Good morning, everybody. I would like to thank you for joining us for the report of the H H1 2021 results. I would like to thank the employees of the group all over the world for their courage, their solidarity and the creativity that they have shown in an unprecedented situation. The exceptional performance of Hermes in the beginning of the year illustrates the resilience and the solidity of our model. In these difficult times, it is important to keep our optimism and the entrepreneurial spirit.
During this crisis, we have maintained all our strategic investments and a strong and a strong creation. At Hermes, the people are at the heart of our corporate project. And thus, all along this crisis, we For us, it has been very important to make AMS a safe haven for its employees and partners and a responsible actor with local governments. Placing people at the center, source of creativity and innovation. We want to keep the course in this uncertain reality with confidence continuing to surprise and in keeping with our identity.
This is reflected in the success of our collections and with our clients. I would like to thank our customers for their and their attachment to Hermes. This period has also seen an acceleration of the awareness of importance of social environmental responsibility. The nature of Hermes' artisanal model since the last 180 years is a durable, sustainable model. We are attached to humanist values and absolute quality requirements without compromise at each step of the production change.
The durability of the object, quality of materials, the demandingness of know how, richness of creation, everything is linked in a virtuous ecosystem. The very strong vertical integration and the transmission of know how have also allowed Hermes to adapt with great agility in the course of these last months. With 80% of reduction in France and more than 60% in house. We ensure the traceability of our exceptional materials and our objects, which is a promise of confidence and quality. Our multilocal approach has also shown its relevance, allowing us to adapt to the reality of each country.
Let's talk about the group business activity at the end of June.
Group business activity was especially dynamic in H1, revenue reaching €4,200,000,000 as of the end of June 2021, which is up 77% at constant exchange rates versus 2020. This growth reaches 33% compared to 2019 in both comparing both to the first half and second half. Stores saw their growth rates up 81% year on year, remarkable performance in Asia, acceleration in the Americas and a recovery in Europe in Q2. Overall, the network Adapted in a very agile fashion proposing omni channel solutions to our clients and continuing its development. We'll come back to the point.
Now let's look at business activity broken down by geography. Versus 2020, all geographies Keep their strong momentum. First of all, France up 35%, Europe excluding France up 52%, saw a recovery in the first half, but still feel the negative effect of restrictions in some countries as well as reduction in tourist flows offset though by local clients and online sales. Next Japan up 59% displaying remarkable performance in spite of new measures resulting from the health state of emergency and this is thanks to loyalty of the local customer base. Asia excluding Japan up 87%, seeing the benefits of strong momentum throughout the region driven by strong performance from Mainland China The Americas, lastly, up 115% and that accelerated further in Q2 versus 2019, All geographies are seeing double digit growth except for Europe.
Restrictions in France and in Europe. Now let's talk about revenue broken down by sector. As of the end of June 2021, all sectors confirmed their growth, Remarkable growth in ready to wear and accessories, watches and other Hermes sectors. Leather sales up 63%, a beautiful growth after beginning of the year, which was driven by strong deliveries from the end of 2020, exceptional levels. Demand remains strong, thanks to reinvented classics as well as new models such as the Hermes Stella Cavaleria bag.
Development projects continue with the opening of the Montreux leather production site last June. The ready to wear and accessories sector up 98% continues its strong momentum, thanks to the ready to wear collections and fashion accessory collections. Silken textiles up 72 percent see great performance thanks to diversity of creations materials and formats. A new innovative printing line was opened in Pierre Benite, which is near Lyon. Perfumes and beauty at 65%, growing and reaping the benefits of the new men's fragrance H24.
1 year after the launch of Rouge Hermes, beauty continues its development with the launch Rose Hermas watches up 121%, confirming their excellent performance reflecting the watchmakers know how, technical level and creativity of our collections and particularly the success of our new men's watch H06. Lastly, other MS sectors up 100% this includes jewelry, art of living and tableware confirming strong momentum here versus 2019 All sectors are seeing strong growth. Now distribution by sector shows us strong growth in ready to wear accessories and other Hermes sectors.
Now in this totally new situation, Hermes has its capacity to enchant and to take risks with an innovative creation. I'd like to thank all the teams of the artistic direction and those of the sectors. I would like to mention the enrichment of the leather collection with the models Birkin, Troisonna and Della Caballeria that I already spoke about, the beautiful welcome of the women and men's ready to wear collections during Paris Fashion Week successful launch of the Kelly Morpheus jewelry collection. Apple AirTag Hermes marks a new step of development in collaboration with Apple. And finally, 2021 has also seen the presentation of Sylvania, a new exceptional material made from fine mycelium.
We have evoked already this confidence in the future in our integrated artisanal production model that we pursue our operational investments in our production capacities in France. We've inaugurated the Montreux leather production unit to Saint Emain in June, neighboring our tannery. We are finalizing the work in Guiyen Gironne leather production site inauguration plan for September 2021. 3 other production side projects are underway, Louvie and Oeuvre by 2022, first manufacturing side with positive energy and then in the Ardennes for 2023 and Auverne 2024. We're also pursuing work in the Lyon textile hub with the enlargement of the Pierre Benite production site.
In the beginning of the year, our omnichannel network has continued its development. For the last 5 years, we made a strong strategic choice with the ramping up of the e commerce platform everywhere in the world, and we're going to continue to accompany the digitalization of the uses. In parallel, Hermes pursues the strengthening of its physical retail network. We have thus opened new stores on the Omitesando Avenue in Tokyo in February, Troy near Detroit in June. Several renovations and enlargements are being pursued in Lyon, Paris, Rue de Sevres, Zurich, Brisbane, Macau and Beijing.
Let's move on to the communication of Hermes. The adaptability and creativity are ingredients which are key to continue to strengthen and nurture the link with our customers in a reality that is an ever changing world. The House has an integrated approach of both digital and physical. The formats designed with the director's civil test were men's ready to wear. The 3 act performance in Paris, Shanghai, New York for women's ready to wear illustrates this.
The multi local vision is also key to adapt to the context of each and every country. In fact, the physical events have resumed in Asia. We are continuing to accompany the ramping up of the digital influence and pursuing our paid investments in ambitious campaigns such as that of beauty and jewelry. The second semester will be materialized through the intensification of communication actions. The first 2021 H2 sorry H1 has been marked by the advancement of several strategic areas in terms of CSR support of employment.
Hermes is nearly 17,000 employees in the world today, out of which 10,600 are in France. Since December 2020, we have recruited nearly 400 people. This trend is accelerated in Q2 to accompany the development of Hermes. The transformation and education remain at the heart of our commitments and thus 2021 sees the procedural of the project of the Centre of Training for Hermes Apprentices called Ecole Hermes Des Auber Fees in partnership the National Education to transmit leather making know how and valorize them to the acquisition of a national state diploma called the CEP Maho Kinry. The program manufacturer of the corporate foundation of Hermes operated in France is also now operating in Italy and United Kingdom for the first time.
In June 2019, we signed a new agreement, group wide disabilities related agreement for an improved approach. With 51 production sites set up in 9 regions in France, the group is a local actor committed in the creation of jobs and revitalization of territories section of Natural Environments. The new motorhoo leather production unit has been accompanied with the plantation of over 200 trees for the regreening of the production site also equipped hybrid solar panels completed with the LED lighting. Finally, Air Messer completes Sciences Po with the Chair for territorial development. Emphasis is put on social inclusion, strengthening of durability and economic growth.
It aims at favoring the implementation of public National Policies and European Policies. In H1, 2021, Hermes has reasserted its commitment to reduce carbon emissions with the formalization of trajectories with the reduction of industrial site emissions in line with the 2,030 targets, reduction of emissions by 50% and the renewal of its commitment with the 3rd Livelihoods Carbon Fund and the positive impact of climate change, namely through large reforestation projects. MS has committed alongside livelihoods since its creation in 2012. It's 130,000,000 trees that have been planted to the benefit over 1,000,000 people. Hermes Offsets in 2019 over 100% of its emissions linked to its own activities, Scopes 12.
Today, more than 80% of the electricity of the group comes from decarbonized sources. What is more our commitment to responsibility challenges accompanied by WWF and CDC Climate, Airline has advanced on the mapping of Global Biodiversity Score Impacts. Our commitments are also materialized in collective initiatives with enhanced transparency. I now give the floor to Eric de Alguerre, CFO, who will present the results
Good morning, everyone. Whereas at the same time last year, the group was reporting results negatively affected by the closure of stores. The first half of twenty twenty one is seeing a strong leverage effect generated by a rebound in sales. The first half of the year sees exceptional results, whether you're talking about operating profitability, As Aksel mentioned, revenue is up 77% at constant exchange rates and 70% at current exchange rates Compared to 2020, this organic growth is virtuous because it includes only limited price hikes less than 2% group wide. Changes in currency parity is representing €160,000,000 minus 7 points Growth in sales generates a slightly accretive impact on operating profitability.
Improvement in growth margin by 6.5 points. This comes mainly from the leverage effect on fixed production expenses plus gradual improvement in productivity as well as remarkable inventory sell through rates both in fashion sectors as well as sectors such as watches, jewelry and the home. Communication spend reaching €145,000,000 which is a level similar to H1 of 2019. Etch. This bolstered strong growth in China as well as the launch of our new men's fragrance H24.
Other sales and admin expenses, €790,000,000 This includes, firstly, employee wages in stores as well as support, function employees and H. The increase, EUR 128,000,000 a third of which comes from fixed expenses and 2 thirds of which H. E. C. Comes from RENT, which is indexed on revenue.
Express as a percentage of sales, overheads Other income and expenses, EUR 371,000,000 EUR 244,000,000 of which continuation of Group Investments in the Distribution Network. Furthermore, this includes expenses relating to the bonus shares plan. Recurring operating income H1 2021, dollars 1,000,000,000 which is 3 times greater And that of 2020, up 51% versus H1 twenty nineteen. Expressed as a percentage of sales, This chart is an illustration of the leverage effect resulting from the upturn in sales, whereas the group contained changes in fixed expenses relating to vertical integration. Growth in sales in H1 2021 compared to the drop booked during the same period last year has led to an improvement in recurring operating profitability reaching 41%, gaining almost 20 points Versus 2019, the increase is 6 points.
The level of profitability as of the end of June 2021 is exceptional, And we cannot extrapolate this for the full year period in Orillia due to increased hiring. Furthermore, the group's objective is to Strengthen its operational investments and communication spending in the second half of the year. Lastly, we have to take into account the negative H. E. C.
Currency effect in the second half of the year. Financial results are an expense of €47,000,000 versus €43,000,000 in first half of twenty twenty. This expense mainly entails cost of currency hedging as well as interest on lease liabilities. The tax rate of H1 is 30.5 percent, which represents the forecast rate for full year 2021. It's basically stable versus the reported tax rate for full 2020, which was 30.9%.
Growth in income from associates is the result of a significant improvement in activities in the Middle East with our local partner. Net income, therefore, reaching €1,174,000,000 3.5 times greater than that of 2020, Up 56% compared to 2019. Improvement in operating profitability combined with a drop in half yearly tax rate generates a net profitability almost to 28% of sales, which is 2 times greater than that of H1 2020. In spite of the impact of the health crisis, annual average growth rate over the 10 year period Group after maintaining its strategic investments in 2020 continued its projects in the first half of twenty twenty one. €97,000,000 were spent on renovating and enlarging our distribution network.
We would mention among others the construction of our future flagship store in New York, Madison 706, the enlargement of our Milan store in Italy, The opening in Japan of the Omotasendo store or the relocation of Beijing China World in China. €56,000,000 was spent on production and or specific sectors mainly in leather, there are projects in Guyenne, Montreux, Louviers, Saint Jeanieux and Riem. Lastly, €61,000,000 were invested in real estate projects Such as our new premises located at Rue de Pathevo in Paris and in our IT systems to optimize the supply chain, operational cash flow reaching €1,500,000,000 in H1, thanks to strong growth in cash flow generation And a drop in working capital requirements. After taking into account operating investments we alluded to previously €214,000,000 And repayment of lease liabilities, EUR102,000,000 Adjusted available cash flow reaches EUR 1,200,000,000 Representing twice as much as that booked in the first half of twenty nineteen, which is €600,000,000 The group Made share buybacks of €142,000 reaching €162,000,000 and paid a dividend of H. EUR 4.55 per share identical to the dividend of 2020.
Restated net cash went up 6 €100,000,000 in the half yearly period, reaching €5,500,000,000 as of the end of June. Consolidated shareholders' equity going beyond the €8,000,000,000 mark. Using its strong financial structure, the group will be stepping up its investments in the second half, adding to its teams I'd like to thank you for your attention. I'll give the floor to Axel, who'll talk to us about outlook.
Thank you very much, Eric. I now come to the outlook of the group, which remain unchanged. After having preserved the jobs during the crisis, taking support on its solid financial structure, the Group will, as we have seen, accelerate its investment in H2 to consolidate the development of the Group. These good results reward the extraordinary work of all our teams and the solidity of our model, but we remain aware of the uncertainties linked to the pandemic and the global context. In the medium term, despite the economic, geopolitical and monetary uncertainties in the world.
The group confirms an objective of ambitious progression of its revenue at constant exchange rates. The 2021 theme, A Guiding Threat of the Creation, is that of the Odyssey, and thus we pursue our journey such as Ulysses, faithful to himself despite the challenges and successes. We confirm our strategic investments in new production capacity in France, which leads to the creation of new jobs and the pursuit of our efforts in training and transmission. The extension of several stores in Europe, USA and Asia strengthened our REIT exclusive and omnichannel retail network. True to our creative spirit, it is a pleasure for us to unveil the 3rd chapter of Hermes Beauty with Hand Care.
We will present the women's ready to wear collection SpringSummer 2022 during the October Fashion Week in Paris, and we are happy to welcome Petitage in an enlarged space within the Hermes Sevres store in Paris. I'd like to thank each and every employee of Hermes that work every single day to make the house grow and our customers whose loyalty is greatly appreciated by us. We are now available to answer to your questions.
We have our first question H. From Morgan Stanley, go ahead. Good morning, Axel and Erik. I've got two questions. Firstly, You spoke cautiously about growth in sales, in fashion and leather due to production constraints you have.
A few months back, I think you were saying growth in volumes will be 15% in 2021 versus 2019, but it would be difficult to reach. You're doing much better than that though would appear in the first half when it comes to volume growth. What's the explanation for this Additional performance versus what we expected in this category. And what should our expectations be for the second half? That's my first question.
Question 2, Operating income well above market expectations in the first half. Regarding the second half, I've taken account of what Eric said about increases in certain line items, negative impact of currencies and so forth. But in the second half, couldn't we expect a margin in the range of 33% to 37%, which is what you reported in the second half of twenty nineteen And second half of twenty twenty. Thank you. Axel answering.
I'll answer first and then Eric will continue. Let's talk about leather. Let's talk about what took place. Yes, we've got production bottlenecks, which remain as such. We still have a forecast of about 8% per annum.
Now what happened in 2020. As you saw, many stores were closed. Many of our customers therefore weren't able to go into our stores. So there was some inventory end of 2020 In all geographies, that was quickly sold on the first half Of 'twenty one, so there is that catch up effect in sell through of inventory, which we saw in the first half, which just goes to show the attractiveness of our products everywhere. We've continued investing in less in production capacity.
We are very much still in line with our medium term strategy regarding leather and this is why we do not expect to see the same growth rate for leather in the second half of the year. Eric will build on this. Regarding the margin, Let's be honest, we hadn't expected plus 33% versus 2019. We'd expected a strong rebound, a beautiful year. But I have to confess the results have gone beyond our expectations.
2 effects, one of them is acceleration, strong acceleration that we've seen, also the leverage effect was quite impressive. In addition, there's been an acceleration In our investments plan for upcoming years, launching projects and so forth as of H2, we'll see Further investments in new jobs, in new logistics centers, the idea being to pave the way for 2022 2023. Eric, I'll build on that saying that second half profitability, the main driver is going to be sales. Right now, The environment is uncertain. Let me recall, we said we intend to increase our investments both OpEx and also communication spend.
We, as many groups, had frozen hiring for support functions that was unfrozen in the Q1. We're going to now see this The increase in hiring, which is going to take place. I also mentioned currencies. There's the conversion effect due to the 8 point variance between constant exchange rate and current exchange rate growth that had an impact in the first half won't have an impact in the second half because we'll see less of a variance changes in current rates. Also our guaranteed hedge rates are unfavorable, but in the first half, we saw an inventory reduction, effect of products that have been bought in 2020 at more favorable exchange rates.
So those are the main points, which lead to caution. As Sal said, our priorities are the medium and long term, I. E. Product quality, customer service, omni channel. These are going to be our focus.
We'll be bolstering our call centers, our support centers for our customers' benefit. Thank you. So we have another question from Susanna Pusch from UBS. Please go ahead.
Good morning. Thank you for taking my questions. I've got Q2. So the first one is on capacity constraints. So we are used to the fact that you tend to see obviously capacity constraints in leisure goods Because of the nature of the category, but I've actually been hearing anecdotally that there is actually I'm waiting for other products like even shoes or tableware.
So would be helpful if you could maybe tell us if that's the case and if this Something that may have impacted growth in some categories in Q2. And just a second question is on communication expense. So that was 3.4 percent of sales in H1. If I remember correctly, your target is usually 5% in that normal environment. Is this something we should expect for the full year, which I think would imply in excess of 6% of sales in H2?
That will be very helpful to know. Thank you.
Yes. Well, capacity constraint. There is one thing really, I mean, I'm sorry to say that, but What we try to do always is to produce as much as we can for our client, but I would say the real capacity constraint is about quality. And quality is 2 things, is to find the right materials of the atmos quality and the second thing is to have the know how to do it. And it's most of our product are very labor intensive, Which means that you need to have skilled people to work these incredible materials.
So our capacity constraint It's a little bit everywhere. And when you have such a growth, It creates, maybe for some time to time, a shortage of product on a few things. I don't think that we I think, 1st of all, that the growth of the second quarter or the 1st semester It's very high compared to that. And my goal and my for the rest of the year is whatever maintain the quality of the product and not concede anything on that. And that's what we've done for years in the letter.
That's what we are always doing in all other products. And I think that's part of the authenticity of the group, which is very important. And of course, as you can see, for example, with the letter, every year, we try to do a new manufacture. Every year, we hire 200, 250 new craftsmen, but we only do it in a reasonable way to take the time to pass on the craft, to take the time to select the right person, the right quality of materials and all that. And for me, this is the most important thing.
The most important thing is the creation and the creativity and to do this product in an incredible fashion. And after that, the sales, they are just the consequence of it. For communication, Eric will continue. There is 2 fact. The first fact is that we had a higher growth than budgeted.
The second one is that there was still a few events that we had to cancel because
Yes. So the level of communication expenses will be linked to the COVID constraints for specific events, of course. In any case, we will increase the paid part of communication expenses, and we have a target, Assuming that the level of sales will be reached of around €400,000,000 for the full year.
Thank you.
Because you
mentioned uncertainty in Kind of in the current environment, can you just confirm if trends so far in Q3 have been in line with Q2?
We don't confirm Q3. It's really early in the Q3. We'll have to wait for Nice morning call in the coming months.
H.
We have a question from Thomas Chauvet from Citi. H. I have three questions. The first on growth ETG per geographical region in the Americas, where there's been an acceleration as compared to Q1, maybe more in line compared to some of your competitors. Have you changed anything from a commercial, merchandising or clienteling point of view?
Maybe the e commerce sales have been higher in terms of penetration rate in the U. S, which explains this catching up. Or do you believe that it's just in line with the trends that you actually see in the sector? My second question relates to the recruitment growth. If you look at June, 8%.
We talk about catching up on recruitment in second half of the year. That means we'll be higher than 8% in H2. I suppose it's essentially linked to the opening of production sites. 3rd, the production site, the CapEx, You had guided R450, R500,000,000 in February for the year. The budget CHF 214 1,000,000 first half of the year, 45%.
That means CHF300 1,000,000 CapEx investment for the second half of the year. Is that correct? Thank you. Well, to answer to your three questions, we do see a recovery of the U. S.
With performance, more difficult in 2020 as compared to other geographical zones where Asia functioned well. I would see 2 trends, 1 which is specific to Hermes. We were very cautious with uncertainty in the U. S. And the sanitary situation for a very long time and longer than others.
Our stores were only on appointment and not completely open. These are options that we adopted for the management of flow as compared to the pandemic in the different states and we focused a lot on our network. We didn't make pop ups or other commercial operations. We remained with this and now that the health situation, the sanitary situation is being stabilized until any further changes. We do see a big dynamism in the U.
S. Which is nourished in 2 ways. First of all, our loyal customers are back with a big local customers customer base and also new customers, quite young, who've discovered MS in 2020, thanks to e commerce. We have seen arriving in our stores, new customers in our stores who have discovered during 2020 a house through e commerce. And we therefore continue to have very good results in e commerce and also the links between e commerce and our stores in the U.
S. So those are somewhat the reasons for the success we have in the U. S, success which is quite interesting in the U. S. Because all these sectors are doing well.
This is the case worldwide, but hasn't always been the case as much in the U. S. And all the meetings, all the sectors are progressing strongly in the U. S. With regard to the recruitment, it's a bit of everything I feel like saying.
Obviously, new sands linked to the opening of our manufacturing sites, but also a lot of sales associates in Asia and U. S. Geographical areas where there's a lot of traffic of new customers and numbers, which for the service requires a lot of people. So a lot more sales associates and behind that, of course, as you can imagine, all of the logistics and IT HCE and the things that need to be structured. So what do we see?
I feel like answering more at length and I apologize. So this is acceleration we are witnessing a moment of acceleration, acceleration of trends. I give you the 3 trends, very dominant ETH Asia High Digitalization Worldwide and strong interest 4 CSR subject. This was the case before the crisis, but it has been accelerated strongly. So what do we see?
We see an acceleration of these trends of our activities, which require that we accelerate our investment plan, accelerate Trust in IT on the digital. With this good 2025, we've work and now we have to accelerate things. So we have to launch things now to launch to prepare for the growth of tomorrow, instructuring projects to follow this trend. And this will undoubtedly for our investments lead 2 and that is your 3rd point where we are counting on €500,000,000 of investment of CapEx over the year. Thank you.
H. Thank you. Another question from Erhan Ramboe from HSBC. You have the floor. Hello, good morning.
Thank you for taking my questions and congratulations on the good results. To come back to leather though, You talked about 8% per annum in volume. We understand the catch up effect in the first half of this year. When do you think We'll start to see growth converging to the 8%. What can our expectations be in terms of volumes in H2 this year and beyond?
Question number 2 for Japan. Air mass clearly outperformed its peers. Many houses said there had been restrictions before the Olympics, But apparently, you didn't have the same experience. I was wondering what was different for you in Japan explaining such market share. Then the last question I have, cash levels, there are lots of consolidations in the industry right now.
You've released partially, divested Zhengzhou. The $5,000,000,000 in cash, what might you do with it? You talked about acceleration Accel. Might we see an acceleration in vertical integration projects or some other use of cash. Might that be possible in today's world?
Thank you very much. XL answers. Thank you. On leather, we can't do complete project full projections. It's a business And it's all 100% made in France.
Major impacts in the production are have schools been open? What about daycare? Those are major considerations, the health crisis had an impact. We try to grow. There are lots of factors in the process, Such as new artisans, performance of each artisan, apprenticeship learning curve during the year, productivity of artisans continues to increase as they can make more models, work with different types of leather and so forth As they are more and more autonomous, these aren't tasks, these are crafts.
So our basis is 8%. Beginning of the year isn't normative because yes there was inventory fairly bigger and more inventory Even closed, the stores knew that when they reopened, they'd be selling leathers. They kept their inventory on hand. Furthermore, we had an Excellent Chinese New Year in China. So we continue with that target.
I don't know if we Good, consider a figure. Eric, we're going to toward that normalization in H2, which is to say 8% in volume, Plus a price effect. Axel, okay. Now your question on Japan, first of all, thank you. This is something very specific to us, yes.
I love this question. Well, let me put it this way. I'd like to make 3 points, 3 criteria, if I can put it that way, Which are real plus for Japanese teams. We've got a local team, local chief and Thanks to them. 3 important things, loyalty, local and cross generational.
Let me build on these. This may be atypical compared to what may be done elsewhere. So our Japan results are atypical. First of all, loyalty, there's tremendous loyalty, for Japanese customers. They were very important in the 80s.
They continue to be very important for us. That's our theory at our Mass. We don't Just to let fall by the wayside our loyal customers, for a while people were investing in other countries, more in China, more elsewhere and so forth. We Did indeed go to China, but we also continued investing in Japan. We continued speaking to that customer base, Strengthening it, adding beautiful locations, doing major refurbishments in Ginza.
We redid the Maranucci store in Tokyo. We just reopened at Mutasendo. So there's this idea, first of all, you've got emerging countries that are growing, you've got long standing countries that have been doing well and we're continuing to invest in them as we continue to invest in route of severa in Paris. So there's our intention in Japan to continue with our customer base, not let them fall to the wayside regardless of a good year or poor year or what have you. Local aspect.
I said management's local in Japan. By the same token, customers are local. Very important for us in each country for us to The local actors highly involved with our own local customer base, we then also reap the benefits from the tourism flows. In the past 5, 6 years in Japan, Something new has been strong tourist flows, a lot of tourism within Asia. We've got loyalty of local customers that's helped us outperform the marketplace in Japan, thanks to our Japanese customer base, which has remained highly loyal.
A third point, which is a real plus for the Japanese teams as well. Often during our calls And with journalists, we hear a question. What about the millennials? When we talked about this with our Japanese teams, they said We're going to be multi generational, 3 generational. We're not going to focus on 1 generation versus another.
We're selling to all 3 generations of the family, the grandfather, the father And the sun and so forth. They said there's no reason at all To focus specifically on 1 generation, we accommodate the entire family throughout the year. I love that refreshing approach And it was certainly successful during this year. Sometimes we're driven by a wave, Which may be strong and go one way or another, but our strategic decisions, our approach, our way of doing things, our vision of the business can make us distinctive. And I believe our Japanese teams have especially shown this to be true.
They've been highly relevant sometimes And then another point, the third point was about cash. Hermes strategy has always been about organic development, which has been beneficial to us, Has shown the resilience of our business model and it was to develop in areas that require investment. Think of Our makeup launch and so forth. So we'll continue with that strategy of developing ourselves organically. Well, consider possibilities as everyone does, but that's not our strategy.
You can never say never, but it's not our strategy for the future. That's not our vision. H. Thank you very much.
Next question from Luca Solca, Bernstein. You have the floor. Good morning, gentlemen. I would like to if you could go into the detail of the component of the growth of the gross margin. You haven't increased the prices Etrably.
Is there a category mix effect or effect of geographies as there have been important investments in China where the prices are higher. Secondly, I was wondering As soon as you opened the stores, what was your experience on the share of sales on the Internet? Are you seeing a stability or rather a drop in the percentage of sales on the Internet and how do you then deal with the development of this activity? Thirdly, etchers. Have you started to feel the consequences on the demand or has there been no consequence for the moment on the Chinese demand for luxury with vis a vis?
What is happening as is the case on the Internet companies in the last weeks. Thank you. Eric, would you like to answer on the gross margin?
On the leverage effect sorry, on profitability, it's mainly a leverage effect, which generated this level of profitability in the first half as well as inventory sell through. The mix effect also positive because profitability in countries such as Japan, which you just mentioned, and Asia more broadly, such as Hong Kong with more positive tax rates have higher profitability. So there was a geography mix that was favorable.
Product. Now to specify, globally, we don't have a strategy that is much differentiated product. We try to have the same margin whether the product is desirable or not at all desirable so that the mix effect doesn't actually have a great impact. We haven't despite the strong demand in Asia, We haven't acted on prices because our prices are really made on the basis of our production cost. And then there's the approach rates tax rates, which can be more favorable.
But that's not and the idea is really the leverage effect and that's how it remains important. For the Internet, I don't know whether I will answer that's what I mean I tend to say which annoys everybody including my teams I never give a percentage of sales on the internet I do not look at them, so I don't follow them. But what I can say is that with the reopening of the stores, the strong growth of Internet has continued very strongly. And now that's new customers, and we have seen this year that All our criteria have improved, whether it is the conversion rate, the average purchase or the number of customers. So this I think about 70% of new customers, if I am not Trung.
What do we see that is always very interesting and that I had already alluded to the U. S. A large number of people who discovered in 2020 on the Internet, a large part, I mean, I'm not at all talking about the same volumes, but the people who came to the stores, lead to younger new customers. So the dynamic still continues. The largest production rate by nature remain an Internet stores.
Neither in my mind or in the organization do I oppose the physical stores or the digital stores. My aim is to offer the best experience whichever in both and it is then up to the customer to decide where he wants or she wants to go. What is important is that this has allowed us to have new customers rather than the customers just focusing on the stores. A 3 digit growth in all geographical areas in the digital, The traffic has increased by over 80% and as Axel was mentioning, 75% of this new traffic months. And the last question on the Chinese demand, XL.
Yes, well, we see a strong Chinese demand and appetite for our products in a lot of countries today. We have limited the limit of on restaurant, limit on travel. We are part of the industries that have been a pleasure to the customers and are desirable and We see that strongly in China, in the U. S. And in Europe when we can be open.
Thank you to both and have a good weekend. Thank you, Luca.
We'll take 1 or 2 2 people will be able to ask questions. So we have another question from Melania H. Pippo from Exane BNP Paribas. Please go ahead.
Good morning, everyone. It's Melania Pippo from BNP Paribas. Thanks for taking my question. Could etch. Please remind us your stop opening plants and refurbishments for the remainder of the year.
Then I have another question. If you could Please give us an indication within your Leatherwoods business where you have seen higher growth for your iconic models or the rest? And finally, I have a question on the material that you have introduced, the Sylvania. Given the fact that also several years Here you were innovating in the use of material. I was wondering if you have already gathered some feedback from your customers on this What's your role and what do you expect in terms of when do you expect it to launch?
Thank you.
Okay. Thank you. Maybe I will start with the refurbishment and the new at the new store for the 2nd semester. I will say mainly I'm not going to take all of them because there is a lot of them, but I will say we opened 2 new store in the 2nd semester, 1 in Miami, a second store in Miami and 2nd store also in Shenzhen in China. After we as I told you, we're going to reopen sales fully with Petitage.
We just reopened a few days ago in Milan. I don't
know if you
have yet seen. We are expanding in the U. S. In South Coast Plaza, for example, in California. In China, we're going to expand Our Plaza 66 store in Shanghai and also Yanqiu, and we are in Japan, continue to etch.
And our store in Tokyo, Shinjuku, Isetal. That's for the main part. For the latter, I'm sorry, I cannot comment more than what I've said before about our long term view of the growth 8% in terms of production. And what we see on the other side, which is on the sell side, is that there is a very, very strong appetite for our lady goods and regardless of the models. You have to say that's very interesting to see that, Yes, we sell very well the Berquen.
Yes, we sell very well the Kelly. Yes, we sell very well the Constance. Yes, we sell A lot, the Yveline, the Picotin and the new model. And I think what has been, I would say, Impressive during the semester is that really the growth is across the board in the Metier and within the Metier also. And the third point, which is our new product.
I will say our strategy is quite simple for me. It's more complicated to execute, but the strategy itself is simple. The role of Hermes is to find the best product, the best material, I would say, to make the best product. And I'm a little bit agnostic in terms of materials. It just need to be incredible.
It needs to be to last long and it needs etch. That you can transmit it to your granddaughter. So we don't have any exclusive, I would say, strategy. We really find that we need incredible leather. And for that, we need the most Sustainable and biological farming.
You only get great letter when there is welfare of the animal, when they are done In Verifying. So that's really something where we want to invest quite a lot. If sometime we need to go for certain product to go up to farming. We do that, and we think there is a way of doing great farming. And also, we are interested in all the technological, I will say, novelty that allow us not to replace, but to have a new incredible material that we can use.
Me, I'm very keen, for example, on the toilet ash, which is our kind of cotton fabric that we use in our bags. It was done for the fireman in the 20s for the horse, and we use it like that. So I'm always looking At what will be the new materials worldwide that we can use because they are incredible. And so that's why we invested in new technology. We have We look at what is done with Biotechnology.
Here, it's Sylvania. We are happy of the product, It's in fine, miss Helium, and we only launch the product when we feel that it's a new product that's going to have a new, I will say, filling and I don't think something else. As you've seen in the bag, there is leather, there is a miscellaneous, it's a mix. It's the use of this field, which is quite nice. And of course, because we are very particular, Like most of our precious materials, it's very limited supply, especially at the beginning.
And So it's going to be we're going to have the first model in the end of the year. But as you know, we are Always in a lot of capacity constraint and sometimes there are some waiting lists for our leather bags, and I expect that this one will be the same. Okay. Maybe a last question.
One last question, please. We have a last question Could you give us an update on next stages and feedback from customers? Wait, Could you please speak more slowly so we can really hear your question? I do apologize. Yes, of course.
No problem. A question on beauty. Could we get an update on the most recent launches and customer feedback Are we still talking about distribution in your own stores? Or are you also considering distribution via other retailers. Question, care products.
What about the timeline? Could you tell us when there will be further launches maybe in a few months. And then a question on margin. Your comment on medium term margins around 34%, 35%, would that remain the same? For the excellent performance in the last couple of half yearly periods.
Might that make you more optimistic for the medium term? Etch. On beauty, remember this is our mess, so we do things slowly but surely. We build things in an orderly fashion over time. So what have we done?
We launched of the lipstick, wildly successful. We're continuing to broaden our geographical footprint we hadn't launched in China. This will take place in the second half. Next, we're continuing to add to the makeup range, Launching Rose, Rose Hair Mass, Lush will then continue Over time, adding to hand care products, eye care products. Number one priority is to have a comprehensive makeup experience for our customers.
The interesting thing is to see how successful this has been. Strong success for us reflected in our figures. If you look at Hermes perfumes figures, growth is quite high, Which is to say we've taken market share, which we didn't have previously since we were absent from the market previously. We took market share, a fairly strong market share. I can say our success starting with lipstick was well above our expectations.
Customer reactions We're very positive. The beauty of the case for the lipstick and the beauty of the colors, we're certainly Colour experts have helped us. So we're very pleased. Distribution continues to be limited, but it's still greater than just distribution through our stores. We're also these products are also available in some major makeup locations, Harrods, Yankyo in Japan, Isetan.
So it is a broader distribution offering. Also beautiful online sales, e commerce sales. Thanks to e commerce today, we're able to Really broaden our customer base. We'll continue this road. We have some targets for the medium term.
We've got to find the right products at the right time. We're not just talking about doing some marketing and Putting the Hermes name on some pretty cream, we're really doing it the right way, slowly but surely. We're doing a great deal of research, but we will do nothing that's not innovative and it's not ready. Now the point on margin, products. Afterwards, then we see what the impact is, how well things sell, We don't think the other way around, bottom up.
We do things the right way and that leads to a margin. In recent years, we've seen a strong acceleration in growth, growth in luxury broadly, which often has a leverage effect. On our forecasts, the important thing is to continue investing and think 4 or 5 years down the road. So firstly, I have to put a little bit of a damper on some of your forecast for 2021. First of all, it's way too early days.
It's a period of uncertainty. Things can go both directions. Secondly, I have to say, Our rationale isn't a structural margin as such, though we certainly ensure sound management of the group, right? Eric, Eric, Yes, we continue our price harmonization. It's on recent years limited price increases.
Therefore, profitability is the result of internal objectives, maintaining quality, improving customer service and then external constraints such as currencies, but I say we do not have a profitability target. Axel, thank you very much. This brings us to the end of our presentation. It's been a pleasure to report to you on these figures which are high this year. I say with great humility and modesty these are high figures because the situation continues to be uncertain, But I also say this with pleasure.
Thanks to choices we make. We make choices on a daily basis. We take stances about people, Human beings, our strategy at MS has always been to ensure quality and invest internationally. The group is successful also because we are major exporters. These are the right choices and that's reconfirmed by the major trends We have to now learn to live with times of crisis.
Of course, we very much hope we will overcome the current one as quickly as possible, But I do also believe that we've always got to be able to not lose our way in this world, which and this is reflected in our figures. I do believe I do hope this is a consequence of all the various trade offs and decisions we've made in recent years and not just in recent months. Thank you very much. Once again, we'll meet again