Ladies and gentlemen, welcome to the Fiscal Year 2019 Annual Results Presentation Conference Call and Live Web Cast for Compagnie Financier Richemont. I'm Dino, your call operator. I would like to remind you that all participants will be in listen only mode and the conference is being recorded. The presentation will be followed by Q and A session. The conference must not be recorded for publication or broadcast.
At this time, it's my pleasure to hand over to the auditorium in Bellevue.
Good morning. Thank you for coming to Geneva to attend Richemont 2019 Annual Results Presentation. And for those of you participating remotely, welcome. This is Sophie Carnard, and joining us today from Richemont are Jerome Lambert, Group CEO Parker Brund, Group CFO Pierre Levyourian, CEO of Cartier and Nicolas Boss, CEO of Rene Clef and Arpels. Pierre Rom will begin by taking you through the highlights before reviewing sales.
Dorcas will then present the Maisons key developments and take you through the financials. Thereafter, Jerome will conclude. The presentation will be followed by a Q and A session, and questions will be taken from the floor and time permitting from those of you who would have submitted their questions via our website, richemont.com. The presentation and company announcements are available on richemont.com, while an archive of this webcast will be available today at 3 pm Geneva time. Before we begin, could you kindly switch off your mobile devices?
Thank you. Over to you, Jerome.
Thank you, Sophie. Good morning, ladies and gentlemen. Here in the end of the room and those of you watching behind your screen, thank you for your time. Before looking at the numbers, let me remind you that 11 months of YOOX NET A PORTER results and 10 months of Watchfinder results have been included in the group financial statement at 31st March 2019. They are grouped under online distributors, which is a newly presented business area.
The first time consolidation of online distribution has had a material impact on sales, operating profit, cash flow and net cash. And we'll have also a newly reported distribution channel, online retail, which will group the sales of YOOX NET A PORTER as well the online sales portion of both Watchfinder and the Group Melons. Retail now incorporates only sales from the group's directly operated boutique. With this now clarified, let's first look at the numbers. Richemont is reporting a set of numbers that reflect the initial benefits of past decisions regarding monitoring of sell in and sell out at the group's multi brand watch retailer, the improvement of distribution network and a generally supportive external environment.
The past 12 months has seen growth in most of the region and across all business areas. The year was also characterized by strong jewelry and wholesale in the group directly operated stores. Sales for the year increased by 27% at both actual and constant rate to end the year close to €14,000,000,000 Excluding Online Distributors, sales for the year increased by 8% at both actual and constant exchange rates and increased by 6% when excluding watch inventory buyback in fiscal year 2018. Operating profit increased by 5 percent to €1,943,000,000 This €99,000,000 increase reflected the higher sales and gross profit, but also on the one hand €165,000,000 of amortization of intangible assets related to the YOOX, NET A PORTER and Watchfinder acquisition and on the other hand, €118,000,000 of onetime charges mostly related to portfolio transactions and the prior year's inventory buyback. The operating margin for the year was 13.9%, down from 16.7% in the prior year.
Including the first time consolidation impact of the Online Distributors and the other charges just mentioned, the operating margin improved to 19.5%. Profit for the year of EUR 2,787,000,000 included the post tax non cash accounting gain of €1,378,000,000 on YNAP shares held prior to the voluntary tender offer. The net cash position of €2,528,000,000 is lower than last year, primarily as a result of the cash settlement for the YOOX NET A PORTER and Watchfinder recognition. Let me now walk through the group sales performance, first by region, then by distribution channel and finally by product line, with change versus last year as always expressed in constant currencies. Let us start with Europe, our 2nd largest market with 29% of gross sales.
Full year sales increased by 37% overall, having benefited from the integration of YOOX NET A FORTE and both of whom have a strong sales base in Europe. Excluding Online Distributors, sales increased by 1%, reflecting the impact of the Lancel disposal, the continued optimization of our wholesale network, continued focus to align inventories with end client demand and temporary store closure in France. A limited reduction in wholesale sales was more than offset by a moderate increase in retail sales. And in our largest market, so in 19 Kingdom, sales were broadly in line with the prior year. There were growth in Germany, Switzerland and so more limited in France, while other markets recorded their contrasted performance.
Growth was led by Eurinazone and to a lesser extent by the Specialist Workmaker. Let us move to Asia Pacific, our largest region. Sales increased by 20% overall, accounting for 38% of the group total. Excluding Online Distributors, sales grew by 14% on top of our strong comparative figures in the prior year. The strong growth was broad based with double digit increase in all main markets led by Mainland China and in all distribution channels, both the retail and wholesale channels, penetrated from store opening with 20 internal 19 franchisee stores opening, respectively.
By business area, both Jewellery Maisons and Specialist Watchmakers grew at double digit rates. Let us now look at the Americas, where sales grew by 40% overall and by 11% excluding online distributions. The significant difference in growth rates reflect the fact that the America is a major region for YOOX NET A PORTER. There were growth in all distribution channels, including a double digit increase in retail for off line and online and a high single digit increase in wholesale. Across our business area, expanding at double digit, led by Jewellery Maisons and Peter Millan.
The region contributed 18% of group sales, an increase from 16% a year ago, with U. S. Remaining our largest country ahead of Mainland China and Hong Kong. Let us now turn to Japan, which generated their 8% of group sales and posted a 16% progression in sales, and 8% increase excluding online distributors. There were double digit growth in wholesale and a high single digit growth in retail, sustained by both domestic and domestic spending.
Jewellery Maisons showed good momentum, while Specialist Watchmakers had strong growth, particularly in retail. And finally, Middle East and Africa region, which represented their 7% of group sales and sold sales rise by 8% overall. Excluding Online Distributors, sales decreased by 2%, reflecting impacts of the wholesale network optimization and the relatively unfavorable currency movements related weighting on tourist pendings. Continued growth at the Jewellery Maisons and Fashion Accessory helped mitigate lower sales as a specialist for Smitens. Let us turn now to sales by distribution channel.
1st, the retail channel. Sales in our 10.99 directly operated stores increased by 8%, with growth in all regions led by double digit increase in Asia Pacific and in the Americas. Noteworthy is the performance of Turin Maisons and Specialist Watchmakers, where sales expanded at a double digit rate. There was a net reduction of 24 stores in our retail network, reflecting the disposal of Lancel and the selective opening of new stores. Sales benefited from the 1st time consolidation of Orangefinder stores, the reopening of several renovated stores and from the full year impact of the internalization of external point of sales in Italy at the end of the calendar year 2017.
The overall contribution to group sales from our directly operated boutiques was reduced from 63% last year to 53%, but mainly as a result of the first time presentation of the new online retail sales channel. Including these new channels, the contribution of retail sales would have been in line in fact with last year. Next, let us look at Online Retail, this newly reported distribution channel, consolidates the sales from YOOX NET A PORTER and the online sales portion of both Watchfinder and the Group Melon. Our YOOX NET A PORTER has been consolidated since May 2018 and Watchfinder since June 2018. Online sales in the group Maisons continued to expand, registering double digit growth.
Online retail represented 16% of group sales. 3rd, wholesale. This channel includes sales to franchisee partners and to multi brand retail partners. Wholesale sales increased by 7%. Excluding the impact of non recurrence of the prior year watch inventory buyback, they increased by a low single digit.
Double digit increase in Asia Pacific and Japan as well as a high single digit increase in the Americas more than offset declines in the other regions. Our wholesale sales were impacted by the continued alignment of sell in wholesale out, the optimization of
the wholesale watch retailer network.
The wholesale channel generates 31% of group sales compared with 37% last year, primarily as a result of the new online retail channels and the measures just mentioned. Finally, let's move to the sales breakdown by product line focusing on our Maisons. Most product categories posted growth, most notably, jewelry and watch, which both grew by 10%. Jewelry sales saw progression in all regions and in all channels. Watch sales increased in most regions with double digit growth in retail, reflecting strong end client demand.
They remain the 2 largest product lines at 36% and 35% of group sales, respectively. Writing instruments registered a 5% increase in sales, which is a noteworthy performance in a major market. The impact of online distributors is mostly evident in clothing and in EBITDA. Burkart will now take you through the Maisons and segment highlights. Over to
you, Bert. Thank you, Jerome. Well, as you know that I come from Jewellery Maisons. So I'll start with the Jewellery Maisons, which after the inclusion of online distributors accounted for 51% of group sales. The business area includes the total sales of Cartier and Van Cleef Arpels across all product lines.
The Jewellery Maisons generated a solid set of results. Sales grew by 10% to €7,083,000,000 with growth in all regions led by double digit increases in Asia Pacific and the Americas. There was strong growth in retail and good growth in wholesale. Jewellery Maisons operating results rose by 16% to €2,229,000,000 and operating margin improved 160 basis points to now 31.5%. This EUR 303,000,000 improvement can be attributed to higher sales, manufacturing efficiency gains, the relatively favorable Swiss franc and good cost control, which more than offset investments in retail and communication.
Let us look at the main developments over the past 12 months. There was double digit growth in both watches and jewelry, the 2 main product lines of the jewelry models. Both in watches was broad based across the collections, benefiting in particular from the successful launch of the rejuvenated Santos de Cartier and from the poetic complications of Van Cleef and Arpels. Jewelry growth was sustained by iconic collections such as Love and Yves Saint Clue at Cartier and Alhambra and Perlee at Van Cleef and Arpels, as well as the introduction of new Truly creations such as Galaxies at Cartier or Freehold at Van Cleef and Arpels. The new corporate campaign at Cartier, the 50th anniversary of Alhambra at Van Cleef and Arpels, an increased presence on social media, for instance, the Santos de Catcher digital campaign, all had a positive impact on sales.
The strong performance in retail benefited from the reopening of renovated stores with the new retail concept at Cartier and 3 net new stores at Van Cleef and Arpels. There was also high growth in online sales, both on the Maisons websites and through the offering of several productions on NET A PORTER and MR PORTER. In wholesale, inventory management and distribution network optimization initiatives that we introduced in late 2016 have had a positive impact on growth. Let us now review our Specialist Watchmaker business area, which consolidates the results of 8 watch results. They've shown good progress.
Overall sales increased by 10% to €2,980,000,000 with strong growth in Asia Pacific, Japan and the Americas. In retail, strong end client demand led to double digit increase, while wholesale growth reflected the non recurrence of the prior year's watch inventory buybacks. Excluding the impact of such buybacks, wholesale sales declined moderately. Operating results rose to €378,000,000 The operating margin increased for the 2nd consecutive year, reaching 12.7 percent of sales, a 300 basis point improvement compared with a year ago. Higher sales, increased manufacturing efficiencies, relatively favorable Swiss francs, a larger share of retail, the non recurrence of inventory buybacks and strong cost control all contributed to this margin improvement.
Partly offsetting these positive elements were stock provisions for the physical return of inventory. Let us look at some highlights of the past 12 months for the Specialist Watchmaker Maisons. There was growth across almost all Maisons. Successful launches during the year included the Polaris at Jaeger LeCoultre, 56 at Vacheron Constantin, the Jubilee collection to celebrate IWC's 150th anniversary, Excalibur Aventador at Roger Dubuil, Procession at Piaget and the Datograph Up, Down, Lumen at London Zohne. Retail growth was strong at most of the events, most notably at Jaeger LeCoultre, Vachon Constantin and IWC.
Growth was supported by a net increase of 11 directly operated stores, mostly in Mainland China, bringing the total to now 295 stores. Sales of watches online continue to progress, albeit from a low base. With the latest introduction of Roger Dubuis, 7 of our specialist watchmakers now have a presence in Mr. Porter or NET A POTTER. Wholesale sales were constrained by inventory control and optimization of the wholesale network.
The focus on true end demand has led to further decreases of retailers' inventories. Wholesale sales also benefited from the non recurrence of the inventory buybacks and from the opening of franchise stores, mostly across Asia Pacific. Now let us talk about Online Distributors and business areas that Jerome mentioned, which, as you know, includes YOOX NET A PORTER and Watchfinder. Sales made by YOOX NET A PORTER of our Maisons products are shown under both the Maisons' respective business areas and under Online Distributors. They are subsequently eliminated under intersegment eliminations.
Online Distributors closed double digit sales growth with sales reaching €2,100,000,000 or 15% of group sales. Operating losses amounted to €264,000,000 and included €165,000,000 for the amortization of intangible assets recognized on acquisition. The result was also impacted by additional investment in communication and IT, primarily linked to the OUTNET and MR PORTER's global technology and logistics platform integration migration. On an EBITDA basis, online distributors were slightly contributed. Now let us look at some operational developments for these 2 distributors.
In 11 months, the LUKS NET A PORTER has been consolidated into Richemont numbers. Double digit sales growth was balanced across business lines and regions. Shopping on mobile devices has increased further to represent more than 50% of sales now. In terms of offering, the fine jewelry and watch suite at NET A PORTER and the luxury watch guide at MR PORTER were launched in spring 2018. Over the past 11 months, as an example, a watch was sold for more than €200,000 in Mr.
Porter and a piece of jewelry for over €165,000 on Net A Porter. Duke Met A Porter has also introduced the Vanguards to foster merchant talent in fashion, a Kidwear offer and clean beauty in order to meet clients' demands for organic products. Overall, more than 400 new brands and over 135 exclusive capsules and collaborations were launched across the business lines. The joint venture with Alibaba is progressing well. At Watchfinder, the rate of sales growth for single digits impacted by Brexit uncertainties and strong comparatives.
The team is working on raising its visibility in digital outreach. Building on its reputation of trust and expertise in the pre owned market, Watchfinder has begun to develop an international presence, starting with France. Already, a dedicated French website and a showroom at La Defense near Paris are operational. They continued adding new servicing accreditations. In total, the Watchfinder service center is accredited by 17 leading brands for spare parts and repairs.
This represents a clear competitive advantage. Finally, let us move to other, which includes the group's fashion and accessories Maisons, its unbranded watch component manufacturing and real estate activities. Excluding the impact of the Lancel and Shanghai Tang disposals, sales at the Fashion and Accessories Maisons rose by 5%, growth in all regions, led by double digit growth in the Americas. Operating losses amounted to €100,000,000 If we exclude net one time charges of €58,000,000 in the year under review, primarily related to the disposal of Lancel, and of €37,000,000 in the prior year. The operating loss was €42,000,000 in the year under review and €28,000,000 in the prior year.
The variance can be explained by increased investments in communication at some results as well as costs linked to retail expansion and store renovations. Let us look at the development of the main results. There was growth across all Maisons, though the rate of growth varied from 1 Maisons to another. Our brand Peter Miller registered notable increases. Our Ploab benefited from good demand for its new technology products with a second version of its Summit smartwatch for its leather offer with its new trolley line and for its writing instrument offer, notably in the Meisterstuck Pekipaas collection.
After the analysts recorded good progress in sales and new offerings at Chloe, notably the new Chloe C bag and shoes collection, have shown positive early results. Retail sales posted growth when excluding the impact of the disposals of China Town and LaSalle and the first part time presentation of the new online retail sales channel. Retail sales were supported by store openings, notably at Chloe and Montblanc, by the reopening of stores and the new retail concepts. Montblanc reopened its flagship store in Geneva and Tokyo under its new concept, resulting in increased productivity and visibility. Online retail sales were strong with the highest growth coming from Asia Pacific and the Americas and in particular from Chloe and Andrei Malaya.
Online retail sales represented 7% of the F and A results sales. Wholesale sales grew overall with varied performances by Maisons. They were led by Montblanc and Picamalan and supported by the net opening of 17 franchise boutiques, 9 of which will be in the duty free network. This concludes the review of the Maisons. Let me now walk you through the rest of the P and L, starting with gross profit.
Gross profit increased by 20% overall. The main drivers of this increase were manufacturing efficiency gains, higher share of retail and online retail and slightly favorable currencies overall. This resulted in a gross margin of 61.8%, a 3 40 basis point decrease from last year. Excluding the integration of Schuessler Aporti and Watchfinder in the current period's results, gross margin reached an all time annual high of 66.3%, an increase of 110 basis points compared with last year. Let us now look at our operating expenses.
Overall, expenses increased by 26%. Excluding online distributors, the increase was limited to 7%, below the 8% growth in sales of Harmony House. Operating expenses also included onetime expenses of €95,000,000 primarily related to the Nocsel disposal and €165,000,000 of amortization of intangible assets. Together, these charges amounted to €260,000,000 I will now walk you through the expenses by category. Selling and distribution expenses, which account for 51% of total operating expenses, increased by 11%, excluding online distributors sorry, excluding online distributors, selling distribution expenses rose by 6%.
Gross in expenses reflected the increased renovation of our global distribution network and the opening of 41 directly operated stores. Communication expenses rose by 21%, mainly due to the first time integration of online distributors and increased communication initiatives at the Jewelry and Fashion and Accessories Conference. A new expense line, fulfillment expenses, amounted to €229,000,000 represents the costs related to the fulfillment of online orders at the online distributors. Administrative expenses grew by 36%. This growth mainly reflected the inclusion of online distributors and continued investment in technology development and maintenance.
Other expenses amounted to €280,000,000 and included the €260,000,000 charges previously mentioned. Net operating expenses represented 48% of group sales, broadly in line with a year ago. This leads us to operating profit, which rose by 5% to €1,943,000,000 excluding onetime net charges of respectively €180,000,000 in the year under review and €208,000,000 in the prior year as well as this year's 1st time consolidation of online distributors, operating profit for the year would have increased by 13%. The current year's one time charges primarily relate to previous year's inventory buybacks and portfolio transactions. The operating margin of 13.9% compares to 16.7% a year ago.
Excluding the consolidation of YOOX NET A PORTER and Watchfinder and the €118,000,000 of onetime items, operating margin increased to 19.5%. Let us now review the P and L items below operating profit, starting with finance costs. Net finance costs for the period amounted to €183,000,000 compared with €150,000,000 in the prior year. The €33,000,000 overall increase can be primarily explained from the €69,000,000 interest expenses linked to the €4,000,000,000 corporate bond issued in March of last year. There was also a loss of monetary items compared to a gain in the prior year due to unfavorable year end exchange rates when we translated cash investments and balance sheet closing rates as well as a negative impact from the currency hedging program.
Now let us turn to the profit for the year. Profit for the year rose to €2,787,000,000 Strong increase was due to the 1,000,000,000 €178,000,000 post tax noncash accounting gain on the revaluation of YNAP shares that we held prior to the tender offer. Excluding this gain, profit for the year increased by 15 percent to €1,409,000,000 as a result of higher operating profit. Effective tax rate for the year was 21.7 percent compared to 25.5 percent in the prior year and 22.5 percent 2 years ago. I would now like to focus on our cash flow from operations.
Cash flow generated from operations decreased by €392,000,000 to €2,331,000,000 The reduction reflected a working capital absorption of €530,000,000 compared with a €234,000,000 inflow in the prior year. This reversal is mainly due to 2 factors. 1st, lower creditors and higher debtors following the use of credit notes that we issued as part of the prior year's watch inventory buyback program and second, high investments in inventories at both our Maisons and online distributors. These impacts were partly offset by stronger operating profits. Gross inventories amounted to €6,200,000,000 at year end, an increase of €1,200,000,000 from the prior year level.
As represented, 17.7 months of cost of sales, an improvement of 3.1 months compared to the prior year. Excluding online distributors, inventories represented 21.1 months of cost of sales, broadly in line with the prior year. Receivables portfolio is healthy at about 95% current. Let us now turn to our gross capital expenditure, which amounted to €826,000,000 representing 5.9% of group sales compared to 4.4% a year ago. The €339,000,000 increase in capital expenditure was mostly related to YOOX NET A PORTER.
Looking at CapEx by nature, 40% was related to investments in points of sale, including internal and franchise boutiques and corners. Investments were focused primarily on store renovations and relocations. The most notable projects were the renovations of the Cartier Le Bon Street boutique in London, Montmore's heritage boutique in Hong Kong, the relocations of Cartier on One Peking Road in Hong Kong, Van Cleef and Arpels in IFC Pudong in Shanghai as well and IWC in Panorai on Kinsa in Tokyo. The most notable openings were for Cartier, Clergy, Van Cleef and Arpels and Alfred Panu at Hudson Yards in New York for Van Cleef and Arpels in Chadstone in Melbourne and for Piaget, Duvern Mall, Fashion Avenue. 9% of the gross expenditure was related to manufacturing investments, primarily for machinery and research and development.
Other investments accounted for the remaining 51% and comprised mainly with the Lofsrgren Logistics Centre in Switzerland and the Global Technology and Logistics platform for YOOX NET
A PORTER in Italy.
Let us now discuss free cash flow. Free cash inflow amounted to €1,146,000,000 an increase of €56,000,000 compared with the prior year. The 6% improvement reflected the lower cash generated from operations and higher capital expenditures, offset by lower spending on investments and investment property. Let us now turn to our balance sheet. Our balance sheet remains strong with shareholders' equity rising to 51% of total equity and liabilities, up from 57% a year ago.
Net cash of €2,528,000,000 was down by €2,731,000,000 from the prior year. This was mainly due to the €2,894,000,000 cash outflow for the acquisitions of YOOX NET A PORTER and Watchfinder. Vishmal's net cash position comprises highly liquid, highly rated money market funds, short term bank deposits and short duration bond funds. Our overall cash resources are primarily denominated in Swiss francs, euros and U. S.
Dollars. Let us now look at our dividend proposal. Our fiscal year 2019 dividend proposal to be confirmed by shareholders in September is CHF2 per share. This represents an increase of 5% over last year in Swiss franc terms and reflects the performance that we have seen during the year and our strong net cash position. I will now hand back to Jerome, who will conclude our presentation.
Thank you, Bertrand. Including allow me to underline again the main highlights of the fiscal year 2019. There were 1st, I would say, growth across all our business and almost all regions. Most particularly, there were strong growth in Asia Pacific, led by Mainland China and in the Americas. And in terms of channels, in our retail network for our jewelry and watch Maisons.
Jewellery Maisons showed strong performance and the Specialist Watchmaker good progress. We are starting to see the positive results from a number of decisions taken in the past few years, including the alignment of sell in with sell out, the buyback of Fortis inventory, the quality improvement of our distribution network and the focus on key account, finally, supportment of our Head of Specialist Multimedia Distribution. Within other, mostly compliance of fashion and accessory Maisons, Montblanc and Peter Millar recorded good growth, while the other Amazon progressed with more varied performance. We have continued to refine the quality of our products and the environment in which they are sold, while further investing in digital marketing initiatives. Growth in expense, nevertheless, has been contained below sales growth and excluding the impact of Online Distributor and the one time net charges of €190,000,000 that Jocad mentioned, group operating margin increased by 19.5 percent to 19.5 percent of sales.
We have strengthened our portfolio with YOOX NET A PORTER, leader in online luxury retail with a strong digital capability and with Watchfinder, which provides access to the important second line watch market. As YOOX NET A PORTER business now approached their 20th year, growth is now normalizing around the low digit rate. The joint venture with Alibaba owned operational is expected to bring new scales for the NET A PORTER and MR PORTER brands, opening up the relatively untapped potential in China for online multi brand mature shopping. After initial migration challenges at the outlet now are successfully overcome, We are progressing with the Mr. Porter replatforming, which is expected to be completed this summer.
In addition, YOOX NET A PORTER has developed a multiyear road map for integrating the Maisons online services, the other Maisons online services of Freshman with a particular to offering omni channel capabilities. These initiatives will benefit YOOX NET A PORTER as well as the group as a whole. We are pleased with the performance of Watchfinder given the uncertainty used to run-in Brexit. They outperformed the U. K.
Watch market and generated healthy profits before amortization of intangible. Building on their leading position in the U. K, Watchfinder has begun its internal organization, starting with France this calendar year. And to remain compelling with our clients around the world, we continue to evolve the way we engage with them and the way we distribute our products, favorizing direct interaction with end clients, a more upscale retail environment, both online and offline, a briefer presence on social media and adapting to local changing needs. To that end, as our Chairman, Mr.
Rupert commented, remain focused on offering products with the highest level of beauty, creativity, heritage and craftsmanship. Quality of our team, portfolio of assets and balance sheet support us in this ambition. And here, I would like to thank everyone at Richemont for their hard work and continued dedication. We'll now open the floor to questions. Thank you.
Yes. Thank you, Jerome. Just the Q and A will start very shortly. But can I kindly ask you to announce your name and your company's name just before asking the question? And limit yourself to 2 questions, please.
So since all the hands are up, what I suggest is we start from that side and we go all the way down. So we start with Francesca. Thank you.
Yes. Hi, good morning. It's Francesca DiCaprio from Deutsche Bank. I actually have 20 questions, so I will choose 2. So the first question is a quite open question.
If you can give us some granularity on digital strategy, I was actually expecting to see some slides on the presentation, maybe not sharing targets, but sharing a journey and some details of the journey. And maybe you can share with us your considerations about the opportunities for YOOX, for Net A Porter and Support as individual businesses, the opportunities for the mono brand businesses of the online platform, how your online strategy will develop into omni channel, how long the journey will be, how expensive the journey will be in terms of
What happened to the notion of 2 questions?
And a very small question on Q4 and retail performance. My math may be wrong, but I have calculated a slight deceleration in your Q4 retail performance at constant currency. And I was curious to understand where it is mainly coming from. Thank you.
Thank you for your question. There are many answers in your question, sorry, about digital attrition. First, I would like to name that digital attrition is not only digital distribution. Indeed, we consider there is a global innovation agenda for all activity from our logistics or supply chain to the distribution part of our business. We invest significantly in research and development in the depth of our in our activity of watchmaking to constantly improve quality.
To give you an idea of the magnitude of the investment of R and D that we do, that's equivalent of 1 manufacturer per year. So
that's a strong proof of
our belief that innovation progress towards better quality and sustainability of our products is important. Moving to our people, because if we speak from innovation, of course, it means as well that we have constantly to invest in learning and in developing our team. In that dimension, Richemont has always been a premier developing its own schools. It started long, long time ago with Cartier with their 1st retailer school activity. Then it moved to the old Richemont facility and we opened a first school in China, Shanghai a couple of years ago.
We'll open this year another 2 schools for retail activities in the U. S. And in Hong Kong to tackle the challenge of innovation throughout the root of Richemont. And finally, when it comes to our development in terms of digital distribution, here you have seen throughout the acquisition of this year that we believe in the new dimension. Indeed, we do believe that the investment done is the best preparation for the future.
That's a very dynamic roadmap for Richemont. It's very important for our brand because you mentioned in your question omnichannel, but indeed, I would say there is a strong omnichannel agenda for Maisons. And we have engaged, as we are seeing, a very ambitious roadmap between the Maisons of Freshman and YOOX NET A PORTER in a global platform, technical platform approach that we mean that we use our advanced technical capability at YOOX NET A PORTER for the Maisons of Richemont to promote a very intensive omni channel activity. Said that it goes longer with the investment and efforts done by Richemont within the last years in term of maybe more digital presence in our own shops. We invested already for more than 2 years in very advanced tools in all our retail network with a project called there.
When it comes to YOOX NET A PORTER itself and its dimension, that's for sure a very strong opportunity for the group to create new dynamic. First one is the geographical dynamic out of the replatforming and the technical aspect in the omni channel. As mentioned here, you know that multi brand luxury shopping is an untapped potential in Britain in the or one of the 2 first look, I would say, market for luxury goods mainly China. And here we are entering in a world of opportunities. And for that, not only that Richemont has been deciding to invest with YOOX NET A PORTER and Watchfinder, but have been engaging in a journey of building a stronger joint venture with Alibaba.
So if you combine these two elements, plus a global re platforming, Equinix, and Metaporte, you see that we put a lot of emphasis, a lot of effort in that part of our business. And we do believe that's how we prepare the future at best. And we believe that technical improvement in the platform, a new geographical presence and working on synergies between YOOX NET A PORTER and the rest of our group Maisons will create, I would say, a stronger leverage.
Sorry, if I can follow-up. The 19.5% margin that you would have achieved without the online consolidation, so is this a target for the future? Or do we need to continue to model a similar dilution from online going forward, excluding one offs? Is this a normal a new normal that we need to consider? I mean, this is a very basic question, but it's an important one for deciding.
Francesca, I'm trying to walk mentally through that question. I mean, the 19.5% is what we have achieved as a profitability for the Maisons business. Now going forward, if you say, well, do we have to model that well until we sell, I think the online distributors will stay a reality in our group because we bought them for a reason. Now obviously, what we expect for a growing business and it depends on manufacturers, including the always famous exchange rates because we're 50% of our business is tourism driven. Obviously, we expect with the top line growth that we have that we produce further leverage out of the business.
I think that's a given now. The online distributors are in relevant. We're speaking a lot about it in our numbers now because we want to kind of help you along this way to understand because these impacts have been quite material. And if we just retreat behind the reported numbers without keeping the breakout within or including, excluding, etcetera, we think that's not a very helpful presentation of our results. So we do that.
Now, I think if you look at the online distributors business, which is a new experience for you, but also for us, at least in this combination, we look at the road map that they let's say, that we inherited, that we have made our own, that we have enriched, and we'll probably talk about that a bit more with our own initiatives, so that this acquisition makes sense once again for our Maisons for the long term. We'll comment that the short term view meaning the road map for the next 3 to 4 years, It will see and has seen this year already, I mean, fiscal 2019, significant investments in technology. You probably remember what they were guiding on the CapEx side, it's about 8% to 10% before the acquisition. This is what we have learned at around 10% CapEx, meaning to expend. If you look at it with this in mind, you see there's an EBITDA contributive performance, I'd say, as a picture as of 31st March, we're quite satisfied with that, especially we that have insight now and a significant amount of work that is being done by our new colleagues.
And that we have to appreciate its true value. We've had challenges in the migration of the OUTNET, which are part of a learning curve, which are part also the replatforming that not only targets to merge the 2 businesses, YOOX, the former YOOX and the former NET A PORTER business, but also replatforming is done 1st and foremost to increase and enhance the customer experience. So we've overcome the difficulties with the OUTNET. The numbers have rebounded, which is a positive sign that the technology is contributing positively to it. And now we're taking these learnings and apply them to the Mr.
Porter migration that is right now progressing, and we expect it to very positively terminate or finalize in the current fiscal year. So in that context, EBITDA positive is what we have and this is what we're targeting. Now going forward, life is made of ups and downs, you know that. So I also will not really comment on that. I'm not a big fan of that.
I'd say, well, for Q4, the exit rate, etcetera. I'm not a fan of that, you know that. But I appreciate that you try. But let me just give you some elements of context on that. Retail and we no offense to our other colleagues in the group, we're all doing a great job, but we obviously focus 1st and foremost on the 2 biggest product categories that we have, and that is watches and that is jewelry.
Both of those categories in the Specialist Watchmakers and the Jewelry Maisons by segment have had a very strong retail performance throughout the year. Yes, there are ups and downs as we always have. They have something to do with the H2 previous year's comparables, etcetera, etcetera. I will not bore you with that even though you might not be bored. But we depend on the feel good factor that is very clear on our business as well.
Look at the stock exchange performance at the end of the last calendar year, look at the performance in the Q1 of this calendar year, there is a link, undeniably. There is a link with exchange rates. There is a link, obviously, with, let's say, political discussions between, I would say, power in the East and the power in the West. All these have an The strip also, you put all that aside, what remains is very strong positive performance in the retail channel and in the wholesale channel, meaning mainly the watch wholesale channel minus the self inflicted pain that we believe was necessary to qualitatively upgrade our wholesale distribution network. So we're extremely satisfied with the work that has been done and the results that we've achieved, so both in retail and in wholesale.
Thanks very much. Good morning. It's John Guy from MainFirst. Two questions, please. Jerome, if I could start with you and just follow on a little bit more on the online strategy.
I'm particularly interested in the JV with Net A Porter and Mr. Porter and Alibaba. You put out that small press release back in October last year. You said that the talks are progressing 7 months down the line. But I'm just trying to get an understanding of why we haven't seen a little bit more today on this.
It's a potentially very exciting JV. I mean, if we think about the 640 odd 1000000 registered users on Tmall, 14,000,000 or so on the Luxury Pavilion, If you can convert that even on a calendar 'seventeen average order or average selling price of just under EUR 670 and say 1% of that total registered base, that's over €4,000,000,000 in revenue. I'm trying to understand the opportunity here. So can you give us a little bit more around that in terms of timing? Have you got a CEO in place now for this business?
And where are we? That would be great. My second question is for Cyrille. Good morning, Cyrille. Just on Cartier, could you give us a little indication so far as to how the launch of Clash has gone?
It looks like you've had a very strong campaign around this accessible jewelry launch, which is only the first in about 10 years. What's the potential for the line? Is this €300,000,000 to €500,000,000 potential? And good to see that we have waiting lists at the moment for the at least for the blue dial Santos, I think 6 to 8 week waiting lists. Can you talk a little bit about how the watches offer has improved and where you're seeing some of the best results?
Thank you.
Okay. I will then answer to the first question. Thank you. Indeed, there's the Alibaba JV is obviously for us an exciting journey. And we are clearly aligned with the agenda that we fixed with Alibaba late last year.
Meaning what? Meaning, we are focusing on this fiscal year. You know that creating a JV, that's not creating just, a corporate organization that's organizing or that's creating a team. We speak from, I would say, a number of people. We finalize the top position.
We have recruited the, let me say, the CEO of that offer of JV, but we have another couple of high end position to recruit there. Of course, we have to create and to set up logistics with them. Of course, we have to create a technical element for that. That's new. There is no I would say, as such existing on Angola today.
And then that's also not only, I would say, a traditional dimension of our store, that's a wider extension. And now to open a pavilion shop or so called BFS, it takes you 9 months. So here, I would say, being capable between November and the chief carrier to achieve it, I would say that's a remarkable challenge and a remarkable operational challenge. But we're progressing well and we are very confident with the progression we do. We have also very much advanced in the onboarding of the middle because it's a multi brand distribution organization, Yucatan Topolte.
So that's a few 100 of medals that we are taking for the journey and for the trip. So the team of YOOX NET A PORTER is very active to do the purchase or to fix the volume of the year. You know that to be capable to sell this year, you have to organize the buying before. So it means you have to work with everything in Maisons to identify for everything in Maisons the proper inventory that you will be distributing there in China in that dimension. So yes, that's a big journey.
And here, we're very happy that we can leverage our Richemont as well as the structure because to create companies, building, logistic network, recruiting, I would say a lot of people. Here, we can say already that we leverage our local presence. And Alibro is an amazing organization and the work with them, I would say, is progressing very well. I will answer the other questions. So Clash is doing super well.
It's probably been a month ago and has been way beyond our expectations. So this of course has to be careful. If it's going too well, then we have production issues that we have to adjust later on and have to see also whether this cannibalize or not the rest. So far, we're extremely happy that we will see probably with 6 months or a year how it goes with the rest of the portfolio. The other launching we have done on watches in 3 years, repositioning the collection and doing super well.
Both on Panther continues to doing well and Santos doing well. The Santos for this year is very promising. It's just starting now to releasing now and so we already have some waiting list. Also we have revamped Benoit also doing super well. And the leather category, we started last autumn with Galant.
We're doing also super well and we are short everywhere. So these are positive signs. And the question also linked to the one that Francesca had, where can you get some leverage? As far as we can product lines that are successful and can be doable because they have been in the market and inflation about novelties that were not lasting. You can have solid can last over time, then you have leverage about your development cost.
As far as you can stay in the same production facility and same regional network, we don't expand our network, we'll benefit without expansion, then we can have a BN some leverage possibility provided that currencies that other economic factors and things and not put attention do not disturb that. But overall, as far as we can do that in midterm and as far as key clientele can be still in demand, like Chinese especially, which are the most promising clients of the future and there is a good expectations. Short term depends on whether we can build on top or whether it cannibalize and whether you can follow-up in the demand without problems. But so far, Clash is super positive, the fastest launch we ever had on kind of such a launch category.
Thank you very much.
Thank you, John. Luca?
Luca Soca at Bernstein. Two questions. The first one on Specialist Watchmakers. Your organic growth in Specialist Watchmakers, excluding last year's inventory buyback is 2%. And your operating margin is a fraction of what it used to be.
Why would investors be wrong accepting that you engage in a major cost restructuring program in order to right size quickly your cost profile to the reduced size of the business? Or is it correct to anticipate that the operating margin of this division is going to be structurally lower for years to come? The second question is on the online distributors. There was a lot of emphasis in your presentation about getting the technology and then the back office right as well as potentially integrating this business with the core business in watches and jewelry. But when I look at the overlap you currently have between specialists between watches and jewelry and the airline distributors, this is probably between 5% 10% of their sales.
What is the specific commercial goals that you have in order to develop as a stand alone business, the activity of YOOX NET A TOPE? Could there space be there for a conception business model on the side of the wholesale model that you have? And in general, why is the Head of Fuchs Netafonte not with you today to tell us about that? Thank you very much.
Good morning, Luca, and just congratulations on your new job, 1st and foremost. Thank you. First things first. Let me explore a bit further the Specialist Watchmakers. First, a bit of historical perspective when we talk about the margin structures and compared to historical comps.
I would say, if you refer to the high point about 4 years back in 2015, that is obviously before we have had an impact of the Swiss franc impact. And let's add another element of context that was built based on a wholesale business, which definitely had run its course very strongly up and had excesses in its business, which actually impacted the top line, but obviously, fed through the all the way down into the operating margin. Now that is nice to have, but you have to decide at one point in time in which structure you want to continue to run your business. We came to the conclusion, and we've gone through in the last few years and have explained at length for some of you probably ad nauseam that we were engaging in a phase by deploying a playbook in order to clean up our wholesale distribution from, let's say, business that we do not want to see playing out in the end on the gray market, which is linked to oversupply, which is linked to distribution, which is mainly playing out to unauthorized distribution, which is playing out online with high discounting. Logic has always been over the last few years, and it's painful to sit and have investor feedback for 3 years.
Say, well, R and D is drawing value, right, by buying over the period of 3 years, by buying back €500,000,000 in the watches. Yes, short term, that is the view. What is the long term view? The long term view for us has been all the way through this process that we care about long term brand equity because really long term brand equity will create value and create value over time. So that is that has been our mantra.
That is what we have applied 1st and foremost at Cartier, buybacks, shutdown of or optimize the distribution network and basically restrict or eliminate supply that might end up in the gray market. This plays out over 2 years, and then we have seen at Cartier that the market normalizes when the market is clean. We've seen that the first stage now, we've applied exactly the same book with the specialist wash makers. We've seen that. We have seen we've done significant efforts that obviously are not reflected today in the numbers, at least not visibly so.
I'll just give you a hint. If you look at last year's inventory buybacks that we did, which then physically flowed through our P and L this year, we've done roughly a similar amount of, shall we say, distribution optimization in the current year. When we decided to take these measures to make sure that there is no further product, let's say, availability in these gray market channels. So that will feed through. Once again, we expect if the same playbook applies with Cartier, in the same condition or set of conditions today, we would expect in the current year that the inventory equation normalizes.
We're happy with the level today. We monitor and we're happy with it. So if you take that as a context, I think if you look at just at the reported numbers, I think that the performance of these Specialist Watchmakers is underappreciated. Let me just dwell on that a bit. A, very positive double digit performance in our retail store network.
And I've said it before, I said it last year that the playbook is keep the cost base and grow your retail sales because we have installed the retail network already. We have a store count of 295 stores now. So the upfront investment has been done. Now this network will have to produce leverage. So double digit growth in the retail network.
Then you look at the cost base for the Specialist Watchmakers. There is no cost increase of the underlying cost base of the Specialist Watchmakers this year. And I tip my hat to my colleagues, to our colleagues in Specialist Watchmakers, Maisons, which have done a fantastic job on that one. No increase of the cost base, both on the communication side, both on the operating expense side. As a margin improvement, because also the retail business that we have had in the last year, not only have seen strong growth rates, it has also improved on a qualitative way by reducing discounts in our stores, etcetera, etcetera, so having a very healthy and positive relationship with our customers.
So I think in a context where if you strip out all that all the wholesale self imposed measures, you come to a very low single digit growth. You see a 300 basis point increase of the operating contribution. I think that's a very positive, shall we say, 2nd step in the journey, where we still expect going forward the operating contribution of these Maisons to improve over the midterm. Once again, we maintain the course and we benefit from the same positive, I would say, supportive environment in the markets. So that's what I think we needed to dwell a bit on Juan to also give justice to the performance that our colleagues produce.
All right. I will now answer to your first question on the second question on online distributors. I would just as I said, head to what your card said about the performance of the Specialist Watchmakers. That is also correlated with a very strict follow-up of the sellout at wholesale level that we are now monitoring over 90% within 30 to 45 days after each month of operation. But we can say again this year that our sell in is lower than our sell out in the wholesale network and that we have again significantly reduced the inventory level, this time without buyback at wholesale level.
So that's as well, I would say, for the future, a more aligned correlation between the sellout of our partners and the numbers that we have in our profit and loss. So a better guarantee probably for the future, if you are speaking from where do we go in the future with that activity. Now on Online Distributors. The first thing and it's interesting that there is a lot of opposition in appreciation between business model where we see more and more convergence. In somehow concession wholesale is probably a concept, I would say, which is, if not dated, I would say, at least speak from an age that is less and less relevant as we enter more and more through omnichannel and omnistock in more or in more fusional models.
YOOX NET A PORTER has launched their first initiative in omnichannel with a new era with a couple of new partners. The system rely on omni stock. Omni stocks means that you are selling the stocks that you have purchased, but also if you don't take this if you don't have the stock available either or that you can leverage the stock of your partner. Therefore, I would say there you don't have a traditional separation between are you in competition, are you in wholesale, are you in marketplace approach. And I do believe that in near future, it's more and more of these models that we'll see.
And the Alibaba JV will be also a source of innovation for sure in that dimension.
Thank you very much indeed. It would be great if you have the Capital Market Day on this digital business, which is so potentially exciting and that on which you're working quite
a lot and invested also quite a bit
of money. Thank you very much.
Thank you, Luca. Edouard?
Sorry, good morning. Edouard Rodin from Morgan Stanley. So just actually to sorry to follow-up, Gerald, on YNAP. So exactly what you said on the convergence in business model. So am I right?
And so basically, what you're saying is that we could have a situation where the platforms evolve in the 1P, 3P business model, I guess, similar to Amazon, so to speak. So am I right in thinking that you're very early days in terms of the on the inventory that you described, number 1? And just to follow-up on why not a question for Burkhard on the IT. What have you seen so far in terms of the rollout, the benefits of the IT platform at the OUTNET? And could it lead to a reacceleration of your growth for the division as a whole as you're going to roll it out to Mr.
Porter this year? So you mentioned that the growth was around low double digits, sorry, in fiscal 2019. Could we I know you don't like to give guidance, but could we go back to a scenario where the division goes back to high teens type of top line growth? And on the cost also, if you wouldn't mind, sorry, give us a little bit of color on in fiscal 2019 and then what should expand through the P and L on IT investment and also capitalizing the CapEx and what the phasing should be as you make further investment in fiscal 2020 2021, if you wouldn't mind? So that was my first question, sorry.
And just a small question for Nicolas because the problem he has is that he delivers so consistently that he never gets any question. The desirability of your brand is extremely high in China. If I'm right, I think you under indexed a little bit in China versus some of your peers. What if you could give us your plans in terms of your rollout in China, if they're going to be measured or if you're going to accelerate your growth? Would be curious to.
Thank you.
I can also let Nicolas answer the questions on the Online Distributors. Do you want to start, Nicolas? Or you want me? No, I mean, it's we're flexible. Ivo, let me just okay, on the Online Distributors.
So there were a couple of questions you asked. One is and you're pushing for granularity that I'm not 100% willing to give as you can imagine, but I'll try to help you. Because if I give you granularity on the online distributor cost base, then Cyrille will ask that he has the same okay, the OUTNET, we've spoken about it. Okay, the Outnet, we've spoken about it. The impact negative obviously was from the reduced fulfillment capabilities.
So obviously that a big techlogistics migration entails. And that's what has happened. I mean it's gone down and then it's come back very strongly after we have fixed the migration, these glitches on the tech side. So we've seen a very strong significant rebound, which also has something to do with customer retention or customer reacquisition. So that's why I think also the management chose to do it not as a big bang across the 4 or 5 businesses that YOOX NET A PORTER runs, but to start with one business.
We or they have made the necessary experiences, some positive in the Outnet migration, most of them impacting the customers, the customer services linked around that and the customer retention in the end. That's why sales obviously went down. Once it was fixed, and that's very encouraging, the sales came very strongly back and have normalized and reached growth rates that we are quite proud of or we should be quite proud of. Now we're now coming to the next step, which is the Mr. Porter migration.
There some of the learnings have flown in into the way we run the project. 1st and foremost, once again, not a big bang, switch on the new system, switch off the old system, do it both on the IT and in the logistics side at the same time, but do it step by step. So we've done the 1st switchover in a smaller European market, which has done very, very well. So the learnings have been applied and that seems to work out well. The major migration effort is going to be done, let's say, over the summer all the way up into the fall, and we expect that with a reasonable optimistic view to be successful.
All of this is done. And then based on that, we'll start working on the NAP in the second half of the year and the first half of next year. So that's more or less the playbook. Now we are quite optimistic, but that remains to be proven that growth rates will increase because once again, this has something to do with a technology offer that benefits customers in the mid- to long term. That's why we're going through that through this exercise.
And the platform that and the technology level that will come out of it is what we believe will further enhance a very strong and leading position that YOOX NET A PORTER has in the market. Now as to granularity as to tax spend, etcetera, we haven't touched on CapEx yet, but as I said, a big part of the CapEx increase compared to last year was driven by YOOX NET A PORTER. So we're a good EUR 300,000,000 above last year in CapEx. I would say 2 thirds of that was driven by YNAP. And when I say YNAP, it's tech and logistics CapEx.
So you get an idea of the dimension. I said before the acquisition, the YOOX management that is still around, as you can as you might see, is has guided on somewhere in the range of 8% to 12% of CapEx. So we're in the middle of that range. That's a significant effort that impacts through amortization or depreciation charges or P and L. Now we've talked about intangibles amortization in our press release, also in our presentation.
It's €165,000,000 This is here to stay for a while until the amortization periods run out. And you know how this is. There's different elements in intangible assets that in the 1st years give you a high level of amortization. And then over time, it significantly reduces. In this case, to give you a better idea, this is 11 month charge, €165,000,000 So you top it up to a yearly charge for 12 months.
You can do the math that will stay with us and will reduce probably over the next, well now, 9 years all the way to half of that amount. And then we'll drop after 10 years all the way down to 0. So there is a charge that is not a one time charge. As some of you or your colleagues have written, it's an intangibles amortization linked to the acquisition of those businesses. Now apart from that, what has happened at YNAB?
Marketing spend has increased. Linked to the Outnet, once again, I was talking about acquiring or reacquiring customers. So that has increased marketing spend that has happened. Tech spend, yes. Logistics spend, all linked to that.
And then once again, CapEx drives depreciation spend and that is being recycled or going through the P and L right now.
Thank you for your question and giving me the opportunity to say something and for your comments on the house. I think what we've been doing with Vans Peres and Apples in China is exactly what we've been doing historically with the rest of the world. So we didn't look at this market in a very specific way, although it might sound strange in our world. We believe that time and integrity and consistency were definitely the best elements we could bring. So we opened our 1st store in 2005.
It was a very, very small store in Beijing, China World with a partner. And since that, we have developed kind of consistency consistently or presence, but we've never developed any opportunistic approach. We never did specific collections. We never did specific communication campaigns. Of course, we use the tools that are available in China.
And then we try to interact with communities and with the local culture as much as we can, but really trying to explain the brand for what it is and not trying to adapt it to what we think the market is expecting. And after nearly 15 years, we have actually 15 stores now in China. So we've grown the network cautiously, but still steadily. We've seen the appreciation of the house really developing also very steadily. But because we brought exactly what we brought in Europe in other big, 20 century or in the U.
S. 50, 60 years ago, which is to try to develop an understanding and appreciation for what we are doing, for the patrimony, for the history, for the craftsmanship. And for a brand like Vontaze and Apple, this vision is working well or seems to be working well. So it's true that today we see and we feel quite a high appreciation and a real good understanding of the house. Once again, we've kept an exclusive network.
And today, we are much more investing in improving our presence, building our presence rather than developing and opening new stores and bringing to as many cities as we could. And actually, that first store that we opened in China World in 2005, we just opened a new one replacing, which is of a size which is pretty much the size of the store that we have in Place Vendome and with the same type of atmosphere and display that actually, I think, answers the expectations and the reaction that we see from Chinese customers today. So quite a journey, and we feel it's far from being over.
Patrick Schrenstein, I'm sorry, TechnoBank. First question, the Chinese luxury consumer demand was still very good last year. So what's your view on the current luxury consumption in China or also the Chinese tourists? 2nd question, my favorite question for Boracart since 9 years. Operating expense have increased plus 7%, excluding the Internet.
What's your best guess here for the current year? Thank you.
Thank you, Patrick.
So for the Chinese and Chinese consumption, it's very steady, growing quite well. And we don't see any sign that it would reduce. As you say, we have some different views on the part, which is from traveling Chinese, but this is much more linked to currencies and fluctuations. But the overall consumption domestic linked to luxury goods is increasing. And the support from the government for that has both made a reduction on duties, which is missing simpler and also have a serious impact also on the cost of operation in China and reduction of VAT and also really supporting the local consumption compared to overseas is really kind of fueling the growth.
So we see that as a really high double digit growth last year. It was double digit last year. And seeing in the recent months, since the change of VAT in April, we see stimulated as well. So we have very good perspective there for the time being. Chinese tourism?
So Chinese tourism is growing in number. And of course, then the purchasing power depends on the value of renminbi compared to the currencies, Hong Kong dollar, Korean won and Japanese yen. We had last year relative devaluation of renminbi, so we made pressure in Hong Kong. And since January, it's been re increasing, which is kind of reverting the trend. But numbers of Chinese traveling would soon be €150,000,000 to €200,000,000 dominantly in Asia and also going to the rest of the world.
And the appetite to buy even during trips is still there as far as the purchasing power is there. So that's then the hiccups like political tension with Korea and with restriction on Visa that can have impact and other things like natural disasters we're seeing that makes them a safety, I think, as a key concern. So again, same as currency, there might be some other kind of hiccups or concern that may have impact either on the destination or even on the attitudes towards travel. Okay. On
the expense side, Patrick, I understand you tried to guide me towards guidance, so which is, as you know, difficult to do. Predictions are the most difficult when they treat about the future, right? So but let me just, as a starting point, give you some guidance on not guidance, but some better understanding or granularity on what has happened in fiscal year 2019. So I would say, if you look at the expense based growth, and we talked about it and we've talked about it in the past, but if you go through an exercise, let's say budget exercise in our business or in our part of the industry, the budget exercise is more about cost containment than about cost cutting, right? Because the nature of our business, you look at it, is a fixed cost business.
We run close to 1100 stores around the world. If you look at a store, the cost base is more or less fixed. We have a few percentage points that are variable expenses, but I would say the overwhelming proportion of running a retail store is fixed cost. 50% of our cost base more or less is linked to staff costs, personnel expenses. And then the big elements following right after is obviously lease.
Lease with lease commitments, we're going to put starting this year. As you all know, we're going to show the IFRS 16 impact on our balance sheet. We're talking somewhere in the ballpark number of €3,000,000,000 capitalized lease commitments at the end of fiscal 2020 that we're going to show for the half year. So lease commitments or leases have a tendency to inflate as well. And then we have the next biggest category is the expenses that are linked to running a boutique.
So just to give a to give you a better understanding of the granularity of our cost base in general terms. Now where have the or what have been the elements that have driven our cost base higher last year? I would say it's 3 elements. Some of them are pointed out very clearly. I'd say most of them are pointed out very clearly in our presentation and also in the press release we published this morning.
It's 3 elements. It's an increased spend on in some areas of the business, I would point out the jewelry Maisons and I would point out the fashion accessories Maisons where we've increased our spend on the retail network. In fashion accessories, it was more about opening the stores, both internal and franchise stores. The Specialist Watchmakers, as I said, over cost base is flat, but they have opened stores, 11 stores internal and then I think 17 external franchise stores will also participate in the capital spend. And then on the jewelry results, it has been apart from 3 openings at Van Cleef, it has been a stable network, even slightly shrinking.
On the Cartier side where we have worked where the Cartier colleagues have worked on major projects upgrading the quality of it. So there increased, I would say, capital expenditure in the retail network. That's an obviously, as you know, that gets recycled through the P and L through the depreciation impact that, that generates. So that's the first element. 2nd element is A and P spend.
We have increased communication expenses at the Jewellery Maisons and at the Fashion and Accessory Maisons. Now if it's any relief, it's the spend has been budgeted higher and we throughout the year have managed to be below that budgeted level. Nevertheless, it has been an important increase compared to the previous year for the many good reasons that Amazons have. And the 3rd cost element is the tech spend. I've spoken about it for YNAB, but we have a big tech operation, which is more on the ERP side.
On our side, meaning the former Richemont Maisons side or we have actually continued investing because we're right now rolling SAP out in Mainland China. And as you can imagine, with close to 200 stores, that's quite a significant project that we have also undertaken this year. So these are the, I'd say, the 3 elements that have driven the cost base expansion. Just from a CFO perspective, I'm very happy with the work that all our colleagues did in the existing like for like network where costs have remained under very good control or cost increases remain under very good control. Because that's always a worry when you have a quite a big, even highly qualitative retail network that if your cost base consistently increases for an existing network.
So that's a big point of vigilance and that was under very good control.
Thank you. But as a best guess then, you should expect a similar increase or less for the current year? I mean, terms of more openings?
As a best guess, the cost growth ratio would be below the sales growth ratio.
Thank you, Patrick. So actually, we're running out of time. We've got a number of questions through the website, but so I'll pick 3 of them. Since you're on guidance, to speak, could you give some color, Burkhart, maybe on CapEx for fiscal year 2020 2021, please? And you want to know.
And I think the other two questions that maybe could be covered relates to Dunhill. Investors would like management to comment on Dunhill's performance and whether there's a possibility that it may breakeven and when. And the last point, I think, was more or less covered already by Derkat. She's going whether you can elaborate on how much more downside it was done as far as the watch multi brand retail stores are concerned? How much was done in terms of value, which you sort of alluded to?
And how much more is to be done in fiscal year 2020? And I think it will it will complete the Q and A session. It's been quite long.
Okay. Let's go for the CapEx because that is the element that will remain longer in our books. So we've and I'll be consistent with what we've said last year. Once again, a bit of color. We've had when we were running through, I would say, investment cycle on the Specialist Watchmakers side and on the Drury Mislain side, mainly Cartier, when we're running through an investment cycle on the manufacturing side.
We have had for some years, I would say all the way up to 2015, CapEx at about at a maximum of about 7% on sales. This has now, I would say, normalized on the Maisons side. Last year, we were at a level of 4.4% of sales, which I think personally is would be the low end. I'm much more, let's say, comfortable at about a 5% CapEx spend on sales for the Maisons. And why am I saying that comfortable?
Because when you run a store network and you want to offer the customer experience, then you have to have stores that are not only well built and proper, but that offer the customer experience that the customers are looking for in a very competitive world, to be honest. And what we're looking there is we're playing around it's a bit flippant to say that, but we're playing around on different results on, I would say, novel approaches to be more nimble, more flexible in the CapEx we spend so that you could or can much quicker adapt your boutique environment with less additional spend to more flexible setups, put it that way. So from a financial perspective, I'm quite happy with the 5% CapEx spend for the Maisons. On the YNAP, Watchfinder, online distributor side, being a tech business, CapEx spend tends to be higher in peers of intense work around replatforming. So as I said, we're around about a 10% last year.
I think we should stay at that level for a while, probably 2 to 3 years into the future. And then if we do think well, that should start to level off or decline as a percentage of sales. So that all would still sit comfortably in the 5% to 7% range on the overall group sales that I have quoted before. This fiscal year 2019, we've ended at 5.9% on sales, which sits more or less smack in the middle of that range.
I will first address the points relative to Danil. You all remember that Danil 3 to 2 years ago I think through a massive restructuring plan. The plan was about closing countries and closing retail activities. We engaged a new team roughly 18 months ago to 2 years at Dunhill led by a real expert of that activity, Randhrou Bach. Randhrou has been rebuilding a complete team.
Firstly, a complete creative team with Marquis being capable to define very attractive collections, particularly in the ready to wear, where we see already very good results. In that, what we call Phase 2 after restructuring, the name of the game for us is like for like growth. And it was what was written on the road map of Endo to demonstrate that the company was capable to recreate like for like growth. And we can say for the last 12 months, consecutively, the company has been enduring like for like growth, which is, as we know in our industry, I'd say always, I would say a tough challenge, particularly after a big restructuring time. So that's where we are with the new.
And their historical territory of Japan, U. K. Are expanding. It's also the case now in China. So that's indeed promising news.
When it comes to our playbook or Honda for the Specialist Multimeter, that was the other part of the question. We use I would say with the management team or that word of roadmap of playbook because somehow specialist watchmakers are following the road map in the playbook that Cartier a few years ago took when it came to cleaning the market, focusing on iconic product and recreating desire and demand and also building the future. So I would say that when it comes to qualitative improvement of the network, I would say we come to slowly to the end of that process. The agenda with our partner in Wholesale is more about partnership and is more about how we can bring together the Maisons in best conditions. Lequette mentioned that we opened external boutiques, so called franchisees.
So last year, roughly 21st franchise boutiques were opened, which is a good underlining demonstration of the effort and the positive results of this new partnership because when you open a franchisee, by definition, you have to be 2. So you have to be equally believing in what you are doing, believing in the middle future and believing in our capability of our partner to build the future. And we're very happy now that we could turn the user 2 first pages and then we can concentrate on developing a positive momentum along with this partnership. Let me finish on a positive note in that aspect. It is that and Cyrille commented a bit about the Chinese clientele, But the other very positive factors this year for the watch were the comeback of growth in local clientele.
So which is as well for in what we believe when we speak from sustainability of business model very, very important. And it explains as well why this capability of opening your franchisee and creating a new partnership, I would say, is built on new blocks, not only the very attractive impact that our collection can have on tourist clientele and any one in particular, but also now, obviously, on solid demand. And it's very correlated as well to the effort done by the lesiones in shaping collections that are relevant on a global level and in particular from a local perspective. Thank you. Thank
you, Jerome. So this concludes our results presentation. Many thanks for your time. And for the ones who kindly came, refreshments are waiting for your step. Thank you.
Thank
you very much.
Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call and thank you for participating in the conference. You may now disconnect your lines. Goodbye.