Good morning. I'd like to welcome you to the first presentation of the annual results of the new Kering Group for 2013. A year ago, in this very room, we presented to you the last results of PPR, and we've come a long way since then. We have, as you know, adopted a new identity, a new group brand that symbolizes the completion of the transformation, the transformations that we will be discussing today. This change that we have implemented resolutely over the past few years has been conducted on the basis of a clear determined strategy that I'll return to in the latter part of this presentation, setting out the issues and the objectives, both present and future. The exit from our distribution assets, as we announced and as confirmed in the press release published this morning, had an important impact on our 2013 accounts.
This impact is the necessary consequence of our deep determination to provide the companies that leave the group with the best chances of success. We're now excellently placed to roll out our integrated group strategy and to leverage our key strengths for the years ahead. I would like, first of all, to give the floor to Jean-François Palus, the Group Managing Director of Kering, so that he can set out the financial and operational highlights of 2013, and then to Jean-Marc Duplaix, our CFO, who will review developments and accounts for the past year. I'll return for the conclusion in order to set out our strategy and outlook, and of course, we'll answer your questions. Jean-François.
Good morning to you all. I'd also like to welcome you as François-Henri has just done. 2013 has been a year of profound and very exacting transformation.
Thanks to that, we have set out a strong foundation for our future growth. 2013 was first and foremost a year of solid performance for our group, and I'll begin with this. Kering posts a growth of revenue on a comparable basis of 4%. The luxury division has once again posted remarkable growth in its performance with a strong trend in Q4. The revenue of the segment on a like-to-like basis is up 7% on the year, reaches record operating level 26%, thanks to a sharp increase in excess of 4% of its operating income. These figures were obtained in a context of tensions on consumer trends in certain markets, repositioning of the offer at Gucci, and sustained CapEx increases for all brands.
The sports and lifestyle segment hosts results that are down as we anticipated, against a backdrop of the fundamental change that we're undertaking at Puma, where a radically renewed management team is devoting itself to relaunching the brand. The group has once again, in 2013, posted a very high level of operating free cash flow above EUR 1 billion, excluding the one-off exceptional real estate investment that we performed in Tokyo last year. Our cash is up 8%, whereas our net operating investments were increasing 20%. Our financial strength remains a real asset. Our net debt at the end of the year is at an EBITDA ratio of 1.7 times. Thanks to the reduced rates and the refinancing strategy that we're actively implementing, the cost of our financing has improved further this year.
Our recurring net income that is slightly down would post an increase excluding valuation of financial instruments in respect of IAS 39 by only taking account of the genuinely operational items. This chart sets out the key financial data concerning our two divisions. In the luxury division, our three main brands as well as all the other brands, posted an increase in their revenue on a like-to-like basis and their operating income for the year as a whole. The multi-brand strategy that we're systematically implementing in the luxury segment, which is a unique hallmark of the group, is once again producing results. The very high growth rates of Bottega Veneta, Saint Laurent, and almost all our other brands strengthen the performance of Gucci, our flagship brand, which this year continued its repositioning on an upscale offering.
For the division as a whole, we're particularly satisfied with the 8% sales increase in our owned stores. Excluding Gucci and Bottega Veneta, whose strategies rely on strengthening the network of owned stores, the wholesale sales at Saint Laurent and other brands for which this channel remains important, posted double-digit growth. The sports and lifestyle figures bear the mark of transformation underway at Puma, have difficulties on the European market, a market to which Puma is more exposed than most of its peers. Puma kept a tight control on operating costs while maintaining marketing visibility, R&D, and innovation efforts to fueling its revival. Volcom and Electric completed the work on their repositioning, leading to a sharp improvement in their performance during Q4. In many respects, 2013 was a year of transformation for Kering. We welcome new brands with remarkable potential in the luxury division.
We changed the management teams of all our sport and lifestyle brands. We've moved upscale the transversal activities that allow Kering to leverage the growth of its brands. Last but not least, we've completed the transformation into a uniform group that is specialized in apparel and accessories on the luxury, sport, and lifestyle segments. A word about each of these developments. In 2013, we took a majority stake in a couture brand whose creativity and energy are recognized by all, Christopher Kane. In the hard luxury segment, which is one of our key focus areas, we acquired Pomellato, an innovative and profitable jewelry group that also includes the Dodo brand. We also completed the integration of the luxury companies we recently acquired, notably Kilian and Brioni. In sport and lifestyle, the number one priority is to revive our existing brands and above all, Puma.
We strengthened its leadership under the responsibility of Bjørn Gulden, who has the necessary qualities and skill sets to revive this brand so that it can return to its previous sales momentum. After six months work, the new energy which the team around it has been able to impart on the organization as a whole testifies to the ability for change that this company has. We're confident in the implementation of its plan and its repositioning, François-Henri will discuss that further later on. As regards to the transversal functions, everywhere where we are present, we have a fully fledged group spirit, a sharing of means and cultures, allowing us to move faster and be more effective in all areas where we can do better together than separately.
During the year, we've strengthened our business skills, be it commercial real estate, brand platform, brand equity analysis, or all our support functions. Lastly, the transformation of PPR into Kering was finalized at the end of the year with the announcement of the disposal of La Redoute, following the listing of the group Fnac in June, and the sale of the international activities of Redcats in the first half. We were attentive during all these disposals to fully apply our entrepreneurial responsibility, thereby take account of the interests of all stakeholders in order to ensure the future success of these companies for people and communities that depend on them. The disposal process of La Redoute is continuing, the priority being to transform this company that it preserves its leadership on the internet, on apparel and home products in France.
As we have pledged, Kering provides the buyers with the means to refinance this transformation. Our consolidated net income for 2013 bears the mark of these initiatives. We're certain, François-Henri will confirm this, that following these transactions, we'll have the best platform to drive our future profitable growth. I'll now hand over to Jean-Marc for detailed reviews of our activities and performance for the year elapsed.
Good morning, ladies and gentlemen. You all have well understood, in 2013, Kering saw strong operational performance driven by a good increase in sales and increase in the profitability in the luxury division. I'd like to comment on that now. This is a good illustration of the appropriateness of the multi-brand business model. All the luxury brands have seen strong momentum, especially sales in the division in Q4 2013 saw an increase by two points compared to the previous quarter, reaching 7.4% on like-for-like basis. We can see growth in a uniform fashion in mature countries, upside more than 8%, driven inter alia by North America and Japan. Then emerging countries also see an increase of almost 6%. Greater China, making up 20% of the division's sales, records growth of 4%. In 2013, the luxury division's operating margin reached another record level, 26% for the full year.
Now, we've been helped by some technical effects, positive impact of foreign exchange hedging. The underlying increase, nevertheless, is substantial. This is a reflection inter alia of positive effects due to an improvement in product mix, as well as a good variety of distribution channels. At a constant exchange rate, almost all brands see an increase in growth margin. 2013 OpEx in the luxury division grew by around 13%. This increase is due to refurbishments of stores, openings of stores, extensions of stores, about 60% of the total. The remainder was investments in industrial and logistics capacity, building new workshops, also there were investments in IT. Let's talk about the performance of our various luxury brands. We'll begin with Gucci. In 2013, Gucci reached sales up 2.2% on a like-for-like basis.
Gucci continued with its strategy of upscaling the brand. It has been strengthening its own distribution retail network. It has been seeking operational excellence in its stores. It has also been upscaling the overall product offering. As you know, we entered into Asia, where we are actively rolling out this upscale in Asia, after having successfully done so in North America, in Europe, and in Japan. Two indicators I think are a very good illustration of this. In Q4 2013, the proportion of non-logo brands out of handbag sales was 60%, as opposed to 44% one year earlier. This increase is bolstered by the success of new leather products like Bamboo Shopper and Lady Lock. In Q4 2013, leather bags made up 72% of total sales in that category, as opposed to 55% for the same period last year. We are seeing a further improvement in the product mix.
Furthermore, I remind you of the following, the average price per handbag has gone up by 40% in the last four to five years. This is a reflection of the upscaling work that has already been achieved. Broken down by product category, handbags see growth that is strong, 7% growth in our wholly owned stores. Other major categories such as footwear, ready-to-wear, also see good performance driven, among other things, by men's product lines. Good sales momentum in the retail network, up 5% like for like, whereas wholesale sales to third parties dropped by 7%. The reason for this is a deliberate choice to contain growth in sales to some distributors. Also, a reduction in number of points of sales by taking over some leaseholders to run these on our own. Broken down by geography, the trend continues to be good.
In the U.S. and Hawaii, growth of 7%, dynamic domestic demand looking good, growth 7% as well. Not to mention in Western Europe, growth was slightly slower, among other things due to right sizing of wholesale selling in Italy, particularly in the first half. Lastly, in Asia Pacific, performance is down slightly. Continental China sees some temporary effects due to the consolidation of our store network and the repositioning of our product offering. Current operating income is up. The operating margin sees an increase of 80 basis points, reaching 31.8%, which is a record level. This improvement benefits from a positive effect, such as the foreign exchange hedging. Most importantly, we have seen an improvement in the growth margin at a constant exchange rate, thanks to the product mix. This improvement has been, to some extent, reinvested to support brand development.
OpEx up 5.2%, over half of which is spent on stores, priority being given to refurbishments. We have made investments to strengthen the supply chain as well. We have seen 26 net store openings, not taking into account taking over 19 points of sale. 2013 is the first stage in stabilizing the overall budget for brand investment. Here you see an overview of Bottega Veneta's performance. Their sales went beyond EUR 1 billion in 2013, the EUR 1 billion mark. Very substantial growth throughout the year, approximately 14% growth on like-for-like basis. Q4, also very strong, up 13%, and the baseline comparisons are very high. This is the momentum, and this just goes to show the success, the ongoing strategy of Bottega Veneta. Once again, in 2013, they strengthened their positioning as high-end upscale brand. Growth is still bolstered by leather goods, that is their core business.
They've seen leather growth by 15%. Other product categories are also seeing very strong growth. This is especially true regarding ready-to-wear collections and men's footwear, which see growth on the order of 25%. Broken down by region, Bottega Veneta has seen very uniform growth among emerging countries, representing 44% of their sales, up by almost 16%, as well as mature countries, up by 13%. More specifically, in Japan, a major market for the brand, sales have grown by almost 19% in 2013. In 2013, operating income for Bottega Veneta grew by over 10%. Another record in their operating margin, reaching 32.5%, which is up by 70 basis points. This performance is an example of the very sound momentum in growth margin, assisted to some extent by foreign exchange hedging. If you look at this, you also see the fact that we're able to absorb fixed operational costs.
This increase in growth margin has helped offset some of the dilution caused by the increased number of stores and some of the increases in rental payments in Europe and Asia. This is a buoyant context. Operational expenditure has gone up by over 50% in this situation. Over two-thirds of the OpEx is on stores. 25 stores opened in 2013, including several openings of iconic stores like the flagship in Milan, Via Sant'Andrea, in September. You have a picture of this on the screen. Furthermore, to be always better underpinning brand development, a new workshop was opened in Rovereto, Vicenza, which is near Venice. Now I'd like to talk to you about Yves Saint Laurent's performance. 2013 will have been a year of investment in the brand. Most importantly, a year of exceptional development. This year illustrates the success of Yves Saint Laurent's artistic renewal.
In the continuity of nomination of Hedi Slimane in 2013, we saw the launch of new styles, the installation of a new store concept, both of which are helping really underscore this very consistent and unique brand look and feel. We can say that in couture there's real momentum. If we look at the fragrances and royalties, things remain good there as well. Sales at Yves Saint Laurent up strongly, 22% on like-for-like. Q4 was up 42%. The brand goes beyond EUR 500 million in annual sales. All regions are contributing to annual growth, with increases on the order of 20% or above in both mature and emerging countries. All product categories seeing strong growth. Leather goods, representing almost 45% of sales, recorded growth of above 20%, driven by the success of novelties which very quickly became iconic, like the Sac de Jour.
Furthermore, ready-to-wear, which makes up about 25% of the brand's sales, sees their sales rise by over 50%. Performance of wholly owned stores, very strong. Improvement is ongoing in this trend throughout the year. Q4 saw a growth of 31%. Sales to outside retailers grow by 43% for the full year. This type of improvement really shows that there's been true creative renewal at Saint Laurent, and the purchasers have realized it. Furthermore, it shows that some of the deliveries in 2013 were scheduled for 2012 took place in 2013. In 2013, operating income grows by 18%. The improvement in gross margin is to some extent plowed back in development of wholly owned retailing as well as communications activities focusing on brand image. Operating margin even grows 10 basis points, reaching 13.8%. OpEx very sustained throughout the year. The CapEx budget was tripled.
About 80% of investments were made in stores. We saw the opening of 20 new stores and the buyback of six franchise holders in the Middle East. Let's talk about the performance of our other luxury brands. All of them are seeing significant growth in 2013, approximately 11% growth on a like-for-like basis. Current operating income for other brands grows strongly, 20%. Operational profitability improves by 30 basis points. This improvement is thanks to the strategy implemented by our other brands. The target is profitable growth without not making investments that need to be made for their development. Let me quickly talk to you about the performance of each of these. Sales at Balenciaga improving, driven in the second half by a redefinition of their brand universe under the impetus of Alexander Wang.
Brioni shows good growth both in sales and profitability, the overall context is one of synergy with our group, this is now benefiting the brand. Performance in Western Europe, its main market, is strong. Brioni is continuing to develop in Asia Pacific after the buyback of its network of franchise holders in China. Alexander McQueen and Stella McCartney, British designer brands, record significant growth in their sales, over 20% growth for each of them. Their profitability also improves yet again. Although they're streamlining their distribution network, Sergio Rossi has also seen an improvement in their sales. Gross margin rate grows at constant exchange rate. If we look at our watches and jewelry brands, there's a contrast performance here. Boucheron sees a beautiful year driven by Quatre collection of jewelry as well as fine jewelry. Very positive effect on profitability.
[inaudible] saw its activity contract slightly, particularly due to the fact the overall market's less buoyant in watches in 2013, but also because they've had to review their distribution process for Girard-Perregaux in Asia. Pomellato Group, which includes Pomellato and Dodo brands, has been consolidated since July 1st. These brands have very sound fundamentals, they've had strong profitability in 2013. Kering has also worked throughout the year on the integration of other brands acquired recently, like Qeelin and Christopher Kane. To support the development of those other brands, the budget allocated to OpEx has risen substantially, mainly due to new store openings. Let's take a look at the performance of our sports and lifestyle division. 2013 saw many changes here. Substantive work was done to further rationalize and streamline organizations. Product categories have been or are being redefined.
Puma. Work has been done on product offering, that'll start bearing fruit in the second half of 2014. These changes are taking place at a time when the marketplace is difficult, both the sports market in Western Europe, that's the main market for Puma, and also action sports in North America, which is the main market for Volcom and Electric. The sports and lifestyle division in 2013 should see sales down by 2.8% on a like-for-like basis. That's the context. We have to pay careful attention, have paid careful attention to make specific initiatives to improve inventory levels. This has meant increased pressure on gross margins. Operational profitability for the division goes down in spite of financial discipline designed to contain and reduce operational cost base. Volcom and Electric see trends that have nonetheless improved in the second half.
Among other things, they see an increase in sales by 1.5% in Q4. We can say the reduction in the textiles category has been contained at Volcom. If you look at footwear trends and Puma's expertise, things are positive here. At Electric, the brand's repositioned to premium lifestyle accessories, launching new products such as watches for the end of year, and all of that is very promising. Now let's talk about Puma. Sales are down by 2.8% like-for-like for the full year. This trend, in line with Puma's expectations, is a reflection of a negative consumer environment, mainly in Western Europe. Also due to the fact that distributors had high inventories in some emerging countries. Furthermore, it's due to challenges for Puma itself. Stoppage of some activities, closure of unprofitable stores, streamlining of product offering, which is underway right now, especially regarding footwear. That's the backdrop.
2013 saw sales to third-party distributors that were down by 5% on a like-for-like basis. In its own network, Puma grew by 6%. Only Western Europe doesn't see that commercial momentum, but the number of points of sales were significantly reduced in 2013. Product categories. We need to emphasize very good trends for accessory sales, up 10% on like-for-like, driven by performance at Cobra, Puma Golf, Dobotex, and [inaudible] . Let's talk about geography. Puma sees growth of 4% in North America. It goes down by 6% in Western Europe. Negative trends in France and Italy, whereas in the U.K., sales grow. That's the situation. Gross margin is down, to some extent offset by a drop in 6.6% of operating expenditure. This reduction in cost base is one of the results of work done under the transformation plan. R&D efforts, innovation is all continued.
This is essential to relaunch the brand. Therefore, operating income at Puma is down, operational margin reaching 6.4%. It's all about financial discipline and keeping a careful eye on how operational cash is used. OpEx for Puma was therefore reduced in 2013. Let's talk briefly about our financial results, a reflection of major transformations in this group. Other operating income and expenses, a net expense of EUR 443 million. This includes an impairment of Puma goodwill of EUR 280 million, as well as other non-recurring expenses for Puma and Volcom related to the transformation reorganization measures enacted. Financial expenses up by EUR 64 million compared to 2012. Two main factors going in two opposite directions. Firstly, an improvement by EUR 36 million in net cost of debt. This is due to the change in overall net debt of the group and also an improvement in the average interest rate for Kering.
A negative effect of EUR 93 million due to the application of IAS 39 standard to value the indexed bond maturity 2013. I mentioned the positive effect on the 2012 financial statements in this same hall a year ago. Effective tax rate for Kering has gone up substantially due to non-recurring operating expenditure with no related profit tax. 21.5%, as you can see in the appendices. On the other hand, the current tax rate improved to 17.4% due to the greater proportion of luxury brands in our group profit. Net income from discontinued activities. This is a net expenditure of EUR 822 million for the fiscal period, including the net capital loss after paying off Fnac group shares, EUR 256 million, plus EUR 562 million of net expense for Redcats.
This expense mainly includes the sales of various disposals during the fiscal period, also depreciation of Redcats assets, plus the commitment taken by Kering to recapitalize La Redoute to the tune of EUR 315 million for future losses and improvement in production facilities. Net income group share of continued businesses excluding non-recurring elements, EUR 1,229,000,000, down EUR 40 million. Restated, taking into account adjustments for fair value of the index bond, there is a growth of 4.6% for fiscal 2013. Group operating cash flow stays at a high level above EUR 1 billion, excluding a real estate investment non-recurring made at the end of the year in Tokyo for a premium location for several of our brands in Tokyo. Thanks to our basically stable self-financing and our improvement in WCR because of very fine-tuned management of inventory levels, and in spite of a slight increase in taxes paid, operational cash flows grew significantly.
This made it possible to finance the luxury brands in the group and acquire the building, which I just mentioned to you. Now I would like to talk about the net debt for this group, end of 2013. Just a couple of quick comments here. Our debt, EUR 3.4 billion. Ratio of net debt over EBITDA is 1.7, which is within the range we have set for ourselves. The group's gearing is 31% end of 2013, which is a display of the fact that we have got a very sound financial structure. Increase in net debt is due to our major changes in 2013 transformations. We have strengthened our brand portfolio. We have strengthened the positioning of the luxury division with the acquisition of majority stakes in Pomellato Group, Christopher Kane, and tanneries to secure the supply chain.
There has also been the finalization of disposal of certain things with cash out and recapitalizations for Fnac and Redcats. My last point, I would like to talk to you about the dividend for fiscal 2013. The board of directors met yesterday. We will be proposing to the AGM on May 6th to pay a dividend unchanged, EUR 3.75 per share. This proposal shows that Kering intends to keep a balanced payout rate, both in terms of recurring results of the group as well as available cash flow. I remind you that an interim dividend was paid, EUR 1.50 was already paid on 24 January 2014. If the AGM approves this dividend, the remainder of EUR 2.25 will be paid on 13 May 2014. Thank you for your attention.
Before giving the floor to François-Henri Pinault to talk to you about the group's strategy and its outlook, I would like to show you a few pictures of recent creations.
I would now like to return to the strategy that we are pursuing and in order to place in their context the results achieved thus far and to set out our outlook for the coming year. 2013 marks the completion of a transformation rendered indispensable by the long-term strategic shift that we decided to adopt when focusing on a single business, apparel and accessories. The group configuration is now set and fully reflects our strategy, which is focused on value creation, as was that of the former PPR. It is based on a model based on structural changes of population and consumer trends of the 21st century.
Put simply, we've moved from a risk-based management model on the diversification of our businesses within a predominantly historical market, to a model based on diversification of geographies in a coherent and dynamic business, as illustrated by these charts. This strategy is source of value creation. As witnessed over the past 10 years, the average annual growth rate of over 10% of our recurring net income per share. Since we've adopted our change in strategic focus, we've considerably strengthened our financial structure and above all, reduced our debt. In luxury, we've increased our recurring operating income by 18% per year on average and significantly improved our return on capital employed.
In the sport and lifestyle division, which is far more recent, its contribution to recurring operating income in 2013 is limited, as you've seen, by the revival effort that Puma has embarked upon and whose results will allow us to generate a return on capital investment in line with our ambitions and consistent with the huge potential of this iconic brand. As you can see, Kering is fully built to derive full benefit of new consumer trends globally. The consistency of our activities allows us to pool part of our functions and business skill sets.
This is an efficiency gain that has been demonstrated in key areas such as talent management, real estate, or supply chain. Certain support functions in finance and IT, for example, will be henceforth organized within shared service centers. Of course, the activities that reflect the creativity and the distinctive nature of each of our brands remain strictly independent, design that expresses their identity, retailing that puts them in contact with their customers, or advertising and promotion that showcases and displays their distinctive universe. I won't conduct a detailed review of our brands today. In luxury, they constitute a complementary whole, and each of these 17 brands occupy a distinct positioning, placed in terms of development stage on a continuum going from the rich startup full of promise, to the iconic brand admired and desired throughout the world. They mutually complement one another in the luxury division.
Their growth, pace, and profitability reflect their respective levels of development. In the sport and lifestyle segment, synergy opportunities are even greater in the supply chain. We will implement them far more systematically as soon as Puma's repositioning allows it to fully play its role as a growth platform for the division as a whole. Short-term, in 2014, we have two priorities. One is to stimulate our brands and to support their organic growth, notably for those who recently joined the group. Our second priority for this year is, of course, the relaunch of Puma. Midterm, we anticipate a significant increase in the margins of each of our two divisions, as well as continuing to improve our return on capital employed. You'll find here the detail of the action plans adopted with each of our luxury brands for 2014.
I'd like just to focus briefly on some of these points. As regards Gucci, our repositioning strategy has been very successful, as demonstrated by the following metrics. The sale of no logo products, the increase in average prices, and the immense global renown of this brand. This strategy has an impact on our revenue in China, for example, because we're reducing the visibility of certain entry-level products. This is naturally reflected in the business volume of the brand as a whole, since Gucci's been able to build in this high-growth region, leading positions. Where this strategy has already been implemented in America, in Japan, or even in Europe, it had a favorable impact on the brand's profitability.
This, of course, will require strengthening the quality of our retail distribution in this region, where we'll be slowing the pace of net store openings. Furthermore, we have high ambitions for Bottega Veneta, a brand that has before it considerable potential. We'll therefore continue to drive its growth, notably through short- and midterm investments. We'll do this by preserving its artisanal roots and by preserving the huge growth potential of this company that has huge, unequaled growth potential at this level of exclusivity. The Saint Laurent growth rate should continue at a high pace now that its artistic renewal has been well established. This unconventional brand that has the creativity and legacy faithful to Saint Laurent should see a further increase in its profitability. Lastly, we firmly believe in the potential of our youngest brands.
For each of these, we've put in place action plans to accelerate their growth with the support of their group, in light of their distinctive specific situations. In sport and lifestyle, our number 1 priority is to relaunch the sale momentum at Puma. The new tagline of the brand, Forever Faster, condenses the repositioning of the brand, focusing on its sports roots and its legitimacy in categories such as running, soccer, or fitness. The presence of Puma in sport and lifestyle is a natural replication of its historical roots in sports performance. The acceleration of this strategic revival will have an immediate impact on collections both in sport and lifestyle. The new Puma products will stand out through their degree of innovation.
In order to secure the commercial success and a better, more effective launch on the market, we'll establish closer ties with our suppliers on major retailers with whom we're forging preferred partnerships. This strategy is rolled out region by region to respond to the specificities of each market and to implement this strategy with increased efficiency. Over and above local actions, Puma will confirm its repositioning by launching its first global ad campaign during the second half of this year. Puma also affirms its legitimacy in sports by applying a more selective policy of athletes or leading team sponsoring, such as the partnership with Arsenal that we announced at the end of January. These policies will short-term fuel growth levels by strengthening the clarity of the Puma brand image and its desirability.
A first set of products stemming from the action plan of Puma has already been presented for the autumn winter season leading to an encouraging increase in orders. A complete collection for the spring summer collection 2015 will be presented to global retailers in the coming weeks. Of course, we'll keep you informed of Puma's progress throughout this year. This strategic relaunch will have an impact on its accounts in 2014, it's a necessary investment, we'll begin to see the results produced in terms of growth and profitability as of 2015. I'm fully confident in the new management team headed by Bjørn Gulden to this wonderful brand. The other brands of the sport and lifestyle division, essentially Volcom and Electric, have undertaken a major effort in redefining their offer and streamlining their retail distribution network.
We've already received the positive benefits of this new strategy in the last quarter. These efforts will be maintained continued in 2014 and will be amplified by strengthening our marketing and merchandising policies. Before coming to your questions, I'd just like to say one last word on our outlook for 2014. Over and above the impact of Puma's repositioning and taking account of the investments that we're implementing to drive the growth of our luxury brand, we're aiming for an improvement of Kering's recurring operating income for 2014 on the basis of a revenue figure that's up. I'd also like to conclude by saying that we're more than ever confident in our fundamentals. In our two divisions, Kering is a leading player in some of the most buoyant markets in the global economy.
Our brands are both solidly established, positioned in a distinctive and complementary fashion rich with considerable growth potential. We remain faithful to our mode of management, which combines rigor and flexibility, shared decision making, centralizing implementation, financial discipline, creative imagination. Before turning to the Q&A session, I'd like to show you a clip for the new viral campaign that Puma's just launched on the web.
These field tests were conducted last week. We believe they could be too powerful.
What am I seeing?
You haven't seen anything yet.
Hey. Whoa.
The game ready for evoPOWER.
It's unbelievable.
Watch this space, literally as of next summer. Let's now, I'd like to turn it over to Q&A. Please try not to ask more than two or three questions at a time. If questions are asked in English, we've agreed to answer in French for ease of simplicity in the room here today. Who'd like to ask the first question?
Morning from Mario Ortelli, Sanford C. Bernstein. Three question, if I may. The first one is, in your plans, how long it will take the full repositioning of Gucci? The second one is, in 2014, how many openings, relocation, and refurbishment are you planning for Gucci, and which impact they will have on the margin of the brand? The last one is on your strategy going forward. You show us the big transformation of the group in the last eight years, what we should expect in the next eight years, especially the balance between organic growth and growth through acquisition, and which will be the weight according to your preliminary plans for this long term in sport and the weight of luxury. Thank you.
[Foreign language] Jean-Marc Thank you, Jean-Marc. I'll let you answer the second question that involves the numbers. As regards to the repositioning of Gucci, well, as you know, we've discussed this with you. We've begun this strategy several years ago now, aimed both at going upscale. To be more specific, that is not to use in the essential categories such as handbags, to use the same products at entry-level. We want to reduce the exposure of entry-level products in these large categories to the benefit of more sophisticated categories by going upscale in terms of the range. This results to 25%, 30% fewer entry-level items at Gucci. That's the first action item. The second is aimed at streamlining and better master the wholesale distribution networks, those that are the origin of the gray market worldwide.
There's a major effort undertaken for four or five years now to streamline the wholesale network by the brand. These short-term components, of course, impacting on sales volumes for entry level products at Gucci. The indicators that we have, and I give you two that are most recent that we have available. Two ratios that we follow quarterly at Gucci that are, for example, the sale of logo type products versus the non-logo type products. Well, in Q4 last year, we went from 62% of sale. The sale of no logo products, whereas we were at 44% the previous year at the same time. Take a second metric to measure the going upscale of the brand, leather products versus non-leather products. We've gone from 72% in the handbag category, 72% of leather products as against 55% a year earlier.
The strategy is working, the strategy is operating, and of course, we're accelerating that strategy as much as possible in order to prepare the future. Once again, it's all about improving, preparing the desirability of the brand for the coming years. Jean-Marc?
Yes. Let me just indicate, as I pointed out earlier, the goal is, of course, to stabilize the CapEx amount. We have 45 net openings of stores, but a number of transformations. The net openings, excluding the taking up of wholesale stores, is at 26. We don't really give a guidance on the number of openings, but basically the Gucci plan next year is to keep within the net number of conversions, that is 20 stores on a net level. There'll be a few conversions. There are a few Saks stores to be taken over in the Middle West.
Net openings are 20 for Gucci. These are net openings because we also have closures, it's a net over number of important closures in China in particular. We have, in mainland China, only no stores in the net, but a number of closures. In fact, these are openings net of closures. The issue today is more about renovation to have the greatest number of stores under the Frida 1 concept. Your question on the margin with 10 store openings for the total network doesn't create new dilution, but a lot of investment devoted in operational excellence in-store to make sure that the consumer experience in the store is the best as possible. A few words just to answer your third question on the longer-term outlook.
That transformation of the group that we've embarked upon aimed also at specializing the group on apparel and accessories. That means there won't be any major diversification as we have over the past 20 by relatively changing business segment. This specialization on a global scale, as I explained, versus business diversification in a slower or narrower geographic, which is our ambition, is aimed at building a global group specialized in apparel and accessories. Over time, we'll strengthen the two brand portfolios, of course, but we don't plan in the group long-term strategy to change business segment or to create radically different business segments. We remain in this industry of apparel and accessories. [Foreign language].
Thank you. It's John Guy from Berenberg. Just three questions from me, please. First of all, could you just elaborate, please, on the new Frida concept stores? I think there's been some commentary around seeing roughly 30% lower operating cost of those stores. Could you maybe elaborate as to how you reduce the cost of operating the stores in the new Frida concept? With regards to capital allocation for Gucci peaking around EUR 200 million, should we start to see Gucci's free cash flow generation run roughly double the pace of revenue over the course of the next few years as the capital allocation comes down? Finally, just on other brands. I think by about 2015, you'll have between four to five brands generating more than EUR 200 million of revenue each. Could you maybe talk about when you start to see some real positive operating leverage come through?
Is this a plan for 2015 or 2016, where you should be reaching high teens EBIT margin across those four to five brands? Thank you.
As regards the Frida 1 concept as it's known, indeed, this is a concept over and above the image and the importance of the concept of the brand. It's been worked in order to boost in-store productivity. This is measured by the number of stockkeeping items that are prepared on the same surface area compared to the previous concept. We have store productivity that's sharply up versus the previous store. Furthermore, as with each and every time, once the concept has been agreed, defined in terms of image, it's "industrialized" in order to be rolled out globally, we improve the cost. Notably, we optimize the investment involved when it's rolled out, not just in flagships, but smaller size stores. There's both in terms of investment efficiency and in-store operations efficiency and the store efficiency to improve the brand image.
There are three positive effects that are sought every time we launch a new store concept, which is the case of this Frida concept on these three items is extremely positive. Jean-François, perhaps?
On the capital allocation, you've seen that the Gucci CapEx is up 5% this year. We have a sort of a landing point of CapEx levels at a normalized level such that Gucci has free cash flow generation that's quite considerable and that will continue. As to the other brands, indeed, in this portfolio strategy that we're continuing, aimed at finding major growth and profitability drivers in the portfolio. With Bottega, that's just crossed the EUR 1 billion mark. We have brands that are growing fast behind. You saw the Saint Laurent figures, high potential brands, Balenciaga, Brioni too, where the growth potential for these brands is also very considerable.
Consequently, the levels of profitability will, are already relatively significant, will be significantly higher with objectives in the various businesses, depending on the brand specificity in terms of positioning, of double digit high teens, double digit profitability, when maturities reach the objective with a gradual increase of profitability following.
Hi, Helen Brand from Barclays. A couple of questions. First of all, Asia was down 4% for Gucci in Q4. Can you give us the breakdown between Mainland and Greater China and what you're seeing there? Secondly, just on China for Gucci, do you know what the logo, no logo split is for Gucci in China by Q4 and maybe also the percentage for leather? My final question is just on Europe again for Gucci in Q4 down 1%. Can you give us the breakdown between the retail and the wholesale split for Europe? What retail was doing, and what should we expect for that wholesale piece of Europe for 2014? Is the rationalization now complete? Thanks.
Helen, I can't give you the actual breakdown of sales trends for Q4 Gucci. What I can say is that it's true for the full year, as you've seen, Gucci performance is negative in Asia Pacific trends that I can talk about in Q4. We're seeing an improvement overall in mainland China for Gucci, trends somewhat better, inter alia, and this is why this confirms the appropriateness of our strategy. There's an improvement in tier 1 cities, the cities that have felt the hardest, biggest impact so far. On the other hand, we also saw, well, let's put it this way. We also saw improvements in Korea, demonstrating that we'd reached a trough previously in Korea. On the other hand, other markets continue to be difficult. Taiwan, Singapore. We also had a slight dip in performance in Hong Kong Q4.
To some extent, though this is marginal, this is due to measures taken by tour operators. Regarding Gucci upscaling, I can't give specific figures regarding China as such. Let me tell you, the strategy, as I said, has been underway for several years, conducted in the U.S. and in Europe and in Japan successfully. The improvement in figures I showed you for the last quarter, mainly driven by China and Asia generally, and China specifically, lots of increases. I would like to temper this slightly. We have to be careful and not think that in China the logo will disappear. It's essential. In a country where growth trends in luxury are driven by more and more sophisticated customers, there's a quick upscaling, we said this. At the same time, you've also got new customers to luxury brands.
The new customers very much want these types of products that do have the images, the logos of the brands they love. It's very important to strike the right balance, depending on store, depending on city, between the logo type products and the more sophisticated products. The big difference compared to Western countries is that currently we have to work these product offerings and have them in the self-same stores with two sets of customers in the same stores. It's a technical thing to grapple with in China right now. We said in the stores network, we're fortunate today to have Chinese operations that are really major, large scale. We're one of the biggest brands in China. We've got one of the biggest market shares in China. It's a country where we've got about EUR 1 billion in sales in Mainland China.
We can say that we're a true leader in the market. We've opened around 61 stores to date in China. We're improving the quality of the overall network now. We feel that we've got the right number in sync with China today. We're improving the quality of the stores network right now. In China, cityscape is changing quickly. Important thing for luxury brands is to remain flexible, fleet-footed. Very important to be able to change. A mall that's deemed good one year may be deemed less good the following year. You've got to be very flexible, be able to shift and change. Gucci is working on this carefully right now. We are looking at every single city and improving the quality of our retail network.
To repeat, we're fortunate to be really ahead of the game in China, thanks to the scale, the size of our operations. We can be addressing quality. We're ramping up quality to further improve attractiveness and profitability of the brand in China.
Okay
I didn't fully answer the first question by Helen. A couple additional points, at least regarding logo and non-logo in China. In China, the proportion of non-logo is now more than 40% in the last quarters. Furthermore, leather still, in the handbag category, is about two-thirds of sales in China, of leather product, and several of these with logos. To go back, Helen, to your question on Europe, performance in Europe is a mix in the last quarter because, as we'd already said, we made an effort to rationalize wholesaling, especially in the first half. In Europe, in wholesaling, trends are positive in the last quarter. Slightly positive, but they're down, less good, in Q3 in Europe in the retail network. Difficult situation with local customers in France and Italy.
Tourist flows continue to grow, but still there was sort of a slowdown in Q4 if you look at global data. Gucci brand felt the same trend in Q4 in Europe. Regarding wholesale rationalizing in Europe about 2014. Most of the streamlining has been done, as I said, in Europe, to contend with the gray market as François-Henri talked about earlier. In 2014, we'll continue seeing selective transfers in North America and the U.S. more generally, having more wholly owned stores. In 2014, we'll be operating our own activities in Russia, I'd add. That's also going to weigh on our annual performance. We're stopping deliveries to distributors in Russia, and inventory is something that we've been holding toward the end of the year. For the figure of three questions, Gucci.
Could you give us the figures, the number of closures, especially in China, and tell us if there are any closures that are not relocations but that are final once and for all closures of stores? The upscaling strategy's been underway for several years. When can we expect, if that's your target, to see growth in sales above those recorded for 2013, particularly the second half of 2013? Balenciaga, fourth luxury brand of your division, seems to see a poor performance. Could you give us your view of this and what's your action plan to address the brand in September of 2013? Last point, do you still have a 2020 target for overall sales of EUR 20 billion in 2020?
Gucci closures in China. Again, we're slowing the pace of net openings for Gucci. What we're doing is improving the quality of the network.
An example, I won't give you the name of the city since I couldn't pronounce it, but way north in China. Recently we opened first the first big store and then some sort of smaller store, satellite store, so to speak. We did it for two years, and it turned out the first store was too small, we're enlarging it, making it two and a half times bigger. We'll be closing one of those two so-called satellite stores. You've got to look at it in terms of the overall city, not just one store. You have to look at shopping patterns in the cities. There are traffic issues that are very important in China, and cities are changing and evolving. We have to look at this city by city. We're doing it. We're not just doing net closures.
The network's going to keep the identical size, but in some locations you'll have bigger stores, others you'll have stores that will shift, that'll be moved. There'll be openings in other areas as well. This is the work in progress. Don't forget, China, as I said, continental China, we're talking about a half a billion. That's about the size of the U.S. market. There's no wholesaling in China as opposed to the U.S. The network we have in China currently is lower than the network we have in the U.S. There's a great potential. If we believe in structural and ongoing growth of per capita income in China, that'll lead to growth in luxury that'll be fairly significant in future years. Growth in China and luxury growth in China is certainly not, I think in the past, precisely the opposite.
There's a slight slowdown right now, which is a time when we can sort of revamp. You've talked about the effect, repositioning of the brand and so forth. You saw and the figures have shown you one figure went down inter-annually due to these taking better control of wholesale and also upscaling, but profitability didn't go down. One of the reasons for this is the upscaling has meant an improvement in profitability of Gucci operations. On to Balenciaga. The word improvement was used. It may seem too weak a word. No, we're thrilled to see the transformation. It's always difficult to change artistic director for a brand, especially a brand of that size. We're fortunate to have a major artistic director and then now a new major artistic director.
The transition is not only a success, but the brand has now once resumed a good pace of growth in all product categories. The brand now is developing a pace. I really do feel that the artistic transformation at Balenciaga is truly successful. Oh, yeah, it's 2020. Once again, 2020, the exercise that we performed in 2010, I believe, is aimed at giving you a glimpse of the growth
Potential of the potential that we believe to be achievable by the brands at group level, but it's no way a goal. It would be pretentious of me to know all the macro metrics that we'll have to weather between now and 2020 to give you that. The group portfolio as it stands today, given our brand potential as measured by the growth in categories and growth in networks, allows us to view very considerable growth potential without having to make major acquisitions.
Hello, I'm from the German publication. How much time have you planned for the Puma relaunch? Second question, after the dip in operating investments last year, what have you planned for 2014? Thanks.
We're very confident in the program put in place by Puma to relaunch its sales momentum and to revitalize its product engine, its design, as you saw in some of the models that were shown. I've got a few models that will fuel the autumn, winter collection 2014. It's above all the spring, summer collection 2015 that will really be under the full effect of the new models of defining and manufacturing, producing footwear in particular. It's as of 2015, spring, summer, that the full effects will be felt. We have some initial effects on the Puma order book, which for Q3 2014, are quite promising. On investments, today in 2013, Puma investments were reduced because we opened fewer stores.
In fact, we even closed more than we opened, and for 2014, the increase will be low because the renewal or the modernization of our owned retail stores requires a more detailed adjustment of the concept rather than store openings, at least initially.
James from Goldman Sachs. I had one question on the portfolio effect. As you've changed the ASP of Gucci significantly over the last few years, do you think that's left you with a gap at a more accessible price point? Do you think you'd look to build another brand or acquire another brand to target a lower price point in the luxury segment? I'd also like, if possible, an update on your online strategy. We've obviously seen the big tie-up with Yoox last year and Gucci targeting building up its online and digital platform itself. I wonder if you could give us an update and if possible, any explicit numbers, percentage of sales, growth rate from e-commerce and online. Thank you.
As regards the portfolio strategy, the initial selling prices increasing, the ASPs increasing in all brands. To date, we have not defined as a priority to enter the brand elevation of the brands, frees up price segments for access brands, and some American notably in particular have a side. We haven't planned to enter that segment insofar as we wish to focus on the brand elevation effort. Brand elevation doesn't mean that we're yet seeing the entry-level segments to allow our customers who like our brands to access. We want to use product categories that are not the key product categories, up end, to give access. Eyewear has always been an entry product to the brand. We have to find other brands. Gifting is a not widely developed category in our brands.
We're working actively on that, we'll have things to show this year and next year in this category. We're going to work more on the entry-level categories on these brands rather than acquiring brands that are devoted to that entry-level price. On the online, the tie-up with YOOX. We had a first-year ramp up. Six of our brands are on the YOOX platform. In fact, the last in October was Brioni, I believe it's the seventh. Allowed them to have access. We can deliver to over 120 countries worldwide, thanks to the YOOX supply platform and to improve the e-commerce. As we said, Gucci today is not on the YOOX platform, allows us to benchmark progress. Gucci is very much ahead in e-commerce.
To give you an order of magnitude, in the U.S., the most developed market, Gucci reaches close on 8%-9% of its sales today in e-commerce on gucci.com. Of course, these numbers don't include online sales made by other partners of our products, such as Neiman Marcus, Saks. At YOOX, it's going well. Jean-François points out that it's high double-digit growth, as we say, the day we consider the platform has truly reached maturity, we'll consider integrating Gucci. For the time being, that issue is not on the cards, but it's being considered for the coming years, yes.
Hello, I'm from Reuters. Three quick questions. For a few years now, I've been following the luxury segment. I recall a few years back, Gucci had growth rates in excess of 10%. Today we're saying, Q4 0.2% on a like-for-like basis.
Are there factors that are not necessarily under your control? I understand, appreciate your repositioning the brand, it impacts your sales. Isn't something else afoot that might account for this quite marked, significant, remarkable decrease here that prompts us to consider the luxury market? Is it the growth of affordable luxury, the Michael Kors , et cetera? What are your thoughts on that? Second question, could you give us an idea of the order of magnitude of growth of Gucci this year and for the coming years? Do you think we can return one day to previously seen growth rates three, four years ago? Is that possible? Thirdly, could you give us the trend split wholesale-retail for Gucci this year versus 2012? Could I ask you bought out franchisees in Russia, if I understood correctly.
Are there other countries where you also plan to invest directly, in other words, buy out your partner? Thanks.
Turning to the first question, from a strictly arithmetical standpoint, the 10% of five years ago are not worth 10%. The percentage today are worth the few double-digit percentage points of a few years ago. Gucci is a EUR 3.6 billion brand, 1% to six, we grew very fast. Gucci in 2004 posted EUR 1.2 billion, or EUR 1.5 billion if I'm not mistaken, in 2004. There's an arithmetical effect here, such that the percentages may be deceptive, but it detracts nothing from the brand's growth potential. You're right, there's a key point. What's the growth model that we're favoring? Time was when luxury brands benefited from the growth of entry-level segments and grew considerably. Gucci was there. We had the Joy bag at EUR 490 back then.
Today, you won't find a bag product at that price at Gucci. The deliberate choice we're making to maintain the exclusivity of the brand as it grows is to continue to go upscale, because there's a demand for brand elevation from luxury customers. We could have a vertical model. It'd be very positive on sales. Today, you're right. If I want to boost sales by 10% at Gucci, I open the floodgates for the entry-level products, and they sell like hotcakes. That's not the brand strategy. It'd be very dangerous for the exclusivity and the desirability of the brand. Many other luxury brands are following Gucci to go upscale, brand elevation, and to offer other product categories on these access selling points, entry level. Our brands are reaching quite significant size.
It's key for the long term that we maintain the desirability of our products and the brands as we grow. One of the answers given is this brand elevation, better control of wholesale networks, to be sure that our products retain their full desirability. On the wholesale retail split, Jean.
Yes, retail figures, retail at Gucci now in the neighborhood of 77% of sales. Used to be around 75% of sales in 2012. Regarding buying out franchise holders that you mentioned, as François already said, at the same time that we're repositioning, we're upscaling our merchandising of product. At the same time, we're also working on in-store experience and quality of retailing. When we're talking about markets that are mature enough in terms of regulation, business law, corporate law, and so forth, and we can buy out the franchisers fairly simply, we do so. Right now, it's not that we have a plan in 2014 to convert other franchise holders, but when an opportunity arises, we do buy them out.
Please. I have one question about the outlook for the underlying cost inflation of the business, in particular leather costs and rental costs for 2014. Thank you.
Let me talk to address the point having to do with cost inflation. Our policy.
Carefully control and contain. We're very selective in selecting our suppliers. We've also bolstered our impact on upstream activities, particularly regarding leather, by selecting a short set of suppliers with a long-term relationship. The prices here are set for many years to come. There are quality requirements, quality specifications. Also, environmental standards have to be adhered to. All this is very important, and all this has really been organized for several years to come now, many years. Regarding rental payments, yes, we are adjusting our real estate policy, considering, in some instances, buying locations when these are highly prestigious locations and expected rent increases are such that it would make sense for us to actually buy the locations. That's what we did this year, for instance, in Tokyo with the location we mentioned. We also did this Place Vendôme for Boucheron.
We also did this at a few other very carefully selected locations precisely to use the fact that interest rates were low to buy the locations when rent payments were going up so much for these premium locations.
Hi, this is Matthias from MainFirst. I have a question in regards to the long-term plan and for the Gucci store openings. Do you think this is just a temporary slowdown in the pace of openings? Do you think because you soon may have sufficient stores to capture the merchant growth in incomes globally, or are you going to go back to the double-digit store opening pace at some point over the next three, four years? Second question, what's your up-to-date stake in Puma? The third question, why is Saint Laurent the stunning performance in the fourth quarter? Is there anything to consider as in early deliveries that might be missing then at the beginning of this year? Thank you.
Yes, regarding stabilization of Gucci openings. Well, it mainly has to do with China, really. That's where we opened up very quickly, very beautiful, very big network. We're now optimizing the quality of the network, as I said. We've been doing this for several months now, optimizing quality of retail network. Clearly, yes, we're continuing to improve the network overall. Now, the number of openings may be deceptive. Once you reach a certain size, such as Gucci, the figures we're tracking in-house are square meters. It's very important for Gucci to also develop by extending product offering. We're working very hard, making major investments at Gucci to refurbish and enlarge existing stores, as I explained earlier, to enhance productivity, to also improve the store experience and the overall brand image. Yes, there will be growth in the network in several geographies, especially the U.S.
There's still potential for the brand there. Latin America as well, there's potential for the brand. Also, yes, of course, in China, yes. Again, we'll be optimizing our network. Don't think that China is a country, considering its economy, that a luxury brand such as Gucci would cover with just 59 or 60 stores. No, we're far from having the number we need. We're being very careful. We're very carefully selecting things, our location and cities. Things change quickly in China. Locations change. The cities are still being built and growing as the economy grows. We have to be very flexible. We have to adapt and change our network as need be. Again, we're upscaling the overall network, and we're also going to continue opening in other cities. There will be openings, yes. There's no slowdown, no structural global slowdown in openings for the Gucci brand.
Precisely the opposite. We have 85.6% of the share capital at Puma. We try to be as transparent on this as possible to the financial community. This is why we recalled the deliveries effects for Saint Laurent. With growth of 30% in retail in Q4, not impacted by deliveries. Growth toward the end of Q3 was 30% in wholesale. Two quarters right on the mark are normative. The offset in time actually improved full-year performance, but that's not what led to the excellent Saint Laurent performance for the full year.
A few of your competitors recently saw slight improvement in the luxury situation in China. Are you seeing a similar trend?
Continental China, I'm mentioning. Just quickly, Jean-Marc mentioned earlier, I believe Q4 saw an improvement overall for our brands, particularly in China, and the trend continued at the beginning of the year.
I'm being careful in selecting my words, but yes, improvements seem to be in store.
Good morning, Bank of America, Merrill Lynch. Three questions. The first, the hedge gains. What have you seen in 2013 and what are you expecting in 2014? Second question, EBIT margins in 2014. I know you commented a positive trend on revenue and earnings, but a brief word on margins would be most welcome. The final point, what have you planned by way of price increases in certain markets? Thinking of Japan, notably. Thanks.
On the hedge front, it's a difficult question because all this is very complicated to explain in so far as when the hedge gains, there's been a negative Forex effect. The negative Forex, let me just recall EUR 263 million less on revenues. That's 4% growth or hedge gains because we hedge our purchases made in currencies with our suppliers.
That's such that we have a hedging policy this year, because it was rather well crafted, allowed us at the end of the day to more than offset the loss of profitability links to the Forex effect, notably the JPY, that's where we had the sharpest fall. We have a positive impact of hedging, but luxury segment, for instance, the EBIT improvement is not only linked to the hedge effect, it's also linked to the fact that we have for all our brands, an increase in EBIT. For most of them, irrespective and separate of the hedge effect, there's a dilution effect that's also linked to the brand mix because we have faster growth and a greater weight of other brands whose profitability is, to date, although double digit, is of course lower than for the principal brands.
Having said that, it's a positive effect for the year for brands such as Gucci or Bottega. The hedge effects contributed in a sustained manner to improve profitability, at least. These are effects that are generally of higher than 50 basis points and vary between 50 and 100 basis points. That's why in 2014, we have a comparison effect that'll be more difficult because to date, we expect neutral or slightly positive hedge effects. It's not because we had positive hedge effects in 2013 that we'll have negative effects in 2014. It's just a comparison effect, of course. We're expecting neutral or slightly positive effects of the hedge given the currency state to date.
We have improved profitability in our brands that's linked to the improved either gross margin as we anticipate them or given the growth in revenues for the smaller brands, a higher absorption of OpEx because the cost base of smaller brands isn't growing as fast as revenue. Overall, the objective on a reported basis to defend the profitability of the brands for next year, as compared to this year. Briefly on Japan. The last years, following the devaluation, the prices were increased in Japan. We're of course continuing because the upscaling done is continuing. We're measuring improvement levels of average selling prices in these countries quite continuously. As we do every year at the start of every collection, never in the middle of the season, we increase, depending on categories, the prices, depending on the product.
Each and every time in a collection, there's increased product, sophistication of the bulk that generates price hikes on different products and average price hikes that are quite significant. One last question.
Hello, I'm from Investir. Your forecast on recurring operating income, will there be further charges and asset impairments expected in 2014 already, perhaps the balance on Redcats or Puma?
As we indicated, the 2013 doesn't include the guarantee of employee guarantees for La Redoute employees. This investment in the total cost cannot be yet determined accurately, precisely. It hasn't impacted 2013, but it will impact the result for 2014. Thank you all very much. You have reached the end of the playback. Press 1 to go to play.