Good afternoon. This is the Chorus Call conference operator. Welcome, 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. Should anyone need assistance during the conference call, they may signal an operator by pressing star and zero on their telephone. At this time, I would like to turn the conference over to Ms. Paola Durante, Investor Relations and Strategic Planning Director of Moncler. Please go ahead, madam.
Thank you. Good afternoon, everybody. 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 Eggs, our Chief Operating Officer, Andrea Tieghi, 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 Moncler's current expectations and projections about future events. By their nature, forward-looking statements are subject to risk 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 the press has been invited to participate in this conference in a listen-only mode. Let me now hand over to our Chairman and CEO, Mr. Remo Ruffini.
Good evening, everyone. Welcome to Moncler full year 2016 result conference call. 2016 marks the achievement of another important milestone in Moncler's successful history. Group sales have reached EUR 1 billion. We have a more solid company with no debts on our balance sheet. I'm proud to say that we achieved this while staying to our heritage and DNA. Our brand is becoming stronger and stronger. 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 millions of EUR in sales, mainly in Italy and only through the wholesale channel. Today, I'm pleased to report that 2016 revenues rose 18% to EUR 1.04 billion. Our EBITDA margin remains stable at an outstanding 34%. Our net income was close to EUR 200 million, with more than EUR 100 million of net cash.
In the last quarter of 2016, Moncler saw double-digit growth in all markets and across all channels. 2017 started positively. We are closing our full winter sales campaign with encouraging results, with all collection and category very well received. 14 new stores have been secured. We have some important relocation in the pipeline, including the Hong Kong flagship store in Canton Road. Last but not least, retail KPIs continue to move in a positive direction. Moncler has more than 3,200 fantastic people. 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. 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 result for the full year 2016 at a +18%, comforted by the fact that quarter four was also very good. We saw an acceleration towards the end of the year with a +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 the major market in 2003 when we started. It is now still growing at a +5% with a very good end of the year at +13%. Here also, growth on both channel, wholesale and retail. EMEA remains a very strong region for us, which has been contemplating a very strong growth, especially towards the end of the year.
Globally, for the full year 2016, it's a +15% at constant exchange rates. With the last quarter where we saw an acceleration at +31%, positive growth in all the region across Europe, but especially encouraging in 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. Very good results from locals. Regarding APAC, all region, Japan, Korea, Hong Kong, and APAC, have seen positive growth in 2016, with global results at +23%. Last quarter in line with the results of the first three quarter at +22%.
Finally, the U.S. market, with a total growth for the year at +23%, driven both by retail and wholesale, and also a strong acceleration on the Canadian market. I would 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 +6%, with an excellent last quarter, which was a double digit, +10%. A strong growth on retail, with an acceleration also towards the end of the year, full total year 2016, it was a +23%, with a +27% at the end of the year. To be highlighted, the very good result in terms of concept that grew at +7% for the full fiscal year 2016. We go to the next chart, which is the mono-brand store network.
Let me highlight a few comments here. Our total network, the U.S., managed by us, has reached a total amount of 119 store, which is a +17 store for the full year 2016. In the fourth quarter, we saw 4 new retail store open. First of all, our New York flagship store on Madison Avenue, that is giving encouraging results since we opened it. We opened also a women store in CDG, which was a transformation from wholesale to retail. Our last store in Hong Kong, Pacific Place, in December last year, and a last store in Korea, which is the Insadong. As mentioned by Mr. Ruffini, in 2017, we have already secured a total of 14 stores.
To mention the most important of them, they are linked also to new market openings, is the opening of Almaty in Kazakhstan in the Esentai 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 Chadstone. We continue also the opening of our store with the Moncler Enfant, the baby concept. After 2 opening this year in wholesale, which were Harrods and Oberpollinger in Munich. We plan to open 3 additional store for next year, one in Paris, Galeries Lafayette, another one in Beijing, Shin Kong Place. This is a transformation from wholesaling to retail. Another one in Korea with Busan Shinsegae. There is a 4th one that is planned for Printemps in Paris, but this is going to be and stay a store in wholesale.
Regarding relocation, we focus also very much on the quality of our network, there are important investment 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. Ruffini, is Monte Napoleone in Milano, and the other one is Harbour City in Hong Kong. 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 plan to triple the size of the store we have at Harrods Women and double the size of our store in Paris Galeries Lafayette, and also relocate and expand our store in Shanghai Plaza 66, to mention a few of them. Regarding wholesale, we started and we accelerate in 2016 the opening of wholesale stores.
To mention a few opening of these in 2016, there was DFS in Venice, Selfridges in Manchester, Nordstrom Toronto with Eaton Centre, Neiman Marcus, Roosevelt Field in U.S. as well as Los Angeles. We have secured a certain number of opening in shop in a shop, some of them in airports. One has been recently opened in January, which is Doha Airport. We plan three other openings at airport 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. Regarding APAC, we continue the successful expansion we are currently having with DFS, with three openings that are foreseen, one in Macau with the Four Seasons, 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. Honestly, very strong number, very strong growth rate. About gross margin, gross margin is 75.7% against 74.4% in 2015. Better than last year, but also slightly better than what we originally planned. Better than last year because of the channel mix. As you know, we grew and we are growing more in the retail business than the wholesale business. Retail business with higher margins than the wholesale business. Also, a little bit better than what we planned because of pretty efficient inventory management. The sell-through of our collections in 2016 has been very good. Really very good. Also, the performance of our regular stores within our retail channel has been pretty good.
Selling expenses, this is the other face of the coin, as we normally say, because we report within the selling expenses, the cost to operate our stores. This is the reason why the percent grew to 30% against 28.8%, Based on what is our rule of thumb, I would say that gross margin has been performing better than the growth of our selling expenses. Overall, we have protected and even slightly improved the productivity of our stores. G&A, 9%, totally in line with last year, notwithstanding important investments we made in our organization. As you know, 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 promotion, 6.6%, totally in line with last year and totally in line with our plan. EBIT, EUR 313.4 million, with a margin of 30.1%, in line, slightly better than the 30% we reported last year. Non-recurring items, as you know, we report within this line the stock-based compensation costs. We still have in place two 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. Worse than last year, but not the financial result itself, which was significantly better, but the impact of our FX losses that this year was EUR 1.9 million. Last year, actually, it was right after the depreciation of euro, and we reported the benefit of EUR 4 million FX gain. Taxes, EUR 96.8 million, 33% tax rate, in line with the 33.1% of last year.
Bottom line, slightly below EUR 200 million, EUR 196 million net profit with a margin of 18.8%. On the bottom of the page, we report our EBITDA, which is very important for the financial market, which reached EUR 355.1 million with, let me say, remarkable 34.1% margin, in line with what we reported last year. We go now to page 14, where we report our CapEx. CapEx has been slightly higher than EUR 60 million, EUR 62.3 million, lower than last year. Important to remind you that last year, we spent more because actually, we bought the store that was opened in 2016 in London, in 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 million.
Of course, with a percent on sales, 6% against the 7.3% 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. 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 10.7 million under the line, the category Corporate, includes mostly our information technology projects investments that, again, needless to say, are extremely critical and important for our future. Let's move now to page 15, where we report our 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.
Something we said before, the efficiency and the good results, the good sales of our collections. Also important to highlight an unexpected EUR 5 million cash collection from one of our important wholesale customers at the very end of the year. Without the EUR 5 million, the net working capital would have been slightly higher. Overall, I would say good numbers. We can go now to the following page 16, on which we report our financial position, which is not a net debt any longer. Last year, we reported EUR 49.6 million net debt. This year, for the first time, we celebrate our first fiscal year with a net cash position, EUR 105.8 million, with a remarkable cash generation of about EUR 155 million. Let's move now to page 17, where we report the balance sheet.
Honestly, I don't have particular comments on the balance sheet, unless you may have questions later. Page 18, where we report the cash flow statement. Maybe worth making some comment to see how and on which line we have generated the cash, the EUR 155 million cash. EBITDA, needless to say, very good. Net working capital, as we just said, positive unexpectedly, because normally net working capital change should be a little bit negative. Very positive change in other assets and liabilities because of many different tax events, nothing extraordinary. I don't want to get you bored, of course, if you have a question on this line, I will be happy to answer your question later. Just to say that the EUR 16 million positive this year is more normal than the negative number of last year. This number normally should be positive, but not that much.
We have some million, a handful of million EUR that are, let's say, not specifically ordinary, but nothing special. CapEx, we comment on net financial result, we comment on taxes, we comment on free cash flow at EUR 210.6 million. Pretty good. Below the free cash flow, we report the EUR 35 million dividends we paid in May of last year, and EUR 19.8 million change in equity, which includes the share buyback program we implemented one year ago in February of last year, when we bought back one million shares for a total amount of about EUR 13 million. The difference between EUR 13 million and the EUR 19 million 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 good news because we adjust up the debt because our business in Japan and Korea is doing good, and we do well, 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. At the end, EUR 155.4 million net cash flow and 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 conference call operator. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. To remove yourself from the question queue, please press star and two. Please pick up the receiver when asking questions. Anyone who has a question may press star and one at this time. The first question is from Fred Speirs of UBS. Please go ahead.
Good evening. It's Fred Speirs 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? Second question was on inventory. Again, we've seen it's broadly steady, and growth has perhaps come through more strongly than you were 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's on space. It feels to me like relocation's 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. 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 two weeks compared to last year. 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. We remain positive for the year, even if clearly it's still very early on.
There is 10 months to go, as you know, the weight of the last quarter is very strong for us regarding our deals, the weight of the third quarter is very strong regarding the wholesale business. Regarding the inventory, as you know, we change 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 sell-out has been better this year compared to 2015, 2016, compared to last year. We had to do more reallocation of stock in order to, let's say, avoid as much as possible stock-out.
We are currently in a situation that is a little bit more tense, but we think that it is a genuine business because it has allowed us to improve our sell-through by probably around three points by the end of the season. As we are now starting to sell the spring, summer season, we see this as more something that is positive. Regarding the space for our stores, it's true that the average size is slightly increasing by a strong middle digits year-on-year, and it's linked to 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 tend also here 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 above EUR 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 excellent results. 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 customers walking in your stores targeting specifically these products, or are these mainly add-on purchases to outerwear products? What about your wholesale customers? Is the perception of the brand changing among your buyers? Are they buying more of your complementary product categories? Perhaps you have wholesalers that are buying only footwear or knitwear products. I was interested in having some comments around this. 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 affect the growth in your complementary product categories, which come at a lower price point? Still part of this question, what was the mix between pricing and volume for H2 like-for-like? Thank you.
Good evening, Elena. 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 their weight, the weight of these additional categories, they represent now approximately 20%, a little bit less than 20%. They've been growing for the full year at a pace that was twice the one of the outerwear. Very strong growth in the outerwear. Still very strong double-digit growth. If we think about the other category, the tricot, the cotton shirt, the shoes and the bags have been growing at a slightly higher pace than the outerwear category. This is true for both channels, both in wholesale and in DOS.
We have seen a stronger growth in the DOS business also because our wholesaler, they were already used to buy these additional categories, having larger store than us. They were basically showing the path a little bit that we needed to follow with our own operated store. 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 this project. They represent more than half of the sell-out, and they have been growing at a pace that was three times higher than the one that not been followed in the same way. As you know, we changed the selling ceremony. We improved the visibility of the product. We train people, so now we have true expert in the store, and we see clearly that this is working.
Regarding the other category, like the tricot and the cotton and so on, we have increased their visibility through folding cages, folding products that we have been putting in all our stores. We have now 450 of them, and we see that by showing the product, it sells 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. One incentive that we give to our client advisor is also to increase the UPT. 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. It's a natural second sale that you have when you are selling outerwear.
The other category in which we see some potential for the future is what we call the soft accessories, so the scarves, the gloves, and so on. Here also, we have started a pilot to increase the visibility in the stores and to push a little bit more in this category. Regarding the way the buyers are seeing this category, yes, we have some in department stores, some buyers that are coming, and they are starting to buy, specifically on the shoes, because they have a shoe area they are taking care of. 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. 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. These have been successfully translated also for them in an improvement of the sales flow. 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 fur. We see that the price resistance we were thinking that the brand could have is probably higher than Let's say that the limit 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 it was the most expensive one we had in the assortment. This year, we quadrupled the buy of a similar item that was reproposed, and it was also sold out by November. I think this is giving some encouraging elements for the future. To mention also one of the important KPIs, which is the average selling price. The average selling price has not been going down in 2016, 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 two-third of our growth volume, one-third price. This year, honestly, in 2016, the vast majority of growth has been driven by volumes, and this is another answer to your previous question. Our prices have been overall pretty much stable.
Thank you very much, and congratulations again.
The next question is from Luca Solca 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're 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&A ambitions in terms of acquisitions in the medium term. 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 EUR 1 billion in sales. Do you think that you have enough scale in the broader competitive landscape that you have within luxury goods?
You say, for example, that you see digital as a critical priority, but you still depend on third parties for that. 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.
Remo. Answer about the cash question.
It is the first month we are cash positive, we are very happy about that. As you know, we are not a very old company. We just start our retail business eight years ago in 2008, I think we have in the supply chain as well, we have many things to do and a lot of investment to do. Retail, as you say, we have 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 amount or bigger in back of house, really to give a good service to the customer, have a better quality, have a better relationship with the customer.
We have few cities, not much in Europe, we have few cities that need a better store or a new store like Zurich, that we have really store not in the main street. Vienna, that we feel is very powerful for us. We have a small store as well as in Munich. Also in Europe, our first region that we develop, we feel we have many things to do. We have to talk also about South America. We have to talk about Australia. We have, let's say only 25 stores in China. We don't want to develop too fast. We don't want to open more stores, it is a possibility to open few doors. For the other area, as you know, we invest in the supply chain.
Only one year ago, we make a big investment, we feel, even for the outerwear in the other category as well, we have the possibility to invest in facilities, in new people maybe in some facilities outside of our company, give us a possibility to improve our culture in our business.
Yes, look at Roberto, 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 EUR 700 million. 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, the development and the requalification 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 Monte Napoleone and Hong Kong Harbour City. We had also on our plan the development of the wholesale or the requalification, I should say, of the wholesale part.
As you know, we have been decreasing over the past 5 years, reducing, cutting our network by half from more than 3,000 to now 1,500, while increasing year-on-year with the mid-single-digit growth. It was again a +6% last year with 50 doors that were voluntarily closed because they were not matching the qualitative criteria we had in mind. 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 to 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. We are very much present into the assortment that is decided. We are influencing because we think that our website should be the largest flagship store that we have. We are getting prepared for 2018 to the omnichannel. Little by little, we are internalizing the main function 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 Yoox Net-a-Porter is currently providing for you, would that be on the back of an investment on your part or buying any goodwill that Yoox Net-a-Porter have 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 the Italian market. Creating a call center that will be able to handle all consumer requests, including in the future, the one from digital. 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've been growing on our business on the digital side year 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 not present two years ago that we have started to develop, like Net-a-Porter, Mr Porter, MATCHESFASHION.COM. We have a few others that came for the selling campaign, the fall-winter, 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 and to their website.
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, this is Luciano speaking. We don't have any business with Yoox. We have our own business, which is reported, of course, under the retail channel, which is powered by Yoox. The technology is provided by Yoox. The other online business Roberto was talking about is the online business with our wholesale online customers like MATCHESFASHION, like Mytheresa, like Net-a-Porter, the multi-brand site, Mr Porter. This kind of business is a wholesale business with online wholesale customers.
Okay, understood. You consider the powered by Yoox as retail. Understood.
Yes, absolutely. We report that under the retail channel also because it is retail, it is our own business. Yoox provides the technology, the infrastructure, and as Roberto was saying, we are planning. We have already internalized some activities, and we are planning to internalize other activities, which are more associated with the relational customers. That one is our own retail business. Of course, we take advantage of their information technology infrastructure, mostly on logistics now also.
Okay, understood. Thank you.
The next question is from Alberto Cacchinato of Santander. 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, 250 retail stores. Is that still a valid target, or 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? 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. Do you see any value for you about going into marketplace websites like Farfetch, for example? The third one is about the Italian patent box. Can you just tell us if you have applied and what kind of timeframe you see for any agreement to be reached?
Thank you.
Good evening, Alberto. Roberto speaking. Regarding the store network, you are right. We mentioned when we had our conference on the 1st of 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 one year time. The objective was not to open 80 stores in one year, but to be very selective in the choice. 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 to renegotiate the rents because our power of negotiation with the visibility and the attractiveness of the brand is not the same as the one we had five years ago. Secondly, to choose location with the right adjacencies. This is valid on the U.S.
This is also valid on the wholesale side. We have now a few options on the table also for the U.S., where we relocate in departments at the ground floor level. This was something that was unthinkable three, four years ago, but with the strength of the brand, the visibility, and the work that has been done, these doors are now opening, and of course, we have now carefully opened this store. We had 27 openings in 2015. We slowed down the number of openings to 15 because I think that 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. We see still some potential to grow. Regarding the e-commerce, you mentioned Farfetch. Farfetch, as you know, it's a business model where we are not directly dealing with them.
We are not selling to Farfetch, but we are in a way, some of our wholesale business are using the Farfetch platform to improve their sell-out, 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 see positively and that any weight there on the market, it's a platform that is currently developing, that will continue to develop.
Okay, Alberto, this is Luciano. About your question about the 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. This is something that we expect for this year. Thank you.
Thank you.
The next question is from Antoine Belge, HSBC. Please go ahead.
Yes. Hi, good evening. It's Antoine at HSBC. Three questions. First of all, regarding Mainland China and also the Mainland Chinese clientele, is it possible to have an idea of how much Mainland China accounted for 2016 sales, and what was the growth rate? 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. Maybe first of all explain why, how you managed that. Also, do you think that there is room to improve the EBITDA margin in 2017? Finally, regarding CapEx, I think you mentioned your store openings and also refurbishment, et cetera. What are the implications in terms of CapEx for not only 2017, but also maybe the next 2-3 years? Thank you.
Also, Antoine, it's Roberto speaking. I will answer on the first one, and I will leave Luciano answering to the EBITDA and the CapEx question. Regarding the Mainland Chinese business, they represent roughly one 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. As we are 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 a 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 U.S. 50% is pure local business, the other half is being done outside.
Yes, Antoine, this is Luciano. About EBITDA, we not only guided, but also we reported a slightly lower EBITDA margin in the first half of 2016. Honestly, unexpectedly, of course, we are very happy. Our business was very good in the second half of the year, very good in the last quarter. These are the main reasons why the EBITDA margin at the end matched the percent we reported last year, which, as I said before, is remarkable. It's very good. Honestly, our plan, we share with all of you our plan, which was a slightly lower EBITDA margin. Also because, as we said before, we planned to invest money in the organization, in our G&A, in the selling expenses, training of salespeople.
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. That's why we said that the 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 imprudent even to think about a better EBITDA margin for 2017 and for the years after. Also because we want to keep investing in advertising and promotion. This year in 2016, we have invested 6.6%, not more on a percentage basis than the year before, but we still have the target, you may remember, that is to get closer and closer to 7%.
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. I think that we have to celebrate a second 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 imprudent. Thank you.
CapEx.
CapEx, sorry. CapEx in 2017, I think that we will still be in the region of EUR 60 million. We don't see material changes and material increases in 2017. We have a very important retail expansion plan, not only new openings but expansions of existing stores, relocations. Overall, our, let's say, guidance for 2017 is still in the region of EUR 60 million, more or less what we spent in 2016. Thank you.
Maybe just to follow up, if I may. Those targets, they are based still on a sort of low to mid-single digit, like-for-like growth, like your previous guidance.
Yes. Honestly, I would not call it a guidance. This, as we said, and let me highlight this point because it's important, this is the way we plan our retail business, mid-single digit growth.
Thank you.
Welcome.
The next question is from Piral Dadhania of RBC Capital Markets. Please go ahead.
Thanks very much for taking my question. I have two. 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 fourth quarter. 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. Secondly, just on the wholesale number, I just wanted to understand whether there was any shipment timing effect in that fourth quarter number and whether we should expect any phasing for the first quarter 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 U.K., and we will be completing Europe by the first half of this year with the objective to have a rollout still to be completely fine-tuned between end of the year and beginning of next year on the other region. I think it's difficult to measure how much of this has been impacting and improving the sales flow. I think it was more driven by consumer demand. Of course, the fact of having now, this not being a 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 would 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. In terms of invoicing, no, 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. You don't expect either a positive or a negative impact on the first quarter. It's just business as usual.
The next question is from Daniele Gianera of Macquarie. Please go ahead.
[Foreign language] Daniele Gianera, Macquarie. I have two questions and a follow-up, please. The first one, if you can share any plan for the travel retail network, and wondering 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. The follow-up is on the Milano 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 two facets of the travel retail. One is the business in the airport, where we have currently six 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 three other openings that are foreseen with Charles de Gaulle, with Taipei, and with Munich. We have also started discussion with Duty Free. I think we are now in agreement with the commercial terms. We have a list of airports 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 opportunity that are going to arise along the year because there is a contract that is ending. Usually, the contracts are a three years contract 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 Duty Free. There is a second part of the Duty Free business, which is also Duty Free Downtown that we started to operate in Korea very successfully. We have also another one under a DOS approach at Incheon Airport that is also giving very good results. We have a partnership with DFS, Duty Free Shopping, which is downtown, but is managed by the company specializing in duty free, but is more something where they are strong in Asia. We are currently developing with them presence under a wholesale business in Macau, in Okinawa, and in Guam after the successful opening we had with them also in Macau and in Venice in 2016.
Can you just remind me what was your question regarding Hong Kong?
Yes, if you can share the incremental sq m you are getting from the relocation of these two flagships.
Yeah. Well, in Hong Kong it is 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 five. It is going to be also the only store in Harbour City having an entrance in the mall and also on the street. We have strong expectations from this store that is going to become the largest one we have in the network. Regarding the store in Milano, there also we more than double the surface, probably points to point five, because we fully enlarged the ground floor by more than doubling the space on the ground floor and by adding one additional floor 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. At the time we will know precisely the result of the ruling process, we will let you know. Of course, we expect and we hope the impact to be important. Let me say something more about tax rate for 2017 because I understand 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, but the 3.5 points lower is not immaterial.
This will have an impact considering that more or less two-thirds of our taxable business is developed in Italy. We may estimate a decrease of something about 200 basis points. This is not Patent Box. This is the decrease of our tax rate in Italy.
Very clear. Thank you.
The next question is from Celine Charbin 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 strongly increased the dividend-
Sorry.
Yeah.
Can you talk a little bit louder, Celine? We don't hear you.
Yes, I will try. I am sorry. Thank you very much for taking my question. I have 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., a higher payout ratio, given your very large financial flexibility. Thank you very much.
Okay, this is Luciano speaking. 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. As we said before, even if we are cash positive, we still believe that our plan is still important, a long-term plan. 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 would be premature to define a stable flat payout ratio or a dividend policy for the future. I think that a percent in the region of 25% payout ratio is reasonable. This, in the future, will depend on many different events we do not know now. Again, our main focus is to invest in our own business, in our brand.
This is something that we want 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, Equita SIM. Please go ahead.
Yeah, just two quick questions, if I may. One is about G&A line. How do you expect this cost line to progress according to the further development project that you have in pipeline in 2017? Secondly, if you can update us on your project of developing internal production capacity. Thank you.
Hello, Paola. About your first question, G&A, 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. 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 will be much different. I still expect, honestly, a % in the range of 9%, considering, again, both parts. One, the investment, additional OPEX, which are very important. On the other side, an improvement in the efficiency of our processes.
Paola, 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 two companies that were already working for us, and we acquired them at the beginning of 2016. The objective was not to produce ourself 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 in 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 capacity that we have done, we have now merged these two structures in December, is going to manufacture roughly 20% of the total production we have in the outerwear. Again, the main objective was to increase the quality and to develop it. This is why we call it clinic, to develop the center of excellence that can then improve also the manufacturing in the other production facilities.
Okay. 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 Trebaseleghe, 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 maglieria , so the tricot and the cotton. Investment have been made there. I think we'll see in the future if there will be some further investment in that area. 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 20, while the Q1 2017 interim management statement will be released on May 4, after market close as usual. We will have our conference call the same day, and the quiet period will start on April 5th. If you have any follow-up, do not hesitate. We are here tonight or tomorrow, Americo and myself, we speak in May. Thank you very much. Ciao.