[Foreign language] Ladies and gentlemen, good evening. I'm delighted to welcome you for this meeting presenting the annual results of 2016. At the risk of tiring you, I'd like to say that the 2016 results are record results. You will no doubt have read the press release. Revenue for the first time has topped the EUR 37 billion mark. We have profit from recurring operations that exceed EUR 7 billion, up 6%. Net income is up 11% and free cash flow is also up at about EUR 4 billion. The gearing has dropped to around 10%. It's been a very good year. Pretty mixed year on the whole. The first part of the year, more restrained. The second part of the year displaying sharp acceleration. I'd like to review the various business groups before giving you my views on 2017, which is one of caution. I'll explain why.
2016, wines and spirits, a good year. Very good performance and increase in the U.S. Recovery in China after some difficult years. The prestige cuvée of Champagne delivered an excellent result. Moët & Chandon strengthening its global leadership position of Champagne. We're developing the Moët & Chandon brand across the world. Very dynamic. We're also developing innovations in various areas for Champagne. I won't go into all the details. Hennessy, of course, is very successful. You mustn't expect Hennessy to continue too long because we're out of bottles. Be cautious. The problem is to deliver. The stocks are at an all-time low. We're faced with that situation that may seem excellent, but is going to put a brake on the expansion of our business there. The strategy that we put in place with Mr. Navarre is bearing fruit because we constantly create value.
We've always resisted the most difficult times in China. We didn't cut prices that some of our peers did in order to continue to grow. We've never done that. We truly are market leader for wines and spirits premium. Over now to fashion and leather goods. The, of course, leading brand is Louis Vuitton. That puts in an excellent performance with a slower start to the year but a stronger growth in the second half of the year. This growth is achieved throughout the world thanks to innovation, thanks to extremely creative products and an exceptional organization, such that in a company such as Vuitton, in spite of its sales that I won't disclose, we have one month of stock, which is a remarkable performance.
I'd like to say that we can't expect huge expansion because we are constrained by manufacturing one month stock. We have to make the products. We have to create workshops. Even if we're going to create a new workshop in the U.S., as we've announced. It allows if there are problems of tariffs and duties, we'll be able to bypass that. We have to train the people and the teams. The customer demand would allow us to do this. We need to bide our time. There's no point in achieving too much growth. We have to do it in a consistent fashion. Of course, during the year, we achieved a number of successes with new openings, at least store renovations. You've seen the number of stores is reducing some.
We're increasing the sales per square meter, we're creating new stores that are quite exceptional. A few weeks ago, there was the opening of the renovated store in Hong Kong that are quite extraordinary. There again, the sales perhaps not skyrocketing, but nevertheless, increasing sharply in spite of the situation, thanks to their efficiency and innovation displayed in these locations. Other brands are also growing well, have grown well in 2016. Strong increase in Fendi, Loro Piana, that's opened a store at the end of right close by. Unfortunately, it'll be closed at the end of this meeting, but I urge you to take a look when you can. There are some very fine products there, especially with the cold weather. There's some fine cashmere products available. Other brands making good progress. Celine, of course, Kenzo, that's been repositioned. Berluti, there again, is achieving considerable success.
We've disposed of Donna Karan. That wasn't quite in line with our other brands. We're re-orienting, repositioning Marc Jacobs, we acquired a majority holding in RIMOWA. We're now majority shareholder of this fine German company, a manufacturer of high-quality luggage of excellence with increased air travel. These are the lightest and most robust cases to be found on the market after those of Vuitton, of course, but those of Vuitton are not in the same price range, and they're almost impossible to find. On perfumes and cosmetics, here again, many events. The prime event is that of our new creative studio at Grasse, Les Fontaines Parfumées. If you're passing through Grasse, I invite you to visit this new facility. A lot of craftsmen and artisans who are developing the Vuitton and Dior fragrances.
Vuitton, I didn't mention in the highlight, launched its collection of fragrances last year that prompted considerable demand. On Dior, that is the leading perfume brand. The success of the iconic line, J'adore and Miss Dior continue. Sauvage for men that we launched two years ago, has achieved success worldwide. It's number 1 in several countries and one of the leading fragrances in the world, and the goal that we've set ourselves to be world number 1 will be achieved in two years' time. The other perfume brands held up well, notably Guerlain with the fragrance, La Petite Robe Noire, and also more iconic brands of makeup. The new brands acquired and launched by Sephora, Kat Von D. Mr. Lapuente has presented the store. It's full of this brand, and it's full of customers, whereas we're not making any advertising. Makeup is a good segment. Watches and jewelry.
It's really all good news. Perhaps you might find this rather tiresome, Bulgari has achieved a performance better than market. You can see on this photograph, we've launched the new collection of Serpenti, the Bulgari historic model that's very successful, as well as the enhancement of lines Divas' Dream or Lvcea, a woman's watch that works well. TAG Heuer. The watch market is down, TAG Heuer is up thanks to the success of the company under Jean-Claude Biver. We've revamped the strategy, with the iconic lines, with a refocusing of the strategy on what has achieved the success of the brand. Also, thanks to the connected watch that is a big hit. We've achieved growth in the watch segment. Likewise for Hublot, which for different reasons, is continuing to grow.
Chaumet is also achieving excellent momentum with a new concept store inaugurated in Hong Kong, which I saw recently. That is very successful. Selective retailing. Pretty mixed performance. Sephora continues to deliver surprising performance. I won't give revenue, it is growing strongly for several years now. Double-digit growth for Sephora and also profits. All that is useful. We are number one in the distribution of perfumes and cosmetics in the U.S., both in physical stores and online, ahead of all our U.S. peers, be it Macy's for stores or Amazon. Amazon, that is pretty much mass market products, not really our competitor. There is huge potential with this company that is extremely dynamic, which not only is opening stores, selling and distributing products, but also taking majority holdings in brands that we are developing very fast, thanks to the global network that tops the 2,000 stores now.
In 1998, let me remind you, when we acquired the company, it had barely 10 stores. That is a considerable success. Not so great for DFS. DFS is suffering from the situation in Hong Kong, that made the mistake of taking a license in the Hong Kong Airport that costs us a lot of money that we are continuing to pay. That is stopping at the end of the year. We will exit next year, but it will still impact on this year's results. Hong Kong, one of the places in the world where the outlook is the most challenging. Le Bon Marché achieved very useful results. I invite you to visit the latest exhibition organized by Mr. Wagner, that is attracting a lot of people. It is quite exceptional. So much for the events of the year. That explains why our results are what they are. That is very good.
In spite of all that, in spite of the fact that the year is beginning with green lights. I am very cautious about 2017. Why? It may sound strange. First of all, when everything is going well as it is, it is always in these times that something unexpected occurs and that we have to be very vigilant. I said to the teams, "Let's be vigilant in a period that may seem euphoric and may encourage people to let up." People congratulate each other. The stores are full. We do not know how we can meet demand. That is pretty much the summary of the situation, they tend to ease up. I believe we need to be extremely vigilant because, from experience, every time we found ourselves in such a situation, the year ended not so well. Why could that happen?
First of all, for almost 10 years now, there has not been a major crisis. The last one dates back to 2008. When I see my friend Warren Buffett, he always tells me, "I am very optimistic for the long term." I am also very optimistic for long term, over a 10-year period, normally there are eight good years and two not so good years, or even a very bad year. Now we are coming to the end of the 10-year period. What is going to happen when we see a global outlook with interest rates that are defying gravity as low as they are, with share prices that are rising with exuberance, to quote a well-known term, with a geopolitical situation that is difficult to read? There is talk of a trade war, tariff war, currency war with very low growth in Europe.
Can all that continue to be buoyant for all our business? I think we need to remain cautious. It's better to expect a first half that will be relatively easy because comparisons are easy. The 2016, the first half wasn't that great, this year should be okay. Geopolitical, economic events that might unfold in a way that isn't particularly helpful, and the way the second half of 2016 was promising, we must expect things to be far more difficult the second half of the year. This year, and I conveyed this to my teams. I've conveyed to them a message of great caution in spite of the results and the excellence of the figures that we're presenting. It doesn't only have disadvantages, a difficult situation, because these are the periods when we can seize on opportunities. Currently, shares are very high, people continue to buy.
When share price drops, that's when they tend to sell. That they lay down their arms. A few years later, it picks up. Perhaps during this year or next year, there will be opportunities for the group because it's true that it's in more challenging times. I've noticed that we've always managed to increase our market share and to outperform our peers. One never knows. We really need to be prudent. I believe, nevertheless, we will strengthen our lead over the market this year. Over now to Jean-Jacques Guiony for more information on the financials.
Good evening. I don't want you to get depressed. If you look at the figures for last year, they are pretty outstanding, especially looking at sales. The numbers here, you have sales on a quarterly basis. There's lots of numbers on this table. Two things you have to know. Organic growth over the year was 4% in Q1. That's the dark blue, 6% in Q2, and 8% in Q4. Overall, organic growth was 6%. If you look at the ForEx and structure effect, they are almost negligible, compensate one another. Organic growth is, in fact, not very different from growth in euro terms. If you look at distribution of sales, three big blocks, U.S., Europe, Asia, 26%-28% for each over a three-year period. Asia has done two or three points, and the U.S. is up two or three points.
There's some parity effect, differential growth rates, but all in all, same numbers. If you look at the dynamics of growth, you can see if you look at the four major regions, three are up, U.S., Asia, and Europe, and one region which suffered the backlash of some events, Japan. Japan did well with tourists until March or April, whereupon the yen went up and the Chinese authorities, the customs authorities, were much more restrictive as to the imports of goods imported from Japan into China. That, of course, hampered our growth in Japan. The numbers are stable or indeed slightly down. That's the only dark point. If you look at the U.S., we're looking at 7% growth accelerating at the year end. Yet you had some negative effects.
The consolidation of a joint venture that we had with Grand Marnier and that we had to dispose of, then the negative effect of Donna Karan, because Donna Karan month-on-month during the transition period had negative performances. If you leave that out, these are one-offs, of course, we were looking at upwards of 10% for the period as a whole. That's pretty good. Asia is interesting because we were looking at 5% growth for the year as a whole. If you look at H1, 0%, and H2, it's 10%. In June, July, there was a complete turnaround in Asia, and this actually occurred also in China, indeed in greater numbers because I think China was like 14% growth. Likewise, H1 was average, whereas H2 was much, much better. Finally, Europe, 7% growth.
I don't think anyone in this room at the same period last year would have bet on that, 7% growth in Europe. In France, we are slightly down, I think minus 1%, slightly negative. All the other countries did well, there was indeed business really picked up at the end of the year. Now looking at our various business groups, in organic growth, Mr. Arnault mentioned this already, if you look at the right-hand column, you have for wines and spirits, we're looking at the 7% organic growth, slightly better for cognac and spirits. If you look at cognac specifically, even better, slightly better than champagne. Look, both numbers are very good. Fashion and leather goods, 4%, there was 0% in H1 and 8% or 9% in H2.
A significant contrast, even though the Donna Karan cost us 2 or 2.5 points of negative growth in these numbers. Perfumes and cosmetics, 8%. This is an environment where growth is not as good as all that, we're doing extremely well. Watches and jewelry, 5% with the Bulgari ending the year beautifully. TAG Heuer did well throughout the year. Very contrasting figure in selective retailing, Sephora has double-digit growth, DFS was in negative territory throughout the year, even though it picked up slightly at the end of the year, for reasons that you already know. This time looking at even on a quarterly basis, looking at business groups, you have the dynamics. Wines and spirits, 4% in Q3. Compared with 2015, the basis of comparison was somewhat distorted.
Fashion and leather goods, the same effect that I mentioned. H1 was flat, literally, a pick up in H2. Perfumes and cosmetics and watches, jewelry, and selective retailing, a few swings, by and large, sustained activity. You can see that selective retailing went up. The numbers is not due to Sephora, rather DFS that was able to turn around at the end of the year. If you look at the income statement, sales up 5%, gross margin up 6%, is 24% compared to 23.1% last year. Marketing expenses are up 6%. Overheads, administrative expenses up 10%. We have new accounting rules. There are additional provisions, most business groups completed their accounts with significant provisions out of caution. Not including the provisions, of course, there wouldn't be such an increase in admin and overhead.
We're looking at EUR 7 billion in profits from recurring operations, up 6%. I think we're looking at 18.7%. If you look at the other income and operating expenses, slightly less than last year, but you have depreciation. There are some goodwill amortization. The capital gains on Donna Karan are about EUR 40 million, and it is recognized here. The financial result on this is complicated. I'll return to that later. Income tax is always too high, 2.8% of the income before tax. The net income is stable, and the minority interest is down, not because of Moët Hennessy, because Moët Hennessy did well, but because of DFS, whose performance was down, and this is reflected in the minority interest. Finally, we are just under EUR 4 billion in the actual net group income, group share of net profit, but still up 11%.
If we look at profit from recurring operations by business group, Wines & Spirits up 10%, where sales were only up 5%. Profit margin was significantly increased in Wines & Spirits, and this is particularly visible for Champagne and Cognac. Fashion & Leather Goods, 3% increase in sales and 10% in profit. Again, profit margin significantly up and a dramatic improvement in H2. Perfumes and Cosmetics and Watches & Jewelry, if you look at sales and operating profits, they increased to the same tune. Selective Retailing, the -2% is not due to Sephora but DFS, whose performances declined over the year, even though they picked up at the end. Finally, if you look at the effects are mostly due to organic growth.
How to account for the increasing profit, most of it is organic growth, which was roughly equivalent both in sales and profit, even though that indicator for organic growth is not really the one we would choose. The currency effect is limited compared, say, with last year. The change in net financial income now. It's always a complicated story. You start with the simple line, which is the cost of net financial debt, which is roughly stable. There were little by way of interest or debt outstanding. Our cash is not bringing in as much, because the interest was down, but that doesn't make much difference. The ineffective portion of foreign currency hedges, that's what we do to cover our positions. There were significant one-off costs last year, which we do not have this year.
The EUR 330 million is a recurring expense, but it is exceptionally high because normally it should be somewhere like EUR 160, EUR 170. The recurring part of this charge was much less last year, and it should be much less next year. As you know, it is not linear. IFRS 9 should allow for linear recognition of these currency hedges. The costs of the ineffective portion, that is the cost of these hedges for 2017, we recognized more in 2016 than the actual cost that was dispersed, which is, of course, absurd both in accounting terms and in economic terms. We'll fall back on our feet next year, but of course, it's just as absurd. The net gains or losses due to the disposal of assets, of course, we didn't have any capital gains this year that we had last year. Hence the difference.
If you look at our balance sheet, equity is about half our liabilities. We have some increase in stocks. We have a sound financial structure, and we have undrawn credit lines to the tune of EUR 3.4 billion. That's EUR 3.7 billion indeed. Cash flow is also a source of satisfaction. Let's look at our cash from operations, up almost EUR 800 million at EUR 8.7 billion. The working capital requirements is mostly stock changes, maintained to almost the same level as last year. It cost us EUR 400 last year, now EUR 500 this year, but we're looking at the same numbers. Operating investments slightly up. We're looking at EUR 2.2 billion compared with just under EUR 2 billion last year. All in all, the free cash flow stands at roughly just under EUR 4 billion. It's almost EUR 4 billion there. This is a significant improvement compared with last year.
Along with sales and profit from recurring operation, this was a record year. If you look at the debt position, well, this is in dark blue. Debt stood at EUR 4.2 billion. It stands at EUR 3.2 billion, the debt is down EUR 1 billion. There was EUR 4 billion in cash flow, EUR 2.2 billion for dividends, EUR 200 million for acquisitions, EUR 300 for the buyback of shares, and EUR 2 or EUR 3 million in various operations, leasing adjustments or monetary adjustments. All in all, we were able to reduce the debt to the tune of EUR 1 billion and gearing stands at 12% debt to equity. This is a low number. Finally, we are offering a dividend. What we'll be offering is €4 per action, up 13%, and this is in line with the net results. €4.
We paid out EUR 1.4 in December, the final payout will be EUR 2.6 paid in April. Thank you.
All right. Well, ladies and gentlemen, if you have any questions, we're available to answer you. If you'd kindly state your name before your question. Thank you.
Hey, bonjour. Antoine Belge. Hello, HSBC. Three questions. You mentioned the United States with a number of constraints, border tax. What's the percentage of your business achieved, for example, in fashion and leather goods in your factories in California? Jean-Jacques Guiony said that the tax rate was too high. Mr. Trump might perhaps give you a helping hand on that front. Second question on cognac. There's probably a difference between the capacity constraints that you mentioned and the sell-out. Could we have some feedback from the Chinese New Year? How do you plan to address these problems of supply? Might that lead to a couple of quarters to distributors that would be lower than to the end users?
In terms of your use of cash, you made an acquisition, RIMOWA. Perhaps you could tell us a bit more about that. Could you confirm that you've also taken 10% in the Italian company, Marcolin, and why? As to share buybacks, EUR 300 million, is that a beginning? Might that become recurring in the coming years? For the USA, the USA is the world's leading market. Obviously for us it's very important to follow what's happening. Currently, the market's very promising, very buoyant. The atmosphere is, perhaps not euphoric, but almost. You see that the stock market has topped the 20,000 mark in the Dow Jones for the first time. That's historic. Is all that going to continue?
I have to say that the measures that have been announced, the tax cuts, easing regulation, and investments in infrastructure, all that's pretty promising for companies that are in the United States. We, for the time being, have little manufacturing in the United States. For 25 years, Vuitton, what offers a certain manifest advantage if border taxes were to increase. Obviously, for products manufactured in the United States, there's no problem. I don't have the exact figure, but a large part of Vuitton products sold in the United States are made in the United States. We're really quite immune. There again, we do have some flexibility on the prices.
Most important is to see what's going to be the global impact of changes underway, change in economic policy, which for the time being is very well perceived in the United States. There are far more positive than negative points. I mean, the changes in Europe with Brexit, there again, for the time being, in terms of the way our business goes in the U.K., it's pretty promising. Everything's cheaper for visitors when they go to the U.K., except for Vuitton products. But when they go to the U.K., they have cheaper hotel rooms, cheaper taxis, et cetera. They travel far more to the U.K., perhaps a little less to France, but they travel a lot to the U.K. It ultimately is the likely poorer state of the Britons following Brexit will be such that it's going to create political and economic problems in the U.K.
That needs to be seen. We'll see in two years. It's a very long period of time for the politics in any particular country. It's impossible to say what will happen exactly. But for the economy, there are a number of uncertainties. What's going to happen with China? Will there be a battle on customs tariffs with China? Will China be more difficult to access? The Chinese president gave a speech in Davos praising free trade, one never knows. We believe we need to be cautious as regards to the development of our business this year. What's more, you mentioned cognac. Cognac sales might decline. If we don't have enough cognac, we can't invent it unless Mr. Navarre does miracles. Once we've exhausted the stock, we have to rebuild the inventory. Currently, demand is outstripping supply.
I don't know what that will lead to, but we're faced with that reality. On the cash front. Okay, the acquisition of RIMOWA. We sold Donna Karan and we bought RIMOWA. It's a profitable business. It has a lot of potential. It's one of the finest SMEs in Germany, ranked as such in all the corporate rankings for Germany. Outstanding German quality, and we believe it has great potential. There's currently strong demand for the products. In fact, today I invite you to visit the store just opposite the Bristol Hotel in Paris that's quite outstanding. You find these cases that we also sell in the United States. Marcolin , I won't make any comments about that. I won't tell you what we're doing. In any event, whatever we do, it's a small operation. As regards to cash, on the cash front, we need to be prudent with cash.
It's better to have some than not to have any. Currently, we're in a rather strange period. We're being lent money, and we're being paid, to borrow money at negative rates, which can encourage people to do very silly things. Wisdom with Mr. Guiony, we're trying not yield to temptations. We bought back a few shares, but they're too expensive now, so we won't be doing any more share buybacks. They're too expensive. I'd rather wait. If the market collapses, at that point, we'll buy back some more shares. Once again, one never knows. There are investments, totally abnormal, that were done. In 2007, just before the crisis, no one predicted that, as you recall. Then I recall that I bought LVMH shares at €40. It's not that long ago. I'm not saying that we can hope for that, but it's best to wait. Any further questions?
Thank you. It's John Guy from MainFirst. Could I start with CapEx and returns question for Jean-Jacques, please. In 2011, I think you had a CapEx as a percentage of sales over 7%. You've been normalizing closer to the 5%. Your free cash flow continues to skyrocket, and the gearing is very low. When you think about the prospect for future returns, can you maybe give us an indication as to where you think normalized CapEx is and what we can expect for sustainable rates or return on invested capital going forward? My second question is with regards to the global Chinese consumer. We saw a very sharp rebound in global Chinese consumption in the third quarter. Could you maybe talk a little bit about how the global Chinese consumer evolved in the fourth quarter?
Finally, to Mr. Arnault, with regards to Cognac and Louis Vuitton capacity constraints, how do you think about pricing or the volume and value mix going forward? I did notice that in the U.K. we saw some pretty strong pricing activity, but the volumes remained very strong, that's a testament to the brand equity and clearly the desirability of your product. How do you think about that going forward? Thank you.
Hello. Surely. Regarding CapEx, you mentioned 5%. 5% is the ratio of CapEx to sales. It's an objective. I don't mean all brands will do the same. Some brands need to spend more on CapEx because that is to such brands as Fendi need to do this to ensure a better return on the brand, and they have high CapEx, but other brands as well. We're looking, what we're aiming for, but it's not an actual stable objective. What we're aiming for is 5%, but there are exceptions to that, and that can lead to returns. That is return on capital was slightly down in the years 2012, 2013, 2014, but now returns on capital invested is on the up, although it hasn't increased that dramatically. You had a second question on a sudden rebound in Chinese consumption.
What we have found was that while Chinese customers have always been loyal, what happened in H2, well, Q3, and of course this accelerated in Q4, what we had is repatriation of Chinese consumption towards mainland China. If you look at the main malls in China, they were-
As stagnating at single-digit growth until the summer. Now, they are into double-digit territory. Of course, the brands, well, the better-positioned brands are doing better. As Jean-Jacques pointed out, it's partly to do with the currencies, but also the Chinese differential is not as significant as it was in the past. Also the Chinese authorities want to repatriate consumption. That is, they want people to consume at home than buying from abroad. Chinese New Year is still under way. I don't think we could look at the events now as the continuation of Q3 and Q4. Regarding the stocks of Cognac and Vuitton, we can always hike up the prices, but the profit margins are pretty good as it is. We also have some responsibility vis-à-vis our customers. We now find ourselves in a situation that there's more demand than we can meet.
I think the thing to do is act responsibly and preserve the future rather than hike up the prices in the short term and find ourselves in a position which is not really, neither tenable, nor ethical vis-à-vis our customers. There may be situations where revenue may not be as buoyant as one might ask, but so be it. We will survive. We will make do with that. Yes?
Good evening. Luca Solca from BNP Paribas. I have a question about fashion and leather goods. It has been some time that you find yourselves in this position with Marc Jacobs. Well, in the same position with Marc Jacobs. Is there any changes on the foot? On the digital sales, will there be a point where you will be able to sell online or to reconcile this with sales in shops?
Do you have any ambitions for e-commerce? Mr. Arnault, I believe that your encounter with the U.S. President hasn't reassured you vis-à-vis the situation. Would you care to comment on that? Well, I'm more concerned about Marc Jacobs than the U.S. president. Well, in any event, I don't think he can do much about the U.S. policies. Of course, Marc Jacobs is a challenging situation. Mr. Roussel is working on that. That's the only business along with DFS, which is in the red. We will pull out, I'm sure. In the fashion industry, you have to be cautious. Things are volatile. Indeed, at Vuitton, it's the same. You do not want to turn this company into a fashion company because when things go out of fashion, then you've had it. Vuitton is a timeless company.
It's a company where we have this sort of timeless robustness, just like watches. I'm not saying that our fashion goods are accessories. Whereas for Marc Jacobs, Marc Jacobs is very much a fashion business. When things are in fashion, fine, and when they go out of fashion, not so fine. Regarding sales on the Internet. Yes, Mr. Belloni. Well, we have been looking at the issue of digital sales, of course, all companies are very much concerned with the digital dimension. Of course, you can't just go online. You need to have the infrastructure. You need to have the talents. You have to have the databases. You have to have all that, the wherewithal to be able to offer a satisfactory digital experience. Our customers have been doing this, and our sales on the Internet are significant. We're looking at about EUR 2 billion.
Growing significantly. Some brands are doing better than others. We can be happy with the digital transition, or at least we could see that in all business groups, we have been making significant digital inroads. It's not just a matter of piling up sales. We have to offer an integrated experience so that our customer is fully supported. Now, regarding American policies, I may have sounded concerned. I think as things stand now, the policies are in our favor. I read a paper in "The Daily Telegraph" saying that the new U.S. president is very much criticized, this has always been the case. There's the question, well, what if it worked? What if I don't know if you read that paper, but these things, it could just work. Indeed, some of the measures taken by Mr. Trump lowered-
taxes, deregulating, increasing, or giving a push to major infrastructure projects. All this is positive stuff. Now, most people appointed, at least for positions to do with the economy. They are highly trained professionals, people from the banking industry, having good bankers. A good banker working in the financial sector world, that can only be good news. Yes.
If I may. The first one on pricing. In your cautious outlook for 2017, which price increase do you expect for businesses like Vuitton, that in the past year took a lot of their growth from pricing? The second one, always linked to your cautious attitude for 2017, is about divestiture. You are a fantastic collector of brands. Last year, you surprised us selling one of them, that is not very common in the house of LVMH. Should we expect a portfolio assessment of the various business that you have and further divestitures? The last question is always linked to your cautious attitude for 2017, and it's about the agility of the organization. You work in a business with a lot of fixed costs.
Which are the changes that you are asking to your management team to be more agile, and how do you want LVMH to react in the next years? Thank you.
Well, on prices, I believe I've already answered. I think we have great elasticity, but we're already expensive, and we have excellent profitability. We have a responsibility, I won't say social, but at least moral, vis-a-vis our customers to really set the right price. When we see the results of the group, the results of Louis Vuitton, the cognacs, since the question was asked, I don't think it would be appropriate for the short-term benefit, for additional short-term profit, to give oneself an image that would not be consistent with the general ethics of the group. Disposals. Okay, that's really at the margin. The disposals that we made were just very small companies that didn't necessarily have an assured future in the group. If there are other minor, small disposals, they will be just that. Small disposals, nothing significant. As to the cost base, well, yeah.
The cost base, we're constantly striving to make it more variable. You must realize that in an organized group, teams must be organized. They must have good morale. They must grow. For that, we have to have teams that are very different. Startups. We also have startups, but in a company such as Louis Vuitton, Wines and Spirits, or now Sephora, it's necessary for the smooth functioning of these large companies whose revenue exceeds several billion EUR, to have an organization that operates and that operates whatever the ups and downs of the market. Which doesn't mean that these organizations must not be agile, mobile, and highly entrepreneurial. I believe the teams in the group have two characteristics, as I often say. First of all, they must have an entrepreneurial spirit and be aware that they're in a family business.
That's very important because a company such as LVMH is not an anonymous company. It's a company where there's a family atmosphere. In addition to the fact that the family controls the business, we try and manage the various brands like family brands. Arnault, who heads up Vuitton, considers that he is the owner of Vuitton, manages as such. Mr. Tolédano at Dior has been there for some time now. Well, he is Mr. Dior, and in fact, he could design the dresses. At least, he's already designing the bags, which is pretty good. You see? On and so forth. We convey this highly entrepreneurial spirit, but also very family-oriented. We're in a family. We're not anonymous with mass market machines.
Some have come from there, and who joined the family and who fitted into the family very well and become one of the pillars of the family. It's another mindset. It's the family entrepreneur. The company is still small. I say that we're really only at the beginnings, as I often say. Everything remains to be done.
Come on, a couple of questions in because then it will be time for drinks. Let me talk about Italy. What are your intentions with Safilo? I believe you have licenses, and with Celine. Then with Margiela, and I know you want to tell us more, but do you propose to take another supplier, or what do you propose to do? Look, we do have a strategy. I cannot tell you what it is. It will be a surprise, and you will find out sometime this year. There are still things that are being finalized as we speak, so I'm afraid I will not be able to give you a premature answer. Things will be all right. A final question then.
Thank you. Karin Finkenzeller from WirtschaftsWoche. I have a single question. You have decided to acquire RIMOWA. You have purchased this operation in Grasse and Ile de Beauté in Russia. I believe you are reaching out to the middle class, aren't you? Is this to say that you are hoping to reach out to new markets, and what are your expectations in terms of volumes? Also, do you believe that by giving the middle class a way to access your brands, you can also enchant them and make brands that were out of their reach, make them able to reach them?
Well, that's exactly right. For many of our brands, look at Dior. Dior is the largest, it's the greatest haute couture company in the world, and there was a splendid fashion show last week. You can purchase very expensive dresses, but you can also purchase lipstick worth only EUR 30. That brand has the dream or carries the dream of extreme luxury.
It can also be affordable. We are not just selling to a closed, restricted elite. We are reaching out to the general public. Through our products, you have access to the creativity of the whole brand. With Vuitton, we have remarkable products. We sold custom-made hampers whose average prices were EUR 10,000. We sold hundreds of them. The waiting list is six months. You can't just pick them off the shelf. You have these EUR 10,000 hampers, but you can also buy a bottle of perfume for no more than EUR 200. Likewise, with these suitcases that you can procure in Germany in terms of value for money. Well, they're certainly very good value indeed. There's a lady at the back of the room. I have in fact two questions.
Number one, you said that in 2017 you told your teams to be cautious, I would like to know whether this means you will impose more stringent criteria in terms of profitability, and might this make more difference next year? There's innovation in various brands, but are there areas where you have to be particularly careful or where you will be more demanding in terms of profitability? Another point, last year you said you were not satisfied with the financial flexibility of your company because of volatile interest rates. You've reduced debt by EUR 1 billion. Would there be any interest for you to broaden the group's structure and scope so as to have more flexibility because you said there would be attractive opportunities this year or next year?
On that, it's difficult to answer you because even if we had a plan, which isn't the case, we wouldn't be able to disclose it. It's very difficult. As I said earlier, interest rates are so low that one can find money very readily. Once again, one needs to be able to invest it wisely. So
I'm really waiting for a turnaround in the market. It's necessarily going to happen. I'm not saying it's going to happen in 2017, it happened in 2018. It's necessarily going to happen with this ecstatic exuberance, which was not short-lived, at least. I don't see it lasting for several years. On the profitability criteria, we always have profitability criteria for our business, what matters most, and this is what we're discussing the most, the criteria of quality and image of the brands over the long term. When you're managing the company, every morning asking yourself whether in 10 years' time, we'll still be the market leader as Vuitton is today, the finest luxury brand in the world, or Sephora, the best retailer of products in the world. What must we do today to continue driving forward the quality of manufacturing and motivation of the teams?
Profitability follows. It's not an objective because when you start setting targets from profitability, then it's really addressing the problem from the wrong angle. Profitability really stems from the sound, good management of the brand equity and the quality of the products. Thank you very much. Invite you to go next door for refreshments.