Good morning. Good morning, everybody. I'm delighted to be with you this morning to comment upon the excellent results of 2017. I'd like to thank you very much for your presence today. 2017 has been based under the theme of the meaning of objects. Every year for many years now, we've had a theme to give another facet of Hermès, and 2017 was the meaning of objects.
Maybe it's time to remember that above all, we are a house of objects. A house that has a corporate project. There's a strategic independence attached to a model that puts the artisanal dynamic at the heart of its growth, and which is based on the desirability of a collection and open to the world through a network of unique stores that accompany new uses and behaviors in progress.
Coming to the activity of 2017. In 2017, the revenues reached EUR 5.5 billion, progressing by +9% at constant exchange rates and 7% at current rates. Growth, may I remind you, is once again very healthy, resting upon mainly the volumes. This growth is very virtuous as a result. The development of all the maisons continues, thanks to the strengthening of production capacity, successes of the last collection, and sustained demand.
This progression of production is very solid, at +9% in the stores, and applies to all the geographical zones. Hermès has pursued qualitative growth of its distribution network. I'll be coming back to that. Results, 2017 has reached historic amounts and testifies to the solidity of Hermès in an international context which remains uncertain.
The current operating result progressed by 13% and stands at EUR 1.9 billion. Operating margin, 34.6% of sales is up by two points as compared to 2016. It's an exceptional level. Net consolidated income of the group share growing by 11% stands at EUR 1.2 billion and represents 22% of the sales, highest historical level ever. I would like to present this slide, needs no comment except for the fact that evolution of the revenue net results over the last 10 years. The average annual growth remains over 13% and 15%. Over the period of 10 years, we've tripled the revenue and multiplied four times net results.
The group has generated important cash, with capacities of financing of EUR 1.6 billion, and has allowed for the financing of all the investments, operational investments, without having to recourse to debt. Sorry, Mr. Heidtmann. Distribution of dividend and the buyback of dividends. Net IFRS cash position has progressed by EUR 600 million and stands at EUR 2.9 billion on 31st December , 2017.
Obviously, Hermès is an artisanal group, from the saddle, hand saddle stitching. Hermès has strengthened its staff by 650 people, over 400 people in France, mainly in the manufacturing units and sales teams. At the end of 2017, the group employed 13,483 people, of which 8,317 in France.
In 2017, wrapping up of the production capacity in La Sabine-Descevre, Charente and Fauchille sales being pursued. Construction are initiated in June, two new sites, the Maroquinerie de Normandie and Maroquinerie Ganterie de Saint-Junien. These contribute to the dynamism of the regions, have been accompanied by training programs and preservation of the environment.
The development projects are being continued with the opening of the Manufacture de l'Allan in 2018, and Guyenne and Montereau, the completion of which is planned for 2020. I propose we focus for a moment, this is something new, a film on our stakeholders. For those who are only in audible, it's a seven-minute film. This will be in the original version, but it will be available on the new internet platform within a month's time.
This film comes from a collaboration that we made with the documentary maker, Frédéric Laffont, winner of the Albert Londres prize, and who, in the footsteps of Hermès, a film called Empreintes sur le monde, "An imprint of the world," you know, weaving links with those who surround us.
This first film on the leather workshop of Montbron, from the point of view of the impact that it has on the community. I'm going to let you now listen to the film in the original version. Thank you. This is what Hermès is about, encounters. You know, we decided not to have a place with more than 300 people. We have 17 plants in France. Every time, we meet new people, wonderful people like this city mayor.
We also very much into a creation. That's at the heart of our activity. We are attached to preserving and transmitting creation. The customers don't walk into the store to check if the quality is still there, but to discover novelties. In 2017, we had the collections of women's ready-to-wear designed by Nadège Vanhee-Cybulski. We have a lot of exceptional materials and know-how in the collections, in terms of Depeche and Yan.
We have new models of bags, Cinetic d'Hermès, the Bolide Shark, which is on the screen, which is very successful. We have created a new line in the home universe, the Lien d'Hermès, and we've had also the successful launch of the new fragrance, Twilly d'Hermès. There was also the success of the Panthère line designed by Pierre Hardy. In terms of communication, I must say that there are a lot of people from the team here in this room. They were very busy.
There was an abundance of creativity when it comes to the métiers this year with our Hermèsmatic event, which was very successful. We also had a number of events around the women's world, also around the men's world. We had Hermès Club in Shanghai for the women's universe, Downtown Men in Los Angeles, and Men Up and Down in Hong Kong. We've had also a number of major institutional events.
We've just had the 8th edition of the Saut d'Hermès Horse Show. It was very, very cold, but there was an Hermès rider who won, so it was the year of successes. We've had also the Worlds of Leïla Menchari exhibition, celebrating the 50th anniversary of her work with us. Martin Margiela with the Hermès years in Antwerp.
As far as the distribution network is concerned, we opened one new store in São Paulo in Brazil. It's called Iguatemi. The growth may not come from here entirely, but it will still bring its contribution. We have continued with our expansion and refurbishment program. We have more than 20 stores in the world, including Bond Street in London, Munich, Athens in Europe, Toronto, Palm Beach in North America, Sogo Fuxing in Taiwan, Kuala Lumpur, Tokyo, New Delhi, Yokohama, and Kowloon in Hong Kong and Asia.
We've also taken over two concession stores in Monterrey, Guadalajara, and Copenhagen. We have a good geographical balance, which means that we can adapt to various events and to the expectations of the local customers. The distribution network is at the heart of Hermès. We successfully launched our new website, hermes.com, first of all in Canada and then in the [United State], which is a bigger country for the digital media.
This will be deployed during the first half of 2018 in Europe and then in China towards the end of the year. There are a number of initiatives as well regarding new buying experiences. In other words, we deployed pop-up stores in Gion and Kyoto. It was very successful. We've also had pit stop pop-up sales in Rome and in Seoul, which led to a lot of press coverage and great sales as well. Let's come a little bit to our activity and revenue by geographical area.
In 2017, we've had an increase in all regions of the world. First of all, in Europe, we've had a very dynamic market, very good performance in all of the stores of the group, especially in the U.K., possibly with the help of the exchange rates, Italy and Germany. This is also based on the success of the opening and refurbishments of Bond Street, Munich, and the taking over of the Copenhagen concession store.
France in particular, with a +5%, we have a George V store, which is currently being extended. Japan is +4%, which is a great performance. We've, we have Japanese teams that really make Hermès a star in Japan. There's been fantastic teamwork there. Asia Pacific, excluding Japan, a two-digit growth with +11%. In continental China as well. In South Asia as well, we have some improvements in Hong Kong and Macau. In Southeast Asia, we continue with our successes in Hong Kong, Australia.
Of course, Hermès will continue with moderate growth in China with Hangzhou and Shanghai at the end of the year, the openings at the end of the year. As far as the Americas are concerned, we've had a +7% with the opening of new stores, Toronto, Palm Beach, but also with a very positive dynamics for the whole of the area. Our geographical areas are somewhat balanced, as you can see.
We have + 13% for Japan, + 19% for Europe, + 14% for France, + 18% for the Americas, and a + 35% for Asia and the Pacific. We continue investing in the historic countries of Hermès, population growth and the dynamism of middle income classes. Middle income classes in Asia Pacific probably will lead to more growth, we're trying to preserve our geographical balance. Let's talk about the various métiers, about the various sectors. All of the métiers have improved. Leather goods and saddlery with [+ 10%], which is in line with our objectives, and as we announced at the beginning of the year, so as to really meet a very strong demand.
We have a very strong demand both for our iconic bags as well as for other models like the Constance, Halzan, Lindy, Verrou bags, which were very, very successful. As to the ready-to-wear accessories division, we've had a +9% growth thanks to the success of the fashion accessories and ready-to-wear collections with a very good sell-through for our collections in 2017, which means that we've achieved great profitability.
For silk and textiles, we have a +6% growth. Perfumes, +10% with a marked increase with a successful launch of Twilly during the third quarter, which now continues with its growth. Watches, +1%, a slight increase. For a long time, we had a negative figure here. This has kind of turned, and for the first time, we were present at the Geneva Fair, we were very successful. We're delighted with it. The other Hermès métiers, tableware, art of living, and jewelry also has a great growth.
The three métiers outside of leather which have increased most are shoes, luxury and men's ready-to-wear. We have a balanced revenue per sector, as you can see, with leather goods and saddlery still accounting for 50%, and the other departments for the rest of the revenue. I will now give the floor to Eric, and he will be presenting to you the annual results. Thank you.
[Non-English content]
Good morning. 2017 growth was very profitable. The gross margin progressed by 2.4 points and reached 70.1% in 2017. This progression first results in the positive impact of the Forex hedging coming from 2016, as we mentioned during the semester publication, profiting in 2017, so an impact of nearly one point.
The gross margin also benefited in 2017 of the productivity of our sites, production sites, in particular the integrated sites, which are in silk and leather. The sell-through of our inventory, thanks to the success of our collections. The negative impact resulting from a rise in tariffs was very limited and exclusively the Eurozone. In order to preserve our pricing agreement per region were, you know, amply offset.
Communication, which represents 5% of the sale, as against 4.7% in 2016, has allowed for the sustaining of Hermès Parfums with the successful launch of the Twilly d'Hermès. Overheads as a percentage of sales have had a small leverage effect, and other expenses as a result of the free share plan attributed to employees and the commitment of the team to the Fondation d'Entreprise Hermès over the next five years.
The operational income has progressed by 13% to EUR 1.9 billion. The operating margin has reached its highest level at 34.6% and exceptional level up by two points. The financial result results from the attachment of exchange instruments. The reduction of sale as compared to 2016 is resulting from the result of the cash outstanding which have progressed. This is an average cash of EUR 2.6 billion as compared to EUR 1.8 billion in 2016.
Tax on profit is up by 1.7 points as a result of two main elements. On the one hand, the unfavorable effect, EUR 16 million 08 points of the tax provisions in France. Indeed, we had noted an surplus in exceptional contributions at the end of 2017 to offset for the reimbursement of CRDS following the decision to invalidate the tax on dividend by the Constitutional Council. We took EUR 68 million, and we were reimbursed of EUR 52 million.
We are impacted by the American tax reform, which obliges us to note in 2017 a non-cash expense, 0.7 points impact on taxes. The reduction in tax went from 35%- 21%, and this is applicable in the U.S. as of 2018. Net profitability, 22% of sales, and here again, you can see reaches a record level. Operational investments, EUR 265 million, nearly half, that is EUR 120 million, were devoted to the development of our retail network, quantitative and targeted opening of stores, and 20 projects of store enlargements, renovation, and moving from one premises to another.
The projects that impacted 2017 were the projects of Hong Kong, Toronto in Canada, and Palm Beach in the USA. The production and investments, mainly leather manufacturing units, the Manufacture de l'Allan, the Maroquinerie de Normandie, and Saint-Junien. These were inaugurated in 2017.
This also concerns tanneries, where we continue to invest, and Hermès Parfums, and silk, and textiles, where we have taken investments for additional capacity to face up to the demand. Finally, EUR 64 million have been invested either in real estate, with the pursuit of our work in Italy, in logistics, and IT, and digital projects, which have been previously mentioned, development of the digital platform rolled out in the USA and in Canada. 2017 is characterized by strong cash generation.
The self-financing capacity, EUR 1.6 billion, increased by 11%, same pace as the net income. We also note a drop in working capital requirements for the 2nd consecutive year, thanks to very good control over inventory and especially the improvement of the rotation of our retail inventory. After financing of operational investments and financial investments, payments of ordinary dividends of EUR 3.75 per share, which restated cash was about EUR 3 billion. Here's the IFRS cash flow statement.
The difference in EUR 114, as compared to the restated cash, comes from the classification in IFRS in financial investment, because of the deadlines higher than three months. This graph shows the evolution of the operating cash flows between 2012 and 2017, and a doubling of the value in a period of five years. The dividend, which will be subject to the approval of the shareholder meeting, is EUR 4.10 per share, a progression of 9%, which allows us to maintain a payout of about 35%. It proposed an exceptional dividend of EUR 5 per share at the shareholders meeting.
Thank you, Eric, for having presented the best slide in the presentation. All indicators are green. We are now going to talk a little bit about our outlook. We're going to continue with our long-term strategy, hoping to be able to be agile to face up to the changes. We have to be the gardeners. We have to prune the rose bush every morning and plant the trees for tomorrow. We are going to continue our long-term development based on creativity, our know-how, and singular communication. We're also going to continue with the development of our distribution network, with the expansion of more than 20 stores and refurbishment of a number of stores as well. Seven new stores will be opened.
In the medium term, despite the growing uncertainties, we confirm our ambitious goal for revenue growth at constant exchange rates. In 2018, Hermès is celebrating the theme Let's Play, which goes beyond mere creation. It actually guides our vision as to the importance of enjoyment as a driver of creativity, innovation, and agility.
In 2018, we're going to continue to increase our production capacities with the inauguration of the Manufacture de l'Allan in the first half of 2018 and the ramping up of its activity. We're also going to continue developing our distribution network. There was a successful opening, it's a little early to say, but the first months are very good.
We have a new flagship store in Hong Kong, which is a 900 sq m store over three levels. We also will have the launch of hermes.com, the new website, where we're going to have not only e-commerce, but also communication. hermes.com will give us an opportunity to tell the general public about all of the actions led by Hermès and the Hermès position in the field of CSR issues.
Now we're going to have another video, another seven minute video in Japanese, but it'll be subtitled. You will discover a specific know-how, forgotten know-how of a very, very nice Japanese family. Of course, after that, I'll be ready to take your questions. Thank you. Something very beautiful. These clocks, of course, will be sold in limited numbers. Some people might consider that it is a bit limit to the supply. You see that with what they had, they produced as much as they could. I think it's absolutely wonderful. It's part of the ethics of Hermès. We could have tried and reproduced this technique with modern means. We prefer to preserve it in its integrity.
Of course, the difference of the slides are possibly not necessarily similar to the naked eye. We still kept to the old method. That's part of the pleasure working at Hermès. I'm prepared to answer your questions. Please take a microphone so that we can hear also those who are following us elsewhere.
Good morning. I'm sorry, I'm back to more financial issues. Could you tell us a little bit about the beginning of the year?
Is the trend as good as it was in 2017, especially per geographical area? A second question, what is the impact on your operating margin of the activity? Given the tax rate, what can we expect for 2018?
Well, three questions.
Actually, I will answer them vaguely. First of all, the quarter is not yet over. You know that I'm traditionally very cautious and prudent, and there's also something pretty specific for the first quarter, which is the Chinese New Year, which is not always at the same date, and this is a very important event.
So long as we haven't reached the end of March, we can't really say. What we've been saying over the past 18 months, and it's a bit sometimes, is that we have more or less the same trend continuing. Sometimes we have a quarter which was exceptional the year before, or maybe the fashion week is one week before, one week after, or maybe it's the flu, and we have fewer employees.
More or less, we have a similar trend over the past 18 months, with slight variations. We see that, for instance, at the end of the quarter, that we had a strong euro, and of course, this has an impact. Were there more trips inside of Asia, less in Europe? Possibly, yes. The fundamentals in which we are interested are similar. Now, as to the impact of the exchange rates, the euro is stronger, so there will be an impact. We don't really know exactly where this will lead us because we have to finish the year to know the difference between the real rate and the average rate and so on.
Yes, but there will be an impact, but that we cannot quantify at this point. As far as the tax rate now is concerned, we had not foreseen that we would be taxed more heavily in France. There are just a few of us who are taxed more. I don't think that we can be pleased with it. At any rate, we'll see.
What is certain is that the American Tax Reform, which obliges us to take some more provisions this year, should benefit us in 2018. We should have a positive impact of the American Tax Reform in 2018. 1.5 points. 1.5 points more.
[Melania Issey] from JPMorgan. I have four questions, if I may. The first one has to do with the profitability. I would like to come back to this.
Beyond the foreign exchange, can you give us some indication as what is to be expected in terms of cost development, things that you control in terms of marketing and other cost factors you have? The marketing costs, which is very much related to the fragrances, are you going to have a major launch this year or not?
Second thing has to do with the production capacity. In the leather sector, this is not going in a straight line. Usually, we have 7%-9% growth in average. When are you going to step up? Historically, we also had times where we had double-digit growth. From what I understand, not in the coming two years, are you to confirm that?
Third point, it has to do with the digital development. Clearly, you have completely revamped your e-commerce platform. I would like to know what your position is on retailing it, on third-party digital development. Would lead you to sign with some partners or not to sign with some partners, especially when it comes to China, where there's a major development there. I will leave it at that.
Only 3 questions in the end.
Well, I mean, right on everything, basically. First of all, you can observe that we are very cautious because we are talking about exceptional profitability here, whereas net profitability is historic. We pay very attention to words. And this year, I'm always very scared of Maurice, but we had an exceptional year in 2017 with +9% and no change in working capital requirements, which is exceptional. We benefited from our provisions in 2016, and therefore, we had a great profitability for the first half of the year. The Forex effect will take place at the end of the year.
We finished with a very low inventory, which is also something which is not natural in a way. Necessarily, our operational profitability will be more than usual, but it all depends on the customers. It's difficult to quantify. It depends on how far we go in terms of inventory building and so on. Where you hurt my feelings is that we do not have any marketing division within Hermès. I mean, we have a communications division, but this is our specificity. Yes, we had communications exercises for the launch of Twilly. [It's not really much of change of strategy]. It has to do more with Charlotte David managing the department, who thought that I was wiser on this.
We are not planning a new launch on fragrances in 2018, because we want to really settle those fragrances that sell well over time. We continue with the success of Galop and also with Terre d'Hermès Eau Vétiver, sorry, which is our new fragrance there, a new version. Then we continue with the cologne tradition. We started with Eau d'Orange Verte. Now we're going to have Eau de Citron Noir, which is a major success. With little communication, just a little bit of communication on this. We have reached approximately 5%, these are our communications expenses relating to the turnover. We find that this is, 5% is a good figure.
To the digital development. That's a hard question, because we don't want to answer it. First of all, we did not launch our site anew. We're going to really install it over time. As you may imagine, lots of people are asking us to as partners. When I talk about digital developments, maybe a little long, but I would like to go back to the kind of issues that we raised in the 1970s when we talked about going international. There was this discussion back in the 1970s as to whether we wanted to go international or not. We said, "No, it's not worth it, because the whole world comes to Paris. It's going to cost a lot of money. It's risky.
How can we build on this? It happened. It so happened that there was a vote taken, and there was one vote extra to actually go international. This is what we did. I think it's the same kind of situation that we have here for digital development. We say, "Okay, everybody come to our store. Should we go for it or not?" Yes, we have to go for it, of course, and it's costly, but it's also risky. The second thing is that, okay, how can you, well, how did we go international, contrary to other companies who went to U.S. department stores with big sales over the years, sometimes go through a license? W e decided to do it on our own.
It, it's longer, it's harder, we didn't purchase licenses in the 1990s, and we continue to develop. I think that we are applying a somewhat similar strategy to digital development now. In other words, we're trying to have the best possible platform on the internet, and we're trying to build it. We don't want to be too fast. We don't want to lose control of our products. This is a digital platform that we're going to also launch in China, and we're going to see whether we can by keeping control over it, how we can possibly go to Alibaba, Tmall, and so on. We can see that the social buying in China is something that is much more widespread than anywhere else.
We're going to try, first of all, to install ourselves there and try and keep things under control. That is just, that's just a general principle. If it's strategic, it is in your interest that it be within Hermès, and you should not really outsource it, and you should not go with third partners. Otherwise, it might be a little tricky. That's my opinion.
Thank you.
Hello. Daniela Fernandes from Valor Econômico, Brazil. You indicated that your new store in São Paulo is not working.
No, no, that's not what I said. I said it's not time to launch, but you made EUR 5.5 million. It's working very well, may I reassure you.
I wanted to take this opportunity to ask you whether your sales have increased in Brazil last year, on the basis, like for like basis, and if yes, by how much?
What are your medium-term plans in Brazil? How do you see that market today? Generally speaking, what are your prospects for the world luxury market for 2018? Thank you.
Brazil is a country that I like very much. At Hermès, we are growing. We have two stores. That's why, three stores. We have three stores. He's the retailer. He's running two stores. We had one in São Paulo, which is the historical one. We opened one in Rio just before the Olympics to sell to be able to sell saddles. Yeah.
Anyway, both are doing well. We opened a third one in Campinas on the other side. The growth rate is quite high and on an in the medium term, I would say that the middle class and the resources that they have ought to, you know, represent an important country. You have some economic difficulties. You know them better than I do. 2017 was not the best year in the development experienced by Brazil.
The other thing that is complicated for luxury products is the import duties. You have duties, import duties, which are very high on our products. We sell, indeed, also to Brazilians outside of Brazil, whether it's in Miami, Buenos Aires, or in Lisbon, or Faubourg, et cetera. For the moment, we're mixed with other industries in terms of the duties, the prices for Brazilians in Brazil tend to be high. For as long as we will have these customs duties that are very high, I don't think that we will be able to continue to increase the number of stores significantly, because after all, Brazilians travel a lot, at least our customers do, the price is an important element.
And in the aspect of luxury, ask the analysts who know this better than I do and who position themselves on it. It's very difficult to say, because we are in an uncertain world, but the forecast 2018 should be more or less in line with 2017. Except for one or two points. What has actually changed, as against when I was appointed CEO in 2010, we were all more or less in the average.
You know, there is a real polarization in our industry. Some succeed very well and others don't, et cetera. I must say that you can have the same average as before, but the standard deviation is higher.
[Leopole Authié], Oddo BHF. I have a question on the management of your treasury, your cash management.
Exceptional dividend of EUR per share, which corresponds to the same dividend as in 2015 and 2012. Your net cash position is much higher. If I were to calculate, we should be at about EUR 2.5 billion in cash next year. Do you keep some, do you redistribute? Is it going to call upon the change in policy of dividend distribution and the impact on the CapEx and the evolution in the future?
You're difficult to satisfy.
Okay. Every time we have the question of the dividend, whether or not it is exceptional dividend, you're not happy. No, our position is, Yeah, it was an exceptional year. We're ending with a very nice cash position. It was good time to have an exceptional dividend. I remain cautious because is the rule of the perhaps EUR 700 million to finance EUR 5.1 billion in cash to fund the future. That's sustainable strategy, excluding exceptional dividend. I think we're in a very volatile world where you will have opportunities, there are risks, et cetera.
To have a treasury, a cash, a cushion which allows you to act and react, there's really a true benefit in having this functionality in a moment that's volatile, and this cash gives us position. We manage to finance 100% of our investments, no problem. Ensure dividend and the exceptional dividend. We have benefited this year. We made the most to actually have this additional EUR 5 with also good progression of our ordinary dividend.
That's EUR 9.10 over the year so.
Hello, Can I get a bit of business? I tried to come back to digital a little bit. Do you have a launching date for the website of the new website in France? To go a little further with regard to what you were saying, Instagram launched its shopping button in France. Can you, on the basis of social networks, unleash your presence and start reflecting on this channel for sale, I mean, you know, using that channel for your sales?
On the digital, I find it very difficult to give dates because I had done some two years ago, and it wasn't very precise. If I were to give you the exact date that we have in-house, it's next week. Okay.
If it's been over three weeks, then forgive me. Europe will be soon, but we will really be putting in the marching order China before the end of the year. That is going to really occupy the energy of our teams, because contrary to the U.S. and Europe, where we are changing the website, in China, we did not have a website. It's totally new. That's a major program. We need to reflect upon it. It's important for us to stabilize our environment. We want to do something original. Originality is either something that pays off or it's a mistake. To make e-commerce through communication that is to say, you can buy and you can also watch films. You can see this Empreintes sur le monde, the one we just saw or other things.
It's a little more demanding because the seven minute films, seven minutes keeping the attention of people on the digital is complicated, but that is what we wish to do. The first results that we have on the website are very positive. In 2017, we now have a lot of connections that we didn't have on the smartphones. Over 16% of the connections are through the smartphones. I would say that 75 million people visiting. We don't have 75 million, obviously Times in the world of creative people who actually visited and the conversion between those who visit and those who buy has gone up. Indicators are all green, and it is important for us to continue in that vein and to, you know, sustain that development.
Then, you know, the social buying, I mentioned before Wilfried Guerrand, who's developing the internet and also the new measures we took on the shoes this year.
Should we test social buying once most advanced and the potential before we do so in China? Test it in China first? More launches of capsules and then competitors. Would you plan to do the same thing in the 12 - 24 months? On watches, I know that's a small part of your sales, but these 2017 is lower than it was in 2012. Can you tell us a little bit about the analysis of lack of attractiveness on the sales of watches?
Nationalities.
Nationalities, which are the ones that participated most in 2017 and now, you know, the months of 2018.
First we talk to market, then to talk to partnership capsule. The strategy of Hermès in general is not to make partnerships. Okay. I'm totally against co-branding. Not something that we try to develop at all. I tend to think that sometimes it's a way of compensating for creativity in-house, but my role is to develop the creativity in-house. That being said, for other reasons, we worked with Apple to make the Apple Watch. I started by saying we never make partnership, and we did do the Hermès Apple Watch. It was a decision of the management on it. On this, it's a company with which we share values.
The idea was not to do a co-branding, but to bring our competence in terms of leather strap and design, because they've taken the lettering of our iconic watches. It was an opportunity which we thought was natural, but which isn't aimed to sort of repeat itself. I'm not pushing the partnerships and capsules like others. This is the money that we put aside, and we have a lot of demand. I ask myself the question, "Does it really sell Hermès?" I write, you know, first couple, my weaknesses in-house watches. For once, they were growing between [2010] to 2012. I think there are two things. One was just totally linked to the industry. It is really explicitly dropped, so we're not the only ones on this front.
I over said that we had a plan for watches, but we had to settle three issues. One, strengthen the creation. I have a lot of ambition for creation, whichever it is, and we have some very strong models. Over the last years, around 2012, we could have done better. I say that frankly, because developing a watch is in something in duration. We undoubtedly had a problem of organization because we became a manufacturing unit with the movement, the cases which once it was okay, it was all vertically integrated and required in, you know, work of integration that took some time. You needed to also agree on what is the commercial strategy. It's something that we worked with on a lot of wholesalers, lesser retailers.
We reflected on it, and we were maybe a little slow to take on a big retailer mentality. We're selling on wholesale, yes or no. In these changes, we are beginning to see the fruit of these changes and to continue. It's, you know, a long haul, as you have mentioned with slight weakness in the background. Other than the fact that the figures are likely to be good, we still have to work in the medium term, working with very motivated teams, it's work in progress, frankly. The third question was on the nationalities. There's no change, I would say, in the big numbers in the major nationalities, Europeans, Japanese, Asians, and Americans strongly.
There is an increase, of course, in number of Asian nationalities that are, you know, becoming stronger. Us specifically, I don't know because this is particularly positive. We have always gone in continental China. Even in difficult years, we had a growth rate. We see China continuing to grow. It's impressive also to see the arrival of in Middle Eastern buyers, Indonesians, and all of this is also concentrated in Singapore, which is a very important center. Also the importance of nationalities of Southeast Asia. There's a strengthening of the Asian zone, you know, with balances.
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Can you tell us about the openings in 2018 and the major renovations that you'll be carrying out this year?
In 2018, we're going to have seven openings. Two In China. In fact, in China, we were supposed to have one in 2017 and one in 2018, but we're a little bit late in the work. Not ours, but the neighborhood. We're going to open a store in Palo Alto. We're very excited about this. Altogether seven stores. We are going to have refurbishment with expansion. Two in France are on the way at the moment, which means that it's a bit difficult in France at the moment because we have a pop-up store in Monte Carlo and one at the George V.
In Asia, Europe, America, one in Hawaii, which will be opening during the fourth quarter of the year, and which should be really a beautiful flagship store.
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Would it be possible to have some indication as to the amount of capital expenditure to be expected for 2018? Secondly, the percentage of the turnover which is online?
This will divide the, the CapEx members. As far as CapEx is concerned, we are around EUR 200 million. That's the raw figure. As to your second question, not only will I not answer, but even worse than this, I refuse to set such an objective internally. I mean, what I'm saying is that I really believe in the omni-channel, multi-channel, and the customer has to choose and select where he prefers to buy. The topic is not to have 5%- 10% or 15% sales online. Because of course, everybody, you know, is dreaming of me giving them this KPI so that they can then check on it, you know, internally. I don't think that this is the most important thing.
I mean, especially as we've decided to make a site which is both a selling and communication. I believe that in the years to come, there will be, for 80% of our purchases, a connection with the digital world. You can still look at it to look at product or buy online. Our best customers, and this is something that's interesting, are those who buy both online and in the stores. Second thing is that I think that there are a lot of people who go to the internet at some point, who will print out something from there, and then go to the store to actually make the actual purchase. There should be complete porosity between the two. I mean, there's not one that is better than the other.
Secondly, this is an objective that I do not set internally because I think that this would generate two rigid behaviors, which would not be good for our omni-channel strategy. We're already there.
Good morning, [Aurélie Sanmiquet, Capital Channel]. I have just one question on the millennials, because some of your competitors generate about 60% of their sales in this category of customers. I would like to know what the proportion of your sales is made with millennials, especially for leather goods, because your entry price for leather products or bags in particular is fairly high. Is this something that you monitor in such a way that you could possibly develop a specific offer for these customers who are going to be tomorrow's customers for you, basically?
This is a very complex question, as a matter of fact. Now, very frankly, let me continue with what I usually say, which is something that I strongly believe in. We do not have a marketing department, and therefore none of our creation is specifically dedicated to a specific type of customer. Style collection, we never try to have products for millennials or products for senior people or products for whoever, some nationality. That's really important for me. We have a true freedom of creation at Hermès, and this is why I'm saying we have no marketing department. I mean, it is true, we have no marketing department. Sometimes in the communications department, they do something that works. Sometimes we sell some of our products to unexpected customers.
There's also a freedom to purchase, you know? There's no merchandising department. In other words, each store manager decides what he's going to pick, what type of product assortment he's going to have. Twice a year, we have 800 people from 49 different countries who come to us here in Paris to shop and decide what they're going to purchase for their store. Our strength is that we have a very wide product offer. In other words, even though you might be a millennial or maybe it's difficult for you to afford an Hermès , still you're able to find something. And with the same level of quality.
I'm very proud to have EUR 150 or EUR 350 products in ties, for instance, or more expensive products like bags. It's what's important for us is that you appreciate your Hermès products, and then you come back to the store afterwards. Also, I think that we should not have preconceived ideas, basically, like, if you are selling to the Chinese market, for instance, they're very young there. Because the Chinese market is young as it is. If I were to sell only to Chinese people, I would of course be millennials oriented. We should not have any preconceived ideas, because these Chinese millennials are very rich, you know? They're prepared to buy quite expensive ready-to-wear products or bags and so on.
You have to be careful, you know, and not be too rigid and too Westernly oriented for your vision of who the millennials are. This is my feeling, you know? I think that if you have a excessive weight given to Asian customers wherever they purchase their purchases, you also have a specific weight of the millennials as well. I think that sometimes this debate about the millennials has to do more with an indicator that describes the penetration of the Chinese market. Also something else that I would like to say, and why did we continue growing?
Well, the Chinese very soon learned what quality was about, what craftsmanship was about, they really, they actually changed their, the companies from which they purchase their goods. Now we have a lot of Chinese customers, because even everybody who starts buying a luxury goods, one day will move to Hermès, you see. I was with Florian Craen in China. He manages the retail distribution and networks all over the world. There was a Chinese person who walked into the store and said, "Oh, you know, I cannot buy this bag, but very soon I will come back, and I will buy it."
My name is [Marie Verrecchia], Cogefi. If I may, I have three questions. Could you tell us a little bit about the concession stores?
At what point do you decide that you buy back a concession? At what point do you decide that it's better for that store to be a concession store? Maybe this is rare that this question is asked of you, do you have an acquisition policy for small niche markets? If yes, in what areas? I would like to, again, sorry, come back to the digital question. At this stage, do you see any limit to what you would possibly be able to sell via the digital medium? Because what's unique at Hermès is the customer experience that is seldom seen anywhere else. By moving to the digital world, we do not get this customer experience. For things like fragrances, okay, this may work.
For things that you already know, this may work. Don't you think there's a limit to digital development? Thank you.
Now, as far as concession stores are concerned, this is what I would say. There are two types of concession stores at Hermès. The historic ones, we work with the concessionaires for three, four generations sometimes. Here basically it's loyalty that comes into play until the next generation really wants to go back differently. We also have the country concessions. Countries where it's difficult to operate directly and where we have concession stores. There it depends on the political climate and on how part of the world market this country is. In Russia we started with concession stores.
In the beginning it was very difficult to operate if you were not Russian yourself. Now we have these things have changed, and we operate directly. In a number of countries we still have the concession stores for legal reasons very often. It really depends very much on the legal environment. Sometimes you're not allowed to operate if you're a foreigner. Sometimes or very often when things move about and things change, we try to have joint venture or we are very respectful of our concessionaires who are helping us. It's good, you know, to also have someone who sees things from the outside, you know. You can be very happy, and then you go to meet them, the concessionaire says everything is horrible. They can say it differently.
We are developing organic growth. We've had lots of acquisitions. That's the second question, about the acquisitions. We continue making a lot of acquisitions upstream. In other words, to have a more vertically integrated production. We bought a company making the watch cases or the dials and so on, for instance. Here we have a fairly strong integration flow. We're not very interested otherwise in niche development. This is not our strategy. As to digital development, of course, customer experience is really essential for Hermès, but tomorrow is not for me to decide who is the customer. If the customer wants, I would like to offer the customer the best possible experience.
If he prefers to go to the store, that's fine. If he wants to go digital, that's fine. As I said, when there's so much in the product.
In the quality that we put in it, the work we put in it, the raw materials. You know, already being able to attract a customer is good already as it is. We're not, no snobs, you know. I mean, at the time, we started, you know, opening shops in airports. We start with our people who never dared walk into an Hermès store, who start going into Hermès stores. The idea is to be as welcoming as possible, and digital development is a way to be able to be welcoming. They will have to look at other videos, unfortunately. They will have to eat some of the communications products.
We're trying to do this as much as we can, as well as we can. I'm not in a position to say to someone, "Oh, no, no, this is not good," you know? "This particular channel is not good." Long as we control it, you know, so long as we do it ourselves, and so long as we remain open to our consumers' expectations.
Yeah.
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Question maybe on cosmetics, which is in the books for the coming two years, makeup in particular. Hong Kong, you sold some real estate, you moved into some new premises. There's going to be reinforcement in bigger surface. Is that on the books for 2018?
On GS Makeup, cosmetics, we're developing at our way, at our pace. It's moving ahead, but it's a bit early to give you a launch date on the subject. Indeed, it's within the framework of our strategy of Hermès Parfums. For Hong Kong, you know, when there was a crisis in Hong Kong, it was difficult. We always, you know, had confidence in Hong Kong.
We were fortunate enough since the biggest store, which is The Galleria, which we own, and we thought this was a very good opportunity coming from 900 sq m. We are tenants. It belongs to somebody from Hong Kong, so we've taken this space. You know, we put on sale this store where we were operating much in the best we could in Central. We had a piece of sale, so it's being done. Whether it's going to be done or not, we'll, you know, we'll see. If it's done, we'll have a capital gain. On Hong Kong, we have a nice surface we obviously to develop. We developed by enlarging our store, the Hermès store, which is in Kowloon.
We would probably grow as well in half because our stores are a bit small as compared to our activity and our sales. It'll probably be a rental in Hong Kong rather than purchase. It is not our vocation to have another flagship in Hong Kong as we need it to include, because we have an incredible local customer base in Hong Kong. They really feel they come into the fold. They're people who travel a lot. We, with the whole of the executive committee, we cooked the piglets and did all that together. It's fine. It's been two months, it's too early. There's always the concept of a new store as well as opening up a store. They all come to see, will it be sustained over time. You know.
We also had the Chinese New Year, while we were opening the store.
Thank you for taking another question. On the IFRS 16 standard impact, we've heard the companies a little bit. What is the impact that you can assess for 2018?
It's a bit early. We are doing the assessment, but we are strongly impacted as a result of our commercial leases. As you know, the at fixed rents will need to be restated to put in asset and liability. We can't communicate the amounts to you today, but it will be a significant impact. It's an impact to margin? Yes. Obviously, it will impact slightly margin because we will be noting in amortization in the place of the rent. You know, financial expense, which will correspond to the theoretical loan.
If I may, kindly give by you, IFRS 16 be treated in balance sheets more than income statements so that it doesn't pollute too much, because otherwise you'd have to do just a pro forma. We will be doing it because it is a standard which is imposed upon us. In terms of management, that's what Axel sort of implies. We continue to steer the group exclusively impact of this standard, which has no impact for us. Including this standard can again, increase in margin. It's too early. It's too early. We'll give you indication when we have the figures.
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Well, thank you. Thank you. On behalf of the financial analysts of France, to congratulate you for your record results and for this magnificent presentation as usual, especially with the two films. This was an innovation, very interesting. I see you've loaded there. There was a part of this session before we decided on this. It was very good. Thank you. Thank you very much indeed.