Champagne takes sparkle out of LVMH: Louis Vuitton and Moet Hennessy combine begins cutting jobs in light of 25% profits slide

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FALLING champagne sales have taken the fizz out of progress at LVMH, the luxury goods combine of Louis Vuitton and Moet Hennessy. The Paris-listed company said yesterday that half-time profits were likely to be 25 per cent lower than last year's Fr1.3bn (pounds 153m).

Yesterday's announcement followed a warning delivered last month by Bernard Arnault, chairman, at the annual meeting. The group's overall turnover rose 3.6 per cent to Fr10bn, but champagne sales were 7.4 per cent lower at Fr1.8bn.

The turnover figures were accompanied by the profits indication yesterday, but LVMH does not actually report its first-half results proper until Guinness, with which it has a 24 per cent cross-holding, publishes its results in September.

The company said the champagne division suffered a net loss of Fr100m. The problem had been exacerbated because champagne sold in the first six months was made with grapes bought at peak prices in 1990.

In response, LVMH has started to cut jobs in the champagne division, which houses such famous names as Dom Perignon, Mercier, Veuve Clicquot Ponsardin and Moet & Chandon.

The group's performance will also be hit by the devaluation of sterling, which will reduce the value of the contribution from the Guinness stake. Moreover, Guinness's chairman, Anthony Greener, issued his own profits warning at the end of May, suggesting that first-half profits at the British group would be lower than last year, but would recover to produce much the same result for the year as a whole.

Analysts expect LVMH to recover strongly in the second half. Devaluation of the French franc would provide a big boost.

In the first half, the bad result from the champagne division was offset by strongly rising sales from perfume and beauty products.

LVMH shares fell just Fr42 to Fr4,003, although analysts said that the figures were worse than expected.

Guinness shares, which are sensitive to news affecting LVMH because of the cross-holdings, dropped 10p to 437p on the announcement. They later recovered to 444p as the market digested indications that a strong performance from the perfume and beauty and luggage divisions of LVMH should iron out profits over the full 12 months. An LVMH spokesman said: 'One of the strengths of the group is that we have a diversified portfolio, so that when one division is subjected to recessionary pressure, another compensates with strong growth.'

(Photograph omitted)