Good morning, ladies and gentlemen. Welcome to all of our friends and to the people that are visiting the podcast because they've had a travel ban because of their treasury overindulging a little bit. Sorry that we're missing you this year. We've had another very good year. In fact, I dare say it is a record year in every respect, in terms of sales, in terms of cash generated. Obviously, you've seen the operating margin. Unlike Jan du Plessis in 2000, I am not going to say that this is sustainable. We have no idea what the currencies are going to do, even though we had a very strong Swiss franc this year. It was up 9% on the EUR, it obviously did affect our results.
I think it is a sign of the times that you get elected as the president of a major country, you're invited for dinner in another country that night, you have no option but to go. Your plane gets struck by lightning, you arrive an hour late, you're there to discuss a third country that's probably going to call you on line 3 to say they're not repaying you. In case they don't repay you, your banks can't repay other people. In circumstances like that, I'm loathe to make predictions for the next year. Anybody who's going to ask, "So what do you think the next year looks like?" Why don't you just not ask the question? Because we're not going to answer any. It's not that we're coy or funny. We don't know.
We also do not know what the currencies are going to do. We also do not know whether the Chinese are going to continue to buy ad infinitum. We don't know. We are living with volatility. What we do know is that there is still an excess of debt. They write here, "leverage," but it's debt. Some of that debt has migrated from the private sector into the public sector, there is still excess leverage, debt. In my world, you either repay debt by generating profits, you create a tax base, you just renege. The third option, of course, is to just devalue the debt, which is financial repression. Obviously, this is what the politicians have chosen.
Slowly but surely, like you make duck pate, they'll force these supposed triple-A instruments down the necks of savings institutions, they'll just devalue it a little bit, just a touch. Consumers are not stupid. The financial repression is already there. If you're a saver you've worked all of your life you're in your 60s you've retired, what yields have you got? Where are your returns? Not a pretty picture in Europe. The United States may probably, because it's in their nature, get out of it a bit quicker. However, they've got a serious fiscal issue that they'll have to address by the end of the year. I'm not sure how it's going to end up. Our goal is very simple. We're trying to create products with enough appeal.
Products that withstand the test of time, that have investment value, that are in enough demand that we have some pricing power, that the price elasticity is right. We need to have them available in the right markets. It's no good having the right products in the wrong markets and nobody knows about you. When the people with money don't know that you exist, you may as well not exist. Over decades now, and I stress decades, it's not a new occurrence, tried to be in the most important regions of the world. Depending upon where you start from the West Coast of the U.S. all the way to Japan, we spent time and money, and good people have gone there, and it's paying off today. If you do not have a global footprint and a global desirability, you've got problems.
We have seen this year, the sales growth's up nearly 30%. Retail did outperform wholesale, if you can look there. The operating profit growth is 51%, that's obvious operating leverage kicking in. Be mindful, that works in reverse as well. We've had a sharp increase in the profit and healthy cash flow from operations. I know you're all going to say, "Okay, you've got EUR 3 billion. What are you going to buy? What are you going to do? Special dividends." Well, the Swiss franc increased by 8% against the EUR this year, and we increased our dividend by 20%. That's a 28% increase in the dividend. We discussed that, and we feel it's sufficient. Next year is 25 years that I've been in charge of this business. We started this thing 25 years ago.
We started in 1995, Alan, but it took us three years to get through all the 278 various steps with the help of métiers manuels and others. Next year is 25 years. Things have changed dramatically. Over the period, we've managed to grow dividends and sales in hard currencies. With sales, then cash flow, then dividends. I said a few years ago, that equalized out, we'd like to grow. Be a goal for me to do it at 15% per year. That does not make us the new utility stock. Which, by the way, you can't find anywhere in the world anymore. Since you folks in the room and your cousins in the banks started telling people you've got lazy balance sheets, every utility started borrowing too much because of dependability of dividends, of free cash flow.
The telephone utilities, the water utilities, Generale Reserve became Vivendi, much sexier name. The predictability of the dividend disappeared. The poor folks who are in retirement, where do they go for a predictable dividend flow? Tom Rossu, Tom knows because he went for the right companies. Some people did go for the right companies. When I grew up and when I was on Wall Street, there were companies with predictable, boring AT&T, KPN. I'll run through all the water utilities. They've disappeared. They were financially geared up. They're gone, by and large. I'd like you to have a look to see how many companies you can find today in comparison to 30 years ago, a widows and orphans stock. What happened to the widows and orphans? They still live.
The universe of shares that they can invest in, or bonds, or lo and behold, bonds and currencies. Think about what's happened to that whole class. That's why I'm part of the 99%, not part of the 1%. I actually think we failed. We behaved morally reprehensible in terms of what we're leaving for the next generation. Last two years ago, I told you we're going to have tearing of the social fabric. We are going to have an emergence of a left wing and a right wing. The left wing and the right wing are both so scary that they're almost the same. If you look at what's happening in Greece now, the party, the ultra-left-wing party that refuses to join, they're made up out of civil servants, teachers, nurses. They don't want to give up any privileges whatsoever.
These are things that we're going to live in, I'm not prepared to stick my neck out to say which way it's going to go, except that we will see more civil strife. I remember Paris, May '68. I remember the Brigate Rosse and Baader-Meinhof. Because of the stupidity we've landed ourselves in with the unemployment that's facing us, we're going to have issues, real issues. We feel it prudent to have cash in those days. 3 billion's not a lot. Apple. Aha. Now, that's a lot. Okay? When you're talking 100 billion, it starts getting my attention. 3 billion is not a lot of money. This is not disparaging what I'm saying now, but last year, we had an opportunity to buy another famous jewelry company. We were offered first. It was sold for about 4 billion EUR.
A number of you asked me, why didn't we buy it? I answered that our job here is to create goodwill and not to pay other people for goodwill, if you remember. Now, I'll give you a guess. What is the multiple of Cartier's growth in EBIT? How much more is the growth in Cartier's profit than that other jewelry company's total EBIT? Come on. The same? Take a guess. No, no, don't look there. Come on. Come on, folks. Nobody from my financial department, because you know it, okay. I'm willing to give a Cartier watch for somebody who gets to 10%. Come on.
Five times.
Sorry?
Five times.
She said five times.
Yes.
Give the lady a watch. The growth in Cartier's operating profit was five times the total. Sorry?
Increment.
It's a bit high, we'll give Frenchy.
Yeah, I know. We're sticking to five because we don't want to insult other people, okay? It's five. Folks, seriously, what are we supposed to do? Do we open more Van Cleef & Cartier and give Philippe Léopold-Metzger his due, Piaget boutiques? Do we go and buy other companies? I'd rather invest in things that we really know well. We never talk enough about places like Piaget. They are doing very well. Our view is use the money, support what we know. Remember in 2008, things weren't going that well, but we told our colleagues, "We'll back you. Go for it." In parts of the world now, real estate is so expensive. You're talking about a couple of EUR 100 million for a site, folks, okay? If you need those premium sites, you need firing power.
I do not want to get into the next cycle with debt. Please, we are not planning any acquisitions. We're comfortable with the cash. I think we've proven to you that by redeploying the cash internally in supporting not only our jewelry, but our watch Maisons and our fashion, that we can actually do better than to buy other companies and to pay goodwill. I never thought we'd get to a stage where we have free cash flow like this. The other thing you are going to ask about Bernard and about Stanislas, and how are we ever going to replace Bernard? Bernard was running Baume & Mercier when I found him, and I thought he was a good manager. I appointed him above the previous heads of Cartier's recommendations. In fact, at the board meeting yesterday, they all admitted that they had grave doubts.
Bernard is a very good manager. Cartier sleeps in the vault. It's called Louis Cartier. He's not going anywhere. We've been involved since 1975. The value of Cartier is its team. It's not an individual. Bernard will stay with us in a different role, but we do not have the hubris of some of the investment banks who think that we're irreplaceable. In any case, most of it's done by teams, including a central product and communication committee team, where we stop things like putting Jewelry on gas bottled. No, we won't go there. We have breaks and accelerators built into the system. The third question that I knew, I want to obviate all these things. What are you going to do about succession? It's in hand, including for me, because I'm not going to work forever.
I've had three stents put in my heart in the last month in New York. I feel great, but I'm going to also get out of here sometime. Yesterday was my 30th wedding anniversary, I was here alone because I had to come and listen to your rubbish, your questions. My wife went to the opera in London. I had to sit here because there's this Geneva Air Show, you can't get in and out. I know the questions. What do you think is going to happen the next year? Is China growing? Baume & Mercier, it's on breakeven. What's going to happen in fashion and luxury? Are you sure your succession is okay with Mr. Fornas? We are running a little pool on questions that you folks are going to ask.
Please do not disappoint me because I have a list of questions, I expect to win. Very good luck, you're absolutely right. It was slightly more than five times. Richard.
Thank you, Johann. I'm sure that the message has been received loud and clear. Now let's come back to hers and just speak about sales and sales in Europe first. We are now showing Middle East and Africa separately as they have different sales dynamics. Europe is our second-largest region with 29% of group sales. Sales in Western Europe rose by 16% overall. This rate primarily reflects organic growth, hardly any store openings, and is mainly driven by tourism. Although, the French, German, and Swiss clientele was fairly resilient. This growth also reflects the increased weight of Net-a-Porter and the fact that most Maison improved their performance versus a year ago on the period. Sales in Russia grew at a much faster rate than in Western Europe. Middle East and Africa. This region accounts for 6% of group sales.
The largest part of sales are done in Dubai and Abu Dhabi. Sales were primarily driven by locals purchasing high-end watches and jewelry. It's worth mentioning the increased weight of tourism, especially from China. High commodity prices should continue to bode well for the performance of the region, in particular, oil, gold, and diamond. Let's turn to Asia Pacific. That accounts for 42% of group sales. It is now number 1 Richemont region. It's enjoyed broad-based growth. In terms of market, Macau, Hong Kong, and mainland China performed best, followed by Korea, Singapore, and Taiwan. In terms of channels, retail particularly solid, largely boosted by the opening of 61 stores in the region. The momentum was very good, including in the last quarter. Product-wise, there is a trend towards higher price points. Given the demographics and economic momentum, the contribution to sales of the region should continue increasing.
Let's now turn to the Americas regions. Its growth rate is in line with last year, even if the comparisons were pretty challenging. The performance of Richemont in the U.S.A. reflects the quality of operations. Only 10 stores were opened over the period, so the retail growth is primarily organic. We start enjoying the benefits of a smaller but more efficient wholesale network with less partners, but stronger partners and more partnership. The region's performance was primarily driven by much higher jewelry sales and by domestic tourism. Purchases from visitors, notably from Latin America and China, are still low, but on the rise. Given the likely development of Latin America and easier access to visa for Chinese, we can expect South American and Chinese customers to become larger contributors to growth in the future. Now, Japan.
Given its lower relative growth rate, Japan is now the 9% of group sales after Hong Kong, USA, and mainland China. It showed a remarkable resilience even if the current challenges the country faces. It is worth mentioning the success of Van Cleef & Arpels and the specialist watchmakers, and as well as the bridal lines. The solid performance does not change, however, our view that Japan is unlikely to achieve major growth in the future given its demographics. Let's look at sales by network. Retail sales enjoyed strong momentum, thanks to good performance at the Maison directly operated stores and Net-a-Porter, the impact of close to 100 net new internal stores, primarily in Asia-Pacific and tourist destinations. Wholesale growth was also broad-based in terms of regions. Inventory levels in the trade are sound.
The group now generates 53% of its sales through its internal stores. Here are the main points to remember about our Maison performance this year. Record profitability and profit at the Jewelry Maison. Robust profit as a specialist watchmaker. Improving profitability at Montblanc Maison. Fashion & Accessories profitable and improving. Net-a-Porter, a year of structural expansion. Let's look at the main development within the Jewelry Maison. Sales rose by a robust 32% above last year's growth rate with few stores opening. Both Cartier and Van Cleef & Arpels enjoy a broad-based double-digit growth in sales across geographies, product lines, and channels. Sales of high jewelry at Van Cleef & Arpels were particularly noteworthy. Both Cartier and Van Cleef & Arpels performed exceptionally well, breaking new records. Operating contribution increased to EUR 1.51 billion, leading to a contribution margin of 33% of sales. Now, our specialist watchmakers.
All our Maison enjoy substantial growth in sales. Focus on the high-end segment of the watch industry, they each have their uniqueness, which implies little cannibalization and many synergies in back-office functions. Our Maison pricing power and operating leverage helped to mitigate the strong Swiss franc and higher input costs. All specialist watchmakers saw an improvement in their results, including Baume & Mercier that reached breakeven point. Operating contribution rose by 42% to EUR 539 million, We were able to raise our contribution margin to 23%. We now turn to Montblanc. The 8% increase in sales was driven by watches and leather as well as by Asia-Pacific, Americas, and the Middle East. Retail outperformed wholesale, reflecting the performance of the Asian internal stores and the ongoing downsizing of the wholesale network, mostly affecting pen distribution. Retail now accounts for 47% of Montblanc sales.
The non-pen business, which includes watches, leathers, and jewelry, offers a higher potential. It accounts now for 54% of Montblanc sales, This percentage is expected to grow in the future. Operating contribution rose by 9% to reach 16% of sales in line with last year. Finally, the other business area, which comprises the Fashion & Accessories Maison, Net-a-Porter, and the facilities involved in the production of watch components for the group and third parties. First, the Fashion & Accessories Maison nearly doubled its profits from EUR 29 million a year ago to EUR 50 million. The performance of Alfred Dunhill was particularly strong. Chloé did well. The reorganization of design, retail, and operation is now complete. Increased penetration of Asia-Pacific should help the Maison grow, while the success of the perfume business is raising awareness and generating much free editorial Lancel sales were quite strong.
The repositioning is working, it is profitable on a recurring basis. The Net-a-Porter Group results were affected by investments in the U.K. and U.S. platforms. Its growth in sales remains above group rates. Losses at the group watch components manufacturing activities were contained to last year level. Going forward, as volume rise in tandem with expertise, we expect these losses to remain at similar level. Gary is now taking you through the P&L. Thank you.
Good morning, everyone. We'll descend further down to earth now and talk about the finances. We enjoyed solid increase in sales as Richard and Mr. Rupert noted, 29% reported and 30% at constant rates. We enjoyed a 29% increase in gross margin in value terms. We contained our growth in operating expenses at 19%, all of these elements led to an operating profit increase of 51% to EUR 2,040 million, and an operating margin of 23%, which is truly remarkable. Let's get into the details now. Gross profit. The 29% value increase in gross profit generated a flat gross margin year-on-year at 63.7%. What were the positives? Our brands enjoyed, again, strong pricing power, higher retail prices, lower discounts in our shops, and higher selling prices to our wholesale partners. We had a higher retail mix contribution, which helped.
We had volume-related manufacturing efficiencies, we also benefited from our hedging program, which generated a EUR 108 million gain in the margin line. These positives overcame a stronger Swiss franc, up 9% year-on-year. This obviously affects our production costs. We had higher precious material and higher input cost in terms of our products. Component prices also rose. We also had to overcome the natural economics of the Net-a-Porter business on gross margin as it's a different business model. To the extent that their sales rise above the group, there's a dilution at the margin level. Let me remind you again that we announced in September that we were changing the accounting policy around our hedging program effective April 1st, 2011. All of those contracts, we are not qualifying for hedge accounting.
On the slide, you see the effect going back each year of the old program in the margins. When you think about what you want to do in terms of projecting our margins going forward, you need to exclude that in future years. That gain or loss will now be below operating margins. Moving on to expenses. Our expenses rose by 19% or 18% in constant currency terms, well below the sales growth. The overall expense ratio declined to 41% from 44% a year ago. What were the increases for the year? The bridge is on the slide for you. Net-a-Porter, primarily the start of the full year of Mr Porter and expansion of U.K. facilities added 2% to our expense base. New boutiques accounted for 7% growth in spend. We had increased communication spend, which added 4%.
All other expenses, which are all other sales in distribution and administration expenses, added 5% to the base. There was Forex effects of one. S&D cost, 54% of total OpEx rose by 19% given the strong sales growth and network expansion of 72 stores this year. Most of the stores were located in the Asia Pacific region, but also in tourist destinations around the world. Administration costs were up 14% for the year. At constant currency terms, 11%. The administration costs grew half the rate of sales. We developed the Asian backbone operations. We continued to expand Net-a-Porter, and we dealt with IT infrastructure issues as well. Let's move on to profit. Net profit. I'll deal with finance costs on the next slide, as is my usual way. We enjoyed an effective tax rate of 14.6%.
The decrease in the rate versus the prior year is primarily due to deferred tax assets relating to inventories, this is more of a timing issue. There were more inventories in our subsidiaries at year-end than last year. So this accounts for about one point of the difference and is the largest difference. We expect a normalized tax rate going forward of 16%-18%, and this range is very much within the cash tax range as well. Despite higher finance costs and the non-reoccurrence of the gain that we booked last year on the Net-a-Porter transaction, profit for the year rose by 43% to EUR 1.5 billion. Let's take some look at finance costs. We incurred non-cash losses on mark-to-market currency adjustments relating to our euro bond funds amounting to EUR 169 million in the period. As a reminder, upon consolidation, this has no effect on the group's equity position.
We talked about the hedging program, what I've tried to isolate for you on the new contracts, the result of the hedging program for this year, where we incurred a EUR 26 million loss. If we had accounted for this under our old hedging policy, this would have been deferred in equity. We expect all remaining hedging contracts under the old program to be recycled in gross margin by August of this year. This effect, based on the rates in play at the end of the year, is expected to be immaterial on the margin. Let's look at our cash flow, obviously above last year due to our solid profit results. We did invest back in the business. We increased our inventories. Why? We were a little low last year. We talked about that. We opened up 72 new stores. Having said that, the inventory rotation continues to go down.
This year was 15.8 months versus 16.5 last year. We did see an increase in receivable balances as well, more to do with the wholesale business in the fourth quarter. So that's an investment in a way. I'm pleased to say that receivable positions remain extremely healthy. This time last year, 90% of our receivables were current. That ratio has risen to 93% at the end of March. Now let's look at our investments in capital expenditures. Our net investments on all capital-related items grew by 64% to EUR 535 million. This represents 6% of sales. We had increased investments in manufacturing. We talked about the 72 new stores, and we expanded and improved our distribution platforms in Asia and Net-a-Porter U.K. This level is obviously above depreciation and shows our commitment to our ongoing investment program.
We will continue to roll out this investment program in retail with our wholesale partners at point of sale and in manufacturing. The next slide, I'm going to provide you with some details of some of the projects. By category, 47% of the investments related to the retail network. The most notable retail projects included new Cartier stores in Hangzhou, in Seoul, and the renovation of 1 Peking Road in Hong Kong. Van Cleef opened up a new home in the Prince's Building in Hong Kong, and you see that on the slide. Piaget, Galaxy Macau, Jaeger-LeCoultre, Hong Kong Heritage, Panerai, Etihad Towers in Abu Dhabi, Vacheron Constantin in New York. Let's not forget as well, we renovated the Lancel flagship store in Paris.
Gary, I think we better tell them that we might be spending quite a bit in New York.
Okay, we'll get to that.
Quite.
Okay. I'll probably let you do that one.
I asked Richard, I discussed it with some American directors, to maintain the presence we've got.
Yeah.
They're going to have to have heads up. There will be money going out, okay? Don't worry, we'll still have cash left. Okay.
Well, that was certainly breaking news. The remaining 26% of the spend went to distribution, our shared service facilities, mostly in Asia and Net-a-Porter, as I discussed. Let's move on to free cash flow. Obviously, the higher cash flow from operations financed the capital investments that we just spoke about. Of course, the better results caused us to pay higher taxes. Our cash tax rate for the year was 17.6%. In summary, free cash flow, while still healthy, declined a bit to EUR 953 million for the year. Quick look at the balance sheet. Our equity position rose to 73% of the total from 72% last year. After a cash payment of EUR 204 million last year, we ended the year with net cash and investments of EUR 3.2 billion, a EUR 600 million increase versus last year. Finally, from me, the dividend.
Our fiscal year 2012 dividend proposal to be confirmed by the shareholders in September is EUR 0.55 per share. This proposed dividend represents a 22% increase over 2011, it's consistent with our board's view, which aims to provide a consistently higher dividend each year. Mr. Rupert always spoke about the approach there. Thank you for your attention. Now I'd like to hand it back to Richard to talk about the operations.
Thank you, Gary. Just a few comments on organizational highlights. Gary just disclosed our investment in retail, infrastructure, and production. These investments reflect our strategy of investing in our Maison, as explained by Mr. Rupert. As you just saw, we have significant internal investment opportunities with high returns. Let's start with distribution. New consumers from growth markets combined with massive tourism imply a major evolution of our distribution in established markets as well. The best shopping experience is offered through our branded boutique. Today, our Maison operates about 1,550 boutiques, some 90 more than last year. We continue to open selectively boutique, including for our specialist watchmakers in growth markets and in established market in tourist destination, taking into account notably more concentrated shopping patterns. However, for watches, the independent multi-brand retailers remain critical. We want to develop a stronger partnership with the ones remaining.
This entails a larger business with key retailers, some with international expansion like Boucherer in Paris or Wempe in China. Greater control on sales and inventories by increased integration in our own supply chain. Increased productivity for the retailers, enabling a higher margin for us. To support our distribution strategy in new markets, we are structuring our distribution platforms. Platform in Hong Kong and China are now fully separated. Both markets are indeed of critical size to justify their own organization. In China, where we face huge growth, headcount will rise from 2,300 end of March 2012 to some 4,000 by March 2015, of which over 400 people to service some expected 300,000 watches a year. We also recently opened our retail academy in Shanghai to recruit and train our sales force. Today, we manage over 160 internal stores in China.
In three years' time, that number could reach over to 250. In Hong Kong and China, we are opening offices and warehouses to enable the development of the Net-a-Porter Group. In Brazil, a new Richemont affiliate will incorporate the watch and jewelry Maison by mid-2013. In India, a new Richemont affiliate should open this year to prepare for the future. We continue to promote operational efficiency through distribution platforms and ERP to benefit from a fully integrated system from design to retail, including supply chain with our wholesale partners. Now let's move on to manufacturing. Our philosophy is based on verticalization, i.e., each Maison has its dedicated manufacturing facilities to guarantee authenticity. Our biggest country in terms of headcount for manufacturing is Switzerland, mainly for watches, then come Germany and France.
Over our 37 fully controlled manufacturing facilities and workshops, we employ close to 7,000 people, around a quarter of our 25,000 workforce. We continue our investment in watch and jewelry manufacturing by strategy, as explained. As a result, we raise authenticity to meet clients' requirement, for example, through movement manufacture. We enhance our flexibility to meet demand in a volatile environment. You saw the capacity of adaptation to the demand of Cartier. We raise the capacity to meet increased demand and future growth. Of course, we improve operational efficiency. Current investments include new and extended watch manufacturing facilities in Switzerland for Cartier, Officine Panerai, Vacheron Constantin. Extended jewelry workshop for Cartier at La Chaux-de-Fonds in Switzerland. The future Campus Genevois d'Horlogerie is also one of the major investment to come. The entire watchmaking industry suffers from the lack of qualified manpower.
We have invested in specialized schools, but needed to get on a bigger scale and be more appealing toward the young generation. The campus will host a watchmaking school, a research and development center, and new manufacturing facilities for several of our Maison, including our manufacturer, Stern, specialized in dials and Poinçon de Genève movements components. Thank you. I would like to hand the presentation back to Mr. Rupert for the conclusion.
Thank you, Richard, and thank you, Gary. I think we've gone through the same topics year after year, and our strategy really remains the same. What matters most is the protection of the heritage of the Maisons. As we've said before, we're really in a business where we can wreck our own businesses. Mr. Buffett always talks about a moat, a moat around your business. Well, there's a big moat around a very well-run luxury goods business. I'm not going to wake up one day and find out that somebody has found a new way. Imagine if you're IBM and you're making computers, and Dell comes around, and then after Dell, Gateway comes around. In the end, you go to Pudong, and you see they're all made in the same factory. The basic drivers for the quality goods business, and the word luxury is so banal.
Once somebody's worn a cashmere product, it's kind of hard to go back to lambswool. Yes, you may have to go back for a few years if your cash flow is insufficient, but you always treasure that dream. This, I never believed. Joe Kanoui explained to me, he said that once you've tasted it, there's that drive for fine products. Now, a friend of mine defined luxury is that something that you never really knew that you needed. You never missed it. Then once you got used to it, you couldn't do without it. You never realized that you needed it. Once you got used to it and it became a habit, you couldn't do without it. Now, that need will remain. Love, passion, guilt, gift-giving, self-reward. It's been millennia and it will continue. It's how we look after the Maisons that we have.
Are we going to continue to invest in the creativity, in the dedicated workshops, manufacturing facilities? Then on the demand side, we'll continue to work on the desirability and the prestige and the esteem, communicate. Now, we have to reinforce our European heritage. We've got to make clear what made in Switzerland is. I agree with Mr. Hayek. It's total nonsense that you can export movements to Hong Kong. There's a company that buys movements from him, export to Hong Kong, sell it to Chinese manufacturers who put it into cases and put straps and stuff on, and then sell it as made in Switzerland. Against Swatch. It's nonsense. We've got to make clear what is made in Switzerland. Then we've got to maximize our business model. We've got to leverage distribution, real estate, and training.
For those of you who are here who are colleagues of mine and Thomas, you can do me the favor by sending out an email to the heads of all the Maisons tomorrow that there will now be a negative KPI of 30%. At my judgment, on any Maison's head who is overly aggressive in the competition with another company inside the Richemont group. When we negotiate for a boutique on Madison Avenue, quite toughly, and I find out that another Richemont company goes through another route and concedes on terms that Richard and I signed off and say, "Hang on, we want it," that is 30%. You know the message. You know whom I'm talking about. They're not too far away from here. If we want to leverage on the system that we so painfully built, really, let's not do that.
By saying it here, and I know a lot of the Maisons are listening over this telecast. I'm talking to you, folks. Stop messing around with your colleagues. It makes me and Richard look like fools as well. Now, our objectives are still the same, building goodwill rather than acquiring goodwill. Ultimately, all of this is in the pursuit, in the generation of sustainable free cash flow. Once we're able to do that, we can grow dividends consistently. I think we've spoken a bit. At constant currencies, April's up 20%, and it's up 29% as reported. Folks, they begged me, my colleagues, "Please don't say it," but I feel like I'm having a black-tie dinner on top of a volcano. Okay? That volcano is China. That's what I feel like.
I go in the mornings, we put on our ties and our watches, and we go. The food's better, and the wine's better, and the weather is great. Let's not kid ourselves. There is a volcano somewhere, whether it's this year, in 10 years' time, or in 20 years' time. We are exposed to China. I think they're going to travel more. I think they're going to survive. I think all of these things. We are now a China play. It suits us if the euro gets weaker. It's everything that I would never have thought 10 years ago. That really is our business. Personally, I don't think anything's going to go wrong in China. That's my view. I know nothing, and I mean it. I may be too optimistic about China. If you have differing views, remember it's critical.
In facing the future, over the last 25 years, we've built a very strong group of Maisons. Especially in the East, authenticity, originality, and history matters. You don't create history overnight. We have leadership on a number of prestige products and categories. We have enormous growth in the countries with the money. We have a very sound balance sheet. I am long with this company, and I'm still believing. I've got to give you a counterbalance that if I'm wrong on China, we're going to have issues. Personally, it's funny, my friends in New York all ask me, "What's happening in China? What's happening in China? What's happening in China?" Not necessarily because they're interested in Richemont, but they're interested in their own welfare because they are equity and in credit markets. People like Iggy, all he wants to know is what's happening in China.
What's happening for us in China is good news. Understand that if we're wrong, it will have implications. By the way, it'll be too ghastly to contemplate for all of us, because believe me, it'll be every single large company. I think we've been as forthright as we can, and I'll sit now, and then if you want to have any questions, we'll answer them. I'm not going to tell you what I think our third quarter's XYZ is going to be. By the way, neither will my colleagues. Thank you very much. By the way, this is not a bribe. You can tell Deutsche Bank. No. You can. If Deutsche Bank cannot have that, you have a real problem with your ethics.
I will auction it. Thank you.
Okay. Thank you. Listen. Hey, if you make the right guess, this is not a bribe, believe me. You know, I have real problems with institutions where somebody can be bribed with a watch. EUR 10 billion or EUR 5 billion, when you can bribe somebody with a watch, there's a problem with the culture of your institution.
I appreciate it.
Okay. Thank you very much. Okay. Thank you. Thank you. Thank you. I was surprised because very few people had any idea. Okay. Well done.
Thank you.
Francesca guessed correct, and she's nice enough to auction it for a charity. Bravo. All right. Go on.
Johann, congratulations on a terrific set of numbers and the result of lots of hard work and stones laid a long time ago. In your estimation, where do you have the highest returns on your capital expenditures going forward? Where will the investment returns be the greatest? If you think about your Maisons, your flagship stores, whether it's in China, generally, whether it's in travel retail, what are the areas? You've touched upon this question so often this morning, you may not have much left, but just your priority.
It depends upon, are you asking in which geographic area or which company, which combination of company plus geographic area, or where we overprice our product so ridiculously that the cash flow is superb?
It's sort of a broader question. You'll be able to continue to redeploy capital, and you've seen it go up, and you've said already that you're going to be increasing your capital spending. Rather than beat that drum because you've answered it well, let me switch the question. You once had a great observation about counterfeit and about what measures you take to try to police it and go against it, and also what it did internally to your organization to help make it more urgent in its own production practices. Maybe just reflect on that for a moment.
It's very difficult because we generally find that this is a very long-term business. Currently, because of currency movements, et cetera, Japan is still our most profitable market because of the pricing and how the JPY has moved. It's been one of our most profitable markets for very, very, very, very many years, Gary. I guess our single most profitable venture is probably Panerai, where we paid less than $1 million. We found 40 pre-war Rolex movements, which we cleaned and oiled. We put into platinum watches, and we sold for more than the purchase price. They don't come that often. I would say Van Cleef would be a very good example of how our business model works where Actually, it was a Mr. Corrado Frattini of Italy who put the company together. We had had an interest.
I bought the company from him over the phone. Ewald was with him, but we shook hands over the phone. One of our large competitors based in Paris offered him 25% more than what we'd agreed upon over the phone, without asking what we'd agreed upon. Mr. Frattini said, "Sorry, I'm a gentleman. I've agreed." That's how we got Van Cleef & Arpels. That's more than a decade ago. Slowly doing all the right things, pulling the licenses back, getting the leases, getting the products, going into the archives, getting the artisans back Today, it is a very profitable company. I remember coming year after year, and not only you folks, but colleagues of mine at the board level. "When is Van Cleef going to make money?" Do you remember how often? I said, "When we're ready for it to make money," board members.
Alan, you remember how many years. Finally, I took it off the board table. I said, "It will make money, and we'll let you know." Today, it is a very precious part of our group. Tom, it's a difficult call. You are correct. The real question is, do companies redeploy their free cash flow accretively or do they waste it? If that's your question, fully agree. There are a lot of companies who actually waste their free cash flow and they reinvest it sub-optimally. If you find the companies that redeploy their free cash flow properly and at a higher rate, then you get that generational power. I haven't worked out which ones in the past.
You may add also that you need a vision because when you bought LMH
Oh, yeah
we will never be there today should we have not bought LMH.
No, that was not my vision. That was my paranoia of what would happen. I think if you want to be successful, you need a very healthy dose of paranoia. That somewhere every day, somebody's there that wants to eat your breakfast. If you're not there, they will do so. LMH, if we hadn't done that, what's that, 12 years ago, if we hadn't done that, we wouldn't have had a business. For that, I have to thank my French friends, because if Jean-Marie Messier hadn't had the grand vision of building Vivendi, he wouldn't have bought us out at 68 francs, euros. The share went to eight. If we hadn't had that cash, we hadn't exited out of pay TV, we wouldn't have had the cash to buy LMH.
If we hadn't bought LMH, we wouldn't have been in the business today because it would've been like making Ferraris in Fiat factories. You cannot do it. Our clients are too sophisticated. They want authenticity. With the transparency that the web brings, you can't lie to clients. If you have superior quality, I always say to people, a trademark is not some mysterious thing. All a trademark is WYSIWYG, what you see is what you get. If I buy this, I'm not expecting Château Lafite. I'm expecting Coke. It better be the same every time I buy it. If you buy a watch, it's not that you're buying high or low or this, but it's got to be consistent. What the client expects, the lady or the gentleman, it must exceed their expectations. At least meet.
Trademarks across the world, a trademark it's not such a funny thing. We need that consistency. It's in the end, attention to detail. A paranoia, that's why I love Ralph Lauren so much. We're actually not quite sure who's more paranoid, him or me, okay? When we sit down and we start talking about what could go wrong, and this goes into the early morning. A healthy paranoia is not bad. The real question that he asked, I'm afraid that's the key question, that 99% of all people miss. It's no good generating free cash flow if you reinvest it at less than the rate that you're generating it at. It's as simple as that. Rather give all your cash to your shareholders.
Sorry, I have to admit, Tom, quite often, when we've calculated that it would be a more than optimal return, it's turned into a bloody disaster. Quite often it's your gut feel that's led to a higher than optimal. It's very often a group of us sitting around and saying, "We smell something." I don't know how to define that. You know what I'm saying? With Panerai, my colleagues told me that I'm an Afrikaner with no taste. Okay? Don't buy it. What they wrote to me, that I'm unsophisticated. Yeah. I then wrote to them that I have more shares, we are buying it.
Good morning. John Cox with Kepler Capital Markets. Just a question on the whole watch production liberalization issue. How many years do you think it will be for you to be comfortable with your manufacturing footprint? You talked about you want all of the brands to have their.
We are comfortable right now.
Yeah.
John, we're comfortable right now. Told you last year and the year before that we're comfortable. We have empathy with Mr. Hayek's position, and we're comfortable. I saw yesterday was it, that COMCO said that 2013 is the same as 2012. We're comfortable.
Well, as part of that question, I can see you're obviously doing a lot of expansion in your manufacturing capacity, Cartier expansion and lots of other watchmakers. Would it be realistic to expect then that there'd be some margin pressure on the watch division as you expand your own production?
Yeah, we've said that for the last five years. Obviously, there would be, but there'll be a blend between own and others. There's no headline in this or any story in this. It's an evolving situation. We don't know where it's going to lead because there are enough movements inside Switzerland. When people export 800,000 Swiss-made movements to Hong Kong and then call those watches Swiss watches, then I have empathy with Nicolas Hayek's. I mean, it's rubbish. If those 800,000 had to be here, there wouldn't be a problem. I'm not going to go down there because every question leads to another headline and Johann Rupert says this, and then this says that. We are comfortable. We're comfortable with our costing, and we're comfortable with a blended cost. What's more important, our clients are comfortable with it.
We have a good relationship with the other manufacturers, with Rolex, with the Swatch Group. We don't really have enemies in the watchmaking universe here, and I want to just keep it like that. Our plans are in place, and they have been in place for a while. If I can put it to you like this, there's no story here. There might have been a story three or four years ago if things had gone wrong, and you're 100% correct. It would have blown our costs out of the water. As things stand now, I'm comfortable, Richard. You should say, too, the head of production.
Yeah. What is also important to note that the market has evolved towards higher points, meaning that the in-house movement, which of course, cost more than standard movement, has just met the evolution of the demand. You saw it translated into figures. Here we are.
Yeah.
Okay. Just a question on the deployment of your resources, as it were. On M&A, it's pretty clear you have a fantastic portfolio in the hard luxury segment with the jewelry and the specialist watchmakers. Maybe potentially some of the soft leather accessories are suboptimal, and maybe that's part of the problem with the profitability. Is it time to look around for some businesses within the soft leather and accessory side? Doesn't have to be a big bang acquisition.
They all think they're worth 20 times what they are. Okay? I get two a week, household names. A lot of these were bought by financial institutions who are now wishing to exit. They came in the other way around. I went into Italy and actually spoke to the suppliers, five, six years ago. I looked at it from the supplier up, and I did. There's one very big acquisition. I got to a realistic price being 40%, four zero percent of the eventual price. You can't compete. Then you're in that business, the ready-to-wear business, and then you've got Zara and H&M. I've got news for Zara. In China, they're bringing out Zara. Yes. The same people who want us into some of their big malls. Zara have always had the pref.
They'll come in, they're no down payments, no minimums. The big Chinese mall operators said no. We have people that are quicker than you. Now it's disintermediation. It's like Dell and then Gateway. Sooner or later, if you're selling copies of other people's products, which essentially is their business model, then sooner or later somebody's going to do it quicker than you. Do I want to be in that business? Ready to wear. They go to runways, take pictures, send it to China, get the factories moving, ship them. By the time your stuff gets on the runway, it's too old and too expensive. Seems to me like a bad business model. Accessories, different business.
A lot of the companies that are for sale today were bought by non-industry players at the height of the boom. They still haven't realized that they lost their money three years ago. They lost the money when they paid it. Okay? It's this thing in the air. We all do it. You make a dumb buy. I've done a lot of times. When I want to sell it, I think, "Jeez, I've lost a lot of money." No. I didn't lose a lot of money when I trying to sell it. I lost the money when I was idiotic in the pursuit when I bought the bloody thing. That's when you park your money. It's not when you try and find a bigger idiot than you to take it off your hands.
A lot of these things that are available were bought at the wrong prices. I know we all know the same companies. It's of no interest to us at this stage.
On the capital, what do you want to do with your capital? I think the last time I hear you were talking about you wanted to be able to guarantee almost a 15% rise in the dividends.
No.
Forever.
There's a difference in a guarantee and what we're trying to do. We're looking, we've lucked it out. I'll tell you what, when I see we're not going to do it, then I'll say, "Richard, I'm retiring," okay?
Thank you.
I will retire with you.
He says he'll retire with me. I think as we are now, we can do it for a few more years. Simply, I think every manager's goal really is to make a company idiot-proof, because sooner or later, an idiot will run the company. You've got to know that, okay? It doesn't matter what company in the world. If you have, like Mr. Buffett said, you build moats, you build brand equity, you can withstand quite a lot of stupid things that we ourselves do. I'm not worried that somebody who is in another luxury goods company is going to think of something and that's going to kill our business. Whereas if you're in the IT business or many, many businesses, it should keep you awake.
Patrik Schwendimann, the Bank. There was a cost increase of 7% for the opening of new boutiques in the last year. What shall we expect here for the current financial year? Secondly, you will hate my second question, as I'm still asking it, you were mentioning that the current profit margins are not sustainable. What would you say in the longer term is a sustainable profit margin level in terms of gross margin and EBIT margin, bearing in mind that you do more manufacturing and bearing in mind you have a high exposure in the emerging markets?
Jan du Plessis said 20% is goal in 2001 or 2000. Jan had long left for BAT in every meeting I got. Jan du Plessis said 20%. I'm not going to do it to my colleagues on my right, okay? I have no idea what's sustainable. 23 is pushing it. I can't build your models. I can't tell you what we're going to do.
In terms of gross margin?
No idea.
50%?
No idea.
I mean, Patrik, I think maybe just on the stores question. Mr. Rupert at the half year, talked about our planning process and how we go through the strategic plans.
How all the brands come and there's a difference between want and need.
We opened up 72 stores this year. You see the CapEx for the retail. The overall value of the retail will be down versus this year. That doesn't mean that the store count will be down because there's a change in the mix. There's a bit more allocated this year to the fashion and accessories model because they've doubled their profits, as you've seen. The product pipeline seems to be good. I can't really equate a number for you, in terms of percentage. Because a watch and jewelry store is smaller than, say, a Chloé store.
I think on the value of CapEx, we used to give ranges. I don't necessarily want to do that. I'd rather give you a number, including manufacturing from our bottom-up approach, that's about EUR 750 million, which is pretty consistent with what we told you last year.
We have it.
Well, okay. That's non-breaking, without any breaking news.
I think you can get to EUR 1 billion.
Bottom-up.
You can get to EUR 1 billion.
Breaking news.
No, but there's some things you've got to do, okay?
Thank you.
Sometimes if you're the boss, you've got to act like the boss. When people, opponents of yours, start looking at your real estate and prime locations, sometimes you've just got to make sure they understand who is the boss. That's me. That's people who live in Paris that we're supporting. Is that a fair-
Yes.
We're supporting colleagues of ours in Paris. Folks, it's amazing. You've got to understand, I've known Cartier since 1975, and in the 1980s, Cartier was like Baume & Mercier. Today, it's a machine. You can see how these Maisons evolve, and they start getting a critical mass. In certain of them, if you're EUR 250 million, it's a lot harder to get from 0 or from EUR 100 to EUR 200 than it is from EUR 200 to EUR 600. From EUR 500 to EUR 1 billion is a lot easier than from EUR 100 to EUR 200, and it's to get them to that critical mass. That's why the big visibility in negotiations with retail, with landlords, we need to get two or three of our Maisons to build muscle. We are hiring as well, some people outside. We think we're in a nice position that we have the liquidity to do so.
Both of you, very good questions, but your questions are the things that made me lie awake at night. That's why we remain very close to our opponents.
Roger from JP Morgan.
Hi, how are you?
Hello. Just a quick follow-up question on the watch manufacturing plans. Last year, you indicated headcount increase plans of around 1,900. Nearly 2,000 additional headcount. Where are you in that process? Any update? The second is, in mainland China, any update on the store network and how many watch boutiques you currently have? The third is, any additional color on the Net-a-Porter growth would be appreciated. Thank you.
Yeah. Firstly.
How many people of the 1,900 have we hired? Is that the question?
That was the indication last year.
Yeah.
Last year, we hired more than 3,000 people.
Yeah
across the world, and some 700, 800 in Switzerland. You know that it's difficult to find the people in Switzerland, and that's reason one we are also investing in training and schools to find the people. Surprisingly, the unemployment in Switzerland has decreased, and it's difficult to find the people. That was another issue.
Stores in China. Stores in China, 160 internal.
Yeah, we got 60 internal.
160.
160. We operate 160 stores in China.
Internals.
Internal. Only internal. If you add the franchise stores, we are around 250, 260.
300.
Yeah, 300. Yeah.
No, what's it, 340?
No, it's 300.
About-
300.
Hey.
300.
Last year it was 320, it was 323. It was 323 in September. I think it's about 340 now. Yeah. Yeah. The last question.
Net-a-Porter. Roger, what was the question again? It was.
It's growing quicker than our group rate, but slower than they used to.
Yeah.
We're not quite sure whether it is because they bought in expectation of bigger sales, because how do you buy? You buy upon history. Or whether, in fact, that market is being affected. It's still growing by more than our internal sales. I mean, they grow by quicker than Richemont does.
Hi, Francesca Di Pasquantonio, Deutsche Bank. I have a question on China. I appreciate it's quite difficult to predict what can happen to the volcano. It would be interesting to understand what you are seeing today, in terms of the behavior of customers in response to the current economic uncertainties, to the current uncertainties on the political situation side. Whether what you're seeing is basically influencing the way you are planning for this year. Whether maybe recent changes have shifted a little bit your mindset to be slightly more cautious on the next, let's say, 12-18 months. Any color you could give on that would be very helpful. Thank you.
Cautious optimism. Firstly, when you look at China, you have to look at, especially in the segment, you have to look at sales in China and sales to Chinese outside of China, especially in Asia-Pacific. You saw the figures for Asia-Pacific. So far, so good. The problem is the prediction. We don't know. We are following, how we say, on a daily basis. We are a retailer. We know what's going on. We pay attention. We think that the substance for future growth is still there. We are paying attention to what's going on.
The Chinese consumers, A, are sophisticated. They were civilized, inventing gunpowder, steel, when our forefathers ran around with loincloths in caves. They had an aberration for a while, mainly Western-imported philosophies. They saving, they study, they working. They will have material wealth. If up to them, we have no problem. However, in every centrally commanded economy, you have the potential for a hiccup. Suddenly, they put strict border control. Suddenly, they do this, suddenly they do that. I don't know. In a free market system, you have a CIO that blows a minimum of EUR 2 billion in a week saying, "How can we tell the Chinese that their banking system doesn't work?" I don't know. It will not be the Chinese consumer that will do it. It could be an exogenous factor. What, I can't say. The consumers have the sophistication and the desire for our products.
All of that is in very good shape. If they're allowed to travel, they will get disposable income. This could be the start. That's my gut feel. I may be totally wrong.
When we met with people like CapitaLand, who are opening 20 malls a year, just for that.
20 malls per year.
When we look at the.
Yeah
optimism, us, we are much more flexible, I would say, because.
The CapitaLand people, remember Singaporean buyers basically started by my hero, Lee Kuan Yew. It was very interesting how they put it. They said, "Well, we have to get consumption up to 50%." You know what that means? This. We can't sell televisions and stoves and da, da in mom-and-pop shops. For that, we need malls. We're going to need that many malls by 2018. Okay? Right. We're going to build 200. This one is 223,000 sq m. I mean, 223 in Chongqing. Okay? By the way, that's only part of a development. They're building 200 airports in China at the moment. How long have they been fighting about Heathrow's third runway? I mean, 50 years. Okay. Where do you want to be? Just have a look at the people working.
Two days ago, my son and I flew here, because of the stupid air show, we had to get up at 3:00 A.M., fly at 3:30 A.M. Well, actually, no, we flew at 4:30 A.M. from the U.K. There was nobody. No, I'm lying. Up Edgware Road, there were some Pakistanis and other Muslims washing their feet. They were up. They were working. There wasn't a single white Anglo-Saxon Protestant, no Englishman was awake. They were sleeping. Maybe coming back from the night before. However, if you had to drive around at 4:30 A.M. in Shanghai, or for that matter, in New York, the city is alive. People are working. I'm crazy, but I look at those things. I actually go and look at the economic activity. I'm excited. I want to go to Myanmar, Vietnam. These are cultured people, highly cultured people that are coming out of semi-slavery. They'll work.
They're already studying. That's what makes me optimistic. Yes, there will be hiccups. There will be repression. As a society, what do you want to bet? Francesca, do you really think the Greeks didn't think that they were going to run-- I'm not talking these guys now, talking about Athens, Sparta. Do you think they didn't think they're going to run the world forever? Or the Romans? Do you really think the Romans thought that their empire, or the people that ran our country, Great Britain. We discover diamonds, they come and steal it. We discover gold, they come and steal it. 1880, 1890, turn of the last century, 200,000 Brits, we were 20,000. They killed 10% of the women and children. Do you really think that in the year 1902, that Great Britain thought the sun was ever going to set on the empire? No way.
I'm afraid, unless America gets its act together, you've got to go and read that book by David Halberstam on "The American Century." Great book. It may be the last book that you read about an American century. In comparison to the work ethic, we discussed it earlier on in the Europe. I love Europe. Are these folks serious? 30-hour work week. I want to retire at 50, full pension, full medical. By the way, the whole of February, sorry, of- May May is a bridge. I'm bridging this to bridging that, to bridging that. If you've got a factory, you can't run a factory if half your people are on a bridge somewhere. I want to have growth. Sure. I mean, what are these people? Are they mad?
I happen to know the people from the CIC, GAO, and GIC. They're highly sophisticated. They're not going to buy these bonds. In their words, "Why should I buy debt from people who work less than me and are not planning to repay me?" These are the kinds of conversations we have around our board. Normally, at a red wine-filled dinner the night before the board meeting is when strategy is set, where Richard and our board and Gary. Gary will say, "This is an issue," and then we look. Will the euro remain? It's a kind of interesting question. Will all of the member states in the euro still be there in this euro in 2 years' time? I'm willing to take a bet, no. Okay? Because Alan Grieve knows that when it was started, I said the euro won't last 20 years. Where's Alan? Is Alan? Somewhere.
Please go and find it in our board minutes. You know why? I'm a foreigner here, but I can't see how people who have different work ethics can have the same productivity. If you don't have the same productivity, how can you have the same currency for a long time? I'm not saying that the people in Bari and in the whole of the south of Spain. If I'm Majorcan, why do I want to work like somebody in Hamburg? You've got to be mad. It's cold and freezing and raining. You think this is a diversion. Unless you think like this, you're not going to understand our group. This is how we think, and this is how we think about currencies, and that leads back to oppositions that we take. Sorry, there were 2, 3 more questions. Yeah, sorry. Go. Yeah, please. Just speak up.
Thank you.
Sure.
Celine Bert from Goldman Sachs. 2 questions, if I may. My first question is regarding pricing policy. Could you comment on whether you have put through any price increases in the 1st quarter of the calendar year, what the plans are for the rest of 2012? My second question is regarding distribution channel mix. Retail is now roughly 50% of your group revenues. I was wondering if there is any long-term target level that you are aiming at or that you think could be optimal for the group. Thank you.
Certainly last year, we were pretty opportunistic because of the Swiss franc and took significant pricing. We don't see that this year. Every brand does it differently, so I can't really give you a number from a group standpoint. Some are taking some are not. Some are only taking some in Europe. It's muted this year. It's not featuring, I would say, on the radar.
We will never comment upon price increases again. I had a fit last year. When you tell people you're going to take a price increase, you give them the margin away. Hey, I'm going to charge you more next week, but I'm open to buy. You just call them one day and say the prices have gone up, but the currencies have been more stable, yet, no, we didn't. The first quarter was not really impacted by price increases.
On the retail question, I think Mr. Rupert always says we have to find the pockets, where the money and the pockets are. We tend to be opportunistic. Projects come and go. We don't really target a percentage per se.
Hi. It's Matthias from MainFirst. Sorry, I have a question again on the manufacturing. Are you happy with the development of other groups offering you movements and assortments? Has the quality and quantity evolved the way you expected over the last several months and available for you in the market, or you might have to do more in terms of verticalization with your brands? The brands you mentioned where you pushed the verticalization very hard, does that mean you're 100% independent then and produce every little component yourself? My second question, last question is, Mr. Rupert, you talked about brakes and accelerators you built into the group over the last several years. Can I ask you where your foot is at the moment between these two?
Sorry, I didn't catch all of it.
No.
If you speak into the microphones, could you just hold it a bit away from your mouth, please? Because you speak right into it, we can't hear. Sorry. Thanks.
Regarding factoring and manufacturing, we told you we are comfortable, we are investing, and of course, we are monitoring the evolution of the landscape.
It's clear that there is less and less independent suppliers. On top, we are becoming, how we say, not so big, but we are becoming sizable, meaning that some small independent suppliers are no longer big enough to cope with our demand. We are forced to integrate, including assortments. That's very clear that we have developed our own source of production in assortments, and we are comfortable with that.
Sorry, the second question was?
Second question was about you said you built in brakes and accelerators into the group over the last 20 years. Can I ask you where your foot is at the moment between these two?
Well, Gary's foot is always on the brake. He's done a hell of a job by keeping it on the brake.
I'm okay. There we go.
No, no. He's got a handbrake on as well. Sometimes Richard and I push him to let go of the handbrake, okay? We've got colleagues, the head of every Maison, his foot is always on the accelerator. Okay? Assume that if we had CHF 15 billion, we said, "Go for it," they'll find a way to spend it in 3 years. Trust me. I think the real issue is what Mr. Russo asked, is we will not let go of the brake unless we see that it will, in terms of cash generation and returns, be better than alternate decisions. Sometimes, like with LMH 12 years ago, we bet a lot of money. We went and borrowed money. We knew we had to do it.
If a situation presents itself, like where there is something that you know you have to do, we will be bold enough to do it. We will know that in a 3-to-5-year period, it will be cash accretive. It's a good question. You should actually ask it of the guys who are not here. The guys who direct report to them. Get Georges Kern sit here next year. Where's your foot, Georges? Problem is, Georges doesn't have a break. Okay. I don't think IWC has got a break in its business model, but they're doing very well. Our goal is to temper irrational exuberance.
Yes, sir.
Yes.
Good morning.
Hi.
Sir, John Guy from Berenberg. A couple of questions, please, with regards to Net-a-Porter. First of all, I just wanted to get an update as to Mr Porter's sales evolution and where that stands as a percentage of NAP sales. Also with regards to your evolution, and potential investment in distribution platforms in Asia with regards to Net-a-Porter. Could you maybe tell us where you are with that? I know within the statement it was EUR 400 million or over EUR 400 million of sales for the Net-a-Porter. Are we closer to 401 or 499 or somewhere in the middle? How many brands are now being sold through the Net-a-Porter business? I guess one final, sorry, quite a few here, but one final on the additional EUR 250 million of CapEx, Gary, that you didn't know about, with regards to the U.S. Are you going to elaborate on that, please?
Thanks.
No, we're not going to elaborate. The other side don't know about it yet. If I had to elaborate, it may become 280. Net-a-Porter, I think we've got to go back to the history of Net-a-Porter. It's interesting. Natalie's husband, Arnaud Massenet, helped Elva Michon and myself to get out of that French trap that we found ourselves with Canal, Vivendi, et cetera. He worked at Lehman, after a rather unfortunate meeting in Paris, I said to Elva, "I don't trust these guys with Vivendi. Let's get out." You know what a Super Class 1 transaction is in the U.K. You know you can't deal with a company. It's totally non-French, okay? Normally, where we come from, controlling shareholders or substantial shareholders don't deal with public companies or companies. If ever you should, you get total third-party advice. I've never dealt with any company publicly.
I don't even buy a second-hand car from Rupert or Richemont or Rembrandt Group or any. You have church and state. You have the company, which belongs to your constituents, and then I have my own assets, and we don't mingle it. I've got to go back because you've got to understand, Vivendi bought Pathé whilst we were co-investors in Canal. All the media was supposed to go through Canal+. We were in Tokyo, I think, for a board meeting when I read this. I said, "I see this movie. They're going to try to move Pathé into Canal for more shares to dilute us." I've seen this movie before. It's got French subtitles, and I've seen it. Elva assured me that having written the articles, everything adopted, which Vivendi agreed to. We inserted into the articles, basically British corporate governance.
We had a meeting and the great and the good and all the bankers that later on had hiccups in their banks with Fabulous Fab, et cetera. All these guys sat there somberly and I said, "Look, we've got an agreement. I'm going to appoint an international investment bank to give a fairness opinion according to the rules." The answer was, "Sorry, Trésor has approved it." I said, "Excuse me, this is a major company, Canal. Vivendi is a major company. We have an agreement signed by both boards, three major boards, not yet a year old. You cannot act like this. This is not serious." "Oh, no, Trésor has approved. Sorry." It was true. Trésor had approved it. I said to Jean-Marie, "This is not serious." Daniel Bouton, he was also there. I said, "You are serious businessmen.
What do you think the rest of the world thinks of France? This is a place that I love. I got up, I walked out, said to Elva, "We're getting out." We had a year lockup. I called Lehman, I said, "Okay, get us out." They sold it out, and it was Natalie's husband, Arnaud Massenet, who got us out at 68, and I banked it. It was a lot of money for us. Okay. You must remember, this is over 12, 13 years ago. I was told, "Oh, it is a mistake and the price is going to go up." To my absolute horror, it did go up to 80. Even more horror, I bumped into Jean-Marie in an elevator in New York.
He says, "I told you, this is a mistake." I called Elva, I said, "Goddammit." However, on the year of the anniversary, on the date, it was eight. Eight. Lucky for Chinese, for me, very bad. Eight. The guy who did it was Arnaud Massenet. Arnaud's wife was Natalie. She started. I'm telling this whole story so you can understand how we got involved in it. She started this business. My big concern, and all of our concerns always been clicks and bricks, clicks and mortar. Is it going to go online? If it goes online, and our clients love online, then we don't have assets, then we've got liabilities worldwide. Every single boutique is a liability. She asked us to be a key investor originally. Elva took a few shares with my permission, and we took some shares and angel investors.
I didn't really want to, for many reasons, make too big an investment, because we would have killed the business with all of our corporate governance and corporate social responsibility. She would have had to file 50 reports with Alan Grieve about whether the button was made in Bangladesh and, whether the gold came out of clean mining and none of the stuff that we know. I said, "Keep it independent." A second round came and we put some more money in. I then said, "We like the right to first refusal." I don't want to be party to building this thing up, and when it's successful, one of our opponents buys it. The Hearst Corporation approached them to make a bid. Her one partner, Busquets, who made a lot of money, a lady, very smartly, sold. That triggered our preemptive.
We did not go and say we want to buy, but we got triggered. Frankly, it should have been bought by either Hearst or Condé Nast. In the medium term, if you look at iPads, yes, it's a slow uptake, but I don't know how many of you read now on a news reader, there's some apps here, news reader, and Zinio, where you read the magazine online. Not this rubbish website. You read the proper New York Times or proper FT. You flip it and the whole paper is there. If you look at the print cost, and if you look at some of the technology that's coming, in three to five years' time, people are going to be reading Harper's online and Vanity Fair. Not just the website, it's going to be properly online.
If it grows slower than we suspected, Richard and Gary and a few people, if it grows by 40% to 50% to 60%, they may be a bit disappointed. I will be very happy. It's not a big part of our business, and it basically means that our clicks and bricks and our mortar-driven business is still going well. I would have been petrified if this was growing at 150% per year like this, and that hard goods started selling there, that watches and jewelry had to go online, because that, gentlemen, ladies, would have meant that Bond Street, Rodeo Drive, Fifth Avenue, Monte Napoleone, those things have become liabilities. This is highly likely to be my very last time that I'm ever sitting here. I want to just give you our philosophy.
To me, this is a hedge with the best lady, with the best team. If they cash flow positive and they learn, and Mr. Porter is doing well. Hopefully, your waist size is not 40 like me, because then it is of no use. It seems to be that American and South African men are just too big for online shopping. Look at them laugh, huh? Actually, if you want to see something funny, really funny, my son and I are doing the Mille Miglia, but I've got two very close friends who are doing it with us, and they are driving a 1956 Ford Thunderbird. Now, these two people are both ex-rugby players. Their combined weight is approximating 300 kilogram. We had to take the hard top off, so they can drive with goggles looking over the windscreen.
For the next three days, and they can't buy clothes anywhere. Okay? They were so hopeful with Net-a-Porter. They said there's nothing on it, not even a T-shirt. Net-a-Porter to us is a great learning curve. It's not costing us money. Its cash flow is fine. We think that it's going to be one of the survivors in what's becoming an increasingly crowded space. In fact, we know it'll be one of the survivors. The space is getting increasingly crowded. To me, I look at it as a huge learning experience because their fulfillment capabilities and what they've got is state-of-the-art. It's a very good question, but it's not. Critical to us is Cartier and our watch business, and in the future, Van Cleef and Piaget. Last question.
Walker from Nomura. First question really is around emerging markets. You mentioned in the presentation, South Africa, Nigeria, others have talked about South America and India. How important or how excited are you about those markets? Practically, on a five to 10-year view, how would you seek to enter those markets?
I'll start with India. India is a federal state, each of those 50 states, all of their customs officials are underpaid and rely upon another form of income. It is a bureaucratic nightmare. A wonderful country with wonderful people, with zero infrastructure. Highly sophisticated people. Our strategy really has been to keep the brands and the Maisons top-of-the-mind awareness, but to, for instance, communicate on Let's take Emirates flies into five Indian cities daily, hub Abu Dhabi. Sorry, Dubai. You don't really want to fly domestic Chinese and Indian airlines. If you see Emirates, try to take Emirates when you leave. You know what I'm saying?
If we are well-represented there and well-represented in Dubai and now in Abu Dhabi, and when they come to London, because the Indians would tend to come to London more because of historic reasons, cultural reasons, speak English. South Africa is tiny. Nigeria, tiny. However, some brands we are going in. For instance, Montblanc. Montblanc could do incredibly well there. Lutz is going. It is funny as an African that I was asked by some people in our treasury what I thought of some European credits and whether we had to extend credits to some sovereign states in Europe. I thought, what changed from 10 years ago that a South African should opine on which European states should not be extended credit to. South Africa is doing very well. Very, very well. The Central Bank and the Treasury have run their businesses, quote unquote, very, very well.
Africa is doing well. Will it be big? You've got to look at the demographics, look at the GDP, look at China versus the rest. Will it sustain two or three stores? Yes. Will Rio de Janeiro, will São Paulo, will these cities? Certainly. If I had to say to you before Bo's demise, Chongqing, you would have said, "What?" Come on, be honest. Whom of you would have heard of that city before this murder trial? It's a city with 33 million people that's growing at 15.4% per year. They've just built a railway line to Europe. It shaves 5.8 days. 0.8, I don't know what the hell they mean by 0.8. Let's say five and a half days, taking goods from there to Europe by rail. It goes through five or six countries without stopping for duties.
They built the railway line. It's there. The problem, folks, I'll leave you with that last thought, that railway line is twice as expensive as anything else, I think you all know why. Because it goes back empty. Empty. It leaves China full, it goes back empty because there's absolutely nothing that Europe can put on that train back to Chongqing. This is what President Hollande ought to discuss with Chancellor Merkel. They ought to show videos of the train arriving full and going back empty. Thank you. Luckily, we send our stuff by air, we don't have to.