Okay. Hi everybody, welcome to Horseferry House. Thank you so much for joining us for Burberry's preliminary results. We're continuing today with November's format, so you're seated at tables hosted by members of our senior leadership team. I'm sure I'll be calling on some of the group to contribute during the Q&A later. I'm extremely proud of the people that we have leading every part of the business, it's great to have so many of them here today from all around the world. I'm going to kick things off now by talking about our performance and what makes our brand so distinctive in the sector. I will hand over to Carol, who as you all know, is our Chief Financial Officer, to take you through the numbers. As at previous meetings, we'll then cover a specific part of the business that's particularly topical.
Today we'll focus on how we're using data and insight to add value across the business with a presentation from our Chief Customer Officer, Steve Sacks. We'll be glad to take your question. With that, let's get going. Last year was a busy but exciting one for me personally in my new role, and a strong one for Burberry as we evolved our strategies for the next chapter. As a young old company, we have always looked to the past as we have embraced the future. Last year, perhaps more than any other, was about going back to our roots. About remembering what made Burberry the company it is today, and celebrating anew the timeless and authentic products that define our 159-year-old brand. In so doing, we reinforced two crucial things.
Firstly, our distinctive positioning with the consumer and secondly, our unique culture as an organization. Both critically important as the world evolved rapidly around us and external challenges persisted for the sector as a whole. Against this backdrop, we dynamically managed the business to deliver a strong financial performance. Revenues were up 11% underlying to GBP 2.5 billion, and adjusted profit before tax up 7% underlying to GBP 456 million. Retail was a highlight again despite traffic declines globally, with revenues up 14% underlying, comps up 9% and continued outperformance globally from digital. Regionally, we were pleased to report continued double-digit growth in the Americas and EMEA. Gains in Asia were more subdued, consistent with wider market challenges, notably in the high-margin market of Hong Kong, where a slowdown in growth masked stronger results elsewhere in the region.
This included an outstanding performance from our directly operated stores in Japan, albeit from a small base. As Carol will explain, our cash generation was strong and we are pleased to recommend a 10% increase in the full year dividend as a result. Overall, while exchange rate movements negatively impacted reported numbers, the underlying health of the business remained robust and brand momentum continued, underpinned by our ongoing investments in long-term growth initiatives. I'd now like to talk about what's driving this performance. In November, we set out four themes that underpin our evolved strategic agenda. These come under the following four headings. Brand first, famous for product, customer-centric, and finally, productive and responsible. These themes guide everything we do, and I'll turn to them now in considering our achievements last year, as well as some key areas of focus for the future.
I'll begin with the principles of brand first and famous for product, emphatically asserted last year in a global celebration of our heritage. At its core was our intense pride in the British-made trench coats and cashmere scarves that are at the heart of our product universe. We radically simplified our heritage trench offering to three fits and three colors, reinforcing the craft and provenance of this iconic piece and reconnecting the customer to its meaning and its purpose. This is a product for which we control every stage of its journey, from the cotton seed all the way to the customer. Distinctive in luxury apparel and ensuring flawless quality and a truly authentic end product. We also brought our iconic cashmere scarf center stage to launch our first monogramming service online as our product heritage became a springboard for product innovation.
Including the successful launch of our My Burberry fragrance, conceived as a trench coat in a bottle, right down to its Yorkshire woven gabardine bow. The introduction of our runway poncho made in Scotland like our heritage scarves. The success of this piece represented the best of our teams in action, from design innovation to marketing and amplification, to the agility of our supply chain in responding to unprecedented demand. Both are destined to be Burberry icons, just like the products that inspire them. Every major brand initiative over the year restated our pride in the craft and story behind these products and in our British roots. Together with the passion for digital and music that have become every bit as much a part of our identity today. Global events to mark the openings of new flagship stores have this distinctive brand signature at their core.
From Dreams of London, which recreated the streets of our home city in a warehouse in downtown Shanghai, to London and Los Angeles, where the Queen's Grenadier Guards and James Corden led an unorthodox runway finale at the Griffith Observatory last month, capping a major celebration of Britishness and music for the opening of our Rodeo Drive store. Our runway shows and other events continued to inspire digital collaboration, engaging consumers globally through existing partnerships like Twitter, Instagram, and WeChat. Newer relationships including Snapchat, Periscope, and LINE, the Japanese messaging network that hosted our February women's wear show as its first ever live-streamed fashion event. With more than 52 million users in Japan, LINE is one of the world's fastest-growing messaging platforms, and the partnership was an important step in building Burberry's profile and awareness digitally in this priority market for the brand.
Finally, this year's festive campaign celebrated our hometown and British talent on a global scale. With over 10 million views of the campaign video online and 10 million visitors to our window takeover at the iconic Paris department store, Printemps, we were proud to take London With Love to the world. In the year ahead, we will make our unique brand and product proposition just as unmistakable and every bit as unmissable. Including through further brand and product initiatives that link back to our core, with the scarf in especially sharp focus. With continued marketing innovation on and offline, a sustained emphasis on unlocking the potential of digital as we reinforce our leadership in this area, with exciting plans ahead for beauty in particular this year.
The energy with which we pursued these brand and product goals was mirrored by our commitment to being customer-centric, which is the third of our four guiding themes, as we continue to invest to ensure customers have the best possible experience wherever and however they shop. Just as digital is a brand hallmark, it also defines our approach to the customer experience. The merging of our online and offline world was central to key initiatives over the year, including the rollout of our collect in-store program, increasing customer choice in 200 locations globally. The relaunch of our mobile site, significantly enhancing the burberry.com experience in this high-growth channel. The extension of our third-party digital relationships to expand reach and ensure a more authentic brand experience on platforms including Tmall, Amazon, Nordstrom, and Shinsegae.
The introduction in China of a new fulfillment approach that allows digital transactions to draw on inventory in both the local distribution center and the store network. This pilot has significantly improved stock availability and reduced customer delivery times and will be rolled out to the U.K. and to the U.S. this year. Stores remain a critical part of the customer experience in an omnichannel world, and we continued to refine our physical presence over the year. With relocations and refurbishments, including San Francisco, Los Angeles, and Tokyo. Seven new airport stores, predominantly in Europe, reflecting the significant opportunities we see in the high-growth travel retail channel.
With total planned capital expenditure of around GBP 180 million this year, key openings will include Seoul, New York, and another flagship in Tokyo, as well as the upcoming launch of a new gifting store and cafe called Thomas's after our founder at our Regent Street store here in London. Alongside these openings, we continued last year of our brand, 10 closures in China.
First, we analyzed what Chinese customers bought at home in the run-up to Lunar New Year, what items they browsed on our website before travel, and what items they bought most frequently while traveling. We used this to build a detailed picture of their product preferences, including the style, fit, length, color, and sizing for each product category. Second, we analyzed when and where Chinese customers were purchasing over the Lunar New Year period. The bar chart shows when the spend peaked, and the line shows the % of spend at home rather than overseas. You can see it peaked at over 70% domestic in the New Year's week. This enabled us to predict their shopping patterns by market and even by store. Using this data and analytics gave our merchandising, allocation, and retail teams insight to enable better decision-making aimed at maximizing sales and profit.
It allowed the regional teams and Donald's planning team to make sure that we had the right product in the right stores at the right time to satisfy our customers. It also allowed our retail teams to relocate Mandarin speakers into our stores to reflect these travel patterns and to focus our in-store training to meet these customers' needs. Even at this early stage, we believe that these actions contributed to the 9% comp growth we delivered in the fourth quarter. The second area where we use customer analytics is in our Customer Value Management program, which aims to retain and grow the value of our existing customers, a key driver of growth for our business. This pyramid shows the segmentation of our customer base, which is built on the lifetime value and product preferences of each customer.
While our Burberry private client team focuses on providing service to our most elite customers, the Customer Value Management program is about expanding that personalization and service further down the pyramid. Currently, it focuses on the top elite, connoisseur, and classic customers who account for over a third of our sales. We launched this program last year and rolled it out to all our mainline stores in October. This has allowed our associates to reach out directly to more of our top customers and to provide them a more personalized service. What we believe makes the program powerful is its scope, scale, and level of personalization. While at the heart of this is an analytical engine, what the customer receives is regular, personal, one-to-one communications from an associate. This includes invitations to experiences or events.
In the six months since launch, we have sent out over 10,000 event invitations, including to a handful of our top clients who were invited to our recent L.A. event. This includes suggestions for the perfect product. For each new season or collection, our top customers are engaged in a personalized communication from their sales associate about what new arrivals will complement their wardrobe. This includes special services. For example, private exclusive appointments during the festive period to help meet their gifting needs. The benefits of this personalized approach are clear. Our top customers who are contacted through the CVM program are 50% more likely to return and purchase from us again. They also spend 50% more when they shop than similar customers who weren't contacted directly in the same period.
Last year, we grew the value of our top customers by over a quarter, with customer value management driving a third of this growth. The third area in which we use analytics is to help our teams improve our digital platforms in terms of design, content, and site performance. Let me give you two brief examples. In the third quarter, our merchandising and digital teams identified that sales of our new Banner bag were performing less well online than in store. Why? When we got together to look at the data, we found that very few visitors looking at bags actually clicked through to the Banner product page. Basically, the visual imagery wasn't working to drive a click. Within a morning, our digital merchandising and creative media teams created new images for the Banner bag in our in-house studios downstairs and loaded them onto the website.
As a result, both product views and sales increased by over 100% to the extent that the Banner online was outperforming offline. Secondly, we have a globally consistent website, which is live in 44 countries and 11 languages. By analyzing customer journeys for different nationalities, we found that while U.S. consumers use the traditional left-hand navigation menu, Japanese consumers prefer to browse in a more visual way. As a result of these insights, our digital team changed our global mobile site to add new types of visual navigation links. This led to a lift in conversion of over 10%. The fourth area where analytics creates value is within marketing. We've recently conducted a global piece of work using econometric regression models to provide quantitative answers to key questions which will help in allocating our marketing spend.
This analytical approach is common practice in many FMCG and media companies, we are bringing these best practices to luxury. How does this help us? As an example, one of our econometric models focused specifically on the variables that affected tourist spend in our U.K. stores. From this, we were able to determine the relative influence of local marketing in a customer's home market versus the influence of marketing where they ultimately shop. Our marketing team has used this information to allocate marketing spend and to optimize the regional marketing messages consumers receive pre-travel. Given that the traveling luxury consumer accounts for around half of our sales in EMEA, you can understand the benefit of these insights. Another example is improving the targeting and reach of our marketing spend, getting the right message to the right audience through the right channels, thereby generating a better return on investment.
For festive 2014, we ran two separate campaigns on one of our social media platforms. One to engage our active customers and a different one to reengage our lapsed heritage customers with brand content specifically tailored for each group. The initiative delivered double-digit engagement rates, a multiple of the industry benchmark. In summary, we started using data extensively to better serve our customers and to create value today. This data is changing the way we make decisions and operate across the business. Harnessing this data will be a core underpinning of the future of retail. Indeed, McKinsey has said that companies that succeed aren't the ones who have the most data, but the ones who use it best. I'd like to leave you with a thought that we're on a journey to build customer analytics into the fabric of our business.
Over the next few years, our priorities are to continue to embed customer analytics throughout the organization, from retail to digital, marketing to sourcing, and merchandising to planning. To enhance and personalize our customer's experience whenever, wherever, and however they choose to shop. To extend and deepen our customer value management program to serve more of our customers and to drive retention. Beyond this, as a forward-thinking digital business, we want to make sure that we are at the cutting edge of analytics in a rapidly evolving luxury retail environment. Thank you. Now I will hand you back to Christopher.
Okay. I hope we've given you a little insight into some of the things that we've been doing and some of the ways that we're approaching the future. Thanks to Steve and thanks to Carol. We are happy to take questions now. I'm going to come back there.
Thank you. It's John Guy from MainFirst. I've got four brief questions, please. First of all, Carol, just to start on the OpEx as a percentage of sales on the group, that group by 20 basis points, obviously, there seem to be underlying some improvement. As you look at your space growth program for FY 2016 within your pay-as-you-go system, what can we expect to see underlying pre-FX in terms of the movement within the OpEx? The second question around cash, you talked around five times operating leases, and looking at effectively a net debt position, even on eight times capitalized leases, you've got headroom in excess of $2.5 billion. For GBP 500 million share buyback, potentially is that on the cards? What is your thoughts around returning more cash to shareholders? Christopher, one for you in terms of e-commerce relationships. You didn't mention Alibaba.
Just wondering what your current thoughts are within the context of Kering's lawsuits, and what your relationship is there. One for John on skincare. Can we have an update in terms of a partner on the skincare side? Thanks very much.
Okay. Can you hear me? In terms of OpEx, in the year that we've just finished, we did say that we did see a benefit from leverage and tight cost control, that was more than offset by the FX impact in the year. As we look forward to next year, we have guided this morning to a GBP 10 million FX benefit year on year, we're saying that reported margin incorporating that benefit we see as being broadly flat year on year, reflecting that benefit ongoing tight cost control, which will be broadly offset by our continued investment in the investments we continue to make in flagship stores, in digital, in customer, also the adverse geographic mix of Hong Kong. Continuing to be very focused on driving revenue and profit in GBP millions while driving that margin expansion over time.
As we sit today, we expect reported margins to be broadly flat year-over-year. Turning to your point on cash, as I said, we do look at our balance sheet every single board meeting. We keep that under close review. Taking into account that adjusted net debt position, our future investment plans, potential opportunities to think about what we might want to do with our China minority partner in the future, and the investment plans we've got ahead, we are delighted today to have moved our dividend payout ratio up from 42% to 46%, as we committed to do, as we move towards 50%. As always, we'll keep it under constant review, but no change to announce today.
John, I'll just frame both the Alibaba and the skincare questions that you asked. First of all, Alibaba and Tmall, we have a very strong relationship with Tmall. It is a small business. It's something we obviously can't comment on the way that Kering are dealing with Alibaba. They have their own way of approaching those things. Our approach has been to clean up the market on Tmall and make sure that we have consistency across all of our platforms. So on burberry.com, if you go onto Tmall today and you see Burberry, it's very consistent. You'll also see the gray market has been significantly reduced to practically zero. That was a big part of our initiative. John will embellish in a second, perhaps.
Just on skincare, again, just to frame that, we've always said that fragrance will be the bulk of our business within beauty. We are delighted with the launch of My Burberry. We have got something very exciting coming up with makeup in the summer of this year. We haven't announced it yet. Fragrance will always be the bulk of it. We believe in the opportunities in makeup. Skincare, we did say that potentially we'd be having something by the end of 2015. We have no plans at the moment. We're exploring partners, as you would expect. We're in no rush. When we find the right partner, we will work with them. Again, just to reiterate, fragrance is really the key to our beauty division. John, do you want to add anything?
Thanks, Christopher. I'll just add, John, that on Alibaba, we have the most tremendously close working relationship with them. Since we went live a year ago, we've extended our product range with them and feel we continuously get great success with them in taking down counterfeit and parallel traders off the platform. We meet with them frequently. They're incredibly responsive. If we find that there are unauthorized traders up there or products up there, they take them down really quickly. Only last month, 23,000 different items removed, because they do keep popping up. We feel that by engaging actively with them in a commercial engagement, which is about giving us better reach and revenue, we also get the benefit of a good relationship in terms of cleanup. On beauty, as Christopher said, we're incredibly pleased by how the year has gone.
My Burberry has been a super success. We've met the revenue guidance that we said earlier, 25% up, as Carol mentioned. We feel we've had a very successful period. The current year is about proving ourselves in makeup with lots of very exciting plans to announce in due course, digitally too, of course. Skincare, we're still working with potential partners, and we'll come back when we're ready to announce something.
Thank you.
Hello. Thank you. Bassel from Berenberg. I have three question, please. The first one is on Japan. You've pushed forward a bit your target in terms of store openings, and I was wondering to what extent are we being cautious with that guidance, because I feel that Japan, if you go to Ginza, for example, Ginza is what it is. It's very mature, and it can take one, two, or maybe five years to find the right space. How cautious are you in that new guidance? The second one is a bit on Hong Kong/Japan, which is what we are seeing right now is some of the tourist flows going from Hong Kong, more Chinese customers going to Korea, where you're in a strong position, but into Japan as well, where it seems like you're still in expansion phases.
To what extent do you think you might be missing on an opportunity here because of these travel flows? The last one is maybe on Hong Kong and your guidance on costs. To what extent are you factoring potential leases renegotiations? Because we've seen some renegotiations for some of the watch players in that market, maybe if you can give us a bit of details here. Thank you.
First of all, just on Japan. It is absolutely a timing issue that we talked about a couple of months ago. We are very confident, and though it's important to reiterate it's a very small base today, the performance in Japan has been outstanding. To your point, we are being very consistent with the way that we are approaching the search for the right real estate. We've just opened Omotesando. We've just opened Osaka. We've got a new opening towards the end of this year in Tokyo. Ginza, we continue to look for the right space. The reason that we talked about timings is, again, going back to the rigidity of the way that we are positioning ourselves in Japan. We want consistency. We want to have the right adjacencies. We want to have the right peer group.
We will sacrifice larger spaces to have the right spaces, and that's really been the reason behind some of the delay with timings. I was there with many members of the senior leadership team just three weeks ago. The team in Japan that Pascal has built is a stellar team. They are on fire. We feel very confident about the approach that they are taking. It's a very strategic, very thoughtful, very long-term approach for Japan. We see our peers having a very strong large business in Japan, and we know that we have got huge opportunity there. Pascal, do you want to talk about some of the Hong Kong things, and maybe you want to embellish on Japan? We were talking about tourists in Hong Kong and also costs in Hong Kong.
Thank you very much, Christopher. Just to add on what Christopher said on Japan. Let's keep in mind this is the second-largest luxury market in the world. We have long-term views there. Last May, when we talked to all of you, we said that real estate was the key, and we said that we always would go for the best quality. This is what we are doing. We are very pleased with our results. The business is comping more than 30%, and we have an uncompromising attitude vis-à-vis real estate, be it freestanding stores, we have now five of them, and with department stores, we have certain concessions. As far as Ginza is concerned, let's not forget that we have already invested in key flagship cities of Japan with Omotesando and Osaka, and about the fall this year, we will open Shinjuku.
We can take the time to look at Ginza, which is indeed very critical and very strategic, and we need to find the right space. Regarding Hong Kong, it is a sector-wide issue. We focus at what we can control, and we look at three things. One is the transaction aspect of the business, looking at the conversion, AUR, average transaction value, and also very importantly, the customer experience. Two, we look at the local customer as the traffic from mainland China is decreasing. The local customer becomes very important for us, and we shift our marketing spend into more targeted action. The third thing that we do is indeed cost control. We do look at the organization, staffing, and of course structural cost, and particularly real estate cost. We will update you as appropriate on this one. Thank you.
Mario.
We share the mic. Thank you very much indeed for this opportunity. Mario Ortelli of Sanford C. Bernstein, if I may. The first one, a clarification on your pricing strategy. Your recent pricing change across geographies, if you can illustrate that. Possible increases in Europe, decreases in Asia, which impact do you think they will have in margins? The second is about what is currently the differential of margins of sales that you do in Europe, in America, and in Asia. The last question is about business store rollout. You guided for a low single-digit growth. You focus on the re-engineerization of your current store network. When you will complete the transition in China with less closure, you will have a state-of-the-art retail network.
If we look on a longer term, in 3 to 5 years, which is the space growth that you have got in your plans? Thank you very much.
Your first question on pricing, I'll hand over to Donald, who's done all the work in the team there. Just to say, as I said earlier, we have a long-term strategy, and there has been no change to that strategy. Clearly, FX rates have significantly impacted, just as we always do season to season, we move prices, and maybe Donald can give a little bit more color. In terms of how that affects margin, just to say today, there's been no change to our full-year outlook, and the margin guidance we have given, which has just been impacted by FX today, incorporates those pricing changes. Nothing to say in terms of how we expect it to change margin compared to when we spoke to you in April.
Donald, I don't know if you just want to give Mario a bit more color on how we look at pricing region by region.
Thanks, Carol. As Carol said, we feel quite confident in the long-term pricing strategy that we've laid out, and all of the actions that I think many of you have noted are consistent with this strategy. We have a couple of periods a year when we actually address this pricing, and you will have noted some shifts that occurred most recently. Those shifts were focused in select categories, primarily in rainwear and scarves, and that we did address across many currencies, but most specifically within Hong Kong, China, and Europe.
Thank you, Donald. In terms of store rollout plans in China, Pascal, I don't know if you want to give Mario a little bit of color in terms of where we are on that journey.
Thank you, Carol. China, the network evolution is very consistent with what we have been doing since we acquired this market almost five years ago. We always said that we would elevate the brand image. We closed the year with 68 stores with net closure of 10. We closed 14 stores and opened four new one. We have a space increase last year of about 12%. This is very important for us to continue this strategy, because globally, the Chinese customer is very important for us. Globally, we have enjoyed growth last year. However, with a slowdown in the second half. In mainland China, we still continue to see growth on a comp basis in this market. In Hong Kong, unsurprisingly, we see a slowdown. In the rest of Asia and Europe and Middle East and America, we see strong double-digit growth with the Chinese customer.
This strategy is unchanged. We continue to elevate and optimize the store network.
Your question in terms of differential margin, I think we've talked before. We're not going to give you specific numbers, but I think no different than many of our luxury peers. It tends to be Asia, followed by EMEA, followed by Americas, just structurally the way the business has tended to operate in terms of where we see margins.
Annabelle.
Oh, hello. Sorry. Just three questions from me. The first is, following your price cuts in China and Hong Kong, could you give us an idea if you've seen any volume impact there? The second question is, in your presentation, you did a very impressive talk about what you're doing with customer relationship management, et cetera. Where would this put you now relative to your peers, do you think? Do you think you're now streets ahead, or does this just bring you up to speed with them? The third point is, on your guidance, you're saying PBT's going to be more H2 weighted than this year. Can you just clarify why that is and sort of what we should expect H1, H2? Thank you.
I mean, just in terms of price cuts, Annabelle, it's very early days. As I said, it's factored into that guidance today. It's been a few weeks and, normally season to season, we don't talk specifically about what's happening. It is very much business as usual, both in Asia and indeed in EMEA. Nothing specific, early days, and no change to guidance on the back of those movements that we've made. I'll just take the H2 question, and then I'll hand over to Christopher or Steve. In terms of H2, given what's happened in Hong Kong specifically, clearly last year we had strong growth in Hong Kong in H1, and then we saw it declining in H2. As we enter this year, clearly that high margin market, we've guided to the fact that we're still finding Hong Kong very challenging sector-wide, we believe.
That will impact on the weighting of profits H1, H2, principally driven by Hong Kong and the continued rollout of our flagship strategy with some of those big openings we talked about in Japan, in Korea, which will put a little bit of pressure on H1 versus H2 this year. In terms of customer relationship management and where we are?
Yeah. In terms of our customer value management program and more broadly, our use of analytics throughout the business, I think we talked about how we're using it, the size of the database that we have, the infrastructure we're building around it. I think what's powerful about it is the way that we're building all of this into the fabric of what we do day to day. It's not just a program that we're running out, a CVM program, but it's actually a fundamentally different way of using data everywhere throughout the business.
Thank you. It's Louise Singlehurst from Morgan Stanley. Just a couple of questions from me, please. Firstly, for Carol. Can you help us understand the underlying OpEx move into full year 2016? I know you talk about the incremental IT investment, but can you give us a flavor of what was spent in full year 2015, whether that's a big increase for full year 2016, and whether that's a two- or three-year project or something that's done over the next 12 months? Secondly, obviously, the inventory position, a huge pat on the back for the team, given it was pretty much flat year-on-year, given the growth. Can the team give us some idea in terms of the benefits that you're seeing for the Chinese business? Obviously, you're rolling that out to the U.K. and U.S. I presume that's a question for Donald.
One cheeky question, which I'm sure I'm not going to get the answer for. In terms of how you're planning the business and the change in the Hong Kong environment, how are you thinking about managing the business for the like that you need to sustain that margin that we're now looking for full year 2016, currency neutral? Thank you.
First of all, just in terms of OpEx, that we have called out in the statement today, that we will continue to invest in flagship markets in digital and in technology. I'll hand over to John. Over the last few years, we've massively benefited from the SAP investment that we made what is now eight years ago, which has underpinned a lot of our growth, and particularly gross margin improvement over the last few years. It's now time to upgrade that platform as we look forward in order to underpin future growth and productivity initiatives. It will be a few million GBP a year, prioritized very much in line with our pay-as-you-go approach, making sure that we're delivering the returns off of that. I don't know if you want to add anything, John.
Only quickly, Carol. I mean, SAP 2007, here we are eight years later. It's been brilliantly helpful to us in getting visibility about performance store by store standardization and so on, the things people do get from SAP. Like all software suppliers, they're evolving their offering, too. You may have read from other companies that they're moving to something called HANA, which we've taken the decision to go to. We'll implement that slowly over the course of the next 12 months or so. We won't be getting new visibility benefits. We've got those already. We will be getting benefits in terms of process improvement and also, we're obviously replacing something that's now eight years old anyway, including the hardware that it runs on.
Donald, do you want to do the China fulfillment?
Absolutely. Thank you, Christopher. Louise, thank you for the pat on the back. I think global planning and allocation teams will appreciate that. A credit to them, absolutely. To your question around single pool of inventory, as we spoke about in our last interims, we actually rolled that out in China most recently. We're very happy with the results that we've seen so far. Over the course of the coming year, we have the plans to implement that both in America and in the U.K. I think we're in a very good spot there. The other benefits that we've seen are from our automated allocation system that we've placed in, and the benefits coming from that across our inventory management have been quite strong.
Just in terms of Hong Kong, obviously, there's a specific issue in terms of the actions that we're taking in Hong Kong to mitigate that continuing decrease in footfall in our highest margin market. Beyond that, it comes back to the wider business-wide productivity initiative that Christopher spoke to early, which is right across the business through driving productivity in our retail sales, through the investment we're making in product, through the investment we're making in customer, in merchandising, some of the work that you heard Donald talk about earlier. Of course, looking to drive long-term margin expansion as well in terms of tightly controlling costs, again, balancing investment with cost. The size of the decrease in Hong Kong, it will impact the first half numbers as I alluded to earlier.
It's really focusing on the productivity agenda right across the business, which I think will drive both top line, and indeed benefits to gross margin and OpEx over time as well. Hi there.
Hi, good morning. Guillaume from Credit Suisse. I'm just trying to get a better understanding on your LFL development for fiscal 2016. Three question on that, please. Firstly, are you thinking about increasing prices on trench coat to the same extent you did last year? If I remember correctly, you increased prices sometime about 20% on trench coats, which probably have been a material contributor to LFL. That is my first question. The second question is on mix contribution. You've been flagging the Poncho collections being a massive contributor to mix and hence LFL. Are you thinking it'll repeat again this year, or are you seeing new products bringing the same mix contribution? And final question, also related a bit to OpEx.
What is exactly your LFL, I would say breakeven point in terms of what is the LFL you need to achieve to avoid operating deleverage in a, let's say, currency neutral environment? Thank you very much.
Just in terms of pricing, as I said, our pricing strategy is season to season. We've always adjusted prices, you did see something last year on heritage trench. You've seen something regionally this year in response to FX. Nothing to announce today specifically. It is just part of business as usual. As we go into each season, we'll look at that product in market, decide what the appropriate pricing adjustments, if any, we need to make are, and then move on to the next season. Nothing specific to call out today and what we might be doing differently there than what we have done in the past. In terms of the mix and ponchos, I don't know, Christopher, whether you want to give any color.
Yeah. Ponchos was really a new category. We know that we have got a lot of further opportunity in ponchos, but it's part of a broader range of what we call softs, basically cashmere scarves. That will be a big focus for this next year. We also don't underestimate the heritage and the trench coats and what we started last year. That is becoming the foundation of everything that we do, and we know that we've got a lot of further potential there.
Your last question about what the break-even point in terms of like-for-like. Clearly, it depends market by market, and that's not how we necessarily think. It's about dynamically managing the business as we go, making sure that we're taking the opportunities right across the region. Looking to offset some of the challenges we've got in Asia by outperformance in other regions, whilst we tightly control discretionary spend as we always have done, but also mindful that we need to continue to invest in those initiatives which we believe drive that long-term top-line revenue and profit growth in GBP million. It's that dynamic management that we've been doing for the last few years that needs to continue as we navigate our way through this year.
I think we've got time for one more.
Hi. Yes.
Hi. Rogerio Fujimori from RBC. Mr. Bailey, do you think it would be desirable to invest to have more products made in England given your success? I understand it's not for everything, given leather is skilled in Italy, but I was just curious to hear your thoughts. Carol, one question about gross margins. Could you help us to think about the outlook for fiscal 2016? Because you are lacking a big inventory write-off in the first half in fragrances, and I was a bit surprised. Obviously, Hong Kong is a drag, but if you could help us on the gross margin outlook, that'd be great. Thank you.
I'll take the first one about made in England, made in the U.K. It's fundamentally important to who we are and our identity. We have over 700 people in Yorkshire making our trench coats, and as we mentioned in the speech, we work with the farmers, the cotton farmers, to bring that to our factory in Keighley, where we weave that into the gabardine, the famous gabardine. It then gets driven to our factory just down the road, 20 miles away, to be made lovingly by hand by the seamstresses there. It is fundamental to the heritage and to the history that we continue with that process and with that craft. Then also the iconic cashmere scarf is woven and made in Scotland, which is where we've also started producing the ponchos. It's very much a part of our identity.
It's part of our DNA, and it's something that we will continue to expand on.
Then just to your gross margin point, clearly, H1 of last year was impacted by that one-off beauty write-off. You'll have seen from the year-end number with that inventory position, we have both our fashion and beauty inventory very much under control. We certainly will hope to be able to have some positive leverage from not having the beauty write-off. We need to wait and see where Hong Kong materializes in terms of the mix impact that that will have on gross margin. Some of the initiatives Christopher spoke to earlier in terms of option assortment, higher full price sell-through, I'm hoping that we will also see benefits in gross margin coming from that.
The reason we're guiding to flat retail wholesale margin at underlying rates is because depending on what happens in Hong Kong, there is a large fixed cost base there, and that will put pressure on OpEx as we continue to invest and balance that as we go. Yes, absolutely would expect that we would be able to offset that impact we had on gross margin from beauty last year.
Guys, thank you so much for taking the time to come over to see us and to listen to all the things that we're doing. A couple of things just to finish. I mentioned in my speech, we'll be opening the end of the week, a new store called Thomas's, which is just behind our Regent Street store on Vigo Street. It is a gifting store. I'm sure you're all looking for gifts, so please do go there, check it out. We're looking forward to seeing you in there. It's also a cafe. It is a prototype store, but we would love you all to go there, particularly if you're there to shop. Secondly, we also invited many of you to Los Angeles to celebrate the opening of Rodeo Drive, our new store there.
Few of you were able to join us, we wanted to just share with you some of the highlights that we had there that next time you take us up on the offer to come over. Thanks again for joining us, and enjoy L.A.