2022 First-Half Report

TABLE O F CONTENTS

CHAPTER 1 Kering in the first half of 2022 - Key figures	2
CHAPTER 2
Activity report	6
1 - Introduction – Impacts of the COVID-19 pandemic and the Russia-Ukraine crisis on the Group's business and its interim financial statements for the six months ended June 30, 2022	6
2 - Significant events in the first half of 2022	7
3 - First-half 2022 business review	9
4 - Operating performance by segment	16
5 - Balance sheet as of June 30, 2022	26
6 - Comments on movements in net debt	28
7 - Parent company net income	30
8 - Transactions with related parties	31
9 - Subsequent events	31
10 -Outlook	31
11 -Definitions of non-IFRS financial indicators	32

CHAPTER		3
---------	--	---

Condensed consolidated interim financial statements for the six months ended June 30, 2022	33
1 - Consolidated income statement	33
2 - Consolidated statement of comprehensive income	34
3 - Consolidated balance sheet	35
4 - Consolidated statement of changes in equity	36
5 - Consolidated statement of cash flow	37
6 - Notes to the condensed consolidated interim financial statements for the six months ended June 30, 2022	38
Statutory Auditors' review report on the interim financial information	51
Statement by the persons responsible for the interim financial report	52

This is a free translation into English of the 2022 First-Half Report issued in French.

CHAPTER 1 Kering in the first half of 2022 - Key figures

Group consolidated key figures

(in € millions)	First half 2022	First half 2021	Reported change
Revenue	9,930	8,047	+23%
EBITDA	3,617	2,951	+23%
EBITDA margin (% of revenue)	36.4%	36.7%	-0.3 pts
Recurring operating income	2,820	2,237	+26%
Recurring operating margin (% of revenue)	28.4%	27.8%	+0.6 pts
Net income attributable to the Group	1,988	1,479	+34%
o/w continuing operations excluding non-recurring items	1,977	1,477	+34%
Gross operating investments(1)	361	345	+5%
Free cash flow from operations(2)	2,049	2,354	-13%
Net debt(3)	942	619	+52%

(1) Acquisitions of property, plant and equipment and intangible assets

(2) Net cash received from operating activities less net acquisitions and disposals of property, plant and equipment and intangible assets.

(3) Net debt is defined on page 32.

Per share data

(in €)	First half 2022	First half 2021	Reported change
Earnings per share attributable to the Group	€16.09	€11.85	+36%
o/w continuing operations excluding non-recurring items	€15.99	€11.84	+35%

Revenue

Breakdown of revenue by segment

(in € millions)	First half 2022	First half 2021	Reported change	Comparable change(3)
Gucci	5,173	4,479	+15%	+8%
Yves Saint Laurent	1,481	1,046	+42%	+34%
Bottega Veneta	834	708	+18%	+13%
Other Houses	1,955	1,485	+32%	+29%
Kering Eyewear and Corporate(1)	591	396	+49%	+26%
Eliminations(2)	(104)	(67)	N/A	N/A
GROUP	9,930	8,047	+23%	+16%

(1) The "Corporate and other" segment has been renamed "Kering Eyewear and Corporate".

(2) Intragroup eliminations are now reported on a separate line.

(3) On a comparable scope and exchange rate basis. Comparable growth is defined on page 32.

Breakdown of revenue by region

(as a % of consolidated revenue) (1)

⁽¹⁾ Throughout the document, mature markets include North America, Western Europe and Japan. Emerging markets include Asia-Pacific and the Rest of the World.

Revenue by quarter

Number of directly operated stores by region

quarter

1,599 Total June 30, 2022

quarter

1,559 Total December 31, 2021

Recurring operating income

Breakdown of recurring operating income by segment

(in € millions)	First half 2022	First half 2021	Change
Gucci	1,886	1,694	+11%
Yves Saint Laurent	438	275	+59%
Bottega Veneta	168	130	+29%
Other Houses	337	197	+71%
Kering Eyewear and Corporate(1)	(7)	(63)	+90%
Eliminations(2)	(2)	4	N/A
GROUP	2,820	2,237	+26%
Recurring operating margin (% of revenue)	28.4%	27.8%	+0.6 pts

(1) The "Corporate and other" segment has been renamed "Kering Eyewear and Corporate".

(2) The "Eliminations" item relates to consolidation adjustments that are not allocated by segment, mainly in connection with intragroup transactions.

Other financial indicators

Netincome attributable to the Group

(in € millions)

1,477.4

Net income attributable to the Group Net income from continuing operations (excluding non-recurring items) attributable to the Group

Free cash flow from operations(1) (in € millions)

(1) Net cash flow from operating activities less net acquisitions of property, plant and equipment and intangible assets.

Net debt(2)

(in € millions)

(2) Net debt is defined on page 32.

Activity report 2 Introduction – Impacts of the COVID-19 pandemic and the Russia-Ukraine crisis on the Group's business and its interim financial statements for the six months ended June 30, 2022

CHAPTER 2 Activity report

1 - INTRODUCTION – IMPACTS OF THE COVID-19 PANDEMIC AND THE RUSSIA-UKRAINE CRISIS ON THE GROUP'S BUSINESS AND ITS INTERIM FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 2022

Consequences of the COVID-19 pandemic: situations varying between regions

In the first half of 2022, the COVID-19 situation improved considerably in North America and Western Europe, leading to the gradual lifting of most restrictive public health measures, although case numbers rose again slightly at the end of the period. As a result, the Group's operations in these two regions were not significantly affected by the pandemic in the first six months of the year.

In Japan and other Asia-Pacific countries such as South Korea and Australia, the gradual easing of measures to control the pandemic gave a major boost to consumers' confidence and propensity to spend.

However, China maintained a strict zero-COVID policy at a time when case numbers were multiplying in some of its large cities, and this badly affected business levels in the Luxury industry. The introduction of new restrictions in China hit both in-store footfall and e-commerce sales from March 2022 onward and at least into April and May.

Overall, the impact of COVID-19 seems to have been very limited in the first half of 2022, although it varied between regions and is difficult to measure accurately:

• The global economic environment deteriorated but the weaker growth outlook in the various economies had multiple causes, and most of them were not related either directly or indirectly to the COVID-19 crisis.

On average, 2% of stores were closed in the first quarter and 5% in the second quarter. However, that figure reached just over 30% in Mainland China at the peak of that country's restrictions. As a result, China was indisputably the region worst affected by the pandemic in the first half of 2022.
The COVID situation also meant that spending by Chinese consumers mainly took place in China. The absence of Chinese tourists affected the performance of the travel retail segment and of certain markets in Europe and Asia compared to 2019, which was a record year in terms of tourist store footfall. However, starting in spring 2022, business levels in Western Europe benefited from an upturn in sales to tourists of other nationalities, particularly American.
The impact of the pandemic must be assessed from a multi-year perspective, since the speed of the recovery from the economic shock of the first half of 2020 has varied between regions. In Western Europe, consumer spending collapsed in the second quarter of 2020, while some lockdown measures remained in place in the first half of 2021. In North America, the year-on-year comparison reflects the very strong rebound in 2021, driven by large-scale economic support measures. Meanwhile, in Asia-Pacific and particularly in China, economies returned to growth more quickly after the pandemic peaked in 2020, and so the base for comparison is higher than in other regions.

Impact of the situation in Ukraine and Russia

In response to the escalation in the Russia-Ukraine crisis, which became an armed conflict on February 23, 2022, Kering announced on March 4, 2022 that it would temporarily close the stores operated by the Group's Houses in Russia. Kering's Houses do not directly operate any stores in Ukraine.

Given the severity of the situation, Kering and its Houses have lent their support to humanitarian efforts and to Ukrainian refugees by making several donations, mainly to the UN Refugee Agency UNHCR.

Kering's direct exposure to the crisis currently remains limited as its combined sales in Ukraine and Russia amounted to around 1% of its annual revenue in 2021. The net value of its assets in those countries is not material (around 0.1% of total assets) and mainly consists of lease right-of-use assets under IFRS 16 and property, plant and equipment. Developments in the geopolitical situation and the Group's strategy in the region could cause the residual value of these assets to be written down in the second half of 2022. The only impact on the financial statements for the six months ended June 30, 2022 consisted of operating losses and impairment of inventories.

In addition, in view of international sanctions, the Group has reorganized its procurement of diamonds and has ceased sourcing diamonds either directly or indirectly from Russia. It should be noted, however, that its diamond purchases from Russia were not material.

The ongoing conflict is obviously having a negative impact on the global economic outlook. Depending on its duration and extent, the conflict could affect global economic growth and therefore the Luxury market over a longer period. However, the indirect nature of those effects would make them hard to quantify precisely.

2 - SIGNIFICANT EVENTS IN THE FIRST HALF OF 2022

Sale of Girard-Perregaux and Ulysse Nardin to their management

On January 24, 2022, Kering announced the signature of an agreement to sell its entire stake (100%) in Sowind Group SA, which owns the Swiss watch manufacturers Girard-Perregaux and Ulysse Nardin, to its current management. The transaction was completed on May 31, 2022 according to the agreed terms.

The Group has supported the two Houses in their development, strengthened their positioning and ensured they have adequate resources to finance their growth. The Group is confident that their existing management will be able to continue their work successfully.

This transaction is in line with Kering's strategy, giving priority to Houses that have the potential to become sizable assets within the Group and to which it can provide decisive support over time.

Signature of an agreement for Kering Eyewear to acquire eyewear brand Maui Jim

On March 14, 2022, Kering Eyewear announced the signature of an agreement to acquire US eyewear brand Maui Jim, Inc.

Founded in 1987, Maui Jim is the world's largest independently owned high-end eyewear brand with a leading position in North America. Recognized for its outstanding technicity, Maui Jim offers a broad spectrum of high-quality sun and optical frames sold in more than 100 countries and has developed the revolutionary lens technology known as PolarizedPlus2® .

Since its inception in 2014, Kering Eyewear has built an innovative business model that enabled the company to reach more than €700m external revenues in FY2021. The acquisition of Maui Jim represents a major milestone in the successful expansion strategy of Kering Eyewear. Only a few months after the acquisition of LINDBERG, Kering Eyewear will own a second proprietary brand, reinforce its status on the high-end eyewear segment and broaden its offer to cover the full scope from functional to timeless and fashion luxury products.

Their complementary distribution networks and product offerings will contribute to amplify the growth potential through the expansion of Maui Jim's geographical footprint and the ability to gain new customers, more focused on innovation and functionalities. Through this combination, Kering Eyewear reaches new levels, with revenues materially ahead of the billion-euro mark on a full-year basis and profit margins further improving.

The transaction is subject to the clearance by the relevant competition authorities and is expected to be completed in the second half of 2022.

Gianfilippo Testa appointed CEO of Alexander McQueen

On March 21, 2022, Kering announced the appointment of Gianfilippo Testa as CEO of Alexander McQueen, effective May 2022. He reports to François-Henri Pinault.

He succeeds Emmanuel Gintzburger, who decided to leave the Group to pursue new professional challenges outside Kering.

Gianfilippo Testa is an Italian national with an outstanding track record in the luxury industry in Europe and Asia. He started his career at TAG Heuer in 2002 and went on to hold a range of roles at LVMH, specifically at Fendi in Italy, Japan and Hong Kong. He joined Kering in 2016 as Gucci President Greater China and since 2019 has been President of EMEA and VP Global Retail at Gucci.

As CEO of Alexander McQueen, Gianfilippo Testa's mission will be to accelerate the expansion of the British luxury House in order to tap its full potential.

Changes in the membership of the Board of Directors

In the first half of 2022 and following approval of resolutions by the Group's shareholders in the Annual General Meeting of April 28, 2022, Kering's Board of Directors, in coordination with the Appointments and Governance Committee, confirmed the following changes in its membership:

Resignation of Ms. Sophie L'Hélias as independent Director, due to her recent appointment as Chair of the Board of Directors of another group;
Appointment of Ms. Véronique Weill, Ms. Yonca Dervisoglu and Mr. Serge Weinberg as independent Directors;
Appointment of Ms. Véronique Weill as Lead Independent Director;
Appointment of Mr. Jean-Pierre Denis as Climate Change Lead;
Renewal of Ms. Daniela Riccardi's term of office as independent Director;
Non-renewal of Ms. Yseulys Costes' term of office as independent Director;
Reconfiguration of the Board of Directors' Committees.

Dual-tranche bond issue for a total amount of €1.5 billion

On April 28, 2022, Kering issued €1.5 billion of bonds consisting of:

a €750 million tranche with a 3-year maturity and a 1.25% coupon,
and a €750 million tranche with an 8-year maturity and a 1.875% coupon.

This issue, which forms part of the Group's active liquidity management, enhances its funding flexibility by enabling it to refinance existing debt and, in part, finance the Maui Jim acquisition.

The issue saw strong demand from bond investors, confirming the market's confidence in the Group's credit quality. Kering's long-term debt is rated "A" with a "stable" outlook by Standard & Poor's.

Launch of an employee share ownership plan

On May 4, 2022, Kering announced the launch of its first employee share ownership plan. It took place in France, Italy, the United Kingdom, the United States, Mainland China, Hong Kong SAR, Japan and South Korea.

Entitled KeringForYou, the program gave eligible employees the opportunity to become Kering shareholders with preferential terms. By investing in their company this way, employees have a direct interest in its development and future performance.

The price for subscribing shares under the program was set at €394, corresponding to Kering's average opening share price on Euronext Paris during the 20 trading sessions from April 19 to May 16, 2022, less a 20% discount and rounded up to the nearest cent.

At the end of the subscription period, which took place from May 19 to June 9, 2022, 102,862 shares had been subscribed (including employer contributions). The shares were settled and delivered on July 7, 2022 through a capital increase involving the issue of new ordinary shares.

Stock Repurchase Program: implementation of the second and third tranches

Pursuant to the Stock Repurchase Program announced on August 25, 2021, covering up to 2.0% of its share capital over a 24-month period, Kering implemented the second and third tranches in the first half of 2022:

The second tranche related to 650,000 shares (around 0.5% of the share capital) and was completed on April 6, 2022. 325,000 of the shares repurchased in that tranche will be canceled by the end of 2022.
The third tranche, relating to up to 650,000 shares (around 0.5% of the share capital), began on May 18 and is due to be completed by July 19, 2022 at the latest, and was still ongoing at June 30, 2022.

A detailed table showing the various tranches is provided in Note 2 to the condensed consolidated interim financial statements.

3 - FIRST-HALF 2022 BUSINESS REVIEW

3.1 Key figures

Condensed consolidated income statement

(in € millions)	First half 2022	First half 2021	Change
Revenue	9,930	8,047	+23%
Recurring operating income	2,820	2,237	+26%
as a % of revenue	28.4%	27.8%	+0.6 pts
EBITDA	3,617	2,951	+23%
as a % of revenue	36.4%	36.7%	-0.3 pts
Other non-recurring operating income and expenses	(13)	(17)	+24%
Financial result	(19)	(126)	+85%
Income tax expense	(747)	(595)	-26%
Share in earnings (losses) of equity-accounted companies	2	1	+100%
Net income from continuing operations	2,043	1,500	+36%
o/w attributable to the Group	1,987	1,462	+36%
o/w attributable to minority interests	56	38	+47%
Net income (loss) from discontinued operations	1	17	-94%
Net income attributable to the Group	1,988	1,479	+34%
Net income from continuing operations (excluding non-recurring items) attributable to the Group	1,977	1,477	+34%

Earnings per share

(in €)	First half 2022	First half 2021	Change
Basic earnings per share	16.09	11.85	+36%
Basic earnings per share from continuing operations excluding
non-recurring items	15.99	11.84	+35%

Free cash flow from operations

(in € millions)	First half 2022	First half 2021	Change
Free cash flow from operations	2,049	2,354	-13%

3.2 The global Luxury market in the first half of 2022

Business levels remained very strong in the Luxury industry in the first few months of 2022. This followed a significant upturn in 2021, when revenue was 33% higher than in 2020 and 7% higher than in 2019 at constant exchange rates according to the Bain & Company/Altagamma June 2022 study, which is the reference for the figures set out below unless otherwise stated. Growth in the first quarter of 2022 was + 13- 15% at constant exchange rates compared to the year-earlier period.

Despite a high base for comparison, momentum remained firm in the second quarter across the world's major Luxury markets apart from Mainland China, which was affected by store closures arising from the deterioration in the COVID-19 situation. However, the geopolitical and macroeconomic environment worsened during the first-half period and the outlook for the rest of the year remains uncertain.

Several factors are impacting consumer spending and confidence, and therefore the Luxury market indirectly. They can be summarized as follows:

The outbreak of armed conflict between Russia and Ukraine in February 2022 had a limited direct impact on major Luxury brands. However, combined with other geopolitical tensions, it is increasing the pressure on supply chains and creating concern about the economic outlook among both consumers and the financial markets;
At the end of the first quarter and throughout the second, China's strict zero-COVID policy led to lockdowns and semilockdowns in the country's major cities. This severely restricted economic activity in the country and official figures show that Chinese GDP was almost flat (+0.4%) in the second quarter. Chinese consumer spending recovered gradually: retail sales rose in June but store footfall remained below previous levels, affected in particular by Chinese consumers' reluctance to travel. In the last few days of June, therefore, the number of people taking domestic flights in China was around half the level seen in the same period of 2021.
More generally, expectations regarding global economic growth were downgraded. According to Oxford Economics, the world economy could grow by 3.1% in 2022. Western economies and Japan are likely to see growth of only 2-3%. Chinese GDP growth, meanwhile, is expected to plateau at around 4.0%. The only economies seeing really strong performance in 2022 will be those in the Gulf (6.3%) and Southeast Asia (5.5%);
Inflation is very high and could reach 7.5% in 2022 as a whole (Oxford Economics). In particular, rising prices are affecting consumers' unavoidable expenditure and reducing their real incomes, especially since measures to support consumer spending in major economies mainly took place in 2020 and 2021;
Rising interest rates, falling financial markets with US stockmarket indices down 20-30% in the first half of 2022 – and to a lesser extent the collapse in the value of cryptocurrencies also adversely affected sentiment among consumers and their propensity to spend. However, the excess savings that households have built up recently (6‑11% of GNP in Western economies since the start of 2020 according to Société Générale) could cushion any cyclical decline in consumer spending to some extent.

In the circumstances, it is very difficult to anticipate the Luxury industry's growth profile in the second half of the year, and the range of projections is very broad.

As regards the first half of 2022, the major trends in the Luxury market were as follows:

Performances varied from one region to another.
- Sales rebounded strongly in Western Europe from a low base caused by the negative impact of COVID-19 restrictions in early 2021. Domestic consumer spending was very strong, while sales to European and American tourists rose sharply.
- In North America, revenue growth slowed in the second quarter compared to the year-earlier period, when industry business levels hit a new record. In the first half as a whole, performance was still very solid and the three-year trend (relative to 2019) is excellent.
- In Japan, like in Europe where the recovery was more gradual than in other major markets, industry sales rose sharply, moving back to or above 2019 levels.
- In Asia-Pacific, the situation in China from March onward affected the region's overall performance. However, sales rebounded strongly in Southeast Asia due to firm economic growth in that region's countries, including ongoing robust growth in South Korea.
- Finally, other regions of the world saw outstanding growth in business levels, particularly the Middle East, with only Eastern Europe seeing a decline due to Russia's status as the main market in that region.
Compared to the first half of 2021, all product categories posted fairly similar revenue growth rates, with the readyto-wear category remaining the least dynamic.
The impact of secular changes in the Luxury industry in recent years, amplified by the COVID-19 crisis, now appears to be normalized:
- E-commerce sales once again saw very robust growth in the first half of 2022, but their rate of increase is starting to normalize and their contribution to total sector sales is also stabilizing.
- Given the travel restrictions affecting most regions until recently, demand for Luxury goods has remained largely domestic. Tourism has gradually resumed in Europe, although it remains below pre-pandemic levels. Due to movements in the euro/dollar exchange rate, the second quarter brought a sharp upturn in the number of American tourists traveling abroad, which was partially detrimental to performance in North America. It also drove an improvement in travel retail sales, although that distribution network continues to show the worst performance by comparison with 2019.
- In the short and medium term, demand from Generations Y and Z remains one of the principal growth drivers for the global luxury market. This customer segment is continuing to account for a growing proportion of sales, but the rate of increase is slowing since its penetration was already high at the end of 2021 (more than 60% of revenue).

3.3 Revenue

The Group's revenue amounted to €9,930 million in the first six months of 2022. Compared to the same period of 2021, revenue rose 23% as reported and 16% on a comparable scope and exchange rate basis(1) .

Currency movements had a very positive impact on first-half 2022 performance, boosting sales growth by almost 7 points or €471 million in absolute terms. Due to the euro weakening against other major currencies, the positive exchange-rate effect arose mainly from sales denominated in US dollars (€199 million) and Chinese yuan (€188 million).

Changes in scope had a smaller, but still positive, effect on Group revenue. They included a positive contribution from LINDBERG (consolidated from October 1, 2021), and the negative impact from the deconsolidation of watch brands Girard-Perregaux and Ulysse Nardin from January 1, 2022.

All Houses and Kering Eyewear achieved year-on-year sales growth in the first half of 2022.

The increase in business levels relative to 2019 was impressive, with comparable growth of 28%.

(in € millions)	First half 2022	% of total revenue	First half 2021	% of total revenue	Change	Comparable change(3)
Gucci	5,173	52%	4,479	56%	+15%	+8%
Yves Saint Laurent	1,481	15%	1,046	13%	+42%	+34%
Bottega Veneta	834	8%	708	9%	+18%	+13%
Other Houses	1,955	20%	1,485	18%	+32%	+29%
Kering Eyewear and Corporate(1)	591	6%	396	5%	+49%	+26%
Eliminations(2)	(104)	-1%	(67)	-1%	N/A	N/A
Revenue	9,930	100%	8,047	100%	+23%	+16%

Group revenue by segment

(1) The "Corporate and other" segment has been renamed "Kering Eyewear and Corporate".

(2) Intragroup eliminations are now reported on a separate line.

(3) On a comparable scope and exchange rate basis. Comparable growth is defined on page 32.

Group revenue by quarter

Compared to 2021, growth was naturally very strong in the first quarter (21% on a comparable basis) due to the favorable base for comparison, mainly in Europe.

Second-quarter performance (comparable growth of 12%) was affected by the sudden deceleration in Asia-Pacific caused by

the Chinese market, as well as the high base for comparison in North America.

Relative to 2019, revenue growth was fairly consistent across the period, respectively at +30% and +27% in the first quarter and in the second.

Quarterly revenue by segment

	First quarter	Second quarter
(in € millions)	2022	2022	First half 2022
Gucci	2,591	2,582	5,173
Yves Saint Laurent	739	742	1,481
Bottega Veneta	396	438	834
Other Houses	973	982	1,955
Kering Eyewear and Corporate	308	283	591
Eliminations	(51)	(53)	(104)
Revenue	4,956	4,974	9,930

(in € millions)	First quarter 2021	Second quarter 2021	First half 2021
Gucci	2,168	2,312	4,479
Yves Saint Laurent	517	529	1,046
Bottega Veneta	328	379	708
Other Houses	719	766	1,485
Kering Eyewear and Corporate	192	204	396
Eliminations	(34)	(33)	(67)
Revenue	3,890	4,157	8,047

(comparable change(1))	Q1 2022/2021 change	Q2 2022/2021 change	H1 2022/2021 change
Gucci	+13%	+4%	+8%
Yves Saint Laurent	+37%	+31%	+34%
Bottega Veneta	+16%	+10%	+13%
Other Houses	+35%	+24%	+29%
Kering Eyewear and Corporate	+35%	+17%	+26%
Eliminations	N/A	N/A	N/A
Revenue	+21%	+12%	+16%

(1) On a comparable scope and exchange rate basis. Comparable growth is defined on page 32.

Group revenue by region

(in € millions)	First half 2022	% of total revenue	First half 2021	% of total revenue	Change	Comparable change(1)
Asia-Pacific (excluding Japan)	3,339	34%	3,377	42%	-1%	-8%
Western Europe	2,606	26%	1,699	21%	+53%	+51%
North America	2,705	27%	1,980	25%	+37%	+24%
Japan	577	6%	459	6%	+26%	+31%
Rest of the world	703	7%	532	6%	+32%	+26%
Revenue	9,930	100%	8,047	100%	+23%	+16%

(1) On a comparable scope and exchange rate basis. Comparable growth is defined on page 32.

Revenue generated outside the eurozone represented 81% of the consolidated total in the first half of 2022.

Revenue in mature markets increased 35% overall on a comparable basis versus 2021, and exceeded the 2019 level by 33%.

Sales in Western Europe rose 51% on a comparable basis relative to 2021, with an acceleration in the second quarter. This growth was partly the result of a low base for comparison, since part of the region's store network was closed in the first half of 2021. However, it was mainly driven by extremely robust growth in revenue from local customers, continuing the trend set in 2021. The European market also benefited from higher tourist numbers, particularly in the second quarter. Despite the ongoing absence of Chinese tourists, first-half sales in Europe were well above first-half 2019 levels.

In Japan, revenue was up 31% on a comparable basis relative to 2021, taking it almost back to its 2019 level.

Revenue in North America rose by 24% on a comparable basis year-on-year. This was despite a high base for comparison resulting from exceptional sales growth in this region in the second half of 2020 and in 2021. In particular, in the first half of 2021, the North American market was buoyed by largescale measures to support consumer spending, such as relief payments made directly to households depending on their

Group revenue by distribution channel

Sales from directly operated stores and e-commerce sites came in at €7,701 million in the first six months of 2022, up 17% relative to the first half of 2021. The previous comments regarding quarterly performance also apply to the growth trajectory of retail sales.

Revenue from the store network suffered from closures arising from COVID-related measures, which included lockdowns in 2021 in Western Europe and in 2022 in China. Nevertheless, store footfall rebounded overall relative to the first half of 2021. The e-commerce business continued to grow, with revenue up 28% compared to 2021. E-commerce sites directly operated by the Group's Houses represented almost 16% of the retail channel's revenue, as opposed to 14% in the first half of 2021 and 6% in the first half of 2019.

incomes. In addition, in the second quarter of this year, part of the luxury goods purchases made by Americans took place in Western Europe. Sales therefore grew by 13% year-on-year in the second quarter but by 87% compared to the second quarter of 2019, very similar to the 83% growth seen in the first quarter.

Total revenue in emerging-market countries was down 4% year-on-year on a comparable basis, but significantly higher than in the first half of 2019.

In the Asia-Pacific region – which accounts for the majority of the Group's emerging-market sales – revenue fell by 8% compared to the first half of 2021. The decline was solely due to China, where sales were adversely affected by the country's zero-COVID policy in the second quarter. In all other markets in the Asia-Pacific region, the Group's sales increased. Growth rates in Southeast Asia were particularly high, while business levels rebounded in Australia. Revenue continued to rise in South Korea, which is now one of the Group's largest markets.

In other emerging-market countries outside Eastern Europe, the Group posted excellent performance compared to both 2021 and 2019.

Revenue from stores and e-commerce sites directly operated by the Group accounted for around 77% of total sales (before Eliminations) in the first half of 2022 compared to 76% in the first half of 2021. This increase stems from the long-term strategy implemented by all Houses, which is aimed at controlling their distribution more effectively, including e-commerce, and making them more exclusive. However, Kering Eyewear, which has a wholesale-only distribution model, posted one of the Group's strongest growth rates, driven both by the development of existing licenses and the integration of LINDBERG.

Wholesale revenue rose 14% year-on-year in the first half of 2022 on a comparable basis (before Eliminations). These figures only partly reflect the reorganization of the wholesale distribution network that is currently underway, through which the Group is focusing more on using the highest-quality distributors. Although these streamlining efforts are almost complete at Gucci – where the base for comparison has reverted to a more normal level – they are continuing in the Group's other Couture and Leather Goods Houses.

Royalty revenue from licenses and other revenue rose by 34% on a comparable basis in the first half of 2022. Royalties received in the Eyewear category rose sharply, continuing the strong momentum seen in 2021. Royalties in the Fragances and Cosmetics category rebounded from a lower prior-year base.

3.4 Recurring operating income

(in € millions)	First half 2022	First half 2021	Change
Gucci	1,886	1,694	+11%
Yves Saint Laurent	438	275	+59%
Bottega Veneta	168	130	+29%
Other Houses	337	197	+71%
Kering Eyewear and Corporate	(7)	(63)	+90%
Eliminations	(2)	4	N/A
Recurring operating income(1)	2,820	2,237	+26%

(1) Recurring operating income is defined on page 32.

The Group's recurring operating income amounted to €2,820 million in the first half of 2022, up €583 million or 26% on the same period of 2021. All brands contributed to the increase in operating income in absolute terms.

Recurring operating margin rose 0.6 points to 28.4%, driven in particular by an improvement in gross margin, which increased by 24% to €7,378 million. As a proportion of revenue, gross margin was 74.3%, up 0.5 points relative to the first half of 2021. The positive impact of price increases and the growing proportion of sales from directly operated stores more than offset the negative impact of inflation, changes in the country mix and the combined effect of exchange-rate movements and currency hedging results.

Operating expenses rose by 23%. Excluding currency effects, this increase arose from investments made by the Group's brands and Kering Eyewear to support their development and expansion, notably by increasing budgets for store expenses, creation, development, communications and information systems in line with the industry's accelerating digital transformation. These efforts, which were necessary in view of the competitive environment and the upturn in business since the second half of 2020, affected the brands' profitability to varying extents. The vast majority of the Group's Houses benefited from a favorable operating leverage effect due to revenue growth. Continuing the trend seen in the second half of 2021, Gucci considerably increased its communications expenditure, taking it to a more normal level by comparison with the industry average, and this had an impact on its profitability compared to the first half of 2021.

3.5 EBITDA

(in € millions)	First half 2022	First half 2021	Change
Recurring operating income	2,820	2,237	+26%
Net recurring charges to depreciation, amortization and provisions on non-current operating assets	797	714	+12%
o/w depreciation of lease right-of-use assets	451	401	+12%
EBITDA(1)	3,617	2,951	+23%

(1) EBITDA is defined on page 32.

(in € millions)	First half 2022	First half 2021	Change
Gucci	2,213	1,994	+11%
Yves Saint Laurent	545	361	+51%
Bottega Veneta	251	213	+18%
Other Houses	498	334	+49%
Kering Eyewear and Corporate	112	45	+153%
Eliminations	(2)	4	N/A
EBITDA	3,617	2,951	+23%

EBITDA for the first half of 2022 amounted to €3,617 million versus €2,951 million in the same period of 2021. EBITDA margin was historically high at 36.4%, although slightly lower than the first-half 2021 figure of 36.7%.

3.6 Other non-recurring operating income and expenses

(in € millions)	First half 2022	First half 2021	Change
Impairment of goodwill, brands and other non-current assets	(14)	(4)	-250%
Other	1	(13)	+108%
Other non-recurring operating income and expenses	(13)	(17)	+24%

(See Note 5 – Other non-recurring operating income and expenses, to the condensed consolidated interim financial statements).

3.7 Financial result

(in € millions)	First half 2022	First half 2021	Change
Cost of net debt(1)	(18)	(22)	+18%
Other financial income and expenses	57	(44)	+230%
Total financial result (excluding leases)	39	(66)	+159%
Interest expense on lease liabilities	(58)	(60)	+3%
Financial result	(19)	(126)	+85%

(1) Net debt is defined on page 32.

The Group's cost of net debt was €18 million in the first half of 2022 (€22 million in the first half of 2021). This €4 million decrease mainly reflects the Group's greater use of debt instruments issued at negative interest rates, particularly in the form of commercial paper, in the first half of 2022.

Other financial income and expenses represented net income of €57 million in the first half of 2022, as opposed to an expense of €44 million in the first half of 2021.

This €101 million variation was mainly due to the €106 million positive impact from revaluing the option component of the bonds exchangeable for PUMA shares at fair value through the income statement.

(See Note 6 – Financial result, to the condensed consolidated interim financial statements).

3.8 Income tax

As of June 30, 2022, the Group estimates that its full-year tax rate (in accordance with IAS 34) will be 26.8%.

(in € millions)	First half 2022	First half 2021
Income before tax	2,788	2,094
Income tax expense	(747)	(595)
Effective tax rate	26.8%	28.4%
Other non-recurring operating income and expenses	(13)	(17)
Recurring income before tax	2,801	2,111
Income tax on other non-recurring operating income and expenses	23	2
Tax expense on recurring income	(770)	(597)
Effective tax rate on recurring income(1)	27.5%	28.2%

(1) The effective tax rate on recurring income is defined on page 32.

(See Note 7 – Income taxes, to the condensed consolidated interim financial statements).

4 - OPERATING PERFORMANCE BY SEGMENT

4.1 Gucci

(in € millions)	First half 2022	First half 2021	Change
Revenue	5,173	4,479	+15%
Recurring operating income	1,886	1,694	+11%
as a % of revenue	36.5%	37.8%	-1.3 pts
EBITDA	2,213	1,994	+11%
as a % of revenue	42.8%	44.5%	-1.7 pts
Acquisitions of property, plant and equipment and intangible assets	154	125	+24%
Average FTE headcount	20,272	18,459	+10%

Revenue

Gucci posted €5,173 million in revenue for the first half of 2022, up 15% year-on-year as reported or up 8% at comparable exchange rates. The House's sales rose well above their 2019 level both in absolute terms and on a comparable basis.

Revenue by distribution channel

The reorganization of the brand's distribution over the last two years is now almost complete. It has led to a very substantial reduction in the proportion of revenue coming from the wholesale business. This meant that sales from directly operated stores made up 91% of Gucci's total sales in the first half of 2022.

As a result, business levels in Gucci's exclusive distribution network are probably the best measure of the House's intrinsic performance.

Sales from stores and e-commerce sites controlled by the House were up 8% on a comparable basis in the first half. Growth was 15% in the first quarter and 2% in the second. The COVID-19 situation in China affected Gucci's overall performance in the second quarter.

Despite store closures in China and Russia, store footfall continued to recover, while the main performance indicators in the retail business remained very positive.

After several years of rapidly rising sales, e-commerce growth moved to a more normal level of 15% on a comparable basis in the first half. In the second quarter, the Chinese ecommerce business was affected by restrictions that prevented logistics and deliveries from operating as normal. Ecommerce sales accounted for some 17% of total retail revenue in the first half of 2022.

Since the streamlining of Gucci's wholesale distribution operations was almost complete by the end of 2021, wholesale revenue was expected to be flat or show only slight growth in 2022. In the first half, wholesale revenue rose by 9% year-on-year on a comparable basis, and was 35% lower on a comparable basis than in 2019.

Revenue by region

In view of the proportion of Gucci's sales generated by directly operated stores, the following revenue analysis by region only concerns retail and e-commerce sales.

In mature markets, revenue increased by 30% in the first half of 2022.

Revenue in Western Europe rose by 79%, driven by a low base for comparison in the first quarter and faster growth in the second as tourist numbers recovered. The sales trend among local customers remained excellent, resulting from the House's investments aimed at increasing market share in the main European markets.

In Japan, sales rose by 25% on a comparable basis in the first half, continuing the trend seen in the fourth quarter of 2021, which brought a significant improvement in the consumer environment.

In North America, Gucci's revenue was up 11% on a comparable basis. This was achieved despite a very high base for comparison and developments in global tourist flows, which particularly affected business levels in the second quarter. Although sales fell slightly in the second quarter, revenue remained strong compared to 2019, rising 79% on a comparable basis in the first half as a whole and 82% in the second quarter. In addition, there was a significant increase in sales to American tourists in Western Europe.

In emerging markets – which contributed almost half of Gucci's sales in the first half of 2022 – revenue fell 9% at constant exchange rates relative to 2021, although it remained higher than in the first half of 2019.

Revenue fell 14% in Asia-Pacific on a comparable basis. This decline was directly attributable to the Chinese market, where tough measures to stop the spread of COVID-19 had a major adverse impact on business levels from March onward and especially in April and May. In all of the region's other countries, Gucci achieved sales growth. The increase was particularly robust in Southeast Asia, despite low tourist numbers.

In the world's other regions except Eastern Europe, revenue growth was very firm relative to the first half of 2021.

Revenue by product category

In the first half of 2022, all Gucci's main product categories posted very robust increases in sales from directly operated stores compared to the first six months of 2021. The increase in average selling prices, resulting both from changes in the product mix and price increases made a very large contribution to that growth.

Efforts to enhance Gucci's offering and pricing structure went hand-in-hand with the almost-completed streamlining of its distribution and subtle changes in the brand's creative and aesthetic proposition. The aim is to elevate the brand and make it more exclusive. In this way, the House can leverage its unique heritage while remaining resolutely contemporary and modern. The brand's creative and merchandising teams are working ceaselessly to achieve this balance, with an ongoing focus on maximizing the growth potential of each product category by honing the overall offering to engage with the widest possible range of clients, and optimizing the mix between carryovers and new products.

In the first half of 2022, sales growth was broadly consistent between categories.

Leather goods sales were buoyed by successful product launches and investments in improving the range of luggage and travel bags. The deterioration in the Chinese market in the second quarter partly depressed handbag sales, although they remained solid in other regions.

The brand's other product categories saw very robust sales growth compared to 2021.

Royalties were up sharply year-on-year. The Eyewear category, managed by Kering Eyewear, continued to see rising sales, while royalties from the license granted to Coty for the Fragances and Cosmetics category saw an improvement, from a fairly favorable base for comparison.

Recurring operating income

Gucci's recurring operating income amounted to €1,886 million in the first half of 2022, up 11% on the same period of 2021.

Recurring operating margin was 36.5%, down 1.3 points.

Given Gucci's geographical exposure, the combination of currency effects and the result of currency hedging had a slight negative impact of around 0.2 points on recurring operating margin.

In addition, Gucci continued to allocate greater resources to communications and marketing efforts in the first half of 2022. This followed efforts made in the second half of 2021, when its communications expenditure moved broadly into line with normative industry levels. This additional expenditure pushed recurring operating margin down by around 1 point.

However, good cost management allowed Gucci to offset inflation-driven increases in payroll expenses.

In the first half of 2022, Gucci's EBITDA amounted to €2,213 million (EBITDA margin of 42.8%), up 11% relative to the first half of 2021.

Store network and operating investments

As of June 30, 2022, Gucci operated 519 stores directly, including 275 in mature markets. During the first-half period, Gucci opened or took over the operation of 18 stores (net of closures), all in emerging-market countries. These new stores are located in the Middle East and Greater China, where Gucci's growth potential is obviously not diminished by the secondquarter downturn in sales.

Nevertheless, Gucci continued to prioritize organic growth by maximizing the productivity of the existing store network, while maintaining efforts to identify opportunities that will enable it to enhance its distribution in certain regions or sales channels.

The House's operating investments totaled €154 million in the first half of 2022, up 24% on the first six months of 2021. They remained fairly stable as a proportion of revenue (3.0% in the first half of 2022 versus 2.8% in the first half of 2021). Seasonal variations in Gucci's operating investments between the first and second halves of the year should be fairly similar to those seen in 2021.

Breakdown of directly operated stores by region

* Net store openings/closures between December 31, 2021 and June 30, 2022.