Kering: An Outstanding 2018 Performance

Consolidated revenue: €13,665.2 million
up 26.3% as
reported and 29.4% on a comparable basis

Remarkable increase in recurring operating income
up
46.6% to €3,943.8 million

Sharp rise in recurring operating
margin to 28.9%
Net income, Group share: €3,714.9 million, up 108.1%
Strong
free cash flow from operations: €2,955.2 million
Recommended
ordinary dividend of €10.50 per share

PARIS–(BUSINESS WIRE)–Regulatory News:

Kering (Paris:KER):

François-Henri Pinault, Chairman and Chief Executive Officer,
commented:
“2018 was an excellent year for Kering and its Houses.
Once again, we significantly outperformed our sector. In an environment
that was generally favorable but grew increasingly complex, Kering
generated 2.8 billion euros in incremental revenues and 1.3 billion
euros in additional EBIT compared to 2017. Our healthy, balanced and
profitable growth reflects skillful execution of our strategy, rigorous
financial discipline, and a shared culture emphasizing responsibility
and commitment. Having worked throughout the year to strengthen the
Group and its brands, we have the ambition and the means to sustain our
profitable growth momentum.”

Sustained, profitable growth throughout the year against a very high
base of comparison

  • Consolidated revenue up 29.4% on a comparable basis to €13,665.2
    million, driven by all regions

    • Gucci and Saint Laurent continue to deliver exceptional growth (up
      36.9% and 18.7% on a comparable basis, respectively)
    • Bottega Veneta down 3.4% on a comparable basis, pending the
      inaugural collections from the new Creative Director
    • Very strong momentum at Kering’s Other Houses (up 32.1% on a
      comparable basis), powered by Balenciaga and Alexander McQueen
  • Record-high profitability: recurring operating income doubled over the
    past two years; sharp rise in recurring operating margin at 28.9%

Key financial indicators

           
(in € millions) 2018   2017(1)   Change(2)
           
Revenue 13,665.2   10,815.9   +26.3%

Recurring operating income

3,943.8

2,690.7

+46.6%

As a % of revenue 28.9% 24.9% +4.0 pts
 
Net income, Group share 3,714.9 1,785.6 +108.1%
 
Recurring net income, Group share(3) 2,816.7   1,886.6   +49.3%

(1) Figures restated for PUMA, Stella McCartney,
Volcom and Christopher Kane (IFRS 5).

(2)
As reported.

(3) Recurring net income,
Group share: net income from continuing operations, Group share,
excluding non-recurring items.

Consolidated 2018 revenue amounted to €13,665.2 million, up 26.3%
as reported and 29.4% on a comparable basis. All regions reported very
strong growth, with comparable revenue up 37.8% in North America, 33.8%
in Asia-Pacific, 23.9% in Japan, and 23.7% in Western Europe.

Kering’s gross margin for 2018 totaled €10,198.2 million, up
28.8% on the previous year as reported.

Recurring operating income was up a record 46.6% year-on-year to
€3,943.8 million. Consolidated recurring operating margin
advanced 400 basis points year-on-year to 28.9%.

Consolidated EBITDA climbed 42.0% to €4,435.7 million in 2018,
while the EBITDA margin widened by 360 basis points as reported, to
32.5%.

Net income, Group share rose 108.1% to €3,714.9 million in 2018. Earnings
per share, Group share
stood at €29.49, up from €14.17 in 2017.

Net income, Group share notably comprises Net income from continuing
operations (excluding non-recurring items), Group share
, totaling
€2,816.7 million (up 49.3%) and net income from discontinued
operations
, totaling €1,095.2 million, primarily corresponding to
the capital gain resulting from the loss of control of PUMA.

Operating performances

               
Revenue

(in € millions)

2018   2017(1)   Reported change   Comparable change(2)
               
Total Houses 13,246.7 10,513.3 +26.0% +29.1%
Gucci 8,284.9 6,211.2 +33.4% +36.9%
Yves Saint Laurent 1,743.5 1,501.4 +16.1% +18.7%
Bottega Veneta 1,109.1 1,176.3 -5.7% -3.4%
Other Houses 2,109.2 1,624.4 +29.8% +32.1%
 
Corporate and other 418.5 302.6 +38.3% +42.1%
               
KERING – Continuing operations 13,665.2   10,815.9   +26.3%   +29.4%

(1) Figures restated for PUMA, Volcom, Stella
McCartney and Christopher Kane (IFRS 5).

(2)
On a comparable Group structure and exchange rate basis.

               
Recurring operating income

(in € millions)

2018   2017(1)   Change

€m

  Reported change
               
Total Houses 4,191.0 2,895.2 +1,295.8 +44.8%
Gucci 3,275.2 2,124.1 +1,151.1 +54.2%
Yves Saint Laurent 459.4 376.9 +82.5 +21.9%
Bottega Veneta 242.0 294.0 (52.0) -17.7%
Other Houses 214.4 100.2 +114.2 +114.0%
 
Corporate and other (247.2) (204.5) (42.7) -20.9%
               
KERING – Continuing operations 3,943.8   2,690.7   +1,253.1   +46.6%

(1) Figures restated for PUMA, Volcom, Stella
McCartney and Christopher Kane (IFRS 5).

Kering generated an additional €2.8 billion in revenue compared to 2017,
with 2018 revenue at €13,665.2 million, up 26.3% as reported and
29.4% based on comparable figures, despite a very high base of
comparison in the previous year.

Kering’s 2018 recurring operating income amounted to €3,943.8
million, up 46.6% year-on-year as reported. Consolidated recurring
operating margin was 28.9%.

Kering’s Houses delivered exceptional 29.1% comparable revenue
growth in 2018 at €13,247 million (up 26.0% as reported), significantly
outpacing their market once again. This brisk growth was fueled by a
31.0% increase in sales through directly operated stores, which account
for over 77% of revenue and topped the €10 billion mark for the first
time. Online sales surged by 71.3% year-on-year. Wholesale revenue from
the Group’s Houses rose 24.1% on a comparable basis.

All regions contributed to the strong revenue growth momentum, with
Asia-Pacific up 34.1% on a comparable basis, North America up 37.3%,
Japan up 23.7% and Western Europe up 23.0%.

Comparable revenue posted by Kering’s Houses in the fourth quarter of
2018
rose 23.3% against a high base of comparison. The directly
operated store network continued on an uptrend, with comparable sales up
25% in the quarter.

Recurring operating income for Kering’s Houses was 44.8% higher
as reported at €4,191.0 million, while the recurring operating margin
widened 410 basis points year-on-year to 31.6%.

Gucci: another remarkable performance underscoring brand momentum

Gucci’s revenue topped €8 billion in 2018, rising 33.4% as
reported and 36.9% on a comparable basis to €8,284.9 million. This
excellent performance, in line with the prior year, reflects healthy and
balanced growth in all regions, product categories and client segments.
Sales through the brand’s directly operated stores rose 38.3% in 2018,
fueled by increasingly higher traffic and enhanced productivity. Online
sales surged 70.1%. All regions reported very strong growth figures, led
by Asia-Pacific (up 45.0%) and North America (up 43.6%). Wholesale
climbed 30.7%.

The robust rise in revenue in the fourth quarter of 2018 (up
28.1% against a very high base of comparison) illustrates Gucci’s
continued brand appeal.

Gucci’s 2018 recurring operating income totaled €3,275.2 million,
up 54.2% while maintaining ongoing investments, reflecting the brand’s
systematic implementation of initiatives aimed at supporting
sustainable, profitable growth. The brand’s recurring operating margin
widened by 530 basis points to a record 39.5%.

Yves Saint Laurent: further sustained growth

Yves Saint Laurent turned in another remarkable performance, thanks to
strict and effective execution of its strategy. 2018 sales rose
18.7% on a comparable basis and 16.1% as reported. In directly owned
stores, sales were up 18.5% on a comparable basis. Yves Saint Laurent
notched up revenue increases across all major regions in 2018, with
North America (up 26.8%) and Asia-Pacific (up +21.2%) particularly
strong. Wholesale climbed 20.9% on a comparable basis.

The House confirmed its excellent momentum in the fourth quarter of
2018
, with revenue up 19.4% on a comparable basis.

2018 Recurring operating income at Yves Saint Laurent was 21.9%
higher as reported at €459.4 million, while recurring operating margin
exceeded 26%.

Bottega Veneta: change in creative direction

Bottega Veneta’s revenue in 2018, a year shaped by the arrival of
a new Creative Director, was down 3.4% on a comparable basis and 5.7% as
reported. Revenue generated through directly operated stores dropped
4.7%, impacted by slower tourism, in Western Europe in particular.
Comparable sales generated through the wholesale network were up 2.8%.

The House’s sales were down 3.2% in the fourth quarter of 2018.
However, the response to the 2019 Pre-Fall collection unveiled to the
press and to buyers late in the year was very encouraging. This initial
stage in Bottega Veneta’s transition will be followed in late February
by Daniel Lee’s first show during Milan Fashion Week.

Bottega Veneta’s recurring operating income was 17.7% lower
year-on-year at €242 million, with the brand selectively stepping up
investments in order to prepare its new positioning. Recurring operating
margin was 21.8%.

Other Houses: strong momentum

Revenue from Kering’s Other Houses passed the €2 billion mark in
2018, totaling €2,109.2 million, an increase of 29.8% as reported and
32.1% on a comparable basis. This excellent performance was led by
Couture & Leather Goods, while Watches & Jewelry also posted solid
revenue growth.

Sales generated in stores directly operated by the Other Houses soared
43.6% on a comparable basis, with double-digit growth in all key
regions. This impressive showing was fueled by stellar performances from
Balenciaga and Alexander McQueen. Sales generated through the wholesale
network rose 23.6% year-on-year on a comparable basis.

In Couture & Leather Goods, all product categories posted revenue growth
in the year. The Jewelry Houses turned in a solid performance, and sales
of the Watches brands advanced for the second year in a row.

In the fourth quarter of 2018, revenue from the Other Houses
climbed 26.0% as reported and 25.5% on a comparable basis, spurred by
the continuing exceptional momentum of Balenciaga. In Jewelry, the end
of 2018 saw the reopening of Boucheron’s historical flagship at Place
Vendôme in Paris, timed to coincide with the brand’s 160th
anniversary. The new store drew an enthusiastic response from both
clients and the media.

Recurring operating income from the Other Houses doubled in 2018,
to €215 million.

Corporate and other: excellent performance from Kering Eyewear

The “Corporate and other” segment delivered strong comparable growth in 2018
revenue
, up 42.1% to €418.5 million, powered by a robust showing
from Kering Eyewear. Kering Eyewear sales added €391 million to
consolidated revenue after eliminating intra-group sales and royalties
paid to the Group’s Houses (€495 million before elimination). Kering
Eyewear sales in 2018 were driven by Gucci and by the success of the new
Cartier collection.

In total, the negative recurring operating result of Corporate
and other totals €247.2 million, encompassing Kering Eyewear’s positive
contribution, as well as the costs associated with the Corporate teams
and long-term incentive plans.

Financial performance

Other non-recurring operating income and expenses represented a
net expense of €222 million in 2018.

The cost of net debt was €77 million, 30.1% lower than 2017. This
year-on-year improvement was primarily due to the positive impact of the
reduction in the average amount of outstanding bonds and the related
average interest rate.

Net finance costs totaled €207.3 million versus €220.2 million
one year earlier.

Kering’s effective tax rate was 24.7%, while its effective tax
rate on recurring income
was 24.2%.

Net income, Group share rose 108.1% over the year to €3,714.9
million.

Net income from continuing operations (excluding non-recurring
items), Group share
totaled €2,816.7 million.

Cash flows and financial position

The generation of free cash flow from operations is a key financial
objective for the Group. In 2018, the Group’s free cash flow from
operations totaled €2,955 million.

As of December 31, 2018, Kering had a very solid financial structure:

           
(in € millions) Dec. 31, 2018   Dec. 31, 2017   Change
Capital employed 11,773.0   15,675.0   (3,902)
Total equity 10,061.6 12,626.4 (2,564.8)
Net debt 1,711.4   3,048.6   (1,337.2)

The Group’s net debt totaled €1,711.4 million as of December 31, 2018,
representing a decrease of €1,337.2 million compared with the previous
year-end (€1,705 million restated for changes in scope). This
corresponds to a leverage ratio of 0.4x EBITDA.

       
  2018   2017
Gearing (net debt/equity) 17.0%   24.1%
Solvency ratio (net debt/EBITDA) 0.4   0.9

Dividend

At its February 11, 2019 meeting, the Board of Directors of Kering
proposed to ask shareholders to approve a cash dividend of €10.50 per
share for 2018 at the Annual General Meeting to be held on April 24,
2019 to approve the financial statements for the year ended December 31,
2018.

An interim cash dividend of €3.50 per share was paid on January 17, 2019
pursuant to a decision made by the Board of Directors on
December 14, 2018.

Subject to shareholders’ approval, the cash dividend will have an
ex-dividend date of May 2, 2019 (before market opening) and will be paid
on May 6, 2019 based on the positions established as of the evening of
May 3, 2019.

Outlook

Positioned in structurally high-growth markets, Kering enjoys very solid
fundamentals and a balanced portfolio of complementary, high-potential
brands with clearly focused priorities.

The Group is continuing to implement its strategy focused on achieving
same-store revenue growth while ensuring a targeted and selective
expansion of the store network in order to strengthen its Houses’
operating margins for the long term.

The Group’s operating environment remains unsettled with regards to the
macroeconomic and geopolitical uncertainties, national trade policies,
and fluctuations in exchange rates, events that could impact consumer
trends and tourism.

Against this backdrop, in 2019 the Group plans to pursue the strategic
measures that it has successfully implemented in recent years, namely
rigorously managing and allocating its resources in order to further
enhance its operating performance, maintaining a high level of cash flow
generation, and continuing to grow return on capital employed.

***

At its meeting on February 11, 2019, the Board of Directors of
Kering, under the chairmanship of François-Henri Pinault, approved the
consolidated financial statements for 2018, that have been audited.

PRESENTATION

A live webcast of the presentation of the 2018 Annual Results
will be available on Tuesday, February 12, 2019 at
9:00am (CET) on www.kering.com.
The presentation slides and 2018 financial report (pdf) will be made
available beforehand.

A replay will be available online later in the day.

You will also be able to listen to the presentation live or on replay by
dialing:

French:
Live presentation: +33 (0)1 70 71 01 59
Live
passcode: 36762629#

Replay: +33 (0)1 72 72 74 02
Replay passcode: 418820419#

English:
Live presentation: +44 (0)207 194 3759
Live
passcode: 12737152#

Replay: +44 (0)203 364 5147
Replay passcode: 418820421#

About Kering

A global Luxury group, Kering manages the development of a series of
renowned Houses in Fashion, Leather Goods, Jewelry and Watches: Gucci,
Saint Laurent, Bottega Veneta, Balenciaga, Alexander McQueen, Brioni,
Boucheron, Pomellato, DoDo, Qeelin, Ulysse Nardin, Girard-Perregaux, as
well as Kering Eyewear. By placing creativity at the heart of its
strategy, Kering enables its Houses to set new limits in terms of their
creative expression while crafting tomorrow’s Luxury in a sustainable
and responsible way. We capture these beliefs in our
signature: “Empowering Imagination”. In 2018, Kering had nearly 35,000
employees and revenue of €13.7 billion.

 

DECEMBER 31, 2018


CONSOLIDATED FINANCIAL STATEMENTS AND

ADDITIONAL INFORMATION

   
 
 
Contents page
 
2018 highlights 10
Consolidated income statement 12
Consolidated statement of financial position 13
Consolidated statement of cash flows 14
Breakdown of revenue 15
Breakdown of recurring operating income 17
Main definitions   18

2018 HIGHLIGHTS AND ANNOUNCEMENTS SINCE JANUARY 1, 2018

PUMA

Following the approval of the transaction by Kering shareholders at the
Annual General Meeting on April 26, 2018, the distribution of PUMA
shares to Kering shareholders took effect on May 16, 2018, the payment
date for the stock dividend. The distribution to Kering shareholders was
made on the basis of a ratio of 1 PUMA share for 12 Kering shares held,
in accordance with the terms of the transaction announced by Kering on
February 13, 2018, and valued at the opening price of the PUMA share on
the Xetra trading platform in Frankfurt (€429.00).

Following the distribution, Kering held 15.70% of PUMA’s share capital
and 15.85% of its outstanding shares and voting rights, subject to a
six-month lock-up period that ended on November 16, 2018.

Stella McCartney

On March 28, 2018, Ms Stella McCartney and Kering jointly announced that
they had entered into an agreement for the sale and purchase of Kering’s
50% stake in Stella McCartney Ltd to Ms Stella McCartney, who will thus
become the sole owner of her brand. The cooperation between Stella
McCartney and Kering will continue with the aim of guaranteeing a smooth
transition in order to minimize disruptions and maintain the brand’s
momentum. Kering and Stella McCartney will also continue their close
cooperation in the domain of sustainable fashion, with Ms.
Stella McCartney remaining a Board member of the Kering Foundation.

Volcom

On April 6, 2018, Kering announced that preparations had commenced for
the disposal of Volcom, as the brand no longer constitutes a core asset.
This move is consistent with the Group’s strategy to fully dedicate
itself to the development of its Luxury Houses.

Christopher Kane

On June 21, 2018, Kering announced that discussions were underway with
Mr. Christopher Kane about the conditions in which the British designer
could take back full control of his eponymous brand. Christopher Kane
and Kering wish to continue to collaborate with the aim of achieving a
gradual and harmonious transition.

Creative changes at Bottega Veneta

On June 15, 2018, Bottega Veneta announced that it had appointed Daniel
Lee as its new Creative Director with effect from July 1, 2018,
replacing Tomas Maier who had been with the Italian House since 2001.

Bond redemptions

On March 26, 2018, Kering announced the success of its offer to redeem
bonds maturing in 2019, 2021 and 2022 for an aggregate nominal amount of
€405 million (excluding accrued interest). On September 28, 2018, Kering
redeemed more bonds maturing in 2019, 2020, 2021 and 2022, for an
aggregate nominal amount of €370 million (excluding accrued interest).
The bonds were redeemed as part of the Group’s strategy to actively
manage its liquidity and optimize its financing structure.

Stock repurchase program

On October 29, 2018, Kering announced that it intended to repurchase up
to 1.0% of its share capital over the following 12 months under the
stock repurchase program authorized at the April 26, 2018 Annual General
Meeting. An agreement was signed with an investment services provider to
put in place a first tranche of the repurchase program, covering a
maximum volume of 631,000 shares (corresponding to approximately 0.5% of
the share capital), up to an amount of €300 million and at a maximum
price per share of €480. The purchases will be carried out over a period
not exceeding four months, and the purchased shares will subsequently be
canceled.

Kering enters the STOXX 50® European index

On September 24, 2018, Kering joined the Euro STOXX 50® index, one of
the major eurozone listed stock indexes. The Euro STOXX 50® comprises
the 50 largest listed stocks in the eurozone, in terms of free-float
market capitalization. Kering shares have been listed on the Euronext
Paris stock exchange since 1988 and have been part of the CAC 40 index
since 1995.

E-commerce internalization strategy

As part of new developments in its digital strategy, Kering announced on
November 26, 2018 that after a highly successful and fruitful seven-year
partnership with Yoox Net-à-Porter (YNAP), the e-commerce activities
handled since 2012 through the YNAP joint venture will transition back
to the Group during the first half of 2020.

Appointments and corporate governance at Kering

During 2018, Kering’s Board of Directors appointed two new members:
Ginevra Elkann, replacing Laurence Boone following her appointment as
Chief Economist of the OECD; and Financière Pinault, a corporate
director represented by Héloïse Temple-Boyer, replacing Patricia
Barbizet. Kering’s shareholders will be invited to ratify these two
appointments at the next Annual General Meeting on April 24, 2019.

On August 20, 2018, Kering appointed Patrick Pruniaux, Chief Executive
Officer of Ulysse Nardin, as CEO of Girard-Perregaux. In his new role,
Mr. Pruniaux, who continues to serve as CEO of Ulysse Nardin, heads up
the Group’s Swiss Luxury Watches Houses and reports to Albert
Bensoussan, Chief Executive Officer of Kering’s Watches and Jewelry
Division.

Also during the year, Kering strengthened its organization in Greater
China by appointing Jinqing Cai as President of Kering Greater China,
effective from September 10, 2018.

SUBSEQUENT EVENTS

Tax investigation in Italy

In connection with the tax investigation opened in Milan in 2017, Kering
announced on January 25, 2019, that an audit unit of the Italian tax
authorities had completed a tax audit and delivered a report alleging
that Luxury Goods International (LGI), a Swiss subsidiary of Kering, had
conducted business activities in Italy that should have resulted in
payment of Italian income tax, an assertion that Kering contests. The
audit report covers earnings for the years 2011 through 2017, and the
estimated claimable tax represents approximately €1,400 million. The
report will now be reviewed by the tax authority unit in charge of
assessing the findings, which will make its final determination. Kering
contests the findings of the audit report in terms of both substance and
amount. The Group is confident about the proceedings currently underway
and will continue to fully cooperate with the Italian tax authorities in
complete transparency in order to defend all of its rights. At this
stage of the proceedings, Kering does not have the necessary information
to record a specific accounting provision based on a reliable estimate
of the tax exposure. The Group confirms that it strictly monitors its
tax positions and adopts a prudent approach to assessing its tax
exposure, particularly regarding its transfer pricing policy.

Corporate governance at Kering

At its meeting on February 11, 2019, the Board of Directors of Kering
appointed Ms. Sophie L’Hélias as independent lead director, with a
standard role of, among others, speaking on behalf of the Board on ESG
(Environmental, Societal, Governance) matters, in coordination with the
Chairman of the Board.

OTHER ANNOUNCEMENTS – RANKING AND CERTIFICATION

Kering collects award for high level of female representation on
its Board

On November 28, 2018, Kering collected the “Most Feminine Board of
Directors” award in the European Gender Diversity Index published by the
European Women on Boards (EWoB) and Ethics & Boards organizations.

Kering ranked in Corporate Knights’ 2019 Global 100 Index

As announced at the World Economic Forum in Davos on January 22, 2019,
Kering was named the world’s second most sustainable company across all
industries by the Corporate Knights Global 100 Index for 2019.

Contacts

Press
Emilie Gargatte
+33 (0)1 45 64 61 20
emilie.gargatte@kering.com

Marie de Montreynaud
+33 (0)1 45 64 62 53
marie.demontreynaud@kering.com

Analysts/investors
Claire Roblet
+33 (0)1 45 64
61 49
claire.roblet@kering.com

Laura Levy
+33 (0)1 45 64 60 45
laura.levy@kering.com

www.kering.com
Twitter:
@KeringGroup
LinkedIn:
Kering
Instagram:
@kering_official
YouTube:
KeringGroup

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