Good afternoon. This is the Chorus Call conference operator. Welcome and thank you for joining the Moncler Full Year 2016 Financial Results Conference Call. As a reminder, all participants are in listen only mode. After the presentation, there will be an opportunity to ask questions.
At this time, I would like to turn the conference over to Ms. Paula Durante, Investor Relator and Strategy Development Director of Moncler. Please go ahead, madame.
Thank you. Good afternoon, everybody, and thank you for joining our call today on Moncler's fiscal year 2016 financial results. First of all, as usual, let me introduce you to the executive team on today's call: our Chairman and CEO, Mr. Remo Ruffini Luciano Santel, our Chief Corporate Officer Roberto Aksa, our Chief Operating Officer Andrea Teggi, Head of Retail and Sergio Bongiovanni, Executive Board Member. Before starting the presentation, I need to remind you that this presentation may contain certain statements that are neither reported financial results nor other historical information.
Any forward looking statements are based on noncore's current expectations and projections about future events. By their nature, forward looking statements are subject to risks and uncertainties and other factors that could cause results to differ materially from those expressed in or implied by these statements, many of which are beyond the ability of Moncler to control or estimate. I also remind you that Ples has been invited to participate in this conference in a listen only mode. Let me now hand over to our Chairman and CEO, Mr. Raimo Ruffini.
Good evening, everyone, and welcome to Moncler Full Year 2016 Results Conference Call. 2016 marks the achievement of another important milestone in Moncler's successful history. Group sales have reached EUR 1,000,000,000 and we have a more solid company with no debts on our balance sheet. I'm proud to say that we achieved this while staying through our heritage and DNA. Our brand is becoming stronger and stronger, and Moncler is known around the world for quality, innovation and trust.
When I bought Moncler in 2003, the brand generated just a few tens of €1,000,000 of euros in sales, mainly in Italy and only through the wholesale channel. Today, I'm pleased to report that 2016 revenues rose 18% to EUR 1,040,000,000 Our EBITDA margin remains stable at an outstanding 34%. Our net income was close to EUR 200,000,000 with more than EUR 100,000,000 of net cash. In the last quarter of 2016, Moncler saw double digit growth in all market and across all channel and 2017 started positively. We are closing our fall winter sales campaign with encouraging result with all collection and category very well received.
14 new stores have been secured, and we have some important relocation in the pipeline, including the Hong Kong flagship store in Canto Road. Last but not least, retail KPIs continue to move in a positive direction. Moncler has more than 3,200 fantastic people and their hard work has made possible to deliver the strong performance. I want everyone in Moncler to continue to be obsessed by quality in all that we do. We will work with great energy and focus to create shared and sustainable value for all our stakeholders.
For us, that is the definition of success. Now as we look to new summits, I'm confident that we are ready to face the new challenges ahead and that Moncler will continue to deliver outstanding results for all stakeholders. Thank you very much. And let me hand over now to Roberto.
Good evening, everybody. I would like to comment the chart regarding the revenue breakdown by region. Coming back to what was mentioned by Mr. Ruffini, we contemplate a very good results for the full year 2016 at that plus 18%, comforted by the fact that the quarter 4 was also very, very good. We saw an acceleration towards the end of the year with a plus 25% with a double digit growth in both channels, both in wholesale and in retail.
Coming to our historical markets, as Mr. Ruffini was mentioning, this was mainly the major market in plus 5% with a very good end of the year at plus 13%. Here also growth on both channel wholesale and retail. EMEA remains a very strong region for us, which has been contemplating a very, very strong growth, especially towards the end of the year. Globally, for the full year 2016, it's a plus 15% at constant exchange rates.
But with the last quarter where we saw an acceleration at plus 31% in all positive growth in all the region across Europe, but especially encouraging on the French market. Also based on the fact that we had comparable easier results linked to what happened at the end of 2015 in Paris. We saw very strong growth towards the end of the year with also Chinese consumer coming back and very good results on locals. Regarding APAC, all regions Japan, Korea, Hong Kong and APAC have seen positive growth in 2016 with global result at plus 23%. Last quarter in line with the results of the 1st 3 quarter at +22.
And finally, the U. S. Market with the total growth for the year at +23%, driven both by retail annual sale and also a strong acceleration on the Canadian market. I'd like to invite you to look at the following chart, which is the revenue breakdown by distribution channel. You see a growth on our historical channel, which is the wholesale channel at plus 6% with an excellent last quarter, which was a double digit plus 10% and a strong growth on retail with an acceleration also towards the end of the year.
Full total year 2016 it was a plus 23% with a +27 percent at the end of the year. To be highlighted, the very good result in terms of comp sales that grew at plus 7% for the full fiscal year 2016. If we go to the next chart, which is the monobrand store network, let me highlight a few comments here. Our total network DOS managed by us has reached a total amount of 119 stores, which is plus 17 stores for the full year 2016. In the Q4, we saw 4 new retail stores opened.
First of all, our New York flagship store on Madison Avenue that is given encouraging results since we opened it. We opened also a women's store in Cadeeve, which was a transformation from wholesale to retail. Our last store in Hong Kong Pacific Place in December last year and last store in in Korea, which is Daigou Shin Seguin. As mentioned by Mr. Ruffini, in 2017, we have already secured a total of 14 stores.
To mention the most important of them and they are linked also to new market openings is the opening of Almaty in Kazakhstan in the Argentine Mall, the opening of Dubai Mall that will take place in October next year, the opening of Sweden with a store in Stockholm and the opening of Australia with a store in Melbourne, Charleston. We continue also the opening of our store with the Enfants, the baby concept after 2 opening this year in wholesale, which were Harrods and Oberpolinger in Munich. We plan to open 3 additional stores for next year, one in Paris, Paris, Lafayette another one in Beijing, Shinkansen Place. This is a transformation from wholesale into retail and another one in Korea with Busan Shinsengue. There is a 4th one that is planned for Prantan in Paris, but this is going to be and stay a store in wholesale.
Regarding relocation, because we focus also very much on the quality of our network, so they are important investments that are foreseen for 2017 either in terms of enlargement of store or relocation store in better location. The 2 most important ones as mentioned by Mr. Rufin is Montenapolleo in Milano and the other one is Arbor City, Hong Kong. But we have also a store that we have already opened at the beginning of the year in Paris with the new Printemps department store. We have we plan to triple the size of the store we have at Harrods Women and double the size of our store in Paris Garie Lafayette and also relocate and expand our store in Shanghai Plaza 66 to mention a few of them.
Regarding wholesale, we started and we accelerated in 2016 the opening of wholesale stores. To mention a few opening of this in 20 16, there was DSS in Venice, Selfridges in Manchester, North Toronto with Eaton Centre, Neiman Marcus, Rosewell Field in U. S. As well as Los Angeles. We have secured a certain number of opening in shop in the shop, some of them in airports.
One has been recently opened in January, which is Doha Airport. We plan 3 other openings at airports with Charles De Gaulle, Taipei and Munich. Most of the opening will take place in the North American market, half of them, both in Canada and in U. S. And regarding APAC, we continue the successful expansion we're currently having with DFS with 3 openings that are foreseen, 1 in Macau with the 4th season, another one in Oakland and the third one in Guam.
Okay. Thank you, Roberto, and good evening, everybody, and thank you for attending our call today. We go now to Page 13, where we report our income statement. Top line, no more comments to add there. Honestly, very strong number, very strong growth rate.
And about the gross margin, the gross margin is 75 point 7% against 74.4 percent in 2015, better than last year, but also slightly better than what we originally planned. Better than last year because of the channel mix. I mean, as you know, we grew and we are growing more in the retail business than the wholesale business, retail business with the higher margins than the wholesale business. But also a little bit better than what we planned because of a pretty efficient inventory management. The center of our collections in 2016 has been very good, really very good.
And also, I mean, the performance of our regular stores within our retail channel has been good, pretty good. Selling expenses, this is the other face of the coin as we normally say, because we report that within the selling expenses, the cost to operate our stores. And this is the reason why the percent grew to 30% against 28.8%. But based on what I mean is our rule of thumb, I would say that gross margin has been performing better than the growth of our share expenses. So I mean overall, we have protected and even improved or slightly improved the productivity of our stores.
G and A, 9%, totally in line with last year, notwithstanding important investments that we made in our organization. As you know, I mean, as we anticipated in the past, we invested a lot and we are still investing a lot in our organization because we believe that the organization and specifically the quality of our human resources is essential and critical for our future growth. Advertising and promotion was 6.6%, totally in line with the last year and totally in line with our plan. EBITDA, EUR 313,400,000 with a margin of 30 0.1%, in line slightly, slightly better than the 30% we reported last year. New recurring items, as you know, we report within this line the stock based compensation costs.
I mean, we still have in place a pure stock option plan and the performance share plan that was approved by our shareholder meeting last year in April. Net financial result, honestly, nothing particular to comment, Most of the last year, but not the financial result itself, which was significantly better, but the impact of our FX losses that this year was €1,900,000 or last year actually it was right after the depreciation of euro and we reported the benefit of a 4,000,000 FX gain. Tax is EUR 96,800,000, 33 percent tax rate in line with the EUR 33,100,000 of last year and bottom line, slightly below the EUR 200,000,000, EUR 196,000,000 net profit with a margin of 18.8%. On the bottom of the page, we report our EBITDA, which is very important for our for the financial market, which reached the €355,100,000 with, let me say, remarkable 34.1 percent margin in line with what we reported last year. We go now to Page 14, where we report our CapEx.
CapEx has been slightly EUR 160,000,000 or EUR 62,300,000 dollars lower than last year. Important to remind you that last year, we spent more because we opened actually, we bought the store that was opened in 2016 in London, New Bond Street, on which we paid a significant key money. And this is the main reason why CapEx last year were particularly high. This year is, let's say, back to normal in the region of EUR 60,000,000. But of course, with a percent of sales, 6% against the 7.5% of last year.
Again, as usual, the majority of our CapEx have been allocated to our retail network for the openings and also for the expansion and relocations of 2016. But also a growing portion of our CapEx has been allocated to our wholesale business because of the shop in shop project that we have in place. The part the EUR 10,700,000 under the line the category corporate includes mostly our information technology project investments that again needless to say are extremely critical and important for our future. Let's move now to Page 15, where we report the net working capital. Net working capital particularly efficient, about 200 basis points better on a percentage basis than last year because of a very good credit control, a very good inventory control.
Also, I mean, something we said before, I mean, the efficiency and the good results, the good sales of our collections. But also important to highlight an unexpected EUR 5 cash collection from one of our important wholesale customers at the very end of the year. So without the EUR 5,000,000, the net working capital would have been slightly, slightly higher. But overall, I would say good numbers. We can go now to forward page, Page 16, which we report our financial position, which is not a net debt any longer.
Last year, we reported EUR 49,600,000 on net debt. This year, for the first time, we celebrate our 1st fiscal year with the net cash position, EUR 105,800,000 with a remarkable cash generation of about EUR 155,000,000. Let's move now to Page 17, where we report the balance sheet. Honestly, I don't have particular comments on balance sheet unless you may have questions later. Page 18, where we report the cash flow statement, maybe worth making some comments to see how and on which line we have generated the cash, the EUR 155,000,000 cash.
Of course, EBITDA needless to say, very good. Net working capital, as we just said, the positive unexpectedly because normally net working capital change should be a little bit negative. Also very positive change in other assets and liabilities because of many different tax events, nothing extraordinary. I don't want to get you bored, but I mean, of course, if you have a question on this line, I will be happy to answer your question later. I mean, adjusted to say that the EUR 16,000,000 positive this year is more normal than the negative number of last year.
But this number normally should be positive, but not that much. So we have some 1,000,000 a handful of 1,000,000 euros that are, let's say, not specifically ordinary, but nothing special. CapEx, we comment on net financial result, we comment taxes, we comment free cash flow EUR 210,600,000, pretty, pretty good. Below the free cash flow, we reported the EUR 35,000,000 dividends we paid in May of last year and $19,800,000 change in equity, which includes the buyback, the share buyback program we implemented 1 year ago in February of last year when we bought back 1,000,000 shares for a total amount of about EUR 13,000,000. The difference between EUR 13,000,000 and EUR 19,000,000 we report is due to the adjustment to our financial debt to take into account the value of our call option with our joint venture partners, mostly Japan and Korea.
This is a good news because we are just up the debt because our business in Japan and Korea is doing good. We're doing well, better and better and better. Of course, on the other side, we have to report a higher debt for the time in the future when we will exercise our call option. So at the end, EUR 155,400,000 net cash flow net cash generation. Okay, I'm done with my presentation and we are ready now to answer your questions.
Thank you.
Excuse me. This is the Chorus Call conference operator. The first question is from Fred Spares of UBS. Please go ahead.
Good evening. It's Fred Spares from UBS. Thanks for taking my questions. I've got three questions. The first was just on trends.
It looks like H2 like for like has come in at around 8% and you mentioned the acceleration into the end of the year. Could you comment on how trends have developed into early 2017? And also a particular comment here on Chinese New Year, please? And second question was on inventory. Again, we've seen it's broadly steady and growth has perhaps come through more strongly than you're expecting towards the end of the year.
Have you suffered much from early stock outs in any markets at the start of 2017? Last question is on space. It feels that relocation it feels to me like relocation is becoming a bigger part of the space expansion story here in addition to the new door openings. When we put this all together, what does it mean for average store selling surface increases? Would it be reasonable for us to think this is rising by a mid- to high single digit percentage this year?
Thank you.
Thank you, Fred, for your question. I would like to answer all of them and maybe with the help of Luciano. Just on the trends for the beginning of the year, as you know, we don't comment like for like short term, but I must say that the January month started very well also because of the calendar effect of the Chinese New Year. As you know, it was brought forward by 2 weeks compared to last year. So we benefit very much from the Chinese New Year effect during January.
February was good, but not as good as to the month of January. But we remain positive for the year even if clearly it's still very early and there is 10 months to go. And as you know, the weight of the last quarter is very strong for us regarding our DUS and the weight of the Q3 is very strong regarding the wholesale business. Regarding the inventory, as you know, we changed a little bit the way we manage our stock. We keep higher reserve centrally in Italy and these reserves are then allocated to the different region depending on the way they are selling.
Clearly, the sellout has been better this year compared to 2015, 2016, so compared to last year. And we had to do more reallocation of stock in order to reallocation of stock in order to, let's say, avoid as much as possible that is a little bit more tense, but we think that this is a genuine business because it has allowed us to improve our sales flow by probably around 3 points by the end of the season. And as we are now starting to sell the spring summer season, we see this is more something that is positive. Regarding the space for our stores, it's true that the average size is slightly increasing by strong middle digits year on year and it's into both factors. First, when we open new store, we tend to open store of a larger size to allocate and give more space for the new categories.
Secondly, when we enlarge store or relocate stores, clearly, we plan also year 2 to find better location and also to enlarge the square meter of the store. This being said, we have not seen a decrease of the selling by square meter and it's something that we continue to monitor very strongly. As you know, our average is about €30,000 per square meter and this average has not decreased during 2016. I would say that even been improving a little bit.
Thanks very much.
The next question is from Elena Mariani, Morgan Stanley. Please go ahead.
Hi, good evening and congratulations on your A couple of questions from me. The first one on the complementary product categories. I would be interested in getting some additional statistics around this. How was performance overall in the second half of the year? And how are you seeing are you seeing customers walking in your stores targeting specifically these products?
Or are these mainly add on purchases to outerwear products? And what about your wholesale customers? Is the perception of the brand changing among your buyers? Are they buying more of your complementary product categories? Or perhaps you have co sellers that are buying only footwear or knitwear products.
I was interested in having some comments around this. And secondly, on pricing, how are you thinking about pricing as your business evolves? Are you planning to stretch a little bit more the high end of your outerwear pricing architecture to somehow offset the growth in your complementary product categories, which come at a lower price point? And still part of this question, what was the mix between pricing and volume for H2 like for like? Thank you.
Good evening, Helena. I would like to start answering your question. First of all, the question regarding the complementary category. They have been performing, I must say, very good in 2016. You know that the weight of these additional categories that represent now approximately 20 percent, a little bit less than 20%.
They have been growing for the full year at a pace that was twice the one of the outerwear. So very strong growth in the outerwear, the strong double digit growth. But if we think about the other category, the Trico, the cut and sew, the shoes and the bags have been growing at a slightly higher pace than the hardware category. This is true for both channels both in wholesale and in U. S.
We have seen a stronger growth in the U. S. Business also because our wholesaler that were already used to buy these additional categories having larger stores than us. They were basically showing the path a little bit that we needed to follow with our own operated store. So what we did, we improved the visibility of this category.
We implemented a shoe project that has been proving to work very well. Now we have 41 stores that are under these projects that represent more than half of the sellout and they have been growing at a pace that was 3 times higher than the one that not been followed in the same way. So we as you know, we changed the same ceremony. We improved the visibility of the product. We trained people.
So now we have experts who are expert in the store and we see clearly that this is working. Regarding the other category like Trico and the Dokata and Son, we have increased their visibility through folding cages that we have been putting folding box that we have been putting in all our stores. We have now 50 of them. And we see that by showing the product itself naturally better. I think that what has been helping also the sales is the fact that in the retail excellence, of course, we focus very much on the selling ceremony and the customer experience.
And one incentive that we give our client advisor is also to increase the UPT. So I don't think we are yet at the level where people are entering especially in winter to buy this category instead of the outerwear. But it's a natural second sales that you have when you're selling outerwear. The other category on we see some potential for the future is all what we call the soft accessories, so the scarves, the gloves and so on. Here also we have started a pilot to increase visibility in the stores and to push a little bit more in this category.
Regarding the way the buyer are seeing this category, yes, we have some in department stores and buyers that are coming and starting to buy specifically on the shoes because they have the shoe area they are taking care of. But what we are trying to do in most of the case is also with the shop in the shop to have an approach where we are selling the full product assortment. So and the buyers are seeing that. I think what has been the most remarkable in 2016 is the quality of the buy from the wholesale account that we have where we are pushing not only the carryover, but also the novelties. And that these have been successfully translated also for them in an improvement of the sales through.
Regarding your last question on the pricing, I think your question was more related to the fact of selling higher. So outerwear with a higher price, it's something we started a few years ago, especially with more technical outerwear, but also outerwear with Fer. And we see that the price resistance we were thinking that the rent could have is probably higher than the one that we I said that the unit is higher than the one we had in mind. It was already in 2015 the first time we had in season reproduction of an item that was sold out already in September and this was the most expensive one we had in the assortment. So this year we quadrupled the buy of a similar item that was reproposed and it was also sell out by November.
So I think this is giving some encouraging elements for the future. And to mention also one of the important caveats which is the average selling price. The average selling price has not been going down in 20 16 despite the fact that we increased the unit per transaction.
Thank you. Very clear.
Yes. The very last question about price volume growth. You may know that we normally report 2 third of our growth of volume, 1 third of the price. This year, honestly, I mean, 2016, the vast majority of growth has been driven by volumes. And this is, I mean, another answer to your previous question.
I mean, our prices have been overall pretty much stable.
The next question is from Luca Sorca of Exane BNP Paribas. Please go ahead.
Yes, thank you. It's Luca. Maybe a few big picture questions, if I may. Your business seems to be firing on all cylinders and you are generating quite a significant amount of free cash flow. You are debt free at this point.
A number of investors are wondering what the use of cash could be going forward. And if you have any M and A ambitions in terms of acquisitions in the medium term or if you are instead focused on growing the business and investing in the business organically. As a third point, I would like to get your view on the scale of the business. You have surpassed a major benchmark and you have now more than €1,000,000,000 in sales. Do you think that you have enough scale in the broader competitive landscape that you have within
for that.
And I wonder if you see that, for that. And I wonder if you see that medium term the business can stand on its own feet and stay independent and manage the various fronts in terms of investment and development that you have opened in terms of both retail development, digital development and so on? Thank you very much indeed.
Raimo, I answered about the cash question. I think, first of all, is the 1st month we are cash positive and we are very happy about that. And but I feel we have as you know, we are not a very old company. We just start our retail business 8 years ago in 2,008. And I think we have in the supply chain as well, we have many, many things to do and many a lot of investment to do.
Retail, as you say, we're quite a good number of doors. As we said before in the call, we have a lot of relocation in mind, better stores, not only bigger in square meter mile to bigger in bank of house, really to give a good service to the customer, have a better quality, have a better relation with the customer. And we have few cities, not much in Europe, but we have few cities that need a better store or a new store like Zurich that we have really store in not in the main street, Vienna that we feel is very powerful for us. We have a small store as well as in Munich. I mean, also in Europe, it was our 1 our first region that we developed.
We feel we have many things to do. And we have to talk also about South America. We have talked about Australia. We have, let's say, only 25 store in China. We don't want to develop too fast.
We don't want to open more stores, but isn't a possibility to open more few doors. And for the other area, as you know, we invest in the supply chain only 1 year ago, we're making a big investment, but we feel even for the outerwear and the other category as well, we have the possibility to invest in facilities in new people and new in or maybe in some facilities outside of our camp that give us a possibility to improve our culture in our business.
Yes. Roberto, I'd like to add something maybe on the digital part. As you know 18 months ago we took the decision to continue with YOOX NET A PORTER. I think at the time already we were a company that was around €700,000,000 we could have taken the decision to internalize it. I don't think that this is a matter of scale is that we had other priorities to develop and the qualification of the retail network with the opening of the network of flagship that we are going to almost achieve this year with the opening of Moscow, the opening of Dubai and Monten Apologone and Hong Kong Harbor City.
We had also on our plan the development of the wholesale of the requalification I should say of the wholesale part. As you know we have been decreasing over the past 5 years reducing and cutting our network by half from more than 3,000 to 9,500 while increasing year on year with the mid single digit growth. It was again a plus 6% last year with 50 doors that we have voluntarily closed because they were not matching the qualitative criteria we had in mind. And we think that with the expansion of the shop in the shop probably another 30 openings in the next 2 years. There is still work be done and potential to go on the channel.
Regarding digital, as I mentioned, we decided to go with YOOX NET A PORTER. This being said, we have in the contract the possibility to internalize part of the service that are provided by them. I think we need to let them do what they are doing better than us, which is all the logistics and the treatment of the order. But we are very much present into the assortment that is decided. So we are influencing because we think that our website should be the largest flagship store that we have.
And we are preparing we are getting prepared for 2018 to the omni channel. So little by little, we are internalizing the main function that creating value that are creating value for us.
If I may ask a follow-up question. When you say that you have provisions to internalize some of the service that DUKES NET A PORTER is currently providing for you, Would that be at on the back of an investment on your part or buying any goodwill that YOOX NET A PORTER has created? Or would that just involve just an operational decision on your part?
I think it's more an operational decision. Of course, there is some investment that are already planned regarding the IT, but we are a pilot that is starting during the summer, internalizing the call center for it for the Italian market. So creating a call center that will be able to handle all consumer requests including in the future the one from digital. And little by little, these services are going to be internalized in Moncler. All what is related to the client and the client management will be the first priority in terms of internalization.
If we look at the results with our model, we grow we've been growing on our business on the digital side here again by almost twice the pace of the rest of the business, probably because we are lacking a little bit behind. We were at 6% last year. This year it's a little bit more than 7% of the total business. Half of this business being done through YOOX NET A PORTER, the other half being done through the e commerce business of our department store partners, but also through specialized e commerce business where we were present 2 years ago that we have started to develop like Net A Porter, Mr. Porter, matches.com.
And we have a few others that are planned that came for the selling campaign the following that we're going to open towards the end of next year. Always very qualitatively in terms of buying, but also in terms of visibility they are giving to Moncler into their website.
So all of this 6% digital business is on the back of wholesale agreements, Is that correct, including the one you have with YOOX for your Monobrand website?
No, no. This is Luciano speaking. We don't have any business with YOOX. I mean, we have our own business, which is reported, of course, under the retail channel, which is powered by YOOX. I mean, the technology is provided by YOOX.
The other online business Roberto was talking about is the online business with our wholesale online customers like Matti's, like MyTeresa, like Net A Porter. Yes, Net A Porter, the multi brand site, Mr. Porter. This kind of business is a wholesale business with online wholesale customers.
Okay, understood. So you consider the Powered by YOOX that's retail, understood?
Yes, absolutely. We report that under the retail channel also because it is retail, it's our own business. I mean, YOOX provide provides the technology, the infrastructure. And as Roberto was saying, we are planning I mean, we have already internalized some activities and we are planning to internalize other activities, which are more associated with the relation of customers. But that one is our own retail business.
Of course, we take advantage of their infrastructure, information technology infrastructure, mostly on logistics now also.
Okay, understood. Thank you.
The next question is from Alberto Cacciinato of Sidentiis. Please go ahead.
Hello, good evening. I have three questions, please. The first is about your store network. You said in the
past that you were targeting in the medium
term 2 50 retail stores.
You are you rethinking that in light of the enlargements that you have made, which looks to me like you are probably cutting back on the new openings actually because you see more value in the locations you already have. And the second one is about e commerce to come back to the previous question. I know you have your online retail store and wholesale clients, but do you see any value for you about going into marketplace websites like Farfetch, for example? And the third one is about the Italian Patent Box. Can you just tell us if you have applied and what kind of a time frame you see for any agreement to be reached?
Thank you.
Good evening, Alberto. Roberto speaking. Regarding the store network, you're right, we mentioned when we had our conference on the 1st December 2015, a number that was around 250. We think this is still valid. We never said that we were going to reach the 250 in 1 year time.
The objective was not to open 80 stores in 1 year, but to be very, very selective in the choice and now privileging even more than in the past even if I think that we have a fantastic network, but with the relocation it's an opportunity first we negotiate the rent because our power of negotiation with the visibility and the attractiveness of the brand is not the same as the one we had 5 years ago. And secondly, to choose location with the right adjacencies. This is valid on the DRS. This is also valid on the wholesale side. We have now a few options on the table also for the DUS where we relocate in departments at the ground floor level.
This was something that was unthinkable 3, 4 years ago. But with the strength of the brand, the visibility and the work that has been done, is now opening and of course we have now carefully opening the store. We had 27 openings in 2015. We slowed down the number of openings to 15 because I think that if we need if we want to do something that is qualitative, you need to spend a lot of time in the search of this location and in the negotiation. But we see still some potential to grow.
Regarding the e commerce, you mentioned Farfetch. So Farfetch, as you know, it's a business model that where we are not directly dealing with them. We are not selling to Farfetch, but we are in a way our some of our wholesale business are using the Farfetch platform to improve their sellout. And the weight of the total business of Farfetch currently is roughly 20% of the business that is done through wholesale e commerce. It's something that we and that are any weights there on the market.
It's a platform that is currently developing that we'll continue to develop.
Okay. Alberto, this is Luciano. About your question about Patent Box, of course, we filed the application last year for the ruling. We are still expecting an answer from the tax authority, which is expected to come during 2017. You may know that only a few companies that were under some kind of pilot group of companies have received the answer from the tax authority.
So this is something that we expect for this year. Thank you.
Thank you.
The next question is from Antoine Bege, HSBC. Please go ahead.
Yes. Hi, good evening. It's Antoine at HSBC. Three questions. First of all, regarding Mainland China and so the Mainland Chinese clientele, is it possible to have an idea of how much Mail in China accounted for 2016 sales?
And what was the growth rate? And if you include Chinese when they also travel, how much was that proportion? Second question relates to the EBITDA margin. I think a year ago, you were guiding for a slight dilution, which you managed to offset. So maybe first of all, explain why how you managed that?
And also, do you think that there is room to improve the EBITDA margin in 2017? And finally, regarding CapEx, I think you mentioned your store openings and also refurbishment, etcetera. What are the implication in terms of CapEx for 2017, so maybe the next 2 to 3 years? Thank you.
Bonso Artois, it's Roberto speaking. I will answer on the first one and then we'll leave Luciano answering to the EBITDA and the CapEx question. Regarding the mainland Chinese business, they represent roughly 1 third of the total business of Moncler and the business is split evenly between the sales that we are doing in Mainland China with our 27 stores and the other half is done outside. If we look at the split outside of China, you have one big 40%, 45% that is currently being done in Europe, the rest being done in the neighboring countries, Korea, Hong Kong, Japan. And as we're going to open a store in Australia next year.
We hope that some of them will follow us on the Australian market because we have seen some very strong growth of the Chinese on that market too. Singapore being another hub where we sell also a lot to Chinese and also on the West Coast of the United States. So 50% is pure local business, the other half is being done on-site.
Yes, Antoine, this is Luciano. About EBITDA, I mean, we've not only guided, but also we reported a slightly lower EBITDA margin in the first half of twenty sixteen. And honestly, unexpectedly, I mean, unexpectedly, of course, we are very happy in our business. It was very good in the second half of the year, very good in the last quarter. And these are the main reasons why the EBITDA margin at the end matched the percent that we reported last year, which as I said before is remarkable, is very good.
So I mean, honestly, our plan, I mean, we share with you all of you our plan, which was a slightly lower EBITDA margin also because as we said before, we plan to invest the money in the organization, in our G and A, in the selling expenses, training of sales people. And these are the main reasons why we said and we still say that our priority is not to make or even beat such a huge EBITDA margin, but to protect the brand, to make the company stronger and stronger for the future for the next 100 years. And so that's why we said that EBITDA margin could be a little bit diluted. I mean, we got surprised by the fact that we did better than planned. About 2017, honestly, it would be very, very unprudent even to think about a better EBITDA margin for 2017 for the years after.
Also because, I mean, we want to keep investing in advertising and promotion. This year in 2016, we have invested 6.6%, not more on a percent basis than the year before. But we still have the target that you may remember that is to get closer and closer to 7%. So everything which is important and critical for our brand will be part of our plan. Of course, operating margins, EBITDA margin is important, but it's not our first priority.
And so I think that we have to celebrate the 2nd year in the line with the 34%, but please don't think that this number may be better in the future because I think that will be very, very aggressive and prudent. Thank you. CapEx, sorry. CapEx in 2017, I think that we still have been in the region of EUR 60,000,000. I don't see we don't see material changes, material increases in 2017, we have a very important retail expansion plan, not only new openings, but expansions of existing stores, relocations.
But overall, our, let's say, guidance for 2017 is still in the region of EUR 60,000,000 more or less what we spent in 2016. Thank you. Maybe just
a follow-up, if I may. So that's so those targets, they are based still on a sort of lowtomidsingledigitlikeforlinegrowthlikeyourpreviousguidance?
Yes. I mean, this is honestly, I would not call it a guidance. And this, as we said, let me highlight at this point because it's important that this is the way we plan our retail business, mid single digit growth.
Thank you. Welcome.
The next question is from Piro D'Agagna of RBC Capital Markets. Please go ahead.
I have 2. Firstly, I just wanted to understand the impact that in season replenishment might have made to the strong top line in retail that you've reported. I don't imagine that you planned for a 10% like for like in the 4th quarter. So if you could give us any color on how those initiatives are progressing and how mobile your supply chain now is to be able to meet demand in any given quarter? That would be helpful.
And secondly, just on the wholesale number, I just wanted to understand whether there was any shipment timing effect in that 4th quarter number and whether we should expect any phasing for the Q1 of next year. Thank you.
Yes, good evening. Thank you for your question. Regarding the first one, which is the auto replenishment, we started a pilot in 2016 in Paris. We have now deployed this pilot of auto replenishment in the UK and we will be completing Europe by the first half of this year with the objective then to have a rollout still to be completely fine tuned between end of the year and beginning of next year on the other region. Yes, I think it's difficult to measure how much of this has been impacting and improving the sales force.
I think it was more driven by consumer demand. Of course, the fact of having now this not being the full auto replenishment system, but having a reserve that we kept centrally in our DC in Italy has clearly helped markets like Korea that have been really outperforming. Without this, we will probably have been losing sales on that. To value how much it has impacted, I think it's a little bit difficult, but clearly it has had a positive impact. Then you had a question regarding In terms of invoicing, there was no effect.
Our policy is never to anticipate to boost the sale or decrease if we are doing too well. I think our objective in wholesale is always to deliver the demand that is requested by our wholesale account in order to have a qualitative presence on the floor and not to have push. So you cannot don't expect either a positive or a negative impact on the Q1. It's just business as usual.
The next question is from Daniela Janniera of Macquarie. Please go ahead.
I have two questions and a follow-up please. The first one, if you can share any plan for the travel retail network and wonder if you are maybe planning to accelerate the openings in this channel, especially given the know how that has been added to the board recently? The second one is, I'm actually wondering if you have any quantification that you can share with us on the Patent Box benefit. And the follow-up is on the Milan and Hong Kong flagship. Can you please share what is the incremental square meters that you are getting from the relocation?
Thank you.
Yes. Regarding the part of travel retail, we see 2 facets of the travel retail. 1 is the business in the airport, where we have currently 6 stores that are performing well most of them under a business model that is linked to wholesale. As you know it's not us deciding if we are in retail or wholesale. Whenever there is a possibility to be in retail we do it.
But in most of the airports the business model is in wholesale. We have been opening beginning of this year Doha. We have 3 other openings that are foreseen with Chardagol, with Taipei and with Munich. We have also started discussion with Dufry. I think we are now in agreement with the commercial terms.
We have a list of airports we would like to be where we would like to be present. The timing will depend on the opportunities and the adjacencies that will become free for our plans for this year, the one I mentioned. If there are some opportunities that are going to raise along the year because there is a contract that is annual renewal, usually the contracts have a 3 year contract in at airports. Whenever there is a renewal, there is always if there is a tender the possibility to enter and here we will leverage the partnership that we are now closing with Dufry. There is a second part of the duty free business, which is also a duty free downtown that we started to operate in Korea with very successfully.
We have also another one under DOS approach at Incheon Airport that is also giving very, very good results. And we have a partnership with DFS, duty free shopping, which is downtown, but is not duty free. It's managed by company specializing duty free, but it's more something where they are strong in Asia. So we are currently developing with them presence under wholesale in Asia. So we are currently developing with them presence under wholesale business in Macau, in Auckland and in Guam after the successful opening we had with them also in Macau and in Venice in 2016.
Can you just, Ben, remind me what was your question regarding Hong Kong and
yes? Yes. If you can share the incremental square meters you're getting from the relocation of these 2 flagships.
Yes. Well, in Hong Kong, it's going to be the major increase because I think this was the most productive store we had in the network and we are multiplying the surface by 5. It's going to be also the only store in Arbor City having an entrance in the mall and also on the street. So we have strong expectation from this store that is going to become the largest one we have in the network. And regarding the store in Milano, there also we more than doubled the surface probably points to 0.5 because we fully enlarged the ground floor by more than doubling the sales on the ground floor and by adding one additional floor in on the second floor.
Okay. About Patent Box, the impact of Patent Box may be important, significant. Honestly, I can't provide you with any specific numbers also because we are still expecting the answer from the tax authority and the ruling process is still on their side. And so I mean, at the time, we would know precisely the result of the ruling process, we will let you know. But of course, we expect and we hope the impact to be important.
But let me say something more about tax rate for 2017 because I understand that there is a lot of attention to Patent Box. But something important I want to highlight is that in Italy, tax rate will decrease has decreased this year starting in 2017, down to 24% from 27.5%. Of course, we're talking about IRES, IRIS, but I mean the 3.5 points lower is not immaterial. And this will have an impact considering that more or less twothree of our taxable business is developed in Italy, I mean, we may estimate a decrease of something about 200 basis points. And this is not a patent box.
This is the decrease of our tax rate in it.
Very clear. Thank you.
The next question is from Celine Charobin of Natixis. Please go ahead.
Yes, good evening. Thank you for taking my question. I've got only one remaining. Regarding your shareholder policy, you
Sorry. Can you talk a little bit louder? Sorry. I will.
Sorry. I'm sorry.
Thank you very much for taking my question. I've got one remaining question regarding your shareholder policy. You strongly increased the dividend per share that will be proposed. I was wondering whether it will be a policy that you intend to duplicate in the coming years, I. E.
Higher payout ratio given your very large financial flexibility? Thank you very much.
Okay. This is Luciano speaking. I mean, we have increased I mean, we have proposed to the shareholder meeting to increase the dividends for 2017 based on net profit of 2016, increasing our payout ratio, not that much honestly. But as we said before, even if we are cash positive, we still believe that our plan is still important and long term plan. So we still have to invest a lot for our business and for our brand.
I would say that considering the phase of growth of the company, it will be premature to define a stable flat payout ratio or dividend policy for the future. I think that the percent in the region of 25% payout ratio is reasonable. But this in the future will depend on many different events we don't know now. Again, our focus our main focus is to invest in our own business, in our end. So this is something that we have we wanted to decide year after year.
Okay. If there are questions, operator, can you allow the last one? Sorry. Thank you very much.
The next question is from Paola Carboni, Equitasim. Please go ahead.
Yes. Just a quick two quick questions, if I may. One is about G and A line. How do you expect this cost line to progress according to the further development project you have in pipeline in 2017? And secondly, if you can update us on your project of developing internal production capacity?
Thank you.
Okay. About your first question, G and A, I mean, we reported 9% as we said before, which is a good number considering that, as we said, we have invested a lot in our organization. We plan in 2017 and the years after honestly to keep investing in the organization. On the other side, it's important to highlight that we are improving better and better the efficiency of our processes. And so it's difficult to tell you or to give you any guidance.
But I don't think that in the next future, in 2017, that number I mean that percent number will be much different. I still expect honestly 1% in the range of 9%, considering again both impacts. 1, the investment, additional OpEx, which are very important. But on the other side, an improvement of our an improvement in the efficiency of our processes.
Regarding your question, you said what is your strategy in terms of internalization of production. Let me remind you what were the reasons that pushed us to buy 2 companies that were already working for us and we acquired them at beginning of 2016. The objective was not to produce ourselves only. Of course, this is an important part, but the idea was to develop much more this project in Romania as a center of excellence for us, a center for research and development new material becoming even more competent in the way we are manufacturing also in order to improve the rest of the production that is not done and that is not internalized. The consequence is that now growing the production structure in December, is going to manufacture roughly 20% of the total production we have in the outerwear.
But again, the main objective was to increase the quality and to develop it is why we call it clinic to develop a center of excellence that can then improve also the manufacturing in the other production facilities.
Okay. And sorry, just a follow-up. Are you planning to go in this direction again for a better know how also in the other categories or not yet?
I think we are not there yet, but we have been doing important investments in our, let's say, center of product development in Treba Zee Lague close to Padova where we are basically designing our product, the product team and the merchandising team is based in these facilities and we
have been
investing for the manufacturing and development of what we call Miglia, so the Trico and Dockart and so on. So investment has been made there. I think we'll see in the future if there will be some further investment in that area, but we have now the capacity and the capabilities to develop the product internally.
Okay. Thank you very much.
Okay. I think we are done for tonight. First of all, thank you for participating to all of you. I just give you a quick reminder for the next releases. Annual General Meeting will take place on April 2020, while the Q1 2017 interim management statement will be released on May, sorry, for after market close as usual.
We will have our conference call the same day and the quiet period will start on April 5. If you have any follow-up, do not hesitate. We are here tonight or tomorrow on Erith and myself, and we speak in May. Thank you very much.