Ladies and gentlemen, good morning. Welcome to the Compagnie Financière Richemont fiscal year 2016 interim results presentation. I'm Dino, the Chorus Call operator. I would like to remind you that all participants will be in listen-only mode, and the conference is being recorded. After the presentation, there will be a Q&A session. You can register for questions at any time by pressing star and one on your telephone. Should you need assistance, please press star and zero to call an operator. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Gary Saage, Richemont Chief Financial Officer, and Sophie Cagnard, Head of Investor Relations. Please go ahead.
Thank you, Dino. Good morning. Welcome, everyone. Gary Saage, Richemont Chief Financial Officer, and I would like to thank you for joining the audio webcast today to review Richemont's first half year results for the year ending March 2016. I would like to remind you that the press release and financial presentation are available for you to download at richemont.com, and also that the audio archive of this webcast will be available today on our website at 1:00 P.M. Geneva time. Before we begin, I would like to draw your attention to the disclaimer on our presentation and press release regarding forward-looking statements as defined in the United States Private Securities Litigation Reform Act of 1995. Gary Saage will first give you some results highlights before reviewing Richemont operations. I will present the Maison's main developments before handing back to Gary for a financial review and conclusion.
This will then be followed by the Q&A session. The presentation will now begin, I'll hand you over to Gary.
Thank you, Sophie. Good morning, everyone. Thank you for joining us this morning. A particular thank you to all of our Richemont colleagues who are also listening on the call. I think Richemont reported a good set of results for this interim period. Group sales grew by 15%, or 3% on a constant currency basis. Remember, this number excludes the Net-a-Porter business, which is reported on a net basis as discontinued operations within our financial statements. The highlights of the past six months have been the performance of our fully owned stores and the jewelry category generally. Retail sales were strong, including in mainland China, growing overall at 13% at constant currencies. They were particularly good in Japan and Europe, offsetting the continuing negative environment in Hong Kong and Macau, as well as the subdued demand in Americas and the Middle East, as we will see in a minute.
Operating profit rose by 6% to EUR 1.39 billion, driven by a favorable euro, the strong performance of the Maison's boutiques, and good administrative cost control. This is in light of the underperformance of our largest region and the strength of the Swiss franc. The operating margin was approximately 24% of sales. Net profit was lifted by lower hedging losses and rose by 22% to EUR 1.1 billion. Inventories were well controlled, and cash flow from operations was solid at EUR 1.055 billion. Let's now start with the review of sales by regions at constant currencies. Remember, the numbers that you're going to see exclude Net-a-Porter in both periods. First, let's look at our sales in Europe. Europe enjoyed a sharp 24% increase in organic sales across most of our Maisons.
Performance was driven by an increased number of tourists attracted by a lower euro, notwithstanding the price increases implemented in the region. Growth was also fueled by locals. Nine internal stores were opened during the period. Growth was all the more organic as the reopening of the Cartier flagship on Champs-Élysées in Paris at the end of May only partially impacted sales. Let's now turn to Asia-Pacific, which now accounts for 34% of group sales. Sales declined by 17%, predominantly impacted by Hong Kong and Macau, which together account for approximately 15% of group sales. In those two markets, the decline was particularly significant in the watch category and in the wholesale channel. Other regions enjoyed positive developments, in particular mainland China, which in total turned mildly positive. Thailand and Australia grew by strong double digits, benefiting from purchases made by mainland Chinese tourists.
Particularly noteworthy in the region was high jewelry, which achieved double-digit growth in sales at constant exchange rates. Let's now turn to the Americas region. Growth softened to 1% at constant currencies. Given the strength of the US dollar, the region experienced fewer tourists from Europe and Asia, even though the U.S. is primarily driven by domestic tourism. Watches as a product category were slow, while jewelry enjoyed a strong performance at all price points. Chloé and Peter Millar once again continued to record outstanding growth. Let's now move on to Japan, which represents 9% of group sales. Sales increased by 44%, helped by an easy base of comparison and a weak yen. Price increases were well-absorbed, and the performance was not materially affected by the temporary closure for renovation of the Cartier Ginza flagship. Growth was driven both by locals and tourism.
Among the tourist clientele, Mainland China were predominant. Watches and jewelry did particularly well. Within jewelry, it is worth noting that high jewelry enjoyed strong growth, which is a new phenomenon in Japan. The Middle East and Africa, where growth was softer at +4%, impacted by tough comparables and strong currencies, hence lower tourism. The region was also impacted by a politically unstable environment and a number of high jewelry sales that were done in Europe rather than at home. Let's now look at sales by network. Retail saw sales rise by 13% organically compared to wholesale sales that declined by 6%. Wholesale was particularly affected by Asia-Pacific and the Americas. The outperformance of retail explains why its contribution to sales increased by 500 basis points to 54% of group sales versus 49% in the prior period.
Despite the temporary closures of two Cartier flagships and a difficult situation in Hong Kong and Macau, retail sales were underpinned by the net opening of 26 internal stores and good performances in the rest of the world, principally Japan, Europe, Mainland China, Korea, and Australia. Finally, on the sales breakdown by main product line, watches continued to be negatively impacted by lower consumption in Hong Kong and Macau primarily, and to a lower extent, also in America. Watch sales were down mid-single digits. In our fully owned stores, however, sales of watches grew. Jewelry, particularly high jewelry, continued to enjoy a stellar performance. Cartier, Van Cleef & Arpels, and Piaget all did extremely well. Leather and clothing recorded double-digit growth, thanks to renewed creativity at Chloé, Montblanc, and Peter Millar. Let's now look at our Maison highlights before Sophie goes through the details.
Overall, the performance of our Maisons reflected their creativity and their geographic exposure. In the jewelry segment, profitability remained at a high level. The specialist watchmakers faced a challenge presented by the sharp appreciation of the Swiss franc and registered a lower operating contribution margin of 23%. Other Maisons that include Montblanc and the fashion Maisons, but now exclude the Net-a-Porter Group, reported a 17% sales growth. Results continued to be affected by the underperformance of Alfred Dunhill and Lancel, as we will see shortly. Over to you, Sophie.
Thank you, Gary. We will start with the Jewelry Maison, which posted an excellent performance. We stayed up by 6% at constant currencies and by 18% at actual rates. Jewelry drove the growth, in particular high jewelry, where Cartier and Van Cleef & Arpels are clear leaders. Watches were positive in retail, but remained challenging in wholesale in Hong Kong, Macau, and Americas, and weighed on the overall watch performance. The anticipated subactivity and strength of the Swiss franc impacted the operating margin, which was reduced by 160 basis points to 30.7% of sales, while the operating contribution rose by 13% to EUR 1.1 billion. Let's look at the main product developments over the past six months. We will start with Cartier, which continued to record very strong jewelry sales driven by the Étourdissant High Jewelry Collection, which generated substantial sales within months of its launch.
A second high jewelry event recently took place to display the rest of this collection, and the results are again promising. Jewelry sales also enjoy strong momentum sustained by the new Amulette, Juste un Clou, Love, and Panthère collections. While Cartier watches saw further slowdown in wholesale, organic sales were up in retail. La Clé de Cartier in precious materials met good initial response, and we expect more impact from the gold and steel version, which was introduced this September and is supported by a worldwide advertising campaign. Jewelry boosted retail sales in Japan and Europe, which were also fueled by weak euro and the successful absorption of price adjustments. Retail more than offset a weak wholesale in Hong Kong and Macau. Worth noting is the marked sales increase in China, as Gary mentioned earlier, across channels and product lines.
At the end of May, Cartier reopened its flagship store on the Champs-Élysées in Paris, while the New York Maison and the Ginza flagships are being renovated. Overall, the retail network was largely stable. To meet demand in jewelry, Cartier is further increasing capacity with a recently opened workshop at Le Locle in Switzerland. Van Cleef & Arpels. The Maison reported substantial sales growth across all its product lines and most geographies. Worth noting is a successful launch of the Seven Seas high jewelry collection and rejuvenated Cadenas watch line. The Perlée and Alhambra collections continued to perform very well thanks to new references. Van Cleef & Arpels further improved its retail network by relocating its Cannes boutique to La Croisette and opening a boutique at Daimaru in Shanghai and The Avenues Mall in Kuwait City. Let's turn to our specialist watchmakers.
The Maison showed mixed results depending on the exposure to Hong Kong and Macau and the product positioning. Overall, the good increase in reported sales, thanks to weak euro, helped mitigate the organic slowdown. Margin-wise, the strength of the Swiss franc following the removal of a peg versus the euro on 15th January 2015, and the underutilization of certain manufacturing sites led to 13% decrease in operating contribution. The operating contribution margin now sits at 23% of specialist watchmaker sales. Move on to Piaget, which continued to enjoy good growth in both high jewelry and jewelry. In particular, Piaget launched two high jewelry collections called the Mediterranean Garden and Secrets & Lights. It also introduced a redesigned Possession Joaillerie line. Watches, on the other hand, were affected by trading conditions in Hong Kong and Macau and the metal focus on precious materials.
Late September, Piaget launched the Altiplano Chronograph worldwide. We're pleased to say that this watch received the Chronograph Award at the Grand Prix d'Horlogerie de Genève in October. Piaget also just launched its first automatic ladies' watch in Asia, the Limelight Stella, which was very well-received by the trade and the public. Vacheron Constantin. Europe, Middle East, and Japan enjoyed a good organic growth, nearly compensating for slow momentum in parts of Asia-Pacific and America. Sales have been supported by the 260th anniversary collection Harmony, high-end pieces, and the bestseller Patrimony. The latter part of the year will be supported by marketing events and further visuals on the new advertising campaign celebrating the 260th anniversary of the Maison. Turn to A. Lange & Söhne, which faced strong demand in higher-end watches, in particular with complications such as the 1815 Tourbillon or Zeitwerk minute repeater.
Worth noting is the visibility gain in Germany by the inauguration of extended manufacturing site by Chancellor Merkel at the end of August, and the launch of the rejuvenated Lange 1. Roger Dubuis, whose performance has been impacted by strong exposure to Hong Kong and Macau, where wholesale has been particularly weak. Having said that, the first half saw the confirmation of Excalibur as the number one collection for the Maison, and also the increasing appeal of Roger Dubuis towards women, notably via the Velvet ladies collection. The first deliveries of Hommage minute repeater took place recently, and new references such as the Excalibur 42 thematic, introduced in September, should help the rest of the year. At Jaeger-LeCoultre, it is worth highlighting the fact that the classic round shapes like the Master collection, high complication offer, and the feminine line Rendez-Vous have continued to gain traction.
The new point of sales concept continues to be rolled out. The London Old Bond Street store and Tourneau Corner in Bryant Park, New York City, are the latest points of sales featuring Jaeger-LeCoultre's new architectural codes. Now let's look at IWC. In a tough environment, IWC managed to generate a good level of organic growth. The new Portugieser line was successfully introduced, while the Portofino line continued on a high note. 9 stores were opened during this first half, notably in Shanghai, Korea, and Paris at the Galeries Lafayette. Officine Panerai benefited from a well-balanced geographic split, a low dependence on the mainland Chinese clientele, and well-received launches. The Luminor 1950 Equation of Time, the Radiomir 1940, and Mare Nostrum 52 millimeter, to name just a few. In June, Officine Panerai first e-commerce site in the U.S. was launched and is off to a good start.
Finally, Baume & Mercier. The Maison benefited from a strong foothold in Europe and from the relaunch of the Classima, which was particularly well-received. Now let's look at other. Improving results at Montblanc, Chloé, and Peter Millar offsetting deterioration at Alfred Dunhill and Lancel led to losses being reduced to EUR 11 million. At Montblanc, one-off costs from integrations were completed this year. Product offer and growth margins improvement, as well as the strict cost management, are now being reflected in the operating results. We start with Montblanc, which enjoys good organic growth in sales. The leather division, boosted by the new Sfumato and Nightflight collections, has emerged as Montblanc's strongest growth driver, followed by the watch category.
In watches, the new Star Roman and StarWalker Urban Speed, featuring a connected band, generated a significant buzz among the press. Writing instruments showed good resilience given the tough comparables after the introduction of the Meisterstück 90 Years Edition last year. The launch this September of the Montblanc M writing instrument, designed by Marc Newson, should support future growth. Retail was strong, helped by 8 net internal store openings, the strong performance of a Korean subsidiary, and outstanding e-commerce sales. The wholesale business recorded a modest organic growth overall. Let's move on to Chloé. Chloé performed remarkably well, driven by all product categories, channels, and regions. Leather was the strongest engine of growth, sustained by the Drew bag, but also by the growing success of the recently launched Faye and the very recently introduced Hudson bag. Turning now to Alfred Dunhill, where sales in Western markets and Japan continue to grow.
However, this good organic growth is not enough to compensate for the deterioration in Asia Pacific, where over 50% of Alfred Dunhill sales are generated. Overall, the menswear business is down organically, while leather is in line. Finally, Lancel. The predominance of a French clientele, coupled with an ongoing downsizing of the wholesale network in France, heavily weighed on Lancel sales. With a new management team in place for over a year now, Lancel has completed the repositioning of its collections. The new, completely rejuvenated offer is starting to appeal to both the French and a growing number of tourists. This includes Charlie, Lancel's best-selling bag collection, and 2 new collections, Pop for travel and Graphic for men. The new retail concept is being gradually deployed and should become a key growth driver, as evidenced by the performance of the renovated Saint Germain and Galeries Lafayette Haussmann stores in Paris.
This concludes the review of Maison. I now hand over to Gary.
Thank you, Sophie. Let's now get into the financial review. First, we will look at operating profits. Reported operating profit is up by 6% to EUR 1,390 million, sustained by higher gross profits and administrative expenses under control. This is a positive result in light of the Swiss franc strength and low organic growth. Operating margin proved to be resilient, represented approximately 24% of group sales. Let's now look at the gross margin and expenses in more detail. The 13% increase in gross profit led to a gross margin of 65%. The 100-basis-point reduction in the gross margin results from a mix of positive and negative factors. On the positive side, a weak euro and increased share of retail. These positive developments were mitigated, however, by higher Swiss franc cost in euros and a lower capacity utilization. Currency impacts on margin for the period were 30 basis points negative.
Let's look at our operating expenses in some detail. Net operating expenses grew by 18% to 41% of sales. The rate of increase reflects primarily the Swiss franc appreciation. At constant currencies, net operating expenses excluding communication, grew by 9%. Let's look at the expense categories in detail. Selling and distribution expenses, which represents 60% of our total operating expenses, rose the fastest. On a constant rate basis, selling and distribution expenses rose by 10%. Of this 10% constant currency growth, non-boutique costs were limited to a rise of only 2% in constant terms. Retail increases related primarily to increased depreciation in rentals as well as to other variable expenses. Communication costs rose by 7% and represented approximately 8% of sales. Administration expenses grew by 13%, or 2% on a constant rate basis.
Admittedly, the phasing of expenses towards the second half of the year kept this category close to flat for the first half. Let's look at some details on financed income, which turned positive this half year. Compared to the prior period, our mark-to-market adjustments were limited to a charge of EUR 8 million on our hedging program, compared with a EUR 239 million charge in the prior period. This explains the majority of the movement between the periods. Non-cash income, which does not affect equity, amounted to EUR 85 million for the period. As a result, net finance income turned positive and amounted to EUR 76 million. Let's move to the rest of the P&L items below operating profit. Profit from continuing operations for the year rose by 30% to EUR 1.2 billion, thanks to an increased operating profit and a reversal in finance cost, as we have just seen.
Our taxation charge increased to EUR 270 million. This largely reflects the performance for the half year in higher tax jurisdictions such as Japan and France. We continue to forecast our underlying tax rates to be in the range of 18%-20% for fiscal 2016. I would now like to focus on our cash flow from operations. Cash flow from operations rose to EUR 1,055 million. The improvement reflects a good management of inventory, which translated into lower increases in working capital needs. Receivables remain healthy with more than 97% of the portfolio being current. We incurred EUR 40 million in outflows related to the cash settlement of derivative contracts, compared with a EUR 13 million inflow in the prior year. The two large movements for the period relate to normal seasonal build of receivables, as well as the settlement of all incentive obligations related to the Net-a-Porter business.
Let's take a look at our capital expenditure. Gross capital expenditure rose by 8% to EUR 282 million, to approximate 5% of group sales. The half year saw the continuation of our investment program in our manufacturing and distribution networks. Fiscal 2016 should mark the end of our elevated manufacturing spend. For fiscal 2016 as a whole, we expect cash outflow of approximately EUR 800 million. Let's look at the nature of our investments made during the past six months. 45% of the gross expenditure related to point-of-sale investments, including internal and external boutiques and wholesale point-of-sale environments. 26 net internal stores were opened. The most notable projects for the half year included Van Cleef & Arpels in Tokyo Ginza and Rome, as well as the extension and renovation of its flagship on Place Vendôme in Paris.
Montblanc introduced a new concept store in Taipei 101 and also opened up a new flagship in Hamburg. The ongoing renovation of the Cartier flagships on New York Fifth Avenue and Tokyo Ginza continue. 17% of our spend related to manufacturing investments. The most important investments included the recently completed Lange manufacturing extension in Saxony, Vacheron Constantin's manufacturing extension in Geneva, and the new Cartier workshop at Le Locle to cope with increased demand. Other investments accounting for the remaining 38% included our Meyrin project, which is a multipurpose project. The campus will house the manufacturing for movement components, dials, cases, a research and development platform, as well as administrative offices for a number of our Maisons. This project should be completed in early 2016. CapEx in other also included ongoing IT, logistics, and related projects. Let's now discuss free cash flow.
Cash flow from operations financed our significant investment program, as you have just seen. Free cash inflow amounted to EUR 516 million, a EUR 119 million increase over the prior period. This primarily reflects higher cash flow from operations and lower tax payments, primarily due to timing. Let's now look at our balance sheet. The group continues to enjoy a very strong balance sheet. Equity accounts for 74% of the total. Net cash and investments amounted to EUR 4.7 billion compared to EUR 4.3 billion at September 2014. Richemont's net cash position includes short-term liquid bond funds as well as cash equivalents, and all borrowings. Liquid funds and cash balances were primarily denominated in euros, Swiss francs, and US dollars. As you can see, our overall financial position and cash reserves have not been negatively affected by the devaluation of the euro against the Swiss franc. Now some color on October sales.
October sales declined by 1% on a reported basis and by 6% on a constant basis. Hong Kong and Macau continues to suffer from poor trading conditions, while the Americas was negative for the month. Retail and jewelry, however, continued to outperform, and watches in wholesale continued to suffer from a challenging environment. Let me now describe in more detail the Net-a-Porter transaction will affect the second half of the year. In March, we announced the merger of Net-a-Porter with Yoox. This 50/50 transaction on a fully diluted basis was completed on October 5th. Remember that while we own 50% of the new Yoox Net-a-Porter Group, our voting rights are limited to 25%. The gain that we will record of approximately €620 million will be recorded as part of discontinued operations in the second half of the year.
As a result, the net income from discontinued operations is estimated at €530 million for the full year to 31st March 2016. This investment in the future, for which our basis will be €1.1 billion, will be recorded under associates in Richemont's balance sheet. Let me wrap up the financial review with some concluding comments. We think the volatility from external risks and foreign exchange movements will likely continue to be part of the challenges we face. We will continue our long-term strategy in the face of these challenges by investing continuously in all of our Maisons to develop organic growth. We will continue to focus on our jewelry category at Cartier, Van Cleef, and Piaget, while also completing our significant investments in the watch category next year. As always, our strong balance sheet allows us to think and act with the long term in mind.
Thank you for your attention. Now Sophie and I'm sure, will take a few questions that you all might have.
Unusual, Gary.
We will now begin the question-and-answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. You will hear a tone to confirm that you've entered the queue. If you wish to remove yourself from the question queue, you may then press star and two. Participants are requested to use only handsets while asking a question. Anyone who has a question may press star and one at this time. First question is from Mr. Luca Solca, Exane BNP Paribas. Please go ahead.
Yes, good morning.
Hi, Luca. How are you?
Hi, Luca.
I'm very well. How are you?
Good. Fine.
Good. I was wondering about the watches trends you're observing. Clearly, the watches business seems to be the one most under pressure. I think you referenced the geographic presence of different brands. Other than the geographic layout of their networks and their exposure to Hong Kong and Macau, are there any other meaningful trends that you observe in terms of differences by brand or differences by price point or differences by metal, for example, precious metals and so on? Second question on the retail and wholesale different dynamic.
Are you comparing apples to apples is the simple question. Are you seeing retail to be strong in areas where wholesale is weak? We know that retail is significantly more exposed to jewelry, so I wonder about your watches retail activity and what you could potentially infer from it. Last but not least, a rather delicate question. Will we see the change of CEOs at Cartier? I wonder if you could tell us a couple of words, and especially the fact that this has nothing to do with the current trading conditions. Thank you.
Luca, a lot of questions there. I think maybe just to start, some of the headline numbers are not great, right? We admit that. October, not good at all. Retail for the month was actually flat. We tend to look through that because we don't really focus on numbers that we give you on a monthly basis, but we tend to look at the trend. If you remember this time last year when we spoke, Hong Kong was just starting to get really difficult. Admittedly, it was a challenge that we had to face, and we hadn't faced something like that before. This time around, it's really quite interesting because, yes, Hong Kong is still extremely difficult, particularly on the watch side and in retail in general. Macau, the same. We're all aware of that.
I think if you look at the retail business overall for us, the retail business grew not only for jewelry but for watches as well in total. That's interesting. Knowing that Hong Kong and Macau are extremely difficult, our retail business, both watches and jewelry, are growing. The other interesting piece of news, if you will, is we finally returned to growth in mainland China. It's been a long time coming. We've made many mistakes in calling the bottom before. Mainland China in total grew by 1%. Clearly within that, which you see throughout all of our numbers, our own retail grew significantly, watches and jewelry. Wholesale was significantly affected. I think in general, and Mr. Rupert said it in his comments, the wholesale continues to be extremely challenging. When is it going to get better? We have no idea.
We take comfort in that our retail networks for both watches and jewelry are performing. In terms of, I understand the question, Luca, and it's a good question of, is it apples to apples? You're being very elegant in saying that way. I can tell you that the underlying retail business is strong, and it's not just new stores.
When you say it's flat for October, it's at constant currency?
Constant currencies. Flat at constant currencies. On the question of the Cartier CEO, first let me say I'm sad. Stanislas has been a colleague and a good friend for many years. It was his decision to step down entirely. I think the press release is pretty clear. On the other hand, maybe not necessarily known to the public world, but Cyrille Vigneron has worked for the company for a long time. He was actually one of the first people that I met in Europe when I started in Cartier in 1988. He's a good manager, he's a good professional, and he's a good guy. That's all I'd like to say on that.
Thank you very much indeed, Gary.
Sure.
Next question from Mr. Thomas Chauvet, Citigroup. Please go ahead.
Good morning, Gary and Sophie. Thanks for taking my question. I have three questions, please. The first one, I understand October flat in retail. It seemed, however, that the trend in the summer, at least that was my impression, had been actually pretty good in retail. Can you just explain what happened in September and October in the retail channel to go to flat? Has the slowdown in Europe and Japan you're referring to in the press release been driven by weaker travel flows, perhaps, or perhaps a further slowdown in the European local demand? What happened in the U.S. as well? It looks this market is getting perhaps a little bit worse. Secondly, on the cost side, in May, you gave us a guidance for OpEx growth of admin selling and distribution expenses as always in constant FX and for A&P as a % of sales.
In light of the challenging environment you're expecting, can you update us on this guidance for the rest of the year and whether you've taken any particular action on either the manufacturing side of things or OpEx to mitigate that? What would be your best guess of gross margin in the full year at constant FX? Is it still 65%? Finally, any update on the search-
Thomas, leave some questions for others, will you? Geez.
Just-
Gary, questions
a very final one, sorry, on Net-a-Porter or Yoox Net-a-Porter. Any update on the search for a serious partner to buy part of your 50% stake in Yoox, and therefore create the truly independent online platform Mr. Rupert is hoping for? Thank you.
Okay. I hope I wrote all this down, Thomas. You know what I always say, Thomas, the numbers are the numbers, okay? I could certainly say maybe retail was affected in September by the non-recurrence of the Biennale. I could say maybe it's high jewelry. Frankly, there's nothing really to tie to, I have to say. Again, the retail, if you look through October year to date, is really quite strong, right? That's what we focus on. I will say that Europe was strong. We know that. We know it was currency related. Certainly, we saw, and the data shows us this, that we saw many more American customers in the summer buying, and buying at fairly elevated levels. I think if you talk to the President of Cartier in the U.S., Mercedes Abramo, she's pretty grumpy about this, right? Because usually she has a good fall.
I don't think we can read into September or October exclusively. The retail is performing. As I said to Luca, it's performing in watches as well. Knowing that Hong Kong and Macau are difficult, right? In a way, I won't say we're relaxed, but we're certainly more in a comfortable place this year than we were from an understanding point in last September. Having said that, I think, and my phone will probably explode in a second from Mr. Rupert, but I think the gross margin of 65% is still a number to work with. I think from an S&D standpoint on constant, we're probably looking at nine. I think the differential relates mostly to an increase in variable expenses. I think admin, we said five in May. I still think it's five.
In terms of Net-a-Porter, Yoox Net-a-Porter, remember, Thomas, the first thing that's going to happen is an overall capital increase. That's more a question related to Federico, Enrico, and Silvia. I haven't even attended a board meeting yet, so let's see.
Thank you.
Next question from Mr. Antoine Belge, HSBC. Please go ahead.
Hi, good morning.
Hi, Antoine.
Yes, Antoine. Three questions, if I may. First of all, I'd like to follow up on the wholesale question. It reminds me a bit like after 2008, 2009, what you did in the U.S., you cut your wholesale presence by 40%. Isn't the same thing happening today in Hong Kong? In a way that part of the wholesale decline is actually driven by yourselves and one year or two years from now will emerge having mostly retail exposure for you guys in the region. Is that a fair assumption? My second question is actually on the way you look at your production. You said you, I'm quoting you, "We're pretty relaxed and are better from an understanding point of view." So how are you actually planning the production for the second half? What could be the impact on the gross margins?
Actually, if you could start with the gross margin impact from new production in the first half, then telling us how it could evolve in the second half. Finally, looking at your jewelry category, obviously very strong, and I think it's a bit hard sometimes to understand the strength of that business, especially in Asia. Any sort of color you could give on the consumer appetite, maybe from Chinese, which maybe are discovering foreign brands or any sort of marketing study you've done on that very interesting category. Thank you.
Okay, Antoine. I think on the wholesale watch question, we certainly are not thinking like 2008 or whatever year you picked. We think the distribution network is healthy. We always believe that the wholesale channel is there in the watches and will continue to be there. We're not thinking of changing the network. I do think that some of the Asian dealers are under stress. Any decisions made is more related to them than us, if I can say it that way. In terms of the production, I'll say what I always say, Antoine. I'm pretty brave to come out and give you a number. I think the assumptions that we made to start the year in terms of under capacity in Cartier eyewear, some in Piaget, are still there. We're happy with the 65%.
I think the best part of our results for the first six months is the cash flow. The headline number was EUR 1.055 billion. Remember, we have to record the settlement of the Net-a-Porter liabilities within operating flow, which, okay, we had to do it, and it was there. That was GBP 230 million. If you really think about it, our operating cash flow was 30% higher than we reported. Why? Because the cash build on inventories in the first half was zero. As always, the people in the brands, they can see the demand through their retail channels. They're very disciplined. Inventories are fine. In theory, if inventories are fine, then there's no other untoward things coming in gross margin as of today. Jewelry, first of all, the high-end is extremely buoyant.
We made that Van Cleef a few years ago, the stone plan. We increased significantly our inventories last year. That's really paying off. Nothing more to say. We have very creative people. The jewelers, the designers. They're real artisans, and they design pieces that people love. The underlying collections at the lower level are working well. If you take Cartier, the Amulette collection and the Juste un Clou collection are really something and becoming something. Certainly, we are continuing to see an appetite for high jewelry from Asia. We started to see that last year. We said it was a relatively new phenomenon at the time. That continues. I think all of those things. We still believe that the branded jewelry market is taking share. The latest study I saw was it's now up to 16%. We continue to believe in that direction.
I really think if you really look at our cash flow of EUR 1.3 billion, we really need to provide some more oxygen, I think, to the jewelry brands in particular for further inventory development in the future.
Many thanks. Just a little joke, you are going to have a lot of questions from my colleagues on the use of that cash flow.
That's right. That's okay. Listen, it wouldn't be an analyst presentation unless I had to deal with that. That's okay.
Thank you.
Okay.
Next question from Ms. Mélanie Flouquet, JP Morgan. Please go ahead.
Yes. Good morning, Gary and Sophie.
Hi, Mélanie. How are you doing?
I'm very well, thank you. I have a lot of questions, I'm afraid. Let me try to keep them short.
Okay.
Number one, can I get a clarification when you mention September and October flat, is it on retail, or did I misunderstand that?
You misunderstood, Mélanie.
Okay.
I said on a constant currency basis in October, retail was flat.
It had already decelerated in September compared to the plus 13%?
No.
Okay.
No.
It's a new event. Where did it decelerate markedly like this in October by geography?
I think the U.S. was weak. Again, is some of it a function of the Americans bought in Europe during the summer? They believe that. Let's see.
Actually, my next question is on Americas. Even if I take aside what has been happening in the summer, and that there may have been a shift towards Europe of the spend, year to date, it's not been a particularly strong market. Can you explain what you think is happening in the U.S.? Because it's quite exposed to jewelry, I would have expected that would have helped this market. Is watches particularly weak?
I think, Mélanie, remember, it's a big watch market as well.
Yeah.
The watches have not been good. That's for sure. The jewelry's been doing okay. I think the numbers speak for themselves, really. The watch market generally for the wholesale for us is challenging, extremely challenging. If we're performing at retail, which the watch brands are at retail, that gives us comfort a little bit.
Can I ask you, your selling and distribution costs were up 10% in organic constant currency in the first half. You had guided for full-year around 7%-7.5%, if I recall well. Has there been a shift in, is this just timing or there is indeed a higher expense going into selling distribution costs than you had expected coming from boutiques and from rents, which you're flagging in your release?
Mélanie, the one thing to focus on is if you exclude the boutiques, S&D only rose by 2%. I think from a control standpoint, we're in good shape. Clearly, from a retail perspective in terms of variable costs, to the extent that you're doing business in Japan and Europe, that tends to be higher from an S&D standpoint. That's really what it is. Mr. Rupert will probably have my head, so I've adjusted the numbers.
In terms of directly operated stores rollout, you've added 26. Quite a lot of these openings were actually on prestige watches. Strategically, is this what's going to happen and continue to happen?
Again, I think the retail openings are very much project based. I think Van Cleef and Cartier will have more stores in the second half. We still think about 50 to 60 this year. As I've said in the past, it's very much project based though.
Okay. Thank you. I'll let you to other people. Thank you.
Okay.
Thanks, Mélanie.
Next question from Mr. Mario Ortelli, Sanford Bernstein. Please go ahead.
Good morning, Gary. Good morning .
Hi, Mario.
Good morning, Mario.
Three quick questions for me. The first one is about Cartier watches. The performance has seemed quite subdued. I want to understand if it is mainly on the entry price on the gold watches, and when do you think that the wholesaler will stock the new
Clé de Cartier in stainless steel and gold. The second question about pricing, if you can make a recap of the price changes in the first half of 2015, if you have got in mind any other price adjustments in the second half of the year. The last clarification about the store openings in second half. You are talking about 50 to 60 openings. It does include also internalization of franchisee, and if not, how many internalization are you planning? Okay. We think 50 to 60 net openings for the full year.
Yeah.
That hasn't changed.
There are few internalization.
Very few, though. Very few internalizations. Mostly new locations. I think on the pricing question, Mario, we haven't changed prices since we saw you in May. If I may, if you could refer back to the presentation then.
Sure.
I don't have that level of detail with me. I think, in general, we said in terms of price positioning, in terms of our fair pricing, we were in a good place in May. We're still in a pretty good place. We don't expect changes. Again, we don't know what the currencies are going to do, but at the moment, we're in a good place. In terms of the watches, I think the Clé is off to a good start. It's off to a good start, clearly, and certainly in the wholesale channel, the higher-end gold and diamond pieces continue to do less well. Certainly, the Cartier collection in various models of steel with diamonds is quite okay. Again, the watches are growing at retail. Now, when is it going to unclog? When's the wholesale environment going to get better? I have no idea.
The good news is the demand is there on the retail side. I would much prefer that than the reverse.
Just a clarification. Which percentage of Cartier watches is sold through the wholesale channel?
Good try, Mario.
I tried. Thank you.
Next question is from Francesca Di Pasquantonio, Deutsche Bank. Please go ahead.
Hi, Francesca.
Hi, Gary. Hi, Sophie. I have a couple of questions, please. One is if you have had any adjustments on sales from any product buyback from the third-party retail network, and if you can elaborate whether you have taken or will be taking any further steps with respect to the product in the third-party network. Secondly, I know you said you have no visibility and you have no idea about the timing of a wholesale recovery, but just to help us understand how you are looking at the situation and how you are managing the situation, and what the reasonable expectations are that we are seeing maybe the final leg of a very tough period and things are getting worse before they normalize and stabilize, or whether you think, and you are prepared for a much longer destocking period. Thank you.
Okay.
The first one is buyback inventory.
The buyback. Yeah. I am aware, Francesca, that Cartier early in the year made some stock adjustments to retailers for some slow-moving products. They will do that as well as all the other brands. It doesn't really, frankly, feature on my radar. I'd love to say that the wholesale performance is based on huge returns. It's not. I think what you see is what you get. I think when we say we have no idea when it's going to get better, we're not making this up. The wholesale has been difficult. The comparables for Hong Kong should get a little better, we've been burned before by saying exactly the same thing for mainland China a couple of years ago, right? Don't want to enter into that discussion. I would say Hong Kong is still dreadful.
It's becoming a little less dreadful, let's not get all excited, I would say. Certainly, on the positive side, mainland China at retail for us is doing extremely well. I'd love to answer your question, Francesca, on when it's going to turn, we don't know.
In terms of your planning, your inventories and capacity utilization-
Yeah.
are you saying, we are running this production with the idea that wholesale pressure will continue from now to June?
Well, I mean, Francesca.
from now through December?
Well, I mean.
You would need some time to readjust.
No, Francesca.
You don't feel that urgency, right?
No, Francesca, we adjust all the time. I mean, the wholesale, we should be adjusting all the time. We just don't wake up one day and say, "Oh my God, we're overstocked." I mean, remember, the cash build on our inventories in the first half of the year was zero. Zero.
Yeah.
That means that we adjust all the time. The brands, particularly the watch guys. They know what they're doing. We have good systems, and they adjust all the time. That's the thing that's most important for me as the accountant in the room, right? That's an astonishing performance. Zero inventory build.
Yeah. Okay.
All right.
All right, Francesca.
The next question is from Mr. Jon Cox, Kepler Cheuvreux. Please go ahead, sir.
Hi, Jon.
Yeah. Good morning, Gary.
Jon, before you start, I hope you will agree that my treasury department was pretty quiet this time around.
I was very happy about that.
Good man. Okay. Good man.
Although I saw the discontinued EUR 88 million.
Yeah
loss.
Yeah.
What does that come to? Can you give us a bit of explanation on that? Just to clarify, you said all of the cash outflows were in H1. There's nothing coming in H2 related to that. That's a bit more sort of nuts and bolts thing.
Yeah.
I'm coming back to what some of my colleagues are saying. You seem to be relaxed. You say maybe comparables in Hong Kong should get better, but you've said it before. Just on this whole comping base in Hong Kong, when did it start to fall off a cliff for you guys last year? Was it really sort of November, December, January?
I think we started to see a real effect in October, John.
Even with the easier comp-
Yeah
You've seen a bit of a step down again.
Well, it's not there yet. Like I said, I think overall it's getting a little less worse in Hong Kong. I'm not going to be popping champagne on that.
No.
Again, it's very different how the channels are performing. The only thing that we control is retail, and that's the only thing we see, really, over the counter, and we know those are sales. Even in watches, even with Hong Kong and Macau, the watches are working. Okay, my job is not to be relaxed, it's to be miserable, right? It could be worse.
Yeah.
Could be worse.
In terms of Chinese in Europe, are you seeing any signs of a slowdown? You seem to be saying it's Americans maybe.
I think relative to the total pie, maybe there was less Chinese, the Americans were huge in the summer. I wouldn't say because their percentage of the pie, maybe at this point is lower, I wouldn't read into that negatively.
Just in the Americas, again, you seem to be saying, well, maybe they were buying in Europe, now they're not buying at home. Any sort of thoughts into the sort of Christmas season, end year season in the Americas?
John, let's see. America, the retail was not a good performance for the month of October. That's a data point. Is it a data point that we're going to project forever? I'm not there. Let's see how it goes. I think at the high end of the market for the jewelers, it's still reasonably active. Okay, will those translate into numbers? I don't know.
Yeah.
In terms of the Net-a-Porter, remember what was going on here. We had to buy back both incentive shares and actually third-party shares, right? In order to deliver those shares as part of our holding to Yoox. That valuation on the incentive shares went through an appraisal process. The appraisal was higher than I had accrued for, to be perfectly frank. Those incentives settled in the month of September. My accounting ayatollah said, "Well, you have to book that." I said, "Well, it's all part of the overall transaction." They said, "No, no, you're not taking delivery of the shares until October, so you have a timing problem." Okay, that's life. Don't ask me to forecast Net-a-Porter, because it's not my business anymore. I think in the first half, Net-a-Porter, on an operating basis, made about EUR 14 million.
The difference between EUR 14 million and the loss is my incentives and also interest and taxes, right? Because the discontinued operations is not an EBIT number, it's a net number.
I want to then just ask, you mentioned the capacity utilization rates are pretty low or lower in watches. Are you making any adjustments there in terms of, I don't know, thinking about factory closures or layoffs, or is it something you just sort of wait-and-see approach for the time being? I know you've done other bits and pieces in terms of people maybe working more for less and maybe on slightly shorter time. Is there any sort of other projects going on? Or is it, maybe as you've been sort of hinting, maybe the whole slowdown in the watches after three years coming to an end, and you wouldn't want to start closing factories now, while maybe things could improve.
John, I just built these factories. Now you want me to close them?
No, you know I don't. The question is.
No.
Are you basically cutting staff or what are you doing to make the whole process more efficient?
No, John. Again, let's go back and focus on the important things, okay? The margin that I'm telling you is unchanged. We put zero EUR into our inventory position in the first half. I think all of the brands, in their own way, are coping with the difficult volume situation because of wholesale. Piaget is difficult, but we saw that coming, and we told you about it in May. Same thing for Cartier eyewear. This is an ongoing process that we continually tweak.
Okay. Just a last question on cash flow generation, very strong as always, you guys do a very solid job there. What use for cash in the future? You mentioned potentially putting more into inventories in terms of precious stones. Any thoughts on buybacks or anything like that at all?
No, you know our approach, John. It's unchanged. Buybacks really aren't for us except to hedge options. We want to increase the dividend in a sustained way. We will continue to do that. I do think the cash generation is really quite strong, and we really need to start to think about creative ways to deploy some of that back to the brands, whether it be increased inventory, whether it be some brand building activities. We don't necessarily want to increase fixed costs, but we think there are things to do in terms of sweating our assets, if you will, even further. An example is I referenced the new Montblanc concept which they put up in Taipei 101. Just this new concept, probably the sales per square foot are going up strong double digits. That's not necessarily increasing my fixed cost.
I'm just redoing the store because in theory, I have depreciation for the old store. We need to think creatively about that. I certainly think that we need to deploy back for some of the brands.
For shareholders?
Shareholders, we're going to increase our dividend in good times and in bad, John.
Yep. Understood. Thanks, guys.
Next question from Mr. John Guy, MainFirst Bank. Please go ahead.
Good morning, Gary. Good morning, Sophie.
Hey, John. How are you doing?
Hi. Thanks. I've still got a few questions left in the bag after quite a few. Maybe just starting with your store positions in Hong Kong. Clearly, I think we've seen recently some press articles highlighting Cartier and Jaeger-LeCoultre store closures on Russell Street.
Yeah.
A local cosmetics player took one of those stores for a 50% rental discount. How should we think about the store profile in Hong Kong and Macau? At what level of closures are we likely to see, do you think, going forward within a more normalized environment there? That's my first question. My second question on Cartier watches. It seems to me, compared to 2013, that on a non-weighted average selling price basis, we've actually seen a pretty healthy price mix increase within Cartier watches. I think the product and price positioning has improved. You've lowered your quartz weighting, you've obviously introduced the Clé de Cartier. With regards to your directly owned store performance, that looks pretty encouraging. Could you just maybe talk about how you see the price mix positioning of Cartier watches going forward?
With regards to the October trading, just so I'm clear, we've obviously seen monthly volatility in the first half of the year, quite extreme actually. I appreciate that April was obviously down on the timing of pricing. Just to be clear that there was no change in your overall pricing policy through the back end of the first half and into October, which led to that slightly more volatile October trading period. Thank you.
John, as I said, I'll say it again, I'll try and be as clear as I possibly can. October constant currencies retail was flat. Wholesale continued more or less on trend. From a pricing stand, no change. No impact. No impact on anything. I think what you see is what you get.
Sure. Okay.
We'll see.
Understood. Thank you.
In terms of the stores in Hong Kong, we've said in the past. We have a very cash-generative network. The brands decide to open or to close stores based on their distribution strategies. Certainly, I focus on stores that are underperforming. We've said in the past that Hong Kong is probably a bit over-retailed, that's no surprise to anybody.
Yep.
When a lease comes up, depending on what the terms and things are, we have to make a decision. Despite its difficulties, it's still a huge market for us, and it's still very profitable. In terms of Macau, counterintuitively, we opened up new stores in Macau in some of the new projects, and they're on a percentage rent basis. We think we can have a go there. We look at these things all the time.
Okay, thanks. Maybe just on jewelry. I think going back to sort of Antoine's point around jewelry. Could you maybe just give us more color as to why you think that consumers really do focus on the branded side now relative to, say, non-branded? You mentioned this growing appetite for high jewelry within the Asian consumer. What's specifically driving that, obviously, besides the fact that you guys are making some very nice products?
Yeah, John, I'm not the marketing guy, okay? Anything that I possibly say there will be idiotic. The reality is we know from a data point of view, the branded market is growing generally.
Yep.
The jewelry business is a big business. We think we have the two best-branded jewelry businesses in the world. The creativity and the sensibility of the products for both Van Cleef and Cartier is extraordinary. As we've said in the past, the jewelry business is an event business. It's fabulous. Men like to give jewelry, and women like to receive it. We're in a good place with that, and we have exceptional teams.
Thanks very much indeed.
All right.
Okay. Bye, John.
Next question from Mr. Patrik Schwendimann, ZKB. Please go ahead.
Hi, Gary. Hi, Sophie.
Patrik, I'm sure I answered all of your questions already. I'm surprised you're even on the call.
Almost. Just for clarification regarding the gross margin.
Yeah.
Did I get this right for the full year? As a best guess, you would expect 65% at current ForEx? That's my first question.
Well, yeah. Fair question, Patrik. I always assume that the average rates for September will continue, right?
That's not based on the rates today, but it's based on the average rates at September 30th. Yes, it would be, on that basis, 65%.
Mm-hmm. Okay, great. Regarding Mainland China, you were mentioning the retail is extremely well. Did I get this right?
Yes.
Obviously, jewelry is outperforming, watches is also growing, you have mentioned in retail.
Yep, absolutely.
A slight growth, I would expect, so low single digit, or?
We said Mainland China in total was plus one on a constant currency basis.
Plus one is in H1?
Yes.
Yeah, for six months.
Six months.
Until September.
Retail, okay.
If I go back to my accounting school.
Total.
Total.
Retail.
Oh, total.
Wholesale is fine.
Now, if I go back to the accounting days, if you had an immaterial difference, you have to look at that because it could be very high going one way and very high going the other way. The retail is performing and the wholesale is not.
Mainland China.
Regarding CapEx, which will be EUR 800 million this year, you mentioned next year lower. What shall we expect as a best guess for next year?
Too early to tell, Patrik. We'll update that in May. I think we haven't really changed our thought process. The EUR 50 million drop is more due to timing, I would say. For example, we thought the Cartier Mansion would open up in March. It'll probably open up in June. We really haven't changed our thinking. Even with a spillover to last year, CapEx will be less, but I don't have that yet.
Okay. My last question regarding selling and distribution costs. I know it's very early these days, but just to have an idea, this year you have mentioned +9% in local currencies. Just to have an idea for next year, will the growth be clearly lower than this 9%? What's your best guess?
Patrik, too early to tell. Too early to tell. Let's see.
It should be lower.
Too early.
Too early to tell, Patrick.
We're not commenting this.
All right. Thanks a lot.
Thank you, Patrick. Bye-bye.
Next question is from Mr. Julian Easthope from Barclays. Please go ahead.
Yeah, thank you very much. A couple of questions as well, if I may. The first one is on the other businesses. There was some improvement in the losses or lower losses in the first half. Last year, the second half losses were obviously a lot larger. I just wondered if you're expecting to see any progress there given all of the different sort of rationalizations you've actually taken place over the last year. The second one, coming back to jewelry and diamonds. There seems to be a bit of a mismatch between the diamond market generally, which appears to be struggling quite significantly, and your jewelry. Are diamonds actually a big component of your jewelry business? Are you going to benefit from the lower prices that we're now starting to see in the diamond market? Thank you.
Again, the diamond question. I think one of the things that maybe make our brands unique is we take diamonds, we take colored stones, precious materials, and we use the artisans and the designers to create beautiful pieces. We're not in the commodity business. We're in the design and creativity business. I think that's where we maybe differ from the down-to-earth diamond solitaire business. We do it. It's a good way to access consumers, especially through the bridal programs. More of what we do is on the design side. What was the other question on? What was the first question? That to diamond?
Just in terms of the other businesses, those kinds of-
Right
sort of rates of improvement in H2. Yeah.
How could I forget? My favorite topic. I think, generally speaking, not for the other businesses, but for Richemont in general. We tend to spend more in the second half, right? We don't know what the sales are going to be, but with Christmas, with Chinese New Year, we tend to put more of certainly communication costs in the second half of the year, and we'll do that. I think from a business standpoint, what's really happening. Montblanc's been down for a couple of years, but Montblanc is really starting to perform and grow their profits. Chloé actually is exceptional. Clare and Geoffroy and the team have really hit the accessories. We're really seeing growth there, so they're doing well. Peter Millar is doing well.
Lancel, I think, from a results point of view, they'll be on par with last year, which implies a little worse in the second half. They've rejuvenated their product line and, okay, it's French-based, but they're getting there. We need to let them work. Dunhill continues to be difficult. Continues to be difficult due to the Hong Kong exposure. Still a work in construction. Peter Millar in the U.S. is doing extremely well. There's a lot of moving parts under there.
Okay. Thank you very much.
Thank you, Julian.
Next question from Ms. Annabel Gleeson from Redburn. Please go ahead.
Hi, Gary. Hi, Sophie.
Hi, Annabel.
Hi, Annabel.
Hi. Just two quick ones, please. Could you give us any color on your watch sales by nationality? What did sort of the U.S. consumer globally look like in H1? Maybe the Chinese consumer and the European consumer. Were they all in growth? Sort of taking into account U.S. domestic, but also U.S. buying in Europe. The second question, I'm just trying to think about your retail channel and the impact that these high jewelry sales are having on your retail business. Presumably, it's making your retail business far more volatile than historically. Was there sort of impact to this in October, or how should we think about that?
On the volatility? That's a fair comment because the transaction price tends to be higher. I think it would be too easy to blame the October performance on big high jewelry sales in October last year. You can't say that. If you think about the high jewelry, there is an installed inventory base there. There are various VIP events and what have you. Transactions are being worked all the time. Okay, when they come, they come. I wouldn't subscribe the performance in October down to that. In terms of the tourism question. We really don't give that level of detail. We have 20 brands, but clearly, we saw more Americans and other nationalities except for the Asians in Europe in the summer. The Asians were there as well. Tourism in America was weak, generally speaking. Probably more dollar-related than anything.
Would you think that your sales to U.S. customers globally are positive in watches?
Yeah. In watches? I don't know.
Yeah.
Couldn't tell you. Wouldn't know.
Could you give us any indication?
Again, remember, I think the takeaway is watches on a constant currency basis in our retail networks are growing. Right?
Yeah.
How do we know When someone buys a watch in the wholesale environment, frankly, we don't know who buys it. Right? The only thing we can look to is the retail.
Right. Sorry, one more. Could you give us any idea of the percentage of your jewelry sales that's high jewelry?
No, we don't disclose that.
Okay. Thank you.
Next question is from Mr. Rey Wium from SBG. Please go ahead, sir.
Hi. Good morning, Gary, Sophie.
Rey. Sorry about the rugby, my friend. Sorry.
No problem. Okay. Well, let me just start off. I just want to clarify in terms of the working capital outflow. Yes, you mentioned the inventory quite good. The increase in debtors and the drop in the creditors, are those just timing issues that we must think of in terms of the rest of the year?
Well, I think there's generally two components, Rey, as you're well aware. It's inventory and it's the debtors, right? Inventory was zero. Right? There's the receivables, which is a normal seasonal build, I would say. It's not huge. My portfolio is 97% current. The big outflow in working capital is I had to flow the settlement of the Net-a-Porter incentive programs through that.
All right. Yeah. Good.
That was the more major piece of the.
Okay. Good. Just in terms of your cash flow statement as well, I've noticed some additional property investments. Is this a strategy that you will continue with? If there's opportunity to buy retail space, that you will continue to do that with?
Yeah. Remember what the thought process there is, Rey. If there's opportunities that we think can assist our brand portfolio, we'll have a look. Right? That one property that we bought is in Paris, that we think can fit nicely within the portfolio. It's not an ongoing strategy, if you will. They don't get a budget. We look at projects on a project-by-project basis.
Okay, just two short little questions. I just want to confirm the monetary item on the cash. All that EUR 130 million in your income statement.
In cash.
Yeah. I just want to know if the CHF 130 million, was that all related to that cash that sits in Switzerland?
The cash on the non-cash, Rey? That's what you're asking, the usual?
Yes.
Okay.
It comes in your net investment line.
Yes. 130 was it? No. Well, hold on. Just hold on. Let me get to that page, Rey. Just hold on. Right. Okay. You're asking about the EUR 130 million?
Yes.
Okay. There are some gains in there on hedging of receivables and things. The piece related to the non-cash on the cash, if you will, which doesn't affect equity-
Yeah
is EUR 85 million of that.
Sorry, 80?
85.
85.
Yeah. Of the 100.
Got it. Yeah.
Yeah.
Just lastly, is it possible to give us an indication what the constant currency growth was at Montblanc?
I think I've been clear, Rey. Other is other. Right? We don't really break out by brand anymore. Montblanc's doing very well. Doing very well.
Okay.
Not back to the heydays, but certainly performing as expected.
Okay. Excellent. Thank you so much.
Okay. Thank you, Rey. I think we'll take one last question from Sophie. Is there anyone left?
The final question is from Mr. Chris Walker from Nomura. Please go ahead.
Hi.
Chris.
Hi, Gary.
This has got to be a very creative question.
Well, I was going to go down the sort of thematic and strategic route, actually, which is nice just to wrap up. Just wondering about the, obviously, given the volatility, both for a trading perspective and a tourist flow perspective, has been probably unprecedented, I guess, over the last year or so. What are you learning through this process and how are you actually changing your approach? I'm assuming it kind of supports your gateway city strategy. I guess linking into that, there's obviously a few refits on the flagship stores. Obviously, that can be quite disruptive in the short term, but will certainly help in the longer term. Should we expect an acceleration of that refit strategy as well for your flagships?
Well, we don't have too many flagships, Chris. Right? Certainly, as I said, we're generating very positive cash flow. Without increasing our fixed cost, we want to give the brands oxygen, whether it be on refits or more inventory to really bring the brands to a different level, that's for sure. I think the retail strategy in general is unchanged. We do focus on the gateway cities, but kind of happy that all of the investment that we made in mainland China, because we cared about the local consumer, is actually starting to pay off, and we're starting to see growth there. I think we're very focused on return on net assets, so we don't want to put stores everywhere. We can't. We're happy to do retail if we do it properly.
Okay. I guess layering on top of that, online as well.
Yeah
how that performed in the first half and what's the outlook for that?
Yeah.
Will that become more important?
Yeah. I think the online is growing certainly faster than our other business. Continues to grow at substantial double-digit rates. We tend to look at that on an annual basis, but we've just installed in Hong Kong. We're now moving to Singapore, which will be next year. It's there. It's a fourth channel. We've been saying that for a couple of years now.
Okay. Thank you very much.
Okay, great. I think that was the last question. Do you have anything left? Okay, thank you very much for your participation, and we look forward to seeing you in the near future.
Thanks, gang.
Thank you.
Talk to you.
Bye-bye.
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