Ladies and gentlemen, welcome to the financial year 2021 Richemont interim results presentation. I am Alice, your call operator. I would like to remind you that all participants will be in listen-only mode, and the conference is being recorded. For operator assistance, please press star and zero. The conference must not be recorded for publication or broadcast. At this time, it is my pleasure to hand over to Sophie Cagnard, Group Corporate Communications Director. Please go ahead.
Thank you, Alice. Good morning. Good morning, everyone. Hope you're all keeping well. Johann Rupert, Chairman, Jérôme Lambert, Chief Executive Officer, Burkhart Grund, Chief Finance Officer, James Fraser, IR Executive, and I would like to thank you for joining the audio webcast today to review Richemont results for the six months ended September 30, 2020. We would like to remind you that the company announcement and financial presentation can be downloaded from richemont.com, and that the replay of this audio webcast will be available on our website today at 3:00 P.M. Geneva time. Before we begin, may I draw your attention to the disclaimer on our presentation and company announcement regarding forward-looking statements as defined in the U.S. Private Securities Litigation Reform Act of 1995. First, Burkhart will take you through the financial highlights of the first half before reviewing group sales.
I will then present some key developments of the Maison, then online distributors. Thereafter, Burkhart will walk you through the financials and offer some concluding remarks. This presentation will be followed by a sort of Q&A session, the same as last May, and I will now hand the call over to Burkhart.
Thank you, Sophie. Good morning to everyone listening, and thank you for your time. COVID-19 has significantly impacted the lives of our colleagues, clients, and partners, has forced us to close operations for an extended period of time in the early part of the year. The pandemic also caused major disruption, notably to global travel, which significantly impacted our operational and financial performance. As a result, sales for the first half of the current fiscal year decreased by 26% at actual exchange rates and by 25% at constant rates, with all regions, distribution channels, and business areas posting lower sales. However, sales in August and September resumed growth at constant exchange rates. This limited the sales decline in the second quarter of our financial year to 2% at constant exchange rates. We will provide more detail as we go through the presentation.
Operating profit decreased to EUR 452 million, resulting in an operating margin of 8.3%. Profit for the period amounted to EUR 159 million, down from EUR 869 million in the prior year period. The net cash position was EUR 2.1 billion. While this represents a EUR 284 million decline compared to the net cash position at the end of March, it is worth noting that excluding the dividend payment of EUR 529 million, net cash increased. Turning to some of the first half highlights. First, our Maisons and businesses have demonstrated resilience in a difficult environment with a notable performance from our Jewelry Maisons, which generated an operating profit of EUR 922 million and an operating margin above 30%. This achievement is commendable.
This business area was the first to rebound upon emerging from the lockdowns, driven by a strong presence in China and a well-developed online offer, and the enduring appeal of their iconic collections. China also stood out with significant double-digit growth since the month of May, as we will see later. Online retail sales of our Maisons enjoyed triple-digit growth and now account for 7% of overall Maison sales or 10% of our direct-to-consumer sales. Despite the marked decline in sales, the group maintained stable cash flow from operating activities versus the prior year period. Finally, trading was stronger in the second quarter. Let me now walk you through the group sales performance, first by region, then by distribution channel, and finally by product line, with changes versus last year, as always, expressed in constant currencies. Sales declined in all regions in the first half.
As you can see in the waterfall chart, Europe and the Americas recorded the most substantial sales contraction in value terms, while Middle East and Africa and Asia Pacific were relatively resilient. The latter largely benefited from the sharp growth in China. These two regions also enjoyed double-digit sales growth in the second quarter, while sales were stable in the Americas and remained in negative territory in Europe and Japan. Let us look at the geographical review, beginning with Europe, which, along with Japan, posted the highest rate of decline in sales at -44%. Europe was particularly impacted by temporary store and fulfillment center closures early in the year, the lack of international tourism, and muted local demand. The online distributors showed resilience, confirming that online purchasing has accelerated during the pandemic. Online retail sales from our Maisons showed very strong growth.
The region remains our second-largest region, its contribution to group sales declined to 22% from 30% in the prior year period. Let us now move to Asia Pacific, where the sales decline was limited to 4% overall as the region returned to growth from July onwards. You can see in the chart that sales in the second quarter grew by 22%. The region represented the largest share of total group sales at 47%, up from 37% in the prior year period. As previously mentioned, China showed very strong growth, increasing by 83% year-on-year and overtaking the U.S. as our largest market. There are several reasons for this. First, China was the fastest to emerge from the COVID-19 lockdowns, and its economy has recovered faster than those in other regions. Second, our mainland Chinese customers are still not traveling internationally, which is prompting them to repatriate their purchases.
In contrast, sales declined in the rest of the region. Retail sales grew by high single digits, driven by double-digit growth in China and domestic Korea. China recorded triple-digit growth in online retail sales, partly sustained by the opening of flagship stores on Tmall Luxury Pavilion during the period under review. Overall, there was good sales growth at the Jewelry Maisons. Let us now look at the Americas region, where sales decreased by 31%. The region accounted for 16% of group sales, compared to 18% in the prior year period. All business areas and channels declined during the period. Among the business areas, the Jewelry Maisons were affected to a lesser extent. Looking at distribution channels, online retail posted a low single-digit decline.
It is worth noting that online retail sales delivered triple-digit growth at the Jewelry Maisons and double-digit growth at both the specialist watchmakers and fashion and accessories Maisons. Momentum improved significantly in the second quarter compared to the first quarter, with positive growth in the month of September. Retail sales were broadly stable overall, supported by growth at the Jewelry Maisons. Online retail sales grew by double digits, driven by triple-digit performance at the Jewelry Maisons and double-digit growth at the specialist watchmakers and fashion and accessories Maisons. Let us now turn to Japan, which represented 7% of group sales. Sales in the region were 44% lower than in the prior year period. In addition to the aforementioned impacts of the pandemic on international tourism and customer sentiment, which prevailed around most of the world, the region also faced challenging comparatives.
You may remember that sales increased by 13% in the prior year period ahead of the implementation of the October 2019 VAT increase. Online retail sales posted growth. Finally, Middle East and Africa, representing 8% of group sales in the period. Sales were 5% lower than the prior year period, sustained by a 36% increase in the second quarter of this fiscal year. Increased regional tourist spending, a repatriation of purchases, and strong growth at the Jewelry Maisons, partly driven by the internalization of its operations in the Kingdom of Saudi Arabia, more than offset a lack of inbound tourists. Sales at the online distributors were stable compared to the prior year period, the group Maisons' online retail sales grew triple digits, benefiting from the development of their online offer. Let us now turn to sales by distribution channel.
First, the retail channel, which is by far our largest channel, contributing 53% of group sales. Sales in our 1,179 directly operated boutiques were lower by 22%. There was a high single-digit increase in Asia-Pacific, with China and domestic Korea both posting strong double-digit growth. Part of the double-digit increase in the Middle East and Africa can be attributed to the internalizations in the Kingdom of Saudi Arabia just mentioned. All business areas reported declines, with the jewelry Maisons being less affected. In the second quarter, sales were broadly in line with the prior year period, with positive sales growth since August. Second, online retail, which represents sales from Yoox Net-a-Porter and the online sales portion of both Watchfinder as well as the group's Maisons.
Despite the closure of fulfillment centers in the early part of the period, this distribution channel increased its contribution to 22% of group sales, up from 17% in the prior year period. Excluding the online distributors, the group Maisons' online retail sales represented 7% of group sales. Online retail was the most resilient channel as increases in Asia-Pacific, Japan, and the Middle East and Africa contained the channel's overall decline to 3% versus the prior year. The remarkable triple-digit growth of our Maisons' online retail sales was led by triple-digit growth at the jewelry Maisons and specialist watchmakers. Double-digit growth at the fashion and accessories Maisons. Second quarter sales increased 17% versus the prior year period for the channel as a whole. Third, wholesale, which includes sales to franchise partners and to multi-brand retail partners, as well as royalty income. Wholesale sales were 42% lower than the prior year period.
This channel was the most significantly impacted by COVID-19 and social unrest in some locations. The largest declines were in Europe and the Americas. Watch inventories remained under control, with sell-out exceeding sell-in. Sales stood at 25% of group sales, declining from 31% a year ago. Finally, let us move to the sales breakdown by product line. All product lines recorded lower sales, with jewelry and clothing showing the most resilience. Jewelry now represents the largest product category for the group by far, at 41% of sales. Jewelry sales grew by double digits in both Asia-Pacific, due to the strength in China, and in the Middle East and Africa, sustained by the internalization of stores and strong demand for the group Maisons products, primarily in jewelry.
Watch sales have declined in all regions, partly due to their high exposure to wholesale, our hardest hit distribution channel, as well as pandemic-driven point-of-sale closures. In clothing and leather goods, momentum picked up at the online distributors once fulfillment centers reopened, but this was not sufficient to fully stem the decline in sales across the period. Over to you, Sophie.
Thank you, Burkhart. Let me start with the Jewelry Maisons, which include Buccellati, Cartier, and Van Cleef & Arpels. While they reported an 18% decrease in sales overall, Asia-Pacific posted mid-single-digit sales growth, and Middle East and Africa, a high single-digit increase. The former supported by very strong growth in China. Online sales at the Jewelry Maisons increased by triple digits, with a Cartier flagship store on Tmall Luxury Pavilion contributing to its performance in China. This momentum, however, could not outweigh the decline in retail and wholesale sales. Second quarter sales increased by 4% overall, driven by growth in Asia-Pacific, Middle East and Africa, and the Americas. The Jewelry Maisons operating results were down by 24% to EUR 922 million as a result of lower sales, reduced manufacturing capacity utilization, higher gold prices, and a stronger Swiss franc.
The operating margin remained above 30% due to good cost control and targeted investments in digital communications initiatives, along with some store renovation and a few strategically important openings. Let us look at the main developments over the past six months. As stores were closed and various physical events canceled, digital initiatives such as watchmaking encounters and high jewelry previews proved to be innovative and effective ways to continue to engage with our customers globally. In-store interactions were replaced with distant sales, call center, and digital interactions with clients, notably through social media. The limited number of store renovations and relocations included Cartier's boutiques in Shanghai Plaza 66, Athens Voukourestiou, and San Diego Fashion Valley, and for Van Cleef & Arpels, Place Vendôme in Paris and Prince's Building in Hong Kong S.A.R.
In addition, Buccellati acquired the rights to its historic store in Rome, originally opened by Mario Buccellati in 1926, and is in the process of relocating its London store further down Albemarle Street. Product launches were well received. Buccellati enhanced its Tulle and Macri jewelry collection and Macri Classica watches. At Cartier, the successful Clash jewelry collection has been expanded to include a white gold offer. In watches, Cartier unveiled its latest women's watch, the Maillon de Cartier, and rejuvenated Santos and Pasha watches. At Van Cleef & Arpels, the Frivole, Perlée, and Alhambra collections were further enriched. Let us now review our specialist watchmakers business area, which consolidates the results of 8 watch Maisons.
Sales were 38% lower, declining in all regions, though Asia-Pacific was relatively resilient. Online retail reported a triple-digit increase, with strength across most Maisons, partly driven by the opening of flagship stores on Tmall Luxury Pavilion.
This was more than offset by declines in other channels, primarily due to the specialist watchmakers exposure to multi-brand retail partners. Due to our work in previous years, we entered this challenging situation from a sound position, having sized production to the true level of demand and optimized our distribution networks. Our Maisons have tightly monitored inventories, which are sound in the channels, with sell-out remaining above sell-in. In the second quarter, sales were down by 18%, a marked improvement from -56% in the first quarter. Strict cost control and reduced investments partly mitigated the impact on profitability of weaker sales, lower levels of manufacturing capacity utilization, higher gold prices, and a stronger Swiss franc. As a consequence, the operating loss was limited to EUR 8 million. Our Maisons have been quick to respond to the new challenges arising from the global pandemic.
They have launched or facilitated a number of digital initiatives to enhance client experience. Let me give you a few examples. They facilitated and participated in Watches and Wonders on the cloud following the cancellation of the physical Watches and Wonders Geneva fair in April. This included virtual product presentations and interviews of our Swiss watchmaker CEOs. In parallel, a digital campaign was launched on Tmall Luxury Pavilion to showcase the watch Maison latest product to clients in China with interactive experience capabilities such as virtual 3D pop-up stores and augmented reality functionality. The success of this virtual event paved the way for the organization of two further Watches and Wonders exhibitions, blending online and offline events in Shanghai and Shenzhen. IWC and Piaget both launched an immersive boutique experience where clients were able to navigate around a virtual store and view different products with a 360-degree panoramic view.
The Maison also brought the in-store experience to clients through distance sales initiatives. Selective store investments included a new IWC flagship store in Zurich with a live link to its manufacturing facilities in Schaffhausen. It also included the opening of five flagship stores on Tmall Luxury Pavilion for IWC, Jaeger-LeCoultre, Panerai, Piaget, and Vacheron Constantin. Iconic collections were further enriched. In the first half, product launches included the redesigned Master Control at Jaeger-LeCoultre, as well as new references for Portugieser at IWC, Possession and Limelight Gala at Piaget, and the Overseas at Vacheron Constantin. Let us move to online distributors, which we group Yoox Net-a-Porter and Watchfinder. Sales of our Maison products on Yoox Net-a-Porter are shown under both the Maison's respective business areas and online distributors. They are subsequently eliminated under intersegment elimination. Sales decreased 21% to EUR 934 million.
There was relatively outperformance in Europe, the Middle East and Africa and Japan. Since the reopening of the fulfillment centers, all regions have seen gradual improvements. In the second quarter, sales increased by 2%. Good cost control could not fully offset the sharp drop in activity and margin caused by COVID-19 and a highly competitive pricing environment, thus leaving online distributors to post an operating loss of EUR 138 million with a EUR 39 million EBITDA loss for the period. Cash flow for the online distributors was positive for the period. During the period under review, Yoox Net-a-Porter celebrated its 20th anniversary and continued to consolidate its position as a leader in online luxury fashion. 165 exclusive brand capsules were introduced, NET-A-PORTER re-platforming is on track.
As physical events were canceled, Yoox Net-a-Porter partnered with the Fondation de la Haute Horlogerie and Alibaba to bring the Watches & Wonders experience to the Chinese clientele online. The joint venture with Alibaba, Feng Mao, continues to progress successfully. Net-a-Porter flagship stores on Tmall Luxury Pavilion has increased its offering to 202 luxury brands, including 15 local Chinese designer brands. In addition to the online flagship stores of Alaïa, Chloé, and Dunhill, Yoox Net-a-Porter began operating Montblanc e-commerce facilities in August and cartier.co.uk in October. Sustainability initiatives continue to be a key focus area with the introduction of electric delivery vans and the renewal of the Vanguard mentorship program for its sixth season. The now well-established program supports emerging designers to become successful brands over the long term. Watchfinder received a positive customer response to their strengthened international presence, which includes France, Germany, Switzerland, USA, and Hong Kong SAR.
Watchfinder and Richemont Maisons have continued to explore opportunities to better meet our clients' expectations. Let us move to the other businesses, which primarily include the group's fashion and accessories Maisons and watch component manufacturing activities. The 42% sales decline was broad-based across regions and locations, with the exception of China, where sales grew. Overall, online retail grew by double digits, mainly driven by strong performances at Montblanc and Peter Millar, whilst Alaïa, Chloé, and Dunhill's online flagship stores were negatively affected by the temporary closure of the Yoox Net-a-Porter fulfillment centers. Wholesale sales were affected by the difficulties of some department stores in the U.S. and Japan, as well as greatly reduced footfall at airport duty-free shops. The segment posted an operating loss of EUR 108 million, resulting from lower sales and a lower gross margin, which were partly mitigated by good cost control.
Included in the overall operating results were losses at the group's watch component manufacturers. Let us look at the development of some of the Maisons. The fashion and accessories Maisons accelerated their digital transformation in the wake of the pandemic. This included spring buying campaigns at Alaïa, Chloé, Dunhill, and Serapian, which employed fully digitalized showrooms. As with some of our other business areas, distance sales tools and live streaming events were organized to allow clients to discover and buy products. Three new flagship stores for Chloé, Dunhill, and Montblanc were opened on Tmall Luxury Pavilion, and early results are promising. Montblanc's online flagship stores are now managed by Yoox Net-a-Porter, which has transformed clients' online experience. Product launches spanned across categories.
The most notable ones included the Mini Darryl bag at Chloé, Court sneakers at Dunhill, the Muses collection at Montblanc, and Hyperlight Shield outerwear at Peter Millar. In writing instruments, Montblanc launched a Meisterstück Le Petit Prince and Planet. In closing, Dunhill launched a capsule collection with Japanese artist Kenta Kobayashi. This concludes the review of the first half performance of each business area. Burkhart, over to you now.
Thank you, Sophie. Let me walk you through the rest of the P&L, starting with gross profit. Gross profit decreased by 31%, and gross margin by 450 basis points. The 57.8% margin was impacted by several factors. The primary factor was lower manufacturing capacity utilization due to COVID-19. Other factors included adverse currency movements, notably a stronger Swiss franc on costs, higher gold prices, and a highly competitive pricing environment in online fashion. To be noted, short-term work compensation scheme contributions of EUR 56 million only partly compensated for significant sub-activity losses. Let us now look at net operating expenses, which decreased to EUR 2.7 billion, a reduction of 21% at both actual and constant exchange rates.
Despite early and decisive actions to reduce our cost base, we were not able to fully compensate for the decline in sales and margin, given the mainly fixed nature of most of our costs. I will now walk you through the expenses by category. Selling and distribution expenses, which accounted for 53% of total operating expenses, decreased by 17% at actual exchange rates, by 16% at constant exchange rates. This decline reflects strict cost control across all lines, positive cost impact linked to temporary closures of points of sale, including rent relief, and to a lesser extent, public support schemes. Communication expenses fell by 50% at actual exchange rates or by 49% at constant exchange rates, well above the level of sales decline. This resulted in a lower communication expense ratio at 6%. Given their more variable nature, we had greater flexibility to reduce these costs.
Most physical events were canceled for health and security reasons. Fulfillment expenses decreased by 4% at both constant and actual exchange rates, mainly due to the temporary closure of fulfillment centers early in the period. Administration expenses, which are more fixed in nature, declined by 11%, or by 12% at constant exchange rates. Strong discipline and cost control more than offset a stronger Swiss franc and continued technology investment at the group's online distributors and Maisons. Other expenses of EUR 97 million were 5% lower than the prior year period at both actual and constant exchange rates. They included EUR 87 million related to the amortization of intangible assets at the online distributors, compared to EUR 90 million in the prior year period.
Net operating expenses as a percentage of group sales rose from 46.6% a year ago to 49.5%. This leads us to operating profit, which is down by 61% versus the prior year. The reduction in operating costs, while significant, was not enough to compensate for lower sales and lower gross margin. The operating margin declined to 8.3% from 15.7% in the prior year period. Let us now review the rest of the P&L items below the operating profit line, starting with finance costs. Net finance costs for the period amounted to EUR 117 million compared to EUR 110 million in the prior year period. The limited EUR 7 million year-on-year increase can be explained by a combination of factors mostly offsetting each other.
The EUR 43 million reversal in financial expense and a EUR 41 million higher net loss on monetary items are mostly offset by a higher net gain of EUR 68 million on hedging activities and lower fair value adjustments. Let us now turn to the profit for the period, which decreased to EUR 159 million, primarily due to the decrease in operating profits. There were other minor items that offset one another, namely higher net finance costs and lower taxes. Our effective tax rate for the period amounted to 55.2%, reflecting the geographical distribution of profits and a much lower profit before tax. Cash flow generated from operating activities at EUR 926 million was broadly in line with the prior year period.
This achievement reflected lower taxes and a significant improvement in working capital, which can be primarily attributed to the reduction in inventories, while the progressive improvement in the wholesale channel led to higher receivables at the end of the period. Let us now turn to our gross CapEx, which amounted to EUR 188 million, 33% lower than the prior year period. Investments were significantly reduced in an effort to preserve cash. As a percentage of group sales, CapEx was broadly in line at 3.4%, compared with 3.8% in the prior year period. 45% of gross expenditure related to points of sale investments, including internal and franchise boutiques. Investments were mostly related to selective store renovations and openings, including Cartier's boutique in Shanghai IFC and in San Diego Fashion Valley, as well as the renovated Van Cleef & Arpels flagship store in Hong Kong, Prince's Building.
Manufacturing spends declined from 12% of gross capital expenditure to 10%, and primarily related to development costs and machinery, mostly at Cartier. Other investments accounted for the remaining 45%. They mainly reflected investments in information technology at our online distributors and Maisons. Let us now turn to free cash flow. Free cash inflow amounted to EUR 444 million, an increase of EUR 104 million compared to the prior year period. This increase mainly reflected a stable cash flow from operations, lower capital expenditures as just discussed, and lower lease payments, primarily due to rent relief.
Now onto our balance sheet, which remains very strong with shareholders' equity accounting for 51% of the total. Net cash decreased to EUR 2,111,000,000 at September 30th, 2020 from EUR 2,395,000,000 at 31st of March 2020. Excluding the dividend payment of EUR 529 million, the group's net cash position would have increased by EUR 245 million.
The dividend payment this year was approved at CHF 1 per A share or 10 B shares, compared to CHF 2 per A share or 10 B shares in the prior period. I will now make some concluding remarks before turning to questions. Starting with the environment. Despite the macroeconomic uncertainty, we have seen a number of clear trends emerging and are actively responding to these across our Maisons and businesses. We have seen a rapid rise in online luxury shopping, a trend which we believe is here to stay and will continue to strengthen. A softer recovery in wholesale sales due to difficulties at Japanese and U.S. department stores and at multi-brand watch retailers that do not offer online services. This, along with temporary store closures and lower footfall, has contributed to greater direct engagement with end clients.
Although the interaction with customers has become less physical, our sales colleagues have been very resourceful, contacting their clients via various social media channels. Overall, our teams have demonstrated strong creativity in promoting our Maisons' products with virtual tours of boutiques, online product launches, and digital watch fairs. In the absence of international travel, we have also seen Chinese customers reshoring purchases previously made overseas. It is hard to say how much of international tourism will return once the pandemic is finally behind us. We are monitoring this closely as, together with higher online sales, it may have long-term implications for our retail network. Omnichannel is much talked about, but in practice, few in the industry have fully embedded the model, which implies connected online and offline retail networks.
Reflecting the increased weight of our Asian clientele, our clientele on average is younger, with more millennials and Gen Z looking for iconic creations and more direct digital engagement. Finally, with the pandemic, we have seen a heightened focus on sustainability issues. Richemont Maisons and businesses stand for timelessness, quality, and craftsmanship, values that are particularly sought after in uncertain times and in a more sustainability-conscious world. We have a long-standing commitment to conducting business responsibly. We know that there is always more to do regarding corporate and industry-wide sustainability efforts and strive to improve each year. Last year, we accelerated our efforts with a transformational sustainability strategy that reflects our ambition to see luxury create benefits for all and represents Richemont's movement for better luxury.
Looking at our half-year results as just reviewed, I'm not really revealing anything new by saying that these have been very challenging times, with the pandemic affecting all of us. Having said that, we would like to highlight that during our second quarter, we began to see an improvement in sales starting in China and then to a lesser degree in some other locations. As a result, the decline in sales was limited to 2% at constant currencies, driven by positive growth at the Jewelry Maisons and online distributors. The group as a whole resumed growth in August at constant exchange rates. Going forward, the lack of visibility surrounding the pandemic and macroeconomic uncertainty oblige us to remain cautious and agile. Obviously, the safety of our colleagues, clients, and partners is at the core of everything we do.
Given the recent sharp increase in the number of cases in many parts of the Western world, we will continue to be extremely vigilant. We will also continue our unrelenting focus on cash to continue generating positive free cash flow. We will continue to monitor inventories, keep tight control on costs, and make targeted investments that support our strategic journey towards new retail. Our Maisons and businesses will accelerate their digital transformation and continue implementing innovative initiatives to generate sales. We have demonstrated our ability to adapt quickly. We are confident we will emerge from this crisis stronger, thanks to decisive actions in making the right calls in investment and creative initiatives, all supported by a strong balance sheet. This concludes our presentation. Thank you for your attention, and I will now hand back over to Sophie.
Thank you, Burkhart. Thank you to so many of you for taking the time to email your most pressing questions, including this morning after yesterday's announcement. We thank you very much for your reactivity. Actually, lots of questions, as you can gather, were widely shared. We'll read them in descending order of prevalence for you. Unsurprisingly, a lot of questions surrounded yesterday's announcement. Basically around the rationale, what is the strategic rationale? As one analyst put it, why do this transaction, given the problems you're having with YOOX? I can't see any immediate scale advantage. That would be question number one, and then I will read the other questions around that matter. I think, Mr. Rupert, this is for you.
Boy, I have to repeat what I told the press this morning.
Go ahead please.
Our journey really started nearly 20 years ago when we were in the process of selling our shares in Vivendi that we got out of the exit of our pay TV business. The shares were trading at about EUR 68, and I was uncomfortable because we had a lock-up for one year. We asked Lehman Brothers, and they had a genius there by the name of Arnaud Massenet, and he got us EUR 68. One year later, when the lock-up was over, we'd obviously gotten the cash by then. The share price was EUR 8. During that period, we got to know Natalie Massenet, and she was dreaming about starting an online store, and we were intrigued. A colleague of ours, someone we sought, brought it to our attention, and we took a small stake and got to know the business. We only requested one thing.
If we were going to share the journey, we didn't want to go through all the pain and learning and then to find out that another competitor would buy. We said, "Please, could we have preemptive rights if you ever wish to sell?" All the shares we bought subsequently were at the behest of shareholders in NAP. We never really had the intention to buy it, control it, et cetera. We always respected the neutrality of NAP. Some of you may recall in 2015 at the FT Business of Luxury Summit, I made an appeal to the other luxury goods companies to join us. I expressed our view that this was a very big game that I was not sure that any single luxury goods company, no matter how big, could do on their own.
Appealed to the other groups that we would form a platform and really do it like Spotify has now done with the content providers or shareholders, but it's run as a neutral platform. That fell on deaf ears and obviously, the prisoner's dilemma took over and everybody acted in their own worst interests. We then realized we needed more scale, and we did the YOOX deal. In the meantime, technology had advanced. Whilst we were doing well in the curatorial side, and it's of special value to Richemont. You've got to understand that we've got to look at it from a Richemont perspective and then from a YNAP perspective. From a Richemont perspective and from all brand owners, people prefer selective distribution. We were approached. We did not initiate this conversation. It made sense to me because I've always been interested in technology.
Before Richemont, we had Rand Merchant Bank, and we were partners with a genius, unfortunately since passed away, Tilman Lueder , who had a company, Siltec. We were the first Apple distributors in South Africa, and we built Rand Merchant Bank on Apple Macs. We're in fact the first bank to computerize. I got everybody, all my colleagues Macs. To think when we started Richemont, all the planning, everything done on Macs, 128K. To think that a little SD card on a DJI drone today has the memory of 1.5 million of those Macs. We always approached it from a technology side. Everything. The difference between Farfetch and a number of others, these competitors were platforms created by people from the software platform side. They were coders.
We also found when we met with and got to know the Alibaba people a lot better, they're also coders. We had the coders creating the platform and then the curators, Natalie and Federico, who could do the curation. For our clients, the curation is very, very valuable. That was also the interest of Alibaba when they approached us to do the joint venture in China. Clients like it. When the opportunity arose now to work together in China, as I've said, we did not initiate it. We looked upon it as providing 1P and 3P put together. A hybrid model. We absolutely believe that online and e-commerce and new retail will grow. This has obviously accelerated almost exponentially due to the COVID crisis. I think it's a reset for all of us, not just a pause.
We wanted to make sure that we were leaders in that field. It combines 1P and 3P, and it gives optionality to brand owners. Clearly, our new partners also believe in that. Let me be quite clear. Farfetch will continue to be run by José Neves and his team. I'm not just saying it now, but ad infinitum, as long as José wishes to. Secondly, as per a question from the press, no money is taken out of the company. It is going into Farfetch, China, Farfetch. We have optionality to later on convert into the holding company shares. We will work together. It's been very difficult during COVID times to advance any further discussions, but over the next two to three years, we will work together. Currently, the two companies, in his words, have got different blood types.
There's a lot of work to be done. I don't want to speculate. They're a public company. There's nothing that should be put in the public domain now. We're very cautious, but clearly, we are looking at getting to a model that gives the best optionality for clients on the one hand, and Maisons, ours, now Kering has joined, and others to use this platform. I don't know. We could carry on for two hours on that, but it's a limited time. I'm sure Jérôme and Burkhart and others can add to that.
Otherwise I've got some more questions that maybe I can raise now.
Like, would it be possible to understand what this proposed transaction means for YNAP and Richemont e-com strategy moving forward? What are your thoughts on key strategic synergies between your brand portfolio and Farfetch and also between YNAP and Farfetch?
I can't comment.
Farfetch.
No, Sophie.
Yes?
Sophie, we just announced the deal last night. I think that is really a work in progress.
Understood. I'll move on to more questions on YNAP itself, and notably, on YNAP business model. Many analysts ask whether there were any plans to shift YNAP from wholesale to a more platform-based business model. If so, to what extent, and if not, why not?
Well-
What-
That's been answered in the first part.
In a way, yes. The other questions relate to YNAP losses. Will losses narrow next year? What is the timeframe for YNAP breaking even? What are your levers?
You know, Sophie,
to achieve it?
I need to address all of this. In your business philosophy, you can either build goodwill or you can buy goodwill. The way in which the accounting profession and financial analysts are how we modeling it today, they applaud you if you buy another company and you pay a fortune in either your own shares, which is the worst or in cash, to make an acquisition, where you reward the previous shareholders. The goodwill, the brand equity, the systems that you've built up that got amortized over the years, that went through the previous company's P&L. You keep on getting questions and questions. If you look at when we started with Van Cleef, the company was losing nearly what we paid for it annually.
Every year, not only from analysts, but from directors, non-executive directors specifically, I would get the question, "Now, when is it going to turn profitable? When is it going to turn profitable? When is it going to turn profitable?" Sometimes you've got to invest, and sometimes you've got to build and develop, and that's part of building goodwill and building knowledge. I think this obsession with what is it going to cost, what are the losses going to be? If we hadn't done it, we wouldn't have been able to get into the situation now where hopefully we can build a model with 1P and 3P that's attractive not only to Richemont, but to other brand owners as well. Obviously, we won't have to amortize a lot of the programming that we had to, because we will be able to access it in another way.
That is to be negotiated. That's the intent.
Right. The next question is, I think for Jérôme. When will the migration of NET-A-PORTER be completed?
Yeah. Thank you, Sophie. In foreground, I want to stress and underline that YNAP and Watchfinder are two online distributors as being through a very intense journey. You all remember that distribution center were closed in early spring. Since June, the team has been working very hard to recover. As stressed by Burkhart in his presentation, a very tough work has been done by the team in term of cash flow. We saw a significant improvement, to take his word, in term of cash flow situation for our online distributors and particularly at YNAP , and that's what the team has been very active doing. They've also been recovering a lot in term of clients relationship, in term of bringing the level of service back to where it was before COVID. When it comes to re-platforming, the team has been, despite COVID, also working very intensively.
We are on track with the last mile of that phase of re-platforming, which is the NAP re-platforming and the cut-over, which is mainly the localization and the upgrade of our NAP platform. The cutover zero, which is in Middle East, is being achieved by the team with success. This one is quite remarkable. The second one, which is also quite important, is that the onboarding of our Maison on YNAP is progressing. Again, all what our Chairman said this morning is making this embarking even more important for the future. It was Montblanc in summer, and it was cartier.com.uk just a few weeks ago.
October.
These two are platforming has been achieved October, has been achieved per agenda, in the conditions that were expected and specified. At Montblanc, we could even see that there were no regression, but a continuous improvement of the performance. Yeah.
Thank you, Jérôme. There's a question more related to Cartier and Tiffany, maybe for Burkhart. From what angle would you expect the competition to intensify from a geographical product and retail channel price viewpoint in America versus Europe or Asia, enterprise versus high-end, bridal high jewelry versus other type of products, new store concept. What approaches are you taking in this respect? Also, whether this change your outlook on revenues growth and margins at Cartier.
Sophie, thank you for the question. I think I cannot be really helpful on this because we do not comment on our competitors and their respective or prospective plans. We cannot really make any statements around this at the present time. As we all know, the combination of the deal between those two groups that you just named, has not yet closed. I think it's way too early to make any coherent statements about that.
The next question actually relates to Clash and whether the launch of Clash has enabled Cartier to take market share at the expense of competitors, or has the launch actually been at the expense of the other Cartier lines. In other words, has there been any cannibalization?
Listen, I can only refer to, I would say, an undisturbed situation. Obviously, the pandemic that we have been going through during the last six, or shall we say eight to nine months has changed many things. What has become very clear is that Cartier has had a very strong acceleration or let's say, re-acceleration over recent months. They have clearly emerged the quickest out of lockdowns and the disruption that the pandemic has caused. Their jewelry lines have been enriched, as we know, through the launch of Clash, where we now have, and that's what we usually do, over the years extend and enrich the collection through additional functionalities, additional materials, additional offers. This has been done now. Cartier successfully added the white gold offer to the Clash line, also higher positioned in terms of pricing.
Once again, referring to what we've seen and also discussed during the last year, we have not seen cannibalization. We've seen the other jewelry lines accelerating in line with the very strong success around Clash. You remember that in the last fiscal year, we spoke about it, saying that we had even situations in the first six months after launching the line, where we could not satisfy the customer demand due to it vastly exceeding our initial planning. I think that still holds true. Very strong growth, obviously, over the last two years for this new line, and no visible cannibalization effect that we have seen.
Thank you, Burkhart. The next question relates to the percentage of online sales done by Cartier and Van Cleef & Arpels, and where do we see this? What is our long-term target?
Well, Sophie, you should know this better, that we will not break this out.
Yes, I do, but anyway. No sense of shame
I know. Let's say, by individual Maisons. What we have seen and what we've commented on quite largely throughout the presentation, and also through our press release, is that Jewelry Maisons have had greater exposure and, I would say, were more advanced than some other businesses, especially watch business, in their online penetration. As you know, we've deployed our online operations over the last 10 years, 10, 12 years around the globe. One of the biggest markets historically has been the North American market, where the Jewelry Maisons and Montblanc have been the leading Maisons. On that success, Jewelry Maisons have significantly increased their online penetration in the U.S., as they have in Asia, primarily in China, because we have added stores to that, notably the Luxury Pavilion online flagship store, or Pavilion flagship store, as we now call it for Cartier.
The online penetration for Jewelry Maisons is higher than for the specialist watchmakers, but still lower than the fashion and accessories Maisons, which have the highest online penetration even before the pandemic. I'd say the question is less about what is the weight or the penetration of each individual channel, be it online or offline retail. The question is more about how do we actually link those two channels in terms of customer intelligence, in terms of inventory intelligence, and that in part will be addressed through this partnership that we have now established or are in the process of launching between ourselves, Yoox Net-a-Porter, Alibaba, and Farfetch. Thank you, Sophie.
Thank you. We should move now to more portfolio-related questions, which are more for Mr. Rupert. Quite a number of analysts wrote, you stated in May that the group would not be sold or merged. Are you still in the same mind frame? Is it time for a transformational deal, including merger or being taken over?
I had a chat, as you know too, Andrea, before about this.
That's right.
article that was really quite a surprise because I didn't know that we were in any way for sale at all. I think it was just a bit of a red herring during the, at that stage, problems between LVMH and Tiffany. There was no substance to it, and we have so often spoken about these so-called transformational deals. Neither on the horizon.
Thank you. The next question relates to business diversification. Does Richemont have the business diversification that it should have, or would it consider to expand or transcend in other area? If so, which one?
I think we've just done one.
All right. There's no point in asking the question on F&A, and whether has the board considered the option to exhibit the soft luxury operation, which have not made profit since 2007? Would any such decisions be accelerated now that Mr. Fortunato is in place?
I think we have just found a very good route to market for fashion and accessories. I think our deal with Alber Elbaz will become very exciting in the next three months. The answer is no. We now have a way to the route to market that was dramatic before because it was a question of, do you open more stores? Do you put more CapEx in? With that chicken and egg, with that you then increase sales. We've never really been good at fast fashion. I think the whole fast fashion business model is under scrutiny. I'm not sure that it's sustainable. This buy now, throw away culture may have peaked a while ago, but certainly post-COVID, I'm not sure that it's sustainable.
Thank you.
Going to a different philosophy.
Thank you. To check, moving towards watches. That's a question more for you, Jérôme. How would you describe the current stock levels at your wholesale partners? Can you comment on selling versus sellout? I think you answered that during the presentation. Any risks of new buybacks, for instance, in a very sudden decision to exit watch retail.
Thank you, Sophie. As commented by Burkhart Grund and our chairman, indeed, the ratio between the sellout and the sell-in remains over 100%, which is a very important point of measurement of our performance. Again, our chairman said this morning, the crisis of the COVID is a stress test for our organization. We consider that the COVID is also a very stress test for our more and more going direct to our clients, through retail or through wholesale, which require a very good stock understanding and monitoring. If you are only a retailer, you monitor your own stock. If you want to have an approach that favor retail and wholesale and our wholesale partner, you need a strong monitoring of it. It was put, remember, in place now a good three and a half years, four years ago.
We put good tools to monitor that, we're happy to report that they are more than ever active. We have this higher sellout than sell-in. For sure, some regions are particularly showing that today in APAC and more specifically in China, we are already facing situation of shortage for some of our Maison, which is good news in a way. It shows a strong aspiration of the end client, constant strong aspiration for our products. We spoke a lot from APAC and China, but it's also true in other regions of the world. Middle East, as Burkhart Grund was saying, has been showing a strong resilience and recovery in other regions. It's a necessity, and through that phase, we see how it functions.
If you see how a manufacturer can name the one of IWC, the one of Jaeger-LeCoultre, the one of Vacheron, the rate of occupation of our team, as well, of course, the one of Cartier. The rate of occupation of our team shows that it is a true reality. Only a few weeks after closing, we have been re-emerging, and we have been putting back a very high level of activity because we had no stock, and we had not to absorb months of years of stock ahead of us. I think for, again, besides the market monitoring, it's also a question of how we monitor our social commitment to our colleagues. That's what we always had in the back of our head when we do this kind of management.
It's good for the market for sure, because it sustain long-term and midterm value, but that's also probably the best insurance that we can have towards our commitment towards our colleague and our social responsibility. Thank you, Sophie. Sophie, back to you.
Sorry, I was on mute. Is the supply chain and distribution network lean enough now for Swiss watchmakers?
I think again-
Now should we see them moving to a more selective distribution?
I think selective distribution was a word we've been using a lot. Selective distribution is another way to say qualitative distribution. We believe in it. We believe that the best service and the best offer are correlated. For a long time, we have established it with stronger commitment and investment. You can said that, you can see that our network tend to stabilize itself within the time, because there are still region of the world where network is expanding. You speak from China, but you even can speak from Japan, for example, where we tend to have more presence of our offer today. Other region are contracting themselves, as it's also linked to social evolution of these countries with concentration of population in town and so on. I would say the network is now stabilized.
It knows marginal adaptation and follows more microeconomical trends when it comes to that. For sure, new retail will push us to have more and more immersive experience shop, and the one of IWC in Zurich is probably one of the best example, if not the best example, of what we mean when we speak from immersive experience. Combining this immersive experience shop with e-commerce will for sure offer to our client for the future even more chance to access to the products and to the service in best conditions.
Thank you.
Sorry, Johann. It's Johann here. I think it's a very good question. Had this COVID-19 pandemic, this human crisis hit us three or four years ago, we would have been in trouble. We deliberately cleaned the market. The people on the call will remember. We really cleaned the whole market. Our colleagues led by Emmanuel Béraud applied, with the help of the heads of the watch Maisons, proper discipline so that our sell in had to be less than our sellout. I think to corroborate that is if you look at our cash flow over the period up to now, early November it would have been a disastrous cash flow had our stocks not been clean. Our stocks are cleaner, and I'm happier with the level of our stocks now than four or five years ago.
That is a compliment to our colleagues in the watch division and to Burkhart.
Can I just add my perspective to that, excuse me, Sophie, which is taking it from a different angle but basically saying the same. We've done, as you know, buybacks in watches first at Cartier and then at the specialist watchmakers for a reason because the inventory and the excess inventory that was sitting in the channel or with our trade partners was inventory that did not turn because it was sold in at a different time in the cycle, so to say. We said we will help our trade partners who bear responsibility with ourselves for having let that inventory situation build up. We will help them, but we cannot just buy back and then continue with the old ways of before.
That's when we try to, and I think we have managed very well through the very strong continued and durable commitment of all our colleagues in our Maisons. We've managed to rebalance the relationship with our wholesale partners so that actually the inventory that we sell into them is lean, is monitored, and is really built and structured so that they can best serve their customers, which means our customers as well. We have gone through considerable pain and considerable criticism for doing these buybacks. We've always said if we do these buybacks, it cannot be a one shot. It has to be accompanied going forward by a different way of running this business with different management principles and KPIs.
Sell in or sell out or the other way around as we use it is a very important KPI, but it's not for the sake of having a KPI, but it's for the sake of having a clean inventory position that will avoid, in the long run, brand equity impairment. Our trade partners have partnered up with us. I think we have a very good ongoing tool that enables us to actually avoid future buybacks. That's why I think we will have to put this argument or this question to rest now of, are you planning additional inventory buybacks? Our inventory management approach is clean and I think long-term sustainable. I think hopefully, this answers the question.
Throughout this pandemic, we've applied the same approach and it actually has helped us preserve cash flow, and I think has helped us preserve cash flow of our partners as well. Thank you, Sophie.
Thank you, Burkhart. The next question is a bit of a challenging comment on our watch reserve value or basically the strength of our Maison. Can Richemont watch branding, Cartier, ever have the same secondary market characteristics by maintaining, if not higher value than primary as Rolex, AP, and others? What are you doing there?
Sophie, I can first start to say that, because it's a good correlation with the previous one, that we have around 10,000 colleagues now working in the different manufacturers of Richemont. In France, in Switzerland for the watches, or in Italy, in Germany, for the watches and the writing instruments. Somehow, the work that we have in our manufacturers is directly correlated to what I was saying, a smooth management of the demand, by the constant capability to adapt our offer to the demand. We tend to pay attention not to have, to the top or to the down, elements that will be out of our control. We do believe that speculative or sometimes perception of the value of a product much further than, far from the use of a product, built an intrinsic risk.
In our risk appreciation, we don't want to have an operating business model built on speculation of the values that a product can take. It's important for us that there is a value of use, that the investment is well protected. Burkhart was speaking from the cash there and from KPI. There is one that we follow with a lot of attention, that the discount rate in our own boutique. Today in COVID time, our discount rate in our own boutique and also the specialist watchmaker has varied from less than 1%, and that's rather lower from 0.5% on top of my mind, than higher annual rate. That the way we consider and it shows that the value of the product is good and maintained. Of course, we can always name one product or the other.
Of course, we could say, oh, look at the Odysseus of A. Lange & Söhne. If I'm not wrong, the market price of this watch is below EUR 30,000, and today the secondary so-called market is putting the watch over EUR 100,000. For a watch that has been just out within one year. That's a coefficient factor of three within less than 12 months for the watch over EUR 30,000. Do we want to build the employability, the sustainability of the business model of A. Lange & Söhne with the hundreds of colleagues there based on that speculative flow? No, it will be completely unreasonable. Protecting the value of our clients, for sure.
Thank you, Jérôme. This is a question probably for Burkhart. Has there been any change in trend in October compared to Q2?
Listen, I think, Sophie, we've abandoned looking at short-term trends. We've had our reasons for that. Let me be helpful. We have not yet seen a change in trend. That is looking backwards, looking forwards. We simply do not have enough visibility to project that out.
Were there costs taken out of the business through COVID-19 which won't come back? For instance, they're mentioning examples of store closures or restructuring of some businesses.
Listen, I think.
if I may just so that you have the whole picture of all the questions raised, are there any areas within the central group functions that can be streamlined? Are we reconsidering our store footprint in light of COVID-19, but also in light of increase in online sales?
Listen, I think these are many questions. I know that they are intended to feed the models to project the business out and come up with a price recommendation. Let me put it this way. The strongest reduction in our expense lines that we have seen in the first half was clearly on communication. We've cut communication in half. This is a cost we've taken out short-term out of the business. Obviously, if you want to maintain, enrich your brand equity, that is not a sustainable position. We have had short-term disruption through store closures and fulfillment center closures, which actually yield a short-term positive impact. When you're not operating, you're basically not spending your variable portion of your cost. The fixed cost still stays.
We've had support from short-term working schemes, and we have been able to successfully negotiate rent relief from our landlords across the world or around the world. These are all, I would say, pandemic related impacts, and I let it to your appreciation based on what your assessment of the situation going forward is to decide if these effects are to stay or are to be repeated in H2. They simply are impossible to project out how the rest of the year will evolve. We always hold back in normal times, if these normal times still exist, to give projections because we simply cannot project all the variables that will impact our trading conditions and ultimately our results. How would we do so in the midst of a pandemic? I must say, in the midst of a second wave.
Hopefully, it's the midst already, or if it's still the beginning, we still don't know. It's very difficult to project that out into the future. The principles that we apply will remain the same. Cash first, margin second, and sales third. This has been a mantra that has helped us manage from a financial perspective through this challenging period, and these principles remain in place.
Thank you, Burkhart. We got broader questions related to COVID-19. Are there any learnings that have surprised us, and are we satisfied with progress Richemont is making? The analyst was referring also to the fact that there is probably rise in inequality. Sorry.
Sophie, the first learning, it has been resonating the whole morning throughout the different speech, is the digital penetration. The digital penetration, you and Burkhart, you gave some numbers during your presentation. The digital penetration when it comes to client direct is two-digit. After the first semester, it was over 13% even at that time. It remains two-digit despite the shop are back and open. Something has changed in the way our end clients interact when it comes to the transaction with us. They are no longer not only using physical shop in many territories to acquire our products. It was maybe of use and just driven by the absolute necessity on absence of choice during three months because shops were closed, even after, we see that it stays.
That's something that we have seen and what we have learned out of it was the absolute necessity to have an agile organization to be capable to answer to that demand. That's the first element. The second one is that the demand has been extremely fluid during the last weeks and months, and that we need to be capable to move quickly our resource in the different geographic. Again, here, it give a lot of rationale behind looking for omnistock when it comes to having our products available around the different markets and different network in as fluid way as the market becomes fluid. This is the second one. The third one is, after all, the old way of working within our organization has changed. Again, we can really congratulate our team for their quick adaptation into that phase.
We spoke from the rollout of new IT solution within YNAP, but Richemont had also a very major one. It's our SAP distribution backbone implementation in China. That's a project which is a very large magnitude in terms of teams and in terms of timeline, and that all rollout has been done completely at distance. Between our center of competence here in Switzerland and the team on the market, and it has been achieved in absolute respecting the agenda, respecting the condition of service with no interruption of our chain.
It's something that we have learned throughout this period, is to work more distance. For sure, the actual lockdown in many countries and still the very difficult time we see and we know throughout the pandemic is accelerating distance work, tele travail, whatever is the word that we have to use to respect and to play our role in that fight against the pandemic. It may name the three key learnings of that period.
Thank you, Jérôme. Should I move on to the next question? It's already 11:00 A.M., really we've got time, I think for, I would say two more questions, if you agree with me.
Yes, go ahead.
The next question, yeah, it's for Mr. Rupert. What role does Mr. Rupert see for family in the next 10-15 years? Or maybe less?
What? Could you repeat that, please?
Yes. What role do you see for your family within Richemont in the medium term?
Well, as shareholders, obviously they will remain. I've made it quite clear that it's neither his wish nor my recommendation that any of them will have direct executive roles as executive chairman, etc . We've always run Richemont on a collegial basis. Sadly, once when I was overruled, when we could have bought half of Gucci for EUR 175 million from Maurizio, and Investcorp wanted a touch in, but I bowed to the board. We've run it in a collegial way, and Richemont today is too complex for one individual to run. That's why we've been criticized for having various structures of co-CEOs and troikas. The watch business is totally different from the jewelry business, it's totally different from fashion and accessories, it's totally different, et cetera. I must say, had he not helped me finding a solution, we would not have been able.
My son, Anton, found the solution to the key to doing the deal with José, and that satisfied our current structure and hopefully future cooperation whilst preserving the autonomy of our various Maisons to choose in which way they can use the platforms. The speculation is irritating. The company was never for sale. We don't plan selling it. As shareholders, yes, they will be there.
Thank you, Mr. Rupert. I think this is now the end of our first half 2021 results presentation. Thank you again very much for your questions and participation. That was really very much appreciated. I know a few are still have been left unanswered, so James and I will now call you to answer them. We just wish you a good day. Speak soon. Bye-bye.
Stay safe.
Thank you very much.
Thank you.
Thank you.