Good morning, everybody in the hall. Welcome to our half-year results presentation, and also a warm welcome to all of you out there in the worldwide web sitting behind your screens. We did experience another strong half-year. Primarily helping us was foreign exchange. Our sales momentum has consistently moderated, yet remains positive in all regions. The overall environment, the weak euro versus the U.S. dollar and yen, the relative stability of the Swiss franc versus the euro, more moderate price increases in terms of precious materials, and even a certain decline in diamond prices have helped us on the growth margin level. Our channel differential is extremely healthy. Retail is holding its growth pattern month-on-month, and we see a declining wholesale trend at the moment, but we view that as healthy as well. Let's look at some key figures.
Our results for the period were driven by organic revenue growth and foreign exchange. Sales were up 21% or 12% at constant currencies. This reflects a positive foreign exchange impact of 9%. We had growth across all businesses and all segments and all regions. Retail continues to outperform wholesale. Our operating profit grew by 28%, leading to an all-time half-year record 27% margin on sales. We continue to enjoy strong pricing power, continued positive foreign exchange, and improved growth margins. Our net profit rose by 52%, and this is primarily related to September 30th exchange rates. We did enjoy healthy cash flow operations of EUR 575 million, which was broadly in line with the previous year. Let's get into the details of sales now, first in Europe. All of the charts that you see traditionally are in constant currencies. Europe is our second-largest region, with 28% of group sales.
Sales in Western Europe grew by 18%. This rate primarily reflects organic growth. It's driven by tourism, now estimated to account for 60% of Western Europe sales. Although it must be said that sales from local domestic consumers, particularly in France, Germany, Benelux, and Switzerland, continue to grow. Most Maisons improved their performance versus the prior period, and jewelry, watches, and ready-to-wear were the top-performing categories. Sales in Russia grew at a lower pace than Western Europe, primarily relating to the significant high jewelry sales that we saw last year. Now on to the Middle East and Africa. This region accounts for 6% of group sales. Most of the sales are done in Dubai, Abu Dhabi, thereafter Kuwait, Saudi Arabia, and Qatar. Sales grew by 28% on a constant currency basis, driven primarily by locals, tourism, and the product categories were geared toward premium watches and jewelry.
The active commodity market has certainly helped us in this region. Let's move to Asia-Pacific. This is Richemont's number one region, approximating 41% of group sales. The 9% increase in sales reflects a contrasted performance among countries and a strong incentive for the Chinese customer to travel to Europe, given the weakness of the euro. In terms of markets, Macau, Korea, Taiwan, and Singapore grew at double digits. In terms of channel, retail was more solid, continuing to benefit from our store upgrade and opening program. Product-wise, jewelry and ready-to-wear outperformed. Mainland China, with 9% of group sales, is our third-largest market now, almost on par with the U.S. and slightly ahead of Japan. Growth was partly driven by mainland Chinese at home and in other Asian markets. Let's move to Americas. Its growth rate has significantly moderated to reach 4% for the first six months.
The performance of Richemont in the United States reflects a challenging environment in a region that does not benefit as much from tourism as Europe. Must be said, however, a pretty tough comparison base for 2 years in a row, and there is a bit of timing of high jewelry sales in the first half. It has to be said that we are seeing a cautious approach from our retail partners. Overall, the region's performance was driven by retail and domestic tourism. Let's move now to Japan. It's our fourth-largest single market with 9% of group sales. The sales results confirmed, again, its remarkable resilience. The sales growth was driven primarily by specialist watchmakers and Alfred Dunhill. The growth was primarily organic, as only maintenance CapEx is allocated to this market. Let's now look at sales by network.
Retail continues to lead thanks to good performance at the Maisons' directly-operated boutiques and also the continued growth of Net-a-Porter, which is above the group average. The growth is pretty much broad-based in all regions, we opened 40 new stores in the first half. This outperformance of retail is moderating. Wholesale growth was greater in Europe, Middle East, and Africa. The inventory levels in the trade are sound. Our wholesale receivables are sound, this generally reflects the cautiousness of both us and the retailer. We have given the instruction to our Maisons not to overstock our wholesale partners. The group now generates 51% of its total sales through our internal boutiques. Let's take a look at sales by product line. This slide underlines the importance of our watch and jewelry product categories. These two categories generate 75% of our business.
The dynamic nature of jewelry is clearly shown in the growth rates, which is our fastest-growing one. Jewelry grew by 18% at constant rates, which is well above clothing at 12% or watches at 10%. This also shows the growing importance of our clothing business, which is now our third-largest segment. The slowest-growing category is, without surprise, writing instruments, hence the reason for the diversification of the Montblanc Maison into watches and leather. Before I turn it over to Sophie, I'll just go through the Maison highlights for you. Here are the main points to remember about our performance in the first half. We had substantial profits and profitability at the jewelry Maisons and specialist watchmakers. We had reduced, but still solid profitability at Montblanc. We enjoyed stable profitability at fashion and accessory Maisons. We've shown good progress with our Net-a-Porter business during another year of structural expansion.
Now I'm going to turn it over to Sophie to go through in detail the segmental activities.
Good morning, everyone. As usual, we start with the jewelry Maisons. The jewelry Maisons enjoyed an outstanding performance fueled by strong demand, up 20%. Sales were up 20% at actual rates, favorable currencies, and pricing power. Cartier and Van Cleef & Arpels both generated remarkable results, leading to an operating contribution of EUR 958 million, up by 31% over the comparative period. Contribution margin rose to a half-year record of 37% of sales, with Cartier and Van Cleef & Arpels both continuing to improve their respective margin. Let's look at the main product and network development with the jewelry Maisons. I'm sorry, I went too fast. First, Cartier. Cartier reported sales grew at double-digit rate, driven primarily by Europe, Asia-Pacific, and the Middle East. High jewelry performed very well with the Sortilège collection, as well as iconic bijoux with Love, Trinity, and the new Juste un Clou line.
This is also true for gold, high jewelry, and high watchmaking watches for men. Tank Anglaise, only available in gold and jewelry, had a good start. Retail sales with its 293 Cartier stores continued to outperform wholesale. Cartier carried out a few but major renovations, extensions such as Milan, Monte Napoleone, and Paris Galeries Lafayette. The wholesale network was streamlined further in Europe. Cartier is also making substantial investments in watch movement manufacturing, as Gary will detail later. Cartier's initiative in social media with the "Odyssée" movie were awarded the Lion d'Or at Cannes Festival. This movie generated over 200 million views. Another initiative to raise visibility and sales was the launch of a new Dépaysement high jewelry collection, which consists of 140 pieces, at the Biennale des Antiquaires in Paris, which reasserted Cartier as king of jewelers.
Did the Royal Style, Qing Dynasty and Wonderful Jewelry exhibition at Taiwan. Van Cleef & Arpels, which enjoyed strong growth driven by jewelry with Perlée and continuously enriched Alhambra collections and watches across segments. Sales were broad-based geographically, with the exception of the USA, which had benefited from major high jewelry sales in H1 of last year. Van Cleef & Arpels further expanded its retail network to 97 boutiques with openings notably in the new São Paulo Iguatemi in Brazil and Abu Dhabi Etihad Towers. There are also ongoing store innovations, extensions, the main ones this half-year being Moscow Stoleshnikov and Los Angeles in the States. Van Cleef & Arpels benefited from high-profile launches of the Palais de la chance high jewelry collections in Paris, initially at the Palais de Tokyo for the VIP clients, and thereafter at the Biennale des Antiquaires both in Paris.
Visibility was also enhanced by the prestigious exhibition at the Arts Décoratifs Museum. The Maison now showcases its technical expertise as a master in high jewelry with its new jewelry school, L'École, School of Jewelry Arts, Place Vendôme in Paris, which is open to the public, and actually just recently opened. Let's look at our specialist watchmakers. Most Maisons enjoyed substantial growth in sales. As a result, all specialist watchmakers, with the exception of Baume & Mercier, saw an improvement in their results. Positive currencies, pricing power, and improved channels profitability, both in our stores and with our third-party retailers, mitigated higher input costs. This led to a 51% increase in profits. In turn, operating contribution reached an all-time half-year high of 32% of sales. Let's now look at the main product and network developments of these segments. First, Piaget.
Piaget's performance was driven by Europe that more than compensated for the stabilization of sales in Asia Pacific. The half-year saw a confirmation of the success of its iconic products, namely the ultra-thin Altiplano watches as well as the Possession and Piaget Rose collections. The latter benefited from a comprehensive communication concept ranging from digital campaign, PR pictures, events, to display materials. For the second time, Piaget participated to the Paris Biennale des Antiquaires where it unveiled 71 pieces of high jewelry and high jewelry watches of its new Couture Précieuse collection. Its new boutique concept that reflect the emphasis on jewelry was successfully inaugurated at the Hong Kong Mandarin Oriental flagship store. Moving on to Vacheron Constantin. The Maison's strong growth was constrained by shortages, hence the reason why a major extension of manufacturing capacity is in progress.
The period was marked by the increased success of the iconic Patrimony line and special orders of Les Cabinotiers, as well as the introduction of a new Les Univers Infinis collection which enhances Vacheron Constantin as a reputation as a master craftsman. Distribution remains highly selective, with further reductions in the number of third-party points of sales. An addition of a few boutiques. The excellent start of a recently opened U.S. boutique on Madison Avenue in N.Y. bodes well for the new Hong Kong Prince's Building boutique. The Paris flagship is expected to open early 2013. Let's have a look at A. Lange & Söhne. Its significant growth in sales was led by Europe, Asia-Pacific, and Americas. Its complications and iconic products outperformed, in particular the Lange 1, Saxonia Thin, and Saxonia Automatic.
Its retail development focused on the Middle East with openings in Abu Dhabi Etihad Towers and Dubai Mall. Roger Dubuis boasted solid sales growth, mainly fueled by China, Japan, and Americas, as well as continued demand for Excalibur Double Tourbillon and La Monégasque. New Excalibur 42 Velvet Pulsion watches were met with encouraging response from the market. Market presence continually improved with both a new corporate identity, meaning new logo, new boutique concept, and new advertising campaign, and an international expansion in Dubai, Abu Dhabi, and China. I would now like to turn to Jaeger-LeCoultre. This Maison enjoyed commendable sales growth balanced among geographies and channels. Product-wise, high complications, Duomètre Sphérotourbillon, complications from the Master and Reverso lines, and new feminine line Rendez-Vous were highly successful.
New stores were opened, notably Beijing Parkview Green, Hong Kong Prince's Building, Iguatemi São Paulo. The Paris Place Vendôme benefited from a major extension. This new 500 sq m flagship store introduced the new brand retail concept. Let's now have a look at IWC, whose sharp increase in sales was led by retail across geographies. The Portugieser and Portofino lines remained in strong demand, while the recently renovated Pilot's Watch line is enjoying a successful debut. The specialist watchmaker further invested in retail. New stores include Zurich Bahnhofstrasse and Paris Rue de la Paix. Moving on to Officine Panerai. It enjoys solid sales growth, especially in Asia Pacific. This reflects the continuous strength of the Manifattura collection and of the collection with in-house movements, notably the Luminor Marina 1950 3 Days, and the success of a vintage Luminor 1950 3 Days.
Officine Panerai's ongoing retail expansion included openings in São Paulo, Iguatemi, Macau, and Dallas. Its new manufacturing site near Neuchâtel should be completed in a year from now. Let's turn to Baume & Mercier, which suffered from a challenging trading environment accentuated by a high exposure to wholesale and caution exerted by retailers. Sales have also been penalized by high exposure to the domestic Western clientele and low exposure to Chinese demand both at home and abroad. This was not offset by the success of the new Capeland 44mm and Hampton Small, which now rank in the Maison's top five bestsellers. Baume & Mercier will have four record losses this year. Montblanc. Let's look at the main developments of Montblanc over the past six months. The 10% increase in sales was driven by watches and currencies.
Retail that account for about 47% of Montblanc sales continued to outperform wholesale. Growth was impacted by the importance of Western clientele, lower contribution of tourism, and reduced wholesale distribution. Operating contribution at EUR 53 million is in line with the comparative period and reached 14% of sales. The numbers we just saw for Montblanc reflect a contrasted performance. On a reported basis, all regions grew at a double-digit rate. At constant rates, sales were driven mainly by China and watches, both enjoying double-digit growth in sales. The U.S.A. posted a good performance, partially helped by the new e-commerce platform, which is now Montblanc's number 2 store in the States and which managed to attract new clientele.
Single-digit growth in writing instruments, despite success of limited editions like Pablo Picasso 91 and the new StarWalker Red Gold line, underlines the more limited potential of this market, coupled with a reduced wholesale clientele. Double-digit growth in watches reflects the success of Montblanc's diversification strategy, supported by the new Star Classique, as well as the Nicolas Rieussec and TimeWalker TwinFly premium lines with in-house movements. Retail-wise, focus remains on upgrades with few openings that include Sanlitun Beijing and Abu Dhabi Etihad Towers. The Beauty of a Second digital film celebrating the Chronograph invention by Nicolas Rieussec received several awards at Cannes Festivals. The other business area. You remember that this segment comprises the fashion and accessories Maisons, the Net-a-Porter Group, and the facilities involved in the manufacturing of unbranded watch components to third parties and to our Maisons.
Fashion and accessories Maison recorded double-digit growth in sales and an increased operating contribution of EUR 25 million. The Net-a-Porter Group reduced its losses and generated positive operating cash flow. Remember that results were affected by the EUR 11 million half-year intangible amortization that will disappear after March 2015. It was also affected by investments in U.S. and Hong Kong platforms. Losses at the group's unbranded watch component manufacturing facilities were in line with last year. Sorry, with the comparative period. In other words, H1 of last year. This was due to further investments in vertical integration, partially compensated by high volume and improved know-how. These losses consist of R&D costs and subsidies to the Maisons being the differential in price between insourced and outsourced. Let's now look at the main products and developments of these segments over the past six months. We start as usual with Alfred Dunhill.
China represented the biggest source of growth versus prior year for this fashion accessories Maison. Healthy growth was also gained in the challenging market of Japan. Product-wise, menswear experienced a double-digit growth in sales. New stores that included the Las Vegas Caesars Palace and Shenyang Forum 66 Incorporate the new store concept, which is also being rolled out in other existing locations. The new CEO, Eraldo Poletto, took the helm of Alfred Dunhill this week. He was previously CEO of Furla and also worked at Brooks Brothers. Let us move on to Lancel, which saw double-digit growth in sales driven by retail and European domestic clientele. Lancel benefited from the impact of the opening of two flagships, one in Paris, Le Carrousel du Louvre Paris, in Paris, and the other one in Shanghai.
It enjoyed the positive sell-through of a Daligramme collection, which has become one of Lancel's pillars, as well as from exotiques and French Flair collections. The new CEO, Fabrizio Cardinali, was appointed last month. Mr. Cardinali has experience in repositioning brands and driving global presence. He was previously holding the position of Global Sales and Marketing Director at Dolce & Gabbana. Chloé. Chloé posted double-digit growth in sales driven by Europe, Americas, wholesale, and leather. The new Alice bag made good response, while ready-to-wear showing a resumed momentum with a widely acclaimed third Clare Waight Keller fashion show in November-December 2013. New directly operated stores included U.S.A. Wynn Las Vegas and China Shenyang Forum 66. The Spirit showed the first exhibition at the Palais de Tokyo in Paris, celebrating 60 years of creation. Finally, the Net-a-Porter Group. While its growth rate has normalized, it remained well above group rates.
Europe and Americas were equally strong. Likewise, Net-a-Porter, MR PORTER, THE OUTNET progressed well. Inroad into Asia-Pacific is expected at the end of calendar 2013, with a subsidiary scheduled to open in Hong Kong first quarter of 2013. I will now hand over to Gary.
Before I do the operating profit overview, I think I've made an enormous mistake. When I plowed into the presentation to talk about sales, I forgot to introduce my two bosses who are with me. Our Executive Chairman, Mr. Rupert, and Mr. Lepeu, the Deputy CEO. Now we go. Now let's look at our operating profit. You've seen the sales, 21% increase in reported, 12% at constant. Our gross profit grew by 24%, reflecting our Maisons' pricing power and a favorable currency environment. We grew our operating expenses by 21%, in line with reported sales. All this adding up leads to an operating profit increasing by 28% to approximately EUR 1.4 billion. And we enjoyed an all-time half-year record operating margin of 27%. Let's get into the details of gross margin and expenses.
The 24% increase in gross margin was generated 160 basis point increase in the rate to 64.8%. 260 basis points of this increase relates exclusively to Forex. This has to be offset by 170 basis point decline due to the lack of hedging gains recorded in the gross margin. We also benefited, as Sophie described, from pricing power, higher retail prices, and lower margins granted to retailers. We did enjoy a higher channel mix in terms of retail as well. We did experience favorable manufacturing variances. These benefits were mitigated by higher component costs. Let me remind you once again, for the last time, that hedging gains, our losses, are no longer recorded within gross margin and are recorded within financial costs. Let's have a look at the expenses. Operating expenses grew by 21%, or 14% at constant currencies. The ratio remains stable at 38%.
What were the increases? Once again, we've provided the bridge for you on the slide. 7% of the increase relates exclusively to Forex. Our boutiques generated 8% of the increase. Net-a-Porter, 1%, primarily the buildup of the Asian operations. Communication costs, plus 3%. All other expenses, which are S&D, non-boutique S&D and administration, added 2%. Our S&D costs represented 57% of total OpEx, rose by 23% given the sales and network development. As I said before, we opened 40 new retail stores in the first half. At constant currencies, these expenses grew by 14%. Communication costs were up 23%, slightly above the sales growth. The ratio was maintained at 8% of sales. Administration costs grew by 19%, primarily reflecting the development of our Asian backbone, continued investments in IT, and infrastructure. On a constant currency basis, administration costs were also up 14%.
Let's look at the items below operating profits. I'll come to finance costs in a minute. We experienced an effective tax rate of approximately 16%. This slightly lower rate anticipates the crystallization of certain deferred tax assets that we expect at year-end, specifically relating to inventory. We continue to expect an underlying tax rate of 17%-19% in the medium term. Due to lower finance costs, which I'll get to in a minute, net profits for the period rose 52% to approximately EUR 1.1 billion. Some details on the finance costs. Thanks to the period-ending CHF-EUR rate, we incurred a slight non-cash gain on our mark-to-market adjustments relating to our cash balances, compared to a significant loss in the prior period. Given the positive impact on sales relating to Forex, which you've seen previously, we incurred a EUR 108 million charge relating to our hedging program.
Overall finance costs in total declined to EUR 99 million for the period. I would like to now focus on our cash flow from operations. At EUR 575 million generation, it was broadly in line with the prior period. With respect to working capital, the large increase relates primarily to two factors: the cash settlement of maturing foreign exchange contracts accounting for EUR 166 million, and the timing related to European supplier payments, which this year were executed in September, last year in October. From an inventory and accounts receivable absorption point of view, the absorption was consistent with the prior period. Our inventory rotations are similar. Our accounts receivable portfolio is similar in terms of aging compared to last year at 94% current. Let's move to capital expenditures. As planned, CapEx grew by 51% to EUR 256 million or 5% of sales. We had increased investments in manufacturing facilities.
We had more refurbishments in terms of our stores, we opened up 40 new stores, mostly in growth markets and tourist destinations. We did expand, improve, and automate certain distribution platforms. We will continue our investment program in retail, in manufacturing, and infrastructure, particularly IT. We expect to open up 60 retail stores in the second half. I'll move on to the next slide where we can give you some granularity in terms of the CapEx. Close to half of the increase related to retail, now 37% of total investments. The most notable project, Sophie mentioned a few of them, a Cartier store in Shenyang, a renovated Cartier Milan boutique, a renovated store in Paris. Panerai opened up a mono-brand store in Dallas, Vacheron Constantin in the Prince's Building in Hong Kong. Jaeger-LeCoultre expanded their Place Vendôme location.
A number of our brands opened up in Abu Dhabi and São Paulo during the period. Investments in manufacturing capabilities contributed close to 30% of the CapEx growth. What were the major projects? We've discussed these before. Capacity expansion at our case manufacturer, Donzé-Baume. An expansion of Cartier's watch component and assembly factory in Switzerland. We've started work on Panerai's new factory in Neuchâtel. We're continuing to expand Vacheron Constantin's capacity and capabilities. We're also looking at A. Lange & Söhne for an expansion there in Germany. Investments in other primarily relate to IT, Net-a-Porter Asia, and our distribution platforms. Now let's look at free cash flow. Cash flow from operations financed significant increase in capital expenditures, as you just saw, our results required us, as normal, to pay higher taxes. Free cash inflow was EUR 144 million at the end of September.
Let's turn now to our balance sheet. We continue to have a solid balance sheet. 71% is our equity position, broadly in line with a year ago. After a cash payment of EUR 164 million in ordinary dividends before withholding taxes, our net cash and investment position amounted to EUR 3 billion. Of this amount, 55% is currently held in Swiss francs. Before we start with the Q&A session, I will conclude with our October trends and a discussion of certain post-closing events. We experienced a continued moderation of the sales trend in October. October sales grew at 7% on a constant basis, 12% on a reported basis. Europe leads the pack regionally, driven by a continued weak euro and sustained tourism. America was also quite strong. Our directly operated stores continue to outperform wholesale.
While our comparatives for the second half are starting to be less challenging, we expect that the foreign exchange gain in terms of the sales will not be as significant in the second half. Given the slower sales growth that we are experiencing, we did take certain steps during May. Production was slowed to limit a buildup in inventories in-house, we instructed all of our Maisons to align their wholesale shipments with their partners' inventories. At the same time, we will continue to invest in future growth. Our plans are unchanged. We will continue with our store renovation programs and openings. As I said, we'll open 60 stores in the second half, we'll continue our investments in manufacturing and distribution platforms. Let's move to post-closing events before we start with the Q&A.
I want to give you some background on the three acquisitions which we've closed in early October. These acquisitions will be detailed in Note 16 of the interim financial statements. In order to provide future long-term options for our Maisons on Fifth Avenue in New York, we acquired the retail space of the St. Regis Hotel, which is located at Fifth Avenue and 55th Street. The acquisition price was €297 million. This is what I referred to in May as the breaking news. The property is fully occupied until 2019, and we expect on a full year basis, this property to contribute €1 million to operating results. We also acquired VBSA, which is a Swiss group with expertise in gold refining and metal stamping, key processes associated with our watch and jewelry businesses.
This business will continue to operate with existing management and assist to further integrate our manufacturing activities, particularly with Cartier. Peter Millar is a North Carolina-based sports apparel business. It has superior management, good growth prospects, and is nicely profitable already. The consideration for both of these transactions in total was €152 million. We expect on an annual basis, these entities to contribute €13 million to operating results positively. Although, it must be said, we do still have the valuation work ongoing, which we'll firm up at year-end. All three of these acquisitions will be reported in the other segment. Thank you for your time. Now, I'm sure we'll be happy to take your questions.
Thank you very much. Luca Solca from Exane BNP Paribas. I have three questions. Should I repeat that? Luca Solca from Exane BNP Paribas. I have three questions, if I may. Quite a number of changes in the management ranks. I wonder how the senior management committee is going to work, and whether you, Mr. Rupert, are going to stay involved hands-on as you've done in the past, or if this is going to indicate that you're going to step back from the business. Quite a number of changes also in the management ranks in the fashion and leather goods division. I wonder about whether this is coming from dissatisfaction with performance or renewed opportunities, especially at Lancel. I was wondering about the appointment of an executive coming from a designer house. On demand, I seem to understand that you're experiencing weaker dynamics in the lower price points.
Lastly, on manufacturing and movements manufacturing in particular, whether you anticipate that continuing investment is going to improve your cost position in this space. Thank you very much.
In terms of management, had it not been that Mr. Platt was diagnosed with a mild form of diabetes, as it turned out, and he's in much healthier shape than any of us at the moment because he's been enjoying his retirement. On the other hand, he did go to Germany, so he's probably going to spend all of his money bailing out Greeks and Italians and others. I didn't intend coming back at that stage. I did, but I've said in the past, and I repeat, this company is far too complex and too big for one individual to run. Some of us like Alain on the product committee, Richard and myself have been involved directly and indirectly since 1975, late 1970s for you, 1978, 1979. Gary, same stuff. 1988. 1988 in the U.S. You got to remember, when we started, it was 24 years ago.
Richemont was 66% Rothmans, and it had a minority position in Cartier, stake in Piaget. That was about it. It was a holding company. In essence, it stayed a holding company until we did the changes. Brought her Vendôme, in essence, moved to Geneva. It's far too complex. How we've run it is through verticalization. We did it before anybody else. In fact, Alain coined the phrase DNA of a brand, that everybody uses, and we called it the Maisons. In fact, Frederick registered it because it's not a brand, it's a Maison. I see everybody's got Maisons. It's run by the individuals. Georges Kern is in Schaffhausen, and he runs it. He's got his own factory. He's got his own sales staff. Bernard, until the end of December, runs Cartier. We have holding company functions.
Richard has been in charge, and he's going to remain in charge. These are critical functions. It's not only the normal back office. It's where we, as Richemont, can add value in building goodwill rather than just buying it. We were talking at the board yesterday. When we bought Van Cleef & Arpels, I remember the older ones amongst you and some of our board members every bloody meeting. "When is Van Cleef going to turn profitable? When is Van Cleef going to turn profitable?" It was like water dripping. We knew what we thought at that stage. We knew we were heading in the right direction. Today, I think it's what? four or five times more profitable than Gucci. Mm-hmm. When we bought it was not making money.
Frederick Mostert and his intellectual property division cleaned out the whole of the IP. Our property division, we've got people here. It's a very, very important function or series of disciplines and functions that we provide and which makes it possible to buy. Panerai turnover is now 240, 250 times what we paid for it 12, 14 years ago. Now that was Angelo Bonati and his team, but it's also the back office. Distribution, initially, Cartier opened doors for them. If we take Gary, he challenged one of our companies and said to him, "Why don't you take some more capital? Why don't you use capital? Buy more stones." One of the Maisons, what? EUR 60 million worth of stones. Well, it's going to turn into what? EUR 240 million, EUR 250 million worth of sales with a healthy margin. Nothing much changes.
We have three individuals. This company's always really been run as a troika. We had Joe Kanoui Richard and Alain Perrin. Joe Finance with Richard. Of course, Franco Cologni. Lots of arguments, lots of creative tension, especially when you've got that many French involved and Italians. It's always a casino. Gary and I just sometimes just sit there and watch, but it's creative tension. In terms of the management, nothing much changes in the sense that we've always worked in a collegial sense at head office. The product committees will still carry on. It's the heart and soul of how we try to guide the Maisons. I would say it's the biggest interference in their lives. In terms of the management committee, this we announced because of stock exchange requirements, but it's always been the case.
If we make a single adjustment, we have to announce it, and people have retired, and people have come in. It's not a radical shift. In terms of the margins or the lower-priced products, I think you asked. It's not the lowest price, but in every time of economic hardship, and we've pointed this out in the past, it's the middle market that gets hurt. It is not the bottom right at the bottom, and it's not the top, but it is the middle. When you have companies where the brand equity does not translate into desirability, true desirability, then those companies suffer. Landlords don't say, "Oh, well, we feel a bit sorry for you. You're a bit under pressure." They just say, "Pay more." There's still an enormous scramble for prime real estate. Of course, there's another thing.
You've got people like Abercrombie who insist upon being next to Cartier. The very smart landlords are saying, "Where are you going to be in 10 years' time or 15 years?" We all know of rapid growth, big box companies and what happened then 10, 15 years later. On the other hand, they are there. If you look at Fifth Avenue, yes, Apple, but Apple is a phenomenon. There are more and more non-luxury companies. It's a tragedy because you don't find the little bookstore. When I lived in New York, I used to enjoy going to Rizzoli. Today it's Amazon, but Amazon is not Rizzoli. I'm sorry. You'd find little stationers, and you'd find true luxury. Today, it's lost a bit of its charm. Unfortunately, the landlords insist.
In Asia, if I can use the term Asia, because it's not really obviously homogeneous. Wherever you find booming economic conditions, you find this tendency. The middle-of-the-road companies find it very hard to maintain presence and visibility. It poses a question as to the sustainability of the business model. That goes across all companies. It's not only luxury goods. It's virtually any company you can think of. I see my friend Karl Lagerfeld got into trouble by attacking the French president. Amongst others, he said, "Who outside of France buys French automobiles?" That's not a very smart thing to say. If you ask yourself the question, who do buy these cars? Luxury goods, yes. Then he attacks the luxury goods industry or the rich, who's not very smart. Those business models need to be addressed.
It's not only luxury goods. The big overriding concern that I have, in normal free markets, when you have excess capacity and prices drop, people disappear, companies disappear, automobile companies disappear, big manufacturers disappear. The central banks now are working together in a combat against deflation and unemployment, they've moved the cost of borrowed capital to zero. The free market is not working. There are lots of industrialists across the world that are in intensive care. All their companies in the ICU unit with a drip from the ECB. They're not shutting their plants. Guess what? There's still going to be excess capacity. When you've got a lot of excess capacity that's being kept alive artificially, it's the question of who can keep his breath the longest. We know there will be tears. Maybe they'll avoid the fiscal cliff. I'm not sure.
They're behaving like children again. As I said to my son, the Dow Jones dropped by 300 points and Smith & Wesson went up by 10%. Okay? That's what happened after the election. The gun manufacturers increased by 9% and the Dow dropped. Does not look to me like a country that's finding a middle road in working together in Congress. Europe, I don't need to say anymore. We don't know what's going to happen in China. You put all of this together, I don't think we're going to have spectacular economic growth. Companies are being kept alive artificially by central banks because they don't want unemployment. In that background, one will have to look at companies in your own group that do not have the brand equity. It's normal. Everybody does it. It's part of your business life. As will I stay involved?
It's one of those very curious things. If you're the controlling shareholder and you built the group, I've got to actually get off the board for a few months in order to give these folks a chance and tell the people they're not allowed to call me. Norbert will tell you that when he was CEO, I never took telephone calls from people working for him without him being involved. I had enough when my late father was alive. You'd give somebody an unpleasant decision, not your own decision, but four of us would get together and he'd call my father because previous relationships. The problem is, if you say yes once, you undermine the executive's authority. We're going to have a difficult one now with Bernard Fornas getting a senior role.
We're going to have to make sure that Bernard keeps his nose out of Cartier. Bernard, if you're listening there, you will remember that I did tell you to leave Stanislas alone from the first. If you're watching on the screen, Bernard will leave Stanislas alone. Otherwise, Stanislas cannot run Cartier. When you've got trust, Richard and Bernard have been friends for what, 20 years? It's a complex company. I don't know whether you've heard of the Bass brothers in Texas. When their dad, late father, stepped down, it was before mobile phones and satellite and emails and stuff. None of the executives of the company would listen to Sid and Lee. They always called Mr. Perry Bass. He said to his wife, Nancy Lee, he said, "Look, neither you nor I like sailing.
We're going to take a boat and we're going to sail for a year. Nobody's going to be able to call us." They forced to call Sid and Lee. They actually did it, and to their absolute astonishment, they quite liked it. They didn't keep it. It's got to be at the stage where I say to them, "Look, guys." They know in the past I've honored that. When people call, I say, "Sorry. Somebody works for Richard. You want to speak about something? Let's have Richard there." It's amazing how they never call the second time, Richard. It's, "Sorry, let me settle that.
May I add something to add some color? I feel that as we said in French, everything change, but nothing change. It's clear that we have one boss, one direction. It's a cultural issue. What is really important for you to understand is that there is a continuity of the management. What we are the most proud of is the succession planning that we have organized. Look at Cartier, very important company for us. One year ago, we announced the arrival of Stanislas, who has had, I would say, a strong training within the organization because he has more than 20 years with us. His deputy, Nicolas Bos, who's taking over from him. For us, it's the most important that we continue to have our people sharing the same value, sharing the same cultural issues.
Of course, at the end of the day, always having one boss and giving us the direction, whatever the title.
That's not true. What I can say is you ought to applaud Mr. Saage and his people who managed to borrow next week, I think. It's not now. Nothing is signed. Why? I'm not allowed to say it.
I'd prefer you didn't.
Why not?
We'll talk about it in May, all right? Please.
Well
We'll take the applause, but.
Many hundreds of millions for 12 years at 3.1% dollars. You know, I'm not going to say how much so that you can tell them in May.
Okay, fine.
When you buy something in New York, chapeau. That's what I call the edge. Okay. You buy something, you borrow in a currency and fixed at 3.1%. I said, "Please, just get as much as you can, Gary." That, Gary, just that, gives us flexibility beyond. I can tell you, it makes my life easy to have colleagues like that. He also does have succession. I think it's more the business model that we've got to look at. It's now the 25th year, and assuming reinvestment of dividends, the IRR is just under 15% in dollars and it's slightly, but virtually 15% in Swiss francs over the 24 years. Since the last four years since the split with BAT, it's been twice that. I asked him to work it out. It's 34% in dollars and 29% in Swiss francs. The model works.
I think that is the thing that makes me sleep at night. We seem to have the right business model. Will we, like everybody else, suffer if there's a real calamity? Yes. We will. If you look at the centuries that the Maisons have survived. It's not the Maison; it's the idiots who run it that wreck it. Our job is not to be one of the idiots that wreck the Maisons. If you look at Vacheron, you look at Cartier, you look at 1755, right? Cartier. These companies have survived world wars, famines, depressions, hyperinflations. It's our job to make sure that they survive us, if I can put it like that. Up till now, we're okay. In any case, you shouldn't worry about me because Richard's been the one that's been doing all the work in any case. Any other questions? Sorry.
Good morning. John Cox with Kepler. A couple of questions for you. On the sales granularity and what's happening more recently. You're talking about October, 7% constant currency growth. You seem to be saying the Americas looks a bit better, because if you back out the five months to the six months, it looks like the Americas was actually negative in September. There appears to be a bit of a rebound in October, if you can go into that. In the Asia-Pacific region, it looks like it's mid-single digit declines local currency in September. I presume that's continuing into October. I want to get a bit more granularity on that and your opinion what may happen next in terms of the election process in China.
Whether you think that could lead to a bit more of a pickup in that Greater China region. A question on the top line. Second question, on examining brand equity. You're talking about Baume & Mercier maybe having another record loss this year. I wonder what you think about that particular business' brand equity. Third question, on the whole expansion of your industrial base in terms of movements and becoming self-sufficient. Wondering where you are in that process. How much more do you think you need to invest in the industrial backbone to become where you want to be in terms of self-sufficiency or relying on some people but not being overly reliant on them? Thank you.
John, I want to be specific about one thing regarding Baume & Mercier. Based on Sophie's accent, I heard the same thing you did. Okay. It's not Baume & Mercier will have a record loss. They will have a loss. They will record a loss. Want to make that clear.
It's French speaking English. Record a loss versus a record loss. I also was a bit surprised when I heard that. Okay. It's very crude, when President de Gaulle retired, they asked him and Madame de Gaulle, "What are you most looking forward to in your retirement with Le General?" She said, "I'm most looking forward to a penis." He turned over and he said, "Mon chere, it's called happiness." Okay. Record and recourse. Okay. A true story, by the way.
Do you want me to share or do you want me to? Oh, okay.
Listen, hey.
No.
John.
No.
John. How many times do we have to say the same thing? We do not speculate about the future, we don't know. If we knew, I wouldn't be sitting here, I promise you. I'd be sitting at a trading desk. Nobody knows. Nobody knows. What's this new word you're pulling?
Granularity.
Granularity. Okay. I don't know. What do you mean by granularity? You mean clarity.
Yes.
You mean we've got to predict.
It's not.
Go ahead.
No, John, I think the most important thing to us, it's been happening throughout the first six months, is that retail is performing better than wholesale. Okay? Admittedly, you look at the wholesale, it's a bit of both, right? Things are moderating. Also, we're not trying to stuff the channel. We've been very clear with all the guys. On America's fine. I think a lot of the ups and the downs is based on timing of high jewelry. It's all right. What was the other questions?
Asia-Pacific.
Well, I think the retail wholesale split is the answer.
The Asia-Pacific.
I think-
You can't say Asia-Pacific. Is Asia-Pacific Japan? Is it Vietnam? Is it Taiwan? Is it Singapore? Is it China? Is it Hong Kong versus China, Korea?
Yeah.
They're all different. Luckily, they all trade with one another, because if they had to trade with us, they'd all be bankrupt. I think you've got to look at the intra-Asian trade to get a good idea. Luckily, that's picking up dramatically. We have no idea. Why don't you look at what Goldman Sachs says? They're a bit better than we are, and they say next 2 years, 7.5%-8.5% in China, okay? I'll back that. If that's the case, we're happy.
To come back to manufacturing, we are fine. You know that for several years, we have indicated how we are planning to integrate more manufacturing. It's not only for, of course, having more autonomy in terms of manufacturing of a movement, but going forward, the brand equity require more in-house manufacturing. That's also true for jewelry, for example. You always speak about watches, but we are also investing significant amounts in the jewelry business.
It's costly, but it's an imperative. You're not going to buy a Ferrari from a Fiat factory. Clients are far too intelligent. Both males, females go to the web, and they want to know that it's authentic. In order to be authentic, you've got to have the correct designers, and you've got to have the right processes, and you've got to do it ethically yourself. You can't just outsource and not know where it's done. You've got to respect the environment, obviously the manufacturing process. That's costly. You can turn your eyes and give it to somebody else, but it's not the way we do business, and it's not the way our clients expect us to do business. As far as we are concerned and our colleagues, it's not a debatable issue. You have to do it.
Interestingly, you do get rewarded by the clients who feel that it's a necessity. Necessity.
Good morning. Thomas Chauvet, Citigroup. I've got three questions. The first one on pricing. It seems that you've increased prices over the summer in Europe. What was the magnitude of the increases? There have been increase in other regions, and what's expected for the rest of the year? Okay.
They did it last year. I had a small little tremor here. When clients know what the prices are, they buy just before you increase the prices. I just want to preempt them from winking or nodding and saying something.
That's the first question. Secondly, could you help us understanding a bit the costs development, Gary, in the second half, in particular A&P and admin costs? You had been quite precise in the first half. Finally, for you, Mr. Rupert, and Richard perhaps, on the competitive landscape. There seem to be two French luxury conglomerates trying to acquire scale in watches and jewelry. I understand your vision about M&A, about value creation. Nevertheless, you've got a big, big cash pile, a strong balance sheet. Are there opportunities in the watch and jewelry segment that are necessary for you to offset perhaps a more competitive landscape with acquisition made by some of your peers in recent years and in coming years?
Gary, do you want to talk about-
Sure.
Let me just say, firstly, pricing. The problem with pricing, with the volatility in foreign exchange, we do not want to have a situation where Japan or China or Taiwan, wherever is a lot more expensive than Europe. Firstly, it's not really fair to the clients, but secondly, you get a lot of gray goods moving. On the other hand, when somebody's just bought something, if you go and drop the prices a week later, they are not overly amused. It's a science, but it's also an art to make sure that you've got a fair universal pricing for goods. It's more difficult to move a car, but a watch or a piece of jewelry, if you are out of whack, especially with the visibility of the internet, you're going to have a movement of goods, high value, small volume.
It's not always that, oh, we're going to try and grab margin. It's let's try and keep things fair across the world. Gary, sorry.
Yeah. Thomas, you're quite right. We did take price increases, pretty much just in Europe. It was more of a hard goods thing. I can't really tell you a number, but you're quite right. On the expenses, you're right. I was clear. I wasn't necessarily clear for the first half. I was clear for the full year. I said, on a constant currency basis, we expect S&D to grow by 14% and admin to grow by 14%. I'm saying the same thing again. On communication, okay, we don't necessarily know where the sales are going to go. I'd rather be a little less precise and say somewhere between 9% and 9.5% for the full year. That implies, as normal, an increased spend in the second half.
And-
Then-
Acquisitions?
Yeah.
I think it's the same every year. The companies you really would like to buy will never be sold. We really do have a very big portfolio. If you look at Van Cleef and how it's grown, Cartier is just an amazing maison. Piaget is growing. As apropos jewelry, we've got three maisons. Watches. We have so many, that I would much rather give a colleague EUR 100 million or EUR 200 million for balance sheet purposes if they want to buy stones or if they want to do it. It's proven by Gary's giving them EUR 60 million, which turned into EUR 240 million in 18 months. Yes, they are coming into our field. It's called free enterprise. As we've learned, when we've stepped out of our main business, transferability of genius is a rare concept. It doesn't happen very often.
People who are beautiful, brilliant in banking, who go into insurance, suddenly find out the bancassurance model is not that good. If you're going to go from textiles to leather, you suddenly find, but it's not exactly the same business. Or watches and jewelry. It's not the same business at all, not the same distribution. When you step out of your field, my Jewish friends call it Rebbe gelt. You've got to pay your rabbi a little bit before you learn, okay? We welcome them. We have good relationships with our competitors. Funnily enough, a lot of them fight with one another, we get on with our Swiss and our French competitors. Yes.
Patrik from Zürcher Kantonalbank. Again, on China, on the new Chinese government, I guess there will be two targets with the new government, that they want to increase local consumption and that they want to fight corruption. What implications could this have for Richemont?
They want to increase consumption. For instance, we've spoken to CapitaLand in Singapore. In order to increase consumption, they're busy building a mall now in Chongqing. At the confluence of the two rivers. It's one of their iconic sites like with the Bund. 277,000 sq m. A mall. A mall, not a company. They tell me they're going to be building. Well, 200 malls will be built in the next four to five years in China. Because the Chinese government have come to the realization that in order to increase consumption, people don't buy washing machines from mom-and-pop hole-in-the-wall shops where they can't get a car. They're going to have to build malls. I don't think anybody said local consumption. I said it's consumption versus all the capital. They're busy building 200 airports as we speak.
In London, they're fighting about a third runway. They have been fighting for 20 years about a third runway. Do you think I'm really that concerned about where the growth is going to be? It's going to be in China. In terms of corruption, you find corruption all over the world. I would say less in the Nordic countries and in the Dutch countries, but unfortunately, it's all over the world. I'm not going to comment on corruption in China at all. The CHF 1 million per day turnover in Bucherer in Lucerne has got nothing to do with corruption in China. It's people that have worked, that have saved, that are spending their own money. It's now over CHF 1 million a day in one store in Lucerne. Traveling Chinese are coming and they're spending.
If you go to Galeries Lafayette and if you see the people. I don't think I've read anywhere that it's local consumption. It is consumption. I think fighting corruption, it's a worldwide scourge. It's not only a problem in China.
Regarding the luxury tax in China, do you think there could be a change? Regarding the luxury tax in China, do you think there could be a change?
No idea. We're not involved in Oh, the luxury tax. Sorry, I thought you said the lottery. Patrik. The luxury. Sorry. Patrik. Who knows? Who knows? Who cares? Who knows? It could go up. It's already pretty high.
Maybe even to decrease it to attract local consumption.
I have no idea. Absolutely.
What would be the implication for you, for the whole group, if they would decrease it?
Obviously, it's increase in consumption for everybody if the prices should drop in mainland China. We have no idea what they plan to do. I'm not even sure that people are 100% sure who will be on the Politburo by next Thursday. You know what? Will they grow over the next five years? Yes. They will. They study. Firstly, they're smart. Secondly, they work. They study. They travel. They travel. Exactly. Now they travel. And they're going to continue to travel. Obviously. When I leave, I'm not going to sell my shares, okay? I'll be buying more shares as things go on. I wouldn't be doing that if I thought that the economics of the luxury goods business is bad economics. The other day, I read, was it Panasonic? EUR 10 billion. Was it Panasonic? EUR 10 billion losses. Just a little blip.
EUR 10 billion. Okay. There are so many industries that I'm so glad that I'm not in. Banking. You can start with A and you can probably get to Z with things that are bad businesses today. We're lucky. Our margin drops by 2% and John Cox has a nightmare. John, we're just lucky. We're not that smart. We're very lucky. We're very lucky. Our dynamics, we don't owe money. People travel, as Richard says. As long as we keep our products desirable, we're going to do very well, thank you. That's our job. That's all we can really do. We can't change taxes. We can't change consumption. We can try to make sure that from the design right through to the presentation, that our products are more desirable than that of our competitors. That's really the goal.
Thanks.
Thank you. Good morning. Thomas Mesmin, Crédit Agricole Cheuvreux. I've got a few questions, if I may. First one, you mentioned that you have slowed the production recently. Is it for all of your brands and for both watches and jewelry? The second one of your competitors, let's say, in France, mentioned recently that they are experiencing the end of a destocking effect in mainland China. Are you seeing the same kind of trend in mainland China? The third one is for Gary. If you could just come back on the impact of the new methodology on hedging gains in H2. Very quick and last one, could you update us regarding your multi-brand store project in Paris? Thank you.
Well, you opened your big mouth and started talking. You're going to answer that one.
Great question.
It is a brilliant question.
A brilliant question.
I'd like to see how he answers.
Because I'm going to get hit over the head after this meeting now.
Not me.
The jewelry production is not slowing at all. Jewelry is booming. What I was specifically referring to is watches. I think you can see it in the sales by product line. I apologize if I've misled. On the exchange, I really don't know what the effect would be in the second half because I don't know what the rates are. I can't really say. The way we do it, when I give these two gentlemen numbers, is I just take the rate as of today. I don't know. It's not that I don't want to give it. I just don't know. Capucine?
Where's my question to destocking?
To be honest, I don't understand that phrase.
Exactly.
What that means. I see it all the time.
I'm basically saying that the clients stopped ordering, now they're running out of inventory, so they're ordering again. Is that what they implied? Would that be The Swatch Group that said it? No, who said that? Hermès. Hermès? Yeah. Of what? Sorry, but what would that be? No. What? They don't wholesale the TAG Heuer in China. TAG Heuer. Okay.
Certainly, Thomas, I think we've made it clear to all the brands not to overstock. Okay, now whether you call that destocking or whatever, clearly things have slowed. We're not immune to that, we're more worried about the receivables, we're more worried about returns. We'd rather take less upfront, if I may say it that way. In the past, certainly when I was America, I could be accused of this myself. If your retail is a bit soft, you get a truck and you open up the wholesale. We specifically told the people, the brands, not to do that. That's why we're still pretty comfortable with the retail wholesale split.
You either have a demand pull strategy or a push strategy. Problem with the push strategy, with high value, low volume goods, you push it into a market, it doesn't sell, it naturally finds its way to another market where you do have a demand for the product, where you're suddenly stuck with an overstocking situation. It's a global decision you've got to make. It's not just per market.
Again, Thomas, I always say it all the time. My key indicator is the receivable position, and it hasn't moved at all. It's still 94% current, year-on-year.
That's wholesale, right?
So that's-
Very good question, by the way.
Caprice.
The multi-brand store.
Yeah. That should open end of March, as planned. I do believe that it will come in time where hopefully we'll have still a significant increase of tourism in Paris, which has become the second city in the world after Hong Kong, visited by tourism, especially from Asia.
It was number one, it got taken over by Hong Kong, now it's growing very fast again. Paris. There were more questions? At the back. Lady had a-
Eva Kyrova from UBS. Questions, please. Back in May, you called China a black tie dinner on a volcano, I was wondering if you had to-
I was hoping that you'd forgot.
If you have to coin that phrase today, would you still coin it the same way? Has the dinner party just moved to Europe, or has the volcano started to bubble a bit more? My second question is on Net-a-Porter. You sound more positive on it this time than six and 12 months ago. Can you maybe talk a little bit about your learnings from Mr Porter as well?
Well, the music's still playing. I'm just sitting a bit further away from the band at the moment. It's still going well. It's probably turning to normality. There's still good growth. Amongst Chinese, it's moved a little bit in terms of where they're buying. I doubt that it's going to stop. Locality is changing. Well, one of our biggest problems, and I fall into that trap all the time, we're very reluctant to predict a discontinuum of any trend. When things go better, we think, "This is going to be heaven." When things go worse, very few people actually say, "I think we're close to the bottom." Because if you really look, things cannot always grow, get better, and things cannot always get worse. I guess the real issue is when do you call it?
You cannot, if you take the compounding, there's no way in which we could have grown by. Let's take firstly the growth rates in Japan. It was staggering 10, 20 years ago. You know it's going to stop. When? In China, we all knew you couldn't grow. China as an economy couldn't grow 12%-15% continuously. There are too many things that can go wrong. I try to explain to politicians, especially in Africa, the difference between an economic growth rate of 2%, 4% and 8%. 2% takes you 36 years to double the quality of life of your inhabitants. 4%. 8% is nine years. Okay? Are you going to do it? Sorry, not eight times nine. Yeah. Take the law of 72s. If you want your per capita income to double, and you take a generation, is a generation 20 years.
You can work it out. The per capita income in China, they want to have it doubled. You've read about it. In the countryside. How they manipulate that or make sure that that happens is they just don't give you work permits for the coastal cities. Companies move inland. They establish factories inland, and they create jobs inland. I think it will carry on. Net-a-Porter, I'm not really involved because they don't keep my size. That's more for men with waists of 32. These two gents can buy there, my son and them.
Eva, I admit, this time last year, I was a bit cranky on Net-a-Porter. They're doing fine. They're making their plan. MR PORTER is doing well. It's really becoming a second engine for them. They're cash flow positive. No complaints at all.
In the front.
Good morning. Mario Ortelli, Sanford C. Bernstein. Your business is generating a lot of cash, more than enough to finance organic growth. When you've got special projects, you can get loans at a very good rate. You have got a lot of cash. From what we understood, you are not planning acquisition in the short term. Can we foresee an increase of a dividend or a buyback product?
I never said there will be no acquisition. I said I can't see anything. Secondly, if I did, I'm not going to tell you, okay? Or anybody else. I never said that. One day, I should really publish a list of all the most stupid recommendations made by investment bankers and analysts about what we should do. At top of the list is, "You have got a lazy balance sheet. Give the cash to the shareholders, and we will give it back to you when you need it." Really? Okay. We've, with little or no debt, managed to grow by 15%, an IRR of 15%. In the last four years, with no debt, by 30%. Why the hell, if you can have growth rates like that, why? We've grown our dividends by 15% per year in EUR terms, CHF terms.
I don't think there are a lot of other companies. We're happy with our business model. We do not buy with equity. We believe that shares should be treated as the scarcest commodity. In fact, when I was in your business, in finance and in banking, I was very suspicious of anybody that bought with shares. Because there was a serious incentive to overstate the value of my shares if I kept on buying with shares. There is an incentive to pump it up, because that cheapens the currency you're buying with. When people treat shares as a scarce commodity, and they don't play with equity, then I have a good look at their company. Because they're treating their fellow shareholders. If you believe in your company, the most expensive currency you can buy with is shares, your own shares.
We try to treat it as a scarce commodity. Secondly, the real question for any investor is, can the management reinvest the free cash flow at a rate equal to or better than what they've done in the past, or what the market can, or their competitors do? That's our challenge, is to try to find ways to redeploy the free cash flow. If you grow your dividends by 15%, give me a comparable, okay? You've got very big database. Who's grown their dividends by 15% per year over the last five years? Please tell me, because I'd like to buy some of their shares. I can't find them. I think whilst our model works, we're happy to redeploy the free cash flow inside the business. There must be more. Do we have, what, three more questions? Good.
Thought there was somebody at the back there. No. Perfect. Sorry, I never said we'll never buy anything, okay? What I did say is, upon that question, is I can't see a watch company or a jewelry company at this stage with the dynamics that's that attractive. If we buy, we'll buy for cash. We think buying for shares I'd like you to go and have a look at all the big train smashes that you've witnessed. Inevitably, all these conglomerates, it was somebody who bought for shares. The real common denominator is you could never analyze the company properly, because just when you started to get your arms around it, they made another acquisition. A little bit of an accounting change. Then you try and reconcile it. Remember, I was in your business before Excel spreadsheets. That's how long we go back, okay?
Just when you kind of understand the business, then they make another acquisition. In the end, I just put a red flag. If somebody does that, don't buy the stock. Because if I can't understand the accounts, I'm simple. It's normally some convoluted merger accounting. You know what? Have you seen how much cash Apple's got? We don't have that much, okay? John. Have another go, John. Last question. John, no forward-looking statements.
I was-
To those people who are watching on the web, it's John Cox again who is about to ask another forward-looking statement.
You're absolutely right, of course. Gary, just what you said on the gross margin. I think you said that the favorable currency had, what, 160 basis points positive impact, do you think, on the gross margin in H1. Just based on spot prices, do you think you can maintain that gross margin in the second half of the year? It's the one thing we can't really see. We can do what you're going to spend on advertising and all the rest of it. The gross margin is really the kicker for us. Any sort of best guess for the second half of the year?
You want to see.
Okay. Assuming the currencies are as they were as of September. Assuming the mix is the same. Maybe slightly less than the first half. Slightly, I would say. I think we did have positive manufacturing variances in the first half. Because we've slowed the production a bit, those won't reoccur, I would say. Very slight.
I'm going to put a bit of a dampener on this, John. As you grow and you open new stores and you increase your manufacturing capabilities, obviously, you capture margin. The more retail you have, the less wholesale you have. You have good operating leverage or gearing. Things turn. As those of you that have been around a while will know, that operating leverage turns negative. That's what you really have to watch. A 10% growth should, in our business, equate to a 20% increase at the bottom. A 10% drop may actually be a 30% decline. May. It depends where and how. It's not that Gary doesn't want to. It's top-line. As I think Richard and Gary said, our business is top-line driven. We've got to sell. If we don't sell, the costs kill us. That's what keeps me awake, is operating leverage.
That is why I like cash. The other thing that I caution you to look for, not in today's environment where money falls out of the sky and you open. Italians run the European Central Bank. Italians that used to work for Goldman. I mean, no. When you have a combination of financial leverage and operating leverage, in good times, you make a fortune. In bad times, you earn your shirt, your jacket, your keys, you're gone. Never combine financial leverage and operating leverage. You have either of the two, but not both in the same company. We do have operating leverage. If you have a goldmine, please do not finance it with debt. If the gold price drops, your costs don't drop. You're wiped out. Mining. Commodity pricing.
On the other hand, if you have a building or if you have a tanker and you lease the tanker out for 90 or for 15-20 years for a fixed contract, you can borrow 100% against it if you've got a very good lessee. Our business has got operating leverage. It's why I hate combining financial leverage with it. If you have interest rates moving and your turnover drops, finito. That's why we don't like it. Remember, I've been through a few of these things. 1987. Naturally cautious. My bet, by the way, is stagflation. Have a look at the companies that did well in the 1970s that could withstand stagflation. They're not going to be able to stop inflation. It's not possible with the quantitative easing that's gone on across the world, everywhere. By the time you turn the taps off, it's going to overshoot.
We don't know when. You could have something before, but a year or two or three ago, I didn't know whether we were going to have deflation or inflation. My gut now tells me stagflation. No real growth with inflation, it's probably the worst combination. It's what happened when Lyndon Johnson said goodbye and Richard Nixon took over, look at the inflation combined with the oil in the early 1970s. This carried on until Paul Volcker increased the discount rate and really acted. If we have stagflation, a lot of people are going to be in trouble.
Okay.
Those are the big calls we've got to make. Thank you.
Thank you for coming, everybody.
Only good thing is it's the last time I have to sit and listen to John.