The Pinault-Printemps-Redoute Supervisory Board, chaired by Patricia Barbizet, met on September 3, 2003 to examine the Group's half-year consolidated financial statements at June 30, 2003, as approved by the Management Board and the Statutory Auditors.
Commenting on Pinault-Printemps-Redoute's developments in the first half of 2003, Serge Weinberg, Chairman of the Management Board, noted:
'The 'New PPR', focused on Retail and Luxury Goods, demonstrated its growth potential despite the sluggish business environment. Retail activities achieved strong growth in operating income, while Luxury Goods faced a spate of particularly unfavourable developments. However, the Gucci Group's investments and the quality of its brands will enable it to benefit from economic recovery. Lastly, the Group pursued its strategic shift under excellent terms, while strengthening its financial structure.'
Growth in sales for the 'New PPR'
Retail activities grew by 4.4% on a comparable basis, thanks to further gains in market share in France in most product categories and the success of the Group's ongoing international expansion. In the Luxury Goods division, growth stood at 2.4% despite the particularly sluggish environment due to a number of negative factors between February and April 2003.
The changes in pro forma sales reflects Rexel's 2.8% drop on a comparable structural, exchange rate and day-year basis.
Published sales fell by 7.8%, notably reflecting the EUR 611.9 million impact of changes in Group structure and the EUR 623.7 million negative impact of exchange rate fluctuations.
'New PPR' EBIT : Sharp increase in Retail, trading conditions affecting Luxury
Operating income of the 'New PPR' reflects the contrast between sharp growth in Retail activities (up 6.2%) and lower operating performance in Luxury Goods (down 24.5%). This reflects the extremely challenging economic climate between February and April 2003, as well as the heavy investment in development and communications by the Gucci Group's high-potential brands. Gucci Group opened or renovated 41 stores in the first half of the year, including flagship stores in the luxury goods industry's capital cities worldwide – New York, Tokyo, Paris, London and Milan. Published sales fell by 7.8%, notably reflecting the EUR 611.9 million impact of changes in Group structure and the EUR 623.7 million negative impact of exchange rate fluctuations.
On a pro forma basis, gross margin grew by 2%, slightly above Group pro- forma sales. The pro forma gross margin ratio remained stable at 38.6%, reflecting the Group's capacity to boost its market share while maintaining an effective purchasing policy. The drop in the Group's pro forma operating income reflects the 16.2% fall in Rexel's operating income and overall resilience of the 'New PPR'.
Sharp improvement in financial income
The sharp reduction in net financial expenses of EUR 27.2 million, representing a 13.8% drop from the first half of 2002, stems from the substantial fall in average net indebtedness.
Non-recurring expenses include a net charge on the sale of assets before tax of EUR 135.6 million (EUR 250.8 million capital loss on Guilbert's Contract business and EUR 91.1 million capital gain on Pinault Bois & Matériaux), EUR 20.4 million in restructuring costs (of which EUR 16.2 million for Rexel), EUR 19.1 million in costs related to claims and litigation (of which EUR 17 million for Rexel) and the impact of the additional mark down of treasury stock for EUR 26.7 million.
The Group recorded EUR 15.2 million in tax income for the first half of 2003 due to the impact of disposals on non-recurring items.
Excluding non-recurring items, the effective tax rate amounted to 25.1% in the first half.
Income from equity affiliates
The sharp rise in income from equity affiliates was mainly due to the Credit and Financial Services business, 39%-owned by the Group since January 1, 2003. This business is now accounted for by the equity method.
Net earnings per share
Based on the weighted average number of PPR shares of 120.8 million for the first half of 2003, earnings per share after amortisation of goodwill stood at EUR 0.98, compared with EUR 2.31 for the first half of 2002.
Excluding net non-recurring items, earnings per share amounted to EUR 1.67, compared with EUR 2.28 for the first half of 2002.
The 10.8% drop in gross margin and 30.4% decline in operating income in actual terms reflect the impact of changes in Group structure and exchange rates.
Cash flow from operations stood at EUR 508 million, while Group operating investments amounted to EUR 233.3 million.
The rise in consolidated shareholders' equity reflects the increase in the Group's share of shareholders' equity and the 13.2% drop in minority interests, mainly due to PPR's increased stake in Gucci.
Net indebtedness fell from EUR 7 billion to EUR 5.5 billion, thus reducing debt-to-equity ratio from 85.2% to 61.9% in one year.