires - franchising; Branches - direct camp)

The sales of Hermes's most famous leather products increased by 13% over the same period last year. It is the fastest growing sector in all categories; its share is 47% higher than that in 2014 by 2 percentage points.

The main reason for this growth is the increase in capacity, including two new factories opened in Is re and Charente in France, and the new studio of H ricourt.

The growth rate of garments and other accessories products is in the middle, up 7.8% over the same period last year, a slight decrease compared with the same period last year, accounting for 23%, unchanged from last year.

Thanks to the terrorist attacks and the slowdown in China's economic growth, sales of famous silk scarves and other textile products fell 1%, accounting for 11%, a slight decrease compared to the 12% share of last year.

Perfume accounted for 5% and the growth rate was 3%.

Watches accounted for 3%, sales fell 0.2% year-on-year.

The difficult environment of major markets has had a great impact on watch sales in wholesale channels, especially in Asian markets outside Japan.

The "OTHER HERM S M M TIER" - including jewelry and household product lines, accounts for 7%, an increase of 9% over the same period, of which gold jewelry sales are strong, which has greatly promoted the overall growth.

John Lobb (John Loeb) leather shoes brand;

The textile and leather processing company, which is mainly based on internal supply.

The "Herm s Horizon" - Private custom service, including custom made leather goods, clothing, furniture, and aircraft and automotive interior trim.

The "Petit H" - the workshop of Ms. Pascale Mussard responsible for the integration of Hermes traditional crafts and artists' creativity.

"Up and down" - the Chinese concept brand, headed by artist Jiang Qionger.

The top three single country markets: France, the United States and Japan are 14%, 18% and 12% respectively.

Due to outstanding performance in the first nine months of 2015, sales in Japan increased by 18% over the same period last year.

The weight of "other parts of Asia", including Mainland China and Hong Kong, Macao and Taiwan, remained basically unchanged: from 34% in 2014 to 35%, the total sales increased by 5% over the same period last year, a marked decline compared with the same period last year. The growth rate of 13% was significantly lower than that of Japan.

The main reason for the slowdown is that despite the growth in sales in mainland China, Hong Kong and Macao are very weak due to well-known factors.

Including Japan, sales in Asia as a whole reached 53%, more than half.

Sales in the United States increased by 7% over the same period last year. Hermes opened a new store in Miami at the end of 2015, and renovated the stores in Houston and Dallas.

The refurbishment of stores in London and Moscow has proved to be significant, while sales in Europe other than France increased by 9% over the same period last year.

The terrorist attacks at the end of the year had a great impact on French sales, but the overall performance remained good and sales increased by 6%.

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The new stores opened in Shanghai, Beijing and Chengdu at the end of 2014 have a great boost to the overall sales of the mainland of China.

Among them, the "Maison Herm s" opened in Shanghai is the fifth "Hermes house" in Paris, New York, Tokyo and Seoul. It has held many exhibitions in the past year.

Despite the harsh environment, direct outlets in Hongkong and Macao still perform well.

Hermes will take a steady development strategy in mainland China. First, it will set up stores in the first tier cities.

A rough guess on the scale of business in mainland China and Hongkong:

Since there is no single listing in the annual report, we can only speculate briefly from the following data provided in the "currency risk" report:

Chinese Mainland:

At the end of 2014, the net cash flow of RMB in 2015 was 199 million euros. According to the global level, it can be roughly assumed that China's net cash flow is approximately equal to the operating profit. According to the average 31.8% operating profit of Hermes clothing and leather goods, the sales revenue of mainland China in 2015 was about 630 million euros.

At the end of 2015, the net cash flow of RMB in 2016 was 182 million euros, and the corresponding sales revenue of mainland China in 2016 was about 570 million euros.

Hongkong:

At the end of 2014, the net cash flow of Hong Kong dollar in 2015 was 215 million euros, which was roughly the same as operating profit. According to the average 31.8% operating profit of Hermes clothing and leather goods, the sales revenue of Hongkong in 2014 was about 680 million euros.

At the end of 2015, the net cash flow of Hong Kong dollar in 2016 was 191 million 600 thousand euros, corresponding to the sales revenue of Hongkong in 2015, which was about 600 million euros.

According to the above rough projections, mainland China and Hongkong accounted for 13% and 14% of the total sales of Hermes in 2015 respectively.

* what needs to be said is:

Net cash flow is not equal to operating profit due to changes in working capital / investment / debt.

Due to factors such as operating cost / pricing, there will also be regional differences in operating margin.

According to a research report, the operating profit margin of luxury brands in mainland China is usually 3 percentage points higher than the global average due to factors such as rent concessions.

Shareholder structure:

At present, the specific shares of Hermes are allocated as follows:

The first largest shareholder: H51 SAS was a takeover attempt against French LVMH group at the end of 2011, and a holding company composed of members of the Hermes family, which locked the original Hermes share (corresponding vote 62.7%) in 52.6% of the three largest families, Dumas, Puech and Guerrand, and had the priority to purchase other 12.6% members of the family members (6.5% of H2 SAS members and 6.1% of other family members).

Second largest shareholder: Arnault family group (owner of LVMH), and 8.5% of Hermes shares as of the end of 2015.

(Note: in December 17, 2014, under the pressure of the French securities regulatory authorities, LVMH group redistributed its Hermes shares to its shareholders in secret or publicly collected shares over the past few years, up to 23.2%. Since then, the shareholding ratio of Groupe Arnault of LVMH group CEO Bernard Arnault has been reduced to 8.5% of Herm s s company.

The 5.8% shares of M.Nicolas Puech, a member of the Hermes family, are still away from family control. In 2010, he sold the Hermes stock worth 8 million 800 thousand euros to the designated intermediary bank of Bernard Arnault to help LVMH complete some of the "stock swaps" pactions.

At present, the proportion of Hermes shares in circulation has risen to around 19.4%.

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Staff structure:

By the end of 2015, the total number of employees in Hermes was 12244, of which 7461 were in France, accounting for 61% of the total number.

Over the past year, nearly 500 jobs have been added to Hermes, of which about 400 are in France, mainly in the sales and production sectors.

Hermes has a total of 49 production bases, 38 of which are located in France.

In fiscal year 2015, Hermes increased the capacity of two production facilities in Is re and Charente and opened a new workshop in H ricourt.

Stock price trend:

Since the listing of Hermes shares in 1993, stock prices have been rising steadily, but the share price has not changed since the five years from 2000 to 2005. The share price has doubled in the five years from 2005 to 2010, and the share price has accelerated by nearly two times in the four years from 2010 to 2014, which coincided with the "explosive growth" period mentioned earlier, largely thanks to the rise of the Chinese luxury market in this period.

In the 2015 fiscal year, Hermes's share price rose rapidly due to the strong performance in the first half of the year, but the stock price also dropped in the second half of the year due to the deterioration of the overall economic environment.