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 the 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.
And obviously, you've seen the operating margin. Now unlike Jan du Plassee 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 percent on the euro and it obviously did affect our results. But I think it is a sign of the times that you get elected as the President of a major country and you're invited for dinner in another country that night and you have no option but to go And your plane gets struck by lightning, you arrive an hour late and 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.
And in case they don't repay you then your banks can't repay other people. So in circumstances like that, I'm loathe to make predictions for the next year. So 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 and 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.
And we also do not know whether the Chinese are going to continue to buy an infinitum. We don't know. We are living with volatility. What we do know is that there is still an excess of debt. The right year leverage.
And but it's debt. Some of that debt has migrated from the private sector into the public sector, but there is still excess leverage debt. Now in my world, you either repay debt by generating profits and you create a tax base or you just renege. The third option of course is to just devalue the debt which is financial repression. And obviously this is what the politicians have chosen slowly but surely like you make duck patte they'll force these supposed AAA instruments down the necks of savings institutions and then they'll just devalue it a little bit, just a touch.
Now consumers are not stupid. The financial repression is already there. If you're a saver and you've worked all of your life and you're in your 60s and you've retired, what yields have you got? Where are your returns? So 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 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.
And then 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. So we have over decades now and I stress decades, it's not a new occurrence, try to be in the most important regions of the world. Depending upon where you start from the West Coast of the States 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 then you've got problems. We have seen this year the sales growth 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. But be mindful that works in reverse as well.
Then we've had a sharp increase in the profit and healthy cash flow from operations. Now I know you're all going to say, okay, you've got $3,000,000,000 what are you going to buy? What are you going to do? Special dividends. Well, you know the Swiss franc increased by 8% against the euro 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 1985, Alan, but it took us 3 years to get through all the 278 various steps with the help of Madras, Schuman and others, but next year is 25 years.
Things have changed dramatically. But over the period, we've managed to grow dividends and sales in hard currencies, sales then cash flow then dividends. And I said a few years ago that equalized out, we'd like to grow, be a goal for me to do it at 15 percent per year. Now 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 and every utility started borrowing too much because of dependability of dividends of free cash flow, the telephone utilities, the water utilities, General Desser became Vivendi, much sexier name, but the predictability of the dividend disappeared. So the poor folks who are in retirement, where do they go for a predictable dividend flow?
Tom Rousseau, Tom knows because he went for the right companies. Some people did go for the right companies. But when I grew up and when I was on Wall Street, there were companies with predictable, boring AT and 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 orphan stock. So what happened to the widows and orphans? They still live, but 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 and that's why I'm part of the 99%, not part of the 1%. I actually think we failed.
We did not we behaved morally reprehensible in terms of what we're leaving for the next generation. Last 2 years ago, I told you we can have tearing the social fabric. We are going to have an emergence of a left wing and a right wing. And 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 made up servants, teachers, nurses, but they don't want to give up any privileges whatsoever.
Stick to I remember Paris May 68, I remember the Rosso Brigada Baader Meinhof and 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 and $3,000,000,000 is not a lot. Apple, now that's a lot, okay? When you're talking about $100,000,000,000 then it starts getting my attention. But $3,000,000,000 is not a lot of money.
And I'm going to and 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 1st. It was sold for about €4,000,000,000 odd sorry €4,000,000,000 And a number of you asked me why didn't we buy it. And 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, you 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. Sorry? She said 5 times.
Give the lady a watch. The growth in Cartier's operating profit was 5 times the total. Sorry? Yes, I know. But we're sticking to 5 because we don't want to insult other people, okay?
So it's 5. Now folks seriously, what are we supposed to do? Do we open more Van Cleef and Cartier and give Philippe Leopold Metzger his due, Piaget boutiques or 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. So our view is use the money, support what we know. And remember in 2,008 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 100,000,000 for a site folks, okay? And if you need those premium sites, you need firing power and I do not want to get into the next cycle with debt.
So 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 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. And the other thing you are going to ask about Bernard and about Stanislaus and how are we ever going to ever, ever going to replace Bernard?
Now Bernard was running Bohemond Mercier when I found him and I thought he was a good manager. And I pointed him above the previous heads of Cartier's recommendations. In fact, at the Board meeting yesterday, they all admitted that they had grave doubts. Now Bernard is a very good manager, but Cartier sleeps in the vault. It's called Louis Cartier and 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 no, we won't go there, Jewelry on gas bottled.
We have brakes and accelerators built into the system. So the 3rd 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 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 and I was here alone because I had to come and listen to your rubbish, your questions. My wife went to the Opera in London and I had to sit here because there is this Geneva Air Show you can't get in and out. And I know the questions. What do you think is going to happen in the year?
Is China growing? Both Mercier, we see 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. So please do not disappoint me because I have a list of questions and I expect to win. But very good luck. You're absolutely right. It was slightly more than 5 times.
Richard? Yes.
Thank you, Johan. I'm sure that the message has been received loud and clear. So now let's come back to us and just speak about sales and sales in Europe. 1st, we are now showing Middle East and Africa separately as they have different sales dynamics. Europe is our 2nd 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 Maisons improved their performance versus a year ago on the period. Scent in Russia grew at a much faster rate than the Western in Europe that in Western Europe.
Now Middle East and Africa. This region accounts for 6% of group sales. The largest part of sales are done in Dubai and Abu Dhabi. Also 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 markets, 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 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 USA 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 4th largest single market of Richemont with 9 percent of group sales after Hong Kong, USA and Mainland China. It showed a remarkable resilience even the current challenges the country faces.
It's worth mentioning the success of Van Cleef and Arpence 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 Maisons 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 Jewellery Maisons robust profit at the Specialist Watchmakers improving profitability at Montblanc Maisons fashion and accessories profitable and a year of structural expansion. Let's look at the main development within the jewelry Maisons.
Sales rose by a robust 32%, above last year growth rate with few stores opening. Both Cartier and Van Der Thijs and Arpels enjoy a broad based double digit growth in sales across the geographies, product lines and channels. Sales of high jewelry, Advantlev and R exceptionally well, breaking new records. Operating contribution increased to 1.5 €51,000,000,000 leading to a contribution margin of 33% of sales. Now our specialist watchmakers.
All our Maisons 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 francs and higher input costs. All Specialist watchmakers saw an improvement in the results, including Beau and Mercier that reached breakeven point. Operating contribution rose by 42% to €539,000,000 and 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 The non pen business, which includes watches, leathers and jewelry, offers a higher potential. It accounts now for 54% of Montblanc sales and this percentage is expected grow in the future. Operating contribution rose by 9% to reach 16% of sales, in line with last year.
Finally, the other business, Irea, which comprises the fashion accessories Maisons, Net A Porter and the facilities involved in the production of watch components for the group and third parties. First, the fashion and accessories Maisons nearly doubled its profits from €29,000,000 a year ago to €50,000,000 The performance of Alfred Dunhill was particularly strong. Chloe did well. The reorganization of design, retail and operation is now complete. Increased penetration of Asia Pacific should help the Maisons 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, and 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 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 and 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 percent 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% and all of these elements led to an operating profit increase of 41 percent to €2,040,000,000 and an operating margin of 23%, which is truly remarkable. Let's get into the details now. Gross profit, the 29% value increase 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 and we also benefited from our hedging program, which generated a €108,000,000 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. So 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 1, 2011, all of those contracts, we did not we are not qualifying for hedge accounting.
So on the slide, you see the effect going back each year of the old program in the margins. And when you sort of 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% year ago. What were the increases for the year and the bridge is on the slide for you? Net a porte, primarily the start of the full year of Mr. Porter and expansion of U. K.
Facilities added 2% to our expense growth expense base. New boutiques accounted for 7% growth in spend. We had increased communication spend, which added 4% and all other expenses, which are all other sales and distribution and administration expenses added 5% to the base and there was 4x effects of 1. S and 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 continue to expand Net A Porter and we dealt with IT infrastructure issues as well. Let's move on to profits.
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% to 18% and this range is very much within the cash tax range as well. Despite higher finance costs and the non recurrence of the gain that we booked last year on the Net A Porter transaction, profit for the year rose by 43% to €1,500,000,000 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 €169,000,000 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 €26,000,000 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 4th 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 €535,000,000 This represents 6% of sales. We had increased investments in manufacturing. We 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 Princess 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. And let's not forget as well, we renovated the Lancel flagship store in Paris. Okay. We'll get to that. Okay.
I'll probably let you do that one.
I asked Rishab and I discussed it with some American directors and to maintain the presence we've got. So they're going to have to have a heads up. There will be money going out, okay? It's don't worry, we still have cash left.
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 finance the capital investments that we just spoke about. And 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 €953,000,000 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 €204,000,000 last year, we ended the year with net cash and investments of 3,200,000,000 euros a €600,000,000 increase versus last year.
And finally from May, the dividend, our fiscal year 2012 dividend proposal to be confirmed by the shareholders in September is €0.55 per share. This proposed dividend represents a 22% increase over 2011 and it's consistent with our Board's view, which aims to provide a consistently higher dividend each year and Mr. Rupert always spoke about the approach there. Thank you for your attention. And 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 investments in retail, infrastructure and production. These investments reflect our strategy of investing in our Maisons 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 Maisons operates about 15 50 boutiques, some 90 more than last year.
We continue to open selectively boutiques, including for our specialist watchmakers in growth markets and in established markets 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 Boucherain in Paris or Vemper 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 to separate our distribution strategy in new markets, we are structuring our distribution platforms.
Further, platforms 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 and in 3 years' time that number could reach over 250.
In Hong Kong and China, we are opening offices and warehouses to enable the development of the Dine A Porter Group. In Brazil, a new Richemont affiliate will incorporate the watch and jewelry Maisons by mid-twenty 13. In India, a Neurichhemont 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 raised the authenticity to meet clients' requirement, for example, through movement manufacturer. We enhanced our flexibility to meet demand in a volatile environment. You saw the capacity of adaptation to the demand of Cartier.
We raised the capacity to meet increased demand and future growth. And 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 and Vacheron in Switzerland. The Future Compugen Ouadeau Tour also one of the major investments 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 towards the young generation. The campus will host a watchmaking school, a research and development center and new manufacturing facilities for several of Maisons, including our manufacturer, Stearne, specialized in dials and Poisson de Geneve movement components. Thank you. I would like to hand the presentation back to Mr. Rupert for the conclusion.
Thank you, Richard, and thank you, Kerry. 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 Mr. Buffett always talks about 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 and in the end you're going to put Dong 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. But once somebody has worn a cashmere product, it's kind of hard to go back to lamb's wool.
Yes, you may have to go back for a few years if your cash flow is insufficient, But you always treasure that dream. So and this I never believed. Joe Canouy 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.
And then once you got used to it, you couldn't do without it. But you never realized that you needed it, but 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. And we're going to continue to invest in the creativity, in the dedicated workshops, manufacturing facilities. And then on the demand side, we'll continue to work on the desirability and the prestige and his team communicate. Now you know we have to reinforce our European heritage. And we've got to make clear what made in Switzerland is.
And I agree with Mr. Hayek, it's total nonsense that you can export movements to Hong Kong. And there is 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, Swansons. So we've got to make clear what is made in Switzerland. And then we've got to maximize our business model.
We've got leverage distribution, real estate and training. And for of you here who are colleagues of mine and Thomas, you can do me the favor by sending out an e mail 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, Because 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%. And 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, then really let's not do that.
And by saying it here, know a lot of the Maisons are listening over this telecast. I'm talking to you Stop messing around with your colleagues. It makes me and Richard look like fools as well. Now objectives are still the same building goodwill rather than acquiring goodwill. And generation of sustainable free cash flow.
Because once we've once we're able to do that, then we can grow dividends consistently. I think we've spoken a bit. At constant currencies, April is up 20% and it's up 29% as reported. Folks, I'm not 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, but that's what I feel like.
I go in the mornings, we put on our ties and our watches and we go and the food is better and the wine is better and the weather is great. But 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. But we are now a China player and it suits us if the euro gets weaker. It's everything that I would never have thought 10 years ago, but that really is our business. Personally, I don't think anything is going to go wrong in China. That's my view.
But I know nothing and I mean it. I may be too optimistic about China. But 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 basins. And 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. So I am long of this company and I'm still believing, but 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, so what's happening in China? What's happening in China? What's happening in China? Not necessarily because they're interested in Richmond, but they're interested in their own welfare, because they are equity and in credit markets, people like Yigit, all he wants to know is what's happening in China. Well, what's happening for us in China is good news.
But understand that if we're wrong, it will have implications. But by the way then it will be too ghastly to contemplate for all of us, because believe me it will 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. But I'm not going to tell you what I think our 3rd quarter's XYZ is going to be.
And by the way, neither will my colleagues. Thank you very much. Oh, and by the way, this is not a bribe. So you can tell Deutsche Bank. No, you can tell you can.
And if Deutsche Bank cannot have that, then you have a real problem with your ethics. Okay. Thank you. Are you listen, hey, if you make the right guess, this is not a bribe, believe me. No, you don't I have real problems with institutions where somebody can be bribed with a watch.
You know, dollars 10,000,000,000 or 5,000,000,000 dollars but when you can bribe somebody with a watch then there's a problem with the culture of the institution. I appreciate it. Okay. But thank you very much. Okay.
Thank you. Thank you. I'm surprised because very few people had any idea. Okay, well done. So Francesca guessed correct and she is nice enough to auction for a charity Bravo.
Johann, congratulations on a terrific set of numbers and the result of lots of hard work and stones laid a long time ago. But in your estimation, where do you have the highest If you think about your Maisons, your flagship stores, 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 products so ridiculously that the cash flow is superb.
It's Yes.
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. So 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 release 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. So maybe just reflect on that for a moment.
It's really difficult because we generally find that this is a very long term business. Currently because of currency movements, Japan is still our most profitable market because of the pricing and how the yen has moved And it's been one of our most profitable markets for very, very, very, very many years Gary. But I guess our single most profitable venture is probably Panagai where we paid less than $1,000,000 which we cleaned and oiled, we put into platinum watches and we sold for more than the purchase price, but they don't come that often. But I would say Van Cleef would be a very good Van Cleef would be a good example of how our business model works where actually it was Mr. Correio Frattini of Italy who put the company together.
And we had had an interest. I then bought the company from him over the phone. Elwha was with him, but we shook hands over the phone. And 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. Pratini said, sorry, I'm a gentleman, I've agreed. And that's how we got Van Cleef in our Pell. That's more than a decade ago. But slowly doing all the right things, getting pulling the licenses back, getting the leases, getting the products, going into the archives, getting the art designs back.
Today, it is a very profitable company. But I remember coming year after year and not only you folks, but colleagues of mine at the Board level. So when is Antoine going to make money? Do you remember how often? I said when we are 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. So 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? And if that's your question fully agree. There are a lot of companies who actually waste their free cash flow and they reinvested sub optimally. And 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 in the past, which ones in the past. I would say
You may add that so that you need a vision because when you bought LMH, We will never be there today should we have not bought LMH.
No, 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 is there that wants to eat your breakfast. And if you're not there, they will do so.
So LMH, if we hadn't done that, what's that's 12 years ago, if we hadn't done that, we wouldn't have had a business. But for that I have to thank my French friends, which if Jean Marie Mescher hadn't had the grand vision of building Vivendi, you wouldn't have bought us out at CHF68. The share went to CHF8. So 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. And if we hadn't bought LMH, we wouldn't have been in the business today, because it would have been like making Ferraris in Fiat factories.
You cannot do it. Our clients are too sophisticated. They want authenticity. And with the transparency that the web brings, I mean, you can't lie to clients. And if you have superior quality and I always say to people 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 Chateau Lafite. I'm not expecting. I'm expecting Coke and it better be the same every time I buy it. And if you buy a watch, it's not that you're buying high or low or this, but it's got to be consistent.
And what the client expects the lady or the gentleman, it must exceed their expectations. At least meet. So trademarks across the world, a trademark is not such a funny thing. And so we need that consistency. And it's in the end attention to detail, a paranoia and 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, Tom, we start talking about what could go wrong and this goes into the early morning. So a healthy paranoia is not bad. But the real question that he asked and 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 at that.
It's as simple as that. Then rather give all your cash to your
shareholders.
Sorry, but I have to admit Tom. Quite often when we've calculated that it would be a more than optimal disaster. And 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? So don't buy it. What they wrote to me that I'm unsophisticated. Yes, but I then wrote to them, but I have more shares, so we are buying
it. Good morning. John Cox with Kepler Capital Markets. Just a question on the sort of whole watch production liberalization issue. How many years do you think it will be for you to be comfortable with your sort of manufacturing footprint?
You talked about you want all of the brands to have their own
We are comfortable right now. Yes. John, we're comfortable right now. I told you last year and the year before that we're comfortable. I told you last year and the year before that we're comfortable.
We have empathy with Mr. Hayek's position and we're comfortable. And I saw yesterday was that Comco said that 2013 is the same as 2012. So we're comfortable.
Well, as part of that question, I can see you're obviously doing a lot of expansion in your manufacturing capacity, car care expansion and lots of other watchmakers. Would it be realistic to expect then that there will be some margin pressure on the watch division as you expand your own product?
Yes. We've said that for the last 5 years. Obviously, there would be, but there will be a blend between own and others and there is 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.
But when people export 800,000 Swiss made movements to Hong Kong and then called those watchers Swiss watchers, then I have empathy with IX. Well, it's rubbish. If those 800,000 had to be here there wouldn't be a problem. So you know, it's I'm not going to go down there because every question leads to another airline and 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. And 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.
And our plans are in place and they have been in place for a while. And if I can put it to you like this, there's no story here. There might have been a story 3 or 4 years ago if things have gone wrong and you're 100% correct, would have blown our costs out of the water. As things stand now, I'm very I mean, I'm comfortable, Richard, but you should say to you the end of production.
Yes. What's also important to note that the market has evolved towards higher points, meaning that the in house movement, which of course costs more than standard movement, has just met the evolution of the demand. So and you translated into figures. So here we are.
Okay. Just a question on the deployment of your resources as it were. On M and A, it's pretty clear you have a fantastic portfolio in the hard luxury segment with the jewelry and the specialist watchmakers. But 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 some businesses within the sort of soft leather and accessories side?
Does it have to be a big bang acquisition?
They all think they were 20 times what they are, okay? I mean I get 2 a week household names, but a lot of these were bought by financial institutions who are now wishing to exit And they came in the other way around. I went into Italy and actually we spoke to the suppliers 5, 6 years ago. And I looked at it from the supplier up and I did. And there's one very big acquisition.
I got to a realistic price being 40%, 4 0% of the eventual price. You can't compete and then you're in that business, ready to wear business and then you've got Zara and H and M. But I've got news for Zara. In China, they're being at Zara. Yes.
They want the same people want us into some of their big malls. Zara always had a pref, they will come in, there are no down payments, no minimums and the big Chinese mall operators said no. They have people that are quicker than you. So now it's disintermediations, it's like Dell and then Gateway. If you're selling other sooner or later, if you're selling copies of other people's products, which essentially is their business model, then sooner or later somebody is going to do it quicker than you.
And 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 are different business. But a lot of the companies that are for sale today were bought by the non industry players at the height of the boom and they still haven't realized that they lost their money 3 years ago. They lost their money when they paid it, okay?
It's this thing in the hour and we all do it. You make a dumb buy. I've done a lot of times. Then when I want to sell it, I think, geez, I've lost a lot of money. No, no, no, no.
I didn't lose a lot of money when I'm 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 ass. So a lot of these things that are available were bought at the wrong prices.
And it's the and I know we all know the same companies and it's of no interest to us at this stage.
But just then again on the capital, what do you want to do with the 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 dividend.
No, no, no, no. For a A difference in a guarantee and what we're trying to do. And we're looking, we've lucked it out. And I'll tell you, when I see we're not going to do it then I'll say, Rishar, I'm retiring, okay? He says he'll retire with me.
No, 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. It doesn't matter what company in the world. So if you have like Mr.
Buffet 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 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.
Patrick Schwerin, BMO Zenrikantenel 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? And secondly, you will hate my second question, but 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 of gross margin and EBIT margin, bearing in mind that you do more manufacturing and bearing in mind we have a higher exposure in the emerging markets?
Jan de Plas, he said 20% is gold in 2,001 or 2 1000. You guys never won Jan had long left for BAT in every meeting I got. So Jan de Plasies said 20%. Jan de Plasies said 20%. I'm not going to do it to my colleagues on my right, okay?
I have no idea what's staying on. 23 is pushing it. And I can't build your models. I can't tell you what we're going to do.
And in terms of gross margin?
No idea. No idea.
Patrick, Patrick, 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 and how all the brands come and there's a difference between want and need. And 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. So I can't really equate a number for you in terms of percentage, but because the watch and jewelry store is smaller than say a Chloe store or what have you.
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 and that's about $750,000,000 which is pretty consistent with
what we're talking about here.
Well, okay. That's non breaking without any breaking news.
But I think you can get to a 1,000,000,000. Breaking news. No, but I mean there is some things you've got to do, okay?
Thank you.
Sometimes if you're the boss, you've got to act like the boss. And when people opponents of yours start looking at your real estate and prime locations, then sometimes you've just got to make sure they understand who is the boss. And that's not me, that's people who live in Paris that we're supporting. Is that a fair? We're supporting colleagues of ours in Paris.
Folks, it's amazing. You can understand unknown Cartiers in 'seventy five and in the '80s Cartier was Cartier was like Baumann Mercier. Today it's a machine. And you can see how these Maisons evolve and they start getting a critical mass. In certain of them, if you're €250,000,000 it's a lot harder to get from 0 or for €100,000,000 to €200,000,000 than it is from €200,000,000 to €600,000,000 From €500,000,000 to €1,000,000,000 is a lot easier than from €100,000,000 to €200,000,000 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 2 or 3 of our Maisons to build muscle. And we are hiring as well some people outside. And we think we're in a nice position that we have the liquidity to do so. But both of you very good questions, but your questions are the things that made me lie awake at night. So it's that's why we remain very close to our opponents.
Rogerio Fujimori, thank you. Hello. Just a quick follow-up question on the watch manufacturing plants. Last year you indicated headcount increase plans of around 1900 yes, nearly 2000 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? And the third is any additional color on the net a porter growth would be appreciated. Thank
you. Firstly, how many people of the 1900 that we hired? Is that the question? Yes.
Last year we hired more than 3,000 people 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 why we are also investing in training in schools to find the people. Surprisingly, the unemployment in Switzerland has decreased and it's difficult to find the people. That's what's going to be the issue. Regarding the stores in China, 160 internal.
Yes, we got 60 internal. 160. 160. We operate 160 stores in China. Internal.
Internal. Only internal. And if you add the franchise stores, we are around 250,260, Yes, 300, yes.
No, what's it, 340? 300.
About 300.
It was 3.23 in September. I think it's about 3.40 now. Yes. And the last question?
Net a Porter, what was the question again?
It continued It's growing quicker than our group rate, but slower than they used to. And we're not quite sure whether it is because they bought in expectation of bigger sales is how do you buy, you buy upon history or whether in fact that market is being affected, but it's still growing by more than our internal sales. So I mean they grow by quicker than Richemont does.
Hi, Francesca Di Pasquantonio, Deutsche Bank. I have a question on China. And I appreciate it's quite difficult to predict what can happen to the volcano. But 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 and 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 and especially in Asia Pacific. You saw the figures for Asia Pacific, so far so good. The problem is the prediction. We don't know.
But we are following, I would say, on a daily basis. We are a retailer, so we know what's going on. We pay attention. We think that the substance for future growth is still there. We're paying attention to what's going on.
The Chinese consumers, A, were 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're saving, they're stuck, they're working, they will have material wealth.
So it's up to them, we have no problem. However, in every centrally commanded economy, you have the potential for income. Suddenly they put strict border control, suddenly they do this, suddenly they do that. I don't know. But in a free market system, you have a CIO that blows a minimum of $2,000,000,000 in a week.
So 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 see, but the consumers have the sophistication and the desire and the desire for our products.
So all of that is in very good shape. And if they're allowed to travel and they will get disposable income then this could be the start. If that is the that's my gut feel, I may be totally wrong.
When we met with people like Capital Land
who are
opening 20 malls a year just for that 20 malls
per year.
So when we look at the optimism, us we are much more flexible I would say because
The capital and people remember Singaporean base basically started by Mayor Oli Kuan Yew. And it was very interesting how they put it. They said, well, we have to get consumption up to 50 percent. That means this, we can't sell televisions and stoves and in mom and pop shops. For that we need build 2 100.
This one is 223,000 square meters. I mean 223 in Chongqing, okay? And by the way, that's only part of a development. They're building 200 airports in China at the moment. And how long have they been fighting about Heathrow's 3rd runway?
I mean, 30 years, okay. Where do you want to be? Just have a look at the people working. I mean 2 days ago my son and I flew here and because of the stupid air show we had to get up at 3 fly at 3:30. Actually no we flew at 4 30 from the U.
K. There was nobody. No, I'm lying. Up Edgewell 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 English man was awake. They were sleeping, maybe coming back from the night before. However, if you had to drive around at 4:30 in Shanghai, all for that matter in New York, the city is alive, people are working. And I'm crazy, but I look at those things. I actually go and look at the economic activity and 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, those they're already studying and that's what makes me optimistic. And yes, there will be hiccups. There will be repression, there will be but 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. But 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 the empire or the people that ran our country, Great Britain, you know, we discovered diamonds, they come and steal it. We discovered gold, they come and steal it. 18/80, 18/90, turn of the last century, 200,000 Brits, we were 20,000, they killed 10% of women and children.
Do you really think that in the year 190 2 that Great Britain thought the sun was ever going to set on the empire. No way. And I'm afraid unless America gets its act together then you've got to go and read that book by David Albertsdam on the American Century, great book because it may be the last book that you read about in American Century in comparison to the work ethic. And now we discussed it earlier on. I mean Europe, I love Europe, but I mean are these folks serious?
30 hour work week and I want to retire at 50, full pension, full medical. And by the way, the whole of February sorry, of May is a bridge. I'm bridging this to bridging that to bridging that. And if you've got a factory, you can't run a factory of half, your people are on a bridge somewhere, but I want to have growth. I happen to know the people from the CIC, Gao and GIC.
They're highly sophisticated. They're not going to buy these bonds. They in their words, why should I buy debt from people who work less than me and are not planning to repay me? So this is really these are the kinds of conversations we have around our Board. Normally, a red wine fueled 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, And you know why?
I'm a foreigner here. You know why, I'm a foreigner here, but I can't see our 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? And I'm not saying that the people in Bari and in the whole of the south of Spain.
If I'm Mayorkin, why do I want to work like somebody in Hamburg? You've got to be mad. I mean it's cold and freezing and raining. Now 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 that's how we think about currencies and that leads back to our positions that we take. Sorry, there was is that there were 2 or 3 more questions. Yes, sorry. Yes, please just speak up.
Thank you. Franz Silviova from Goldman Sachs. Two questions, if I may. My first question is regarding pricing policy. Could you comment on if you have whether you have put through any price increases in the Q1 of the calendar year and what the plans are for the rest of the rest of 2012?
And my second question is regarding distribution channel mix. Retail is now roughly 50% of your group revenues. And 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. We don't see that this year. So every brand does it differently. So I can't really give you a number from a group standpoint.
Some are taking some, some are not. Some are only taking some in Europe, but it's muted this year. It's not featuring I would say on the road.
You never comment upon price increases again. I had a fit last year. And 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 and yet no we didn't.
The Q1 was not really impacted by price increases.
And on the retail question, I think Mr. Rupert always says we have to find the pockets where they are where the money in the pockets are. So we tend to be opportunistic, projects come and go. So we don't really target
Hi. It's Matthias Erfmann from MainFirst. Sorry, I have a question again on the manufacturing. Are you happy with the development of others groups offering you movements and assortments? Or has the quality and quality evolved the way you expected over the last several months and available for you in the market?
Or do you might have to do more in terms of verticalization with your brands? And the brands you mentioned as where you pushed the verticalization very hard, is that does that mean you're 100% independent then and produce every little component yourself? And then 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 half of it. If you speak into microphones, could you just hold it a bit away from your mouth, please? Because you speak right into it, we can't hear. Sorry.
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. And on top we are becoming, I would 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. So 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 for the second question.
The second question was about the 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 2?
Well, Garry's foot is always on the brake. And he's done a hell of a job by keeping it on the brake. And no, no, and he's got a handbrake on as well. Sometimes Richard and I push him to let go of the handbrake, okay? Then we've got colleagues, the head of every Maison, foot is always on the accelerator, okay?
Assume that if we add CHF 15,000,000,000 we said go for it, they'll find a way to spend it in 3 years, trust me. So it's I think the real issue is what Mr. Russo asked is we will not let go of the brake unless we see that in terms of cash generation and returns be better than alternate decisions. And sometimes like with LMH 12 years ago, we bet a lot of money. We went and borrowed money, but we knew we had to do it.
So if a situation presents itself like where there is something that you know you have to do, then we will be bold enough to do it. But we will know that in a 3 to 5 year period it will be cash accretive. But it's a good question, but you should actually ask it of the guys who are not here, right, the guys who direct report to them. Get George Caron sit here next year, where is your foot George? Problem is George doesn't have a break, okay?
I don't think IWC has got a break in its business model, but they're doing very, very, very well. But our goal is to temper irrational exuberance.
Yes. Good morning. Hi. So 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. A Porter's sales evolution and where that stands as a percentage of NAP sales. And also with regards to your evolution and potential investments 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 statements it was €400,000,000 or over €400,000,000 of sales for the net a porter.
Are we closer to €401,000,000 or €499,000,000 or somewhere in the middle? And how many brands are now being sold through the Net A Porter business? And I guess one final sorry quite a few here, but one final on the additional €250,000,000 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 because the other side don't know about it yet. If I had to elaborate, it may become Now Net A Porter, I think we've got to go back to the history of Net A Porter. And it's interesting, Nathalie's husband, Arnaud Nasseray, helped Elvoh Michaud and myself to get out of that French trap that we found ourselves with Canal, Vivendi, etcetera. He worked at Lehman. And after a rather unfortunate meeting in Paris, I said to Elva, I don't trust these guys, Ludwig Denge.
Let's get out. We had you know what a Super Class 1 transaction is in the U. K, you can't deal with the company. It's totally non fresh, okay? But normally where we come from controlling shareholders or substantial shareholders don't deal with public companies or companies.
And if ever you should you get total third party advice. I have never dealt with any company publicly. I don't even buy secondhand car from Rynet or Richemont or Rembrandt or any you have church and state, you have the company, which belongs to your constituents and then I have my own assets. We don't mingle it. But I've got to go back because you've got to understand then Vivendi bought Pate whilst we were co investors in Canal and all the media was supposed to go through Canal Plus.
We were in Tokyo I think for a board meeting when I read this and I said this I see this movie. Now they're going to try to move Patte into Canal for more shares to dilute us. I've seen this movie before. It's got a French subtitles and I've seen it. And Elwha assured me that having written the articles everything adopted, which Vivendi agreed to.
We inserted into the articles basically British corporate governance. So 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 etcetera, 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. And the answer was sorry, Tresor has approved it. I said, excuse me, this is a major company, Canal. Redempti is a major company.
We have an agreement signed by both boards, 3 major boards not yet a year old. You cannot act like this. This is not serious. Or not Cezor has approved sorry and it was true. Cezor had approved it.
And I said to Jean Marie, this is not serious and 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. So I got up, I walked out, said to Elva, we're getting out, but we had a year lockup.
So I called Lehman and I said, okay, get us out. So they sold it out and it was Natalie's husband, Arnaud Marcinet who got us out at 68 and I banked it. And it was a lot of money for us, okay. And you must remember this is over 12, 13 years ago. And I was percent and even more horror, I bumped into Jean Marie in an elevator in New York.
And he says, I told you, this is a mistake. Called L. Y, I said, God dammit. However, on the year of the anniversary, on the date, it was 8, 8. Lucky for Chinese for me very bad, 8.
And the guy who did it was Arnaud Massenais and Arnaud's wife was Nakani and she started. And I'm telling this whole story so you can understand how we got involved in it. She started this business. And 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. So 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, but I didn't really want to for many reasons make to begin investment because we would have killed the business with all of our corporate governance and corporate social responsibility and 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, but so I said keep it independent. Then the 2nd round came and we put some more money in, but Eileen said we like the right to first refusal, because I don't want to be party to building this thing up.
And when it's successful, one of our opponents buys it. Then Hirsch Corporation approached them to make a bid. And the her one partner, Bousquet, who made a lot of money, a lady very smartly sold, but that triggered our preemptive. We did not go and say we want to buy, but we got triggered. And frankly, it should have been bought by either Hirst or Courtenay Nast because 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 news reader there is some Absir News Reader and Zinnio. Where you read the magazine online, but not this rubbish website. You read the proper New York Times or proper FD, you flip it and the whole paper is there. Now if you look at the print cost and if you look at some of the technology that's our person online and Vanity Fair, but not just the website, it's going to be properly online. So if it grows slower than we suspect it, then 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 because 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 gentleman, ladies would have meant that Bond Street, Rodeo Drive, Fifth Avenue, Montin Napoleone, those things become liabilities. I mean, if you this is highly likely to be my very last time that I'm ever sitting here. So I want to just give you our philosophy. To me this is a hedge with the best lady, with the best team.
And if they cash flow positive and they learn and Mr. Porter is doing well. But hopefully your waste size is not 40 like me because then it is of no use. It's It seems to be that American South African men are just too big for online shopping. Look at them laugh.
Actually if you want to see something funny, really funny, my son and I are doing the Mille Miglia, but I've got 2 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. And we had to take the hardtop off so they can drive with goggles looking over the windscreen.
So for the next 3 days and they can't buy clothes anywhere, okay? But they were so hopeful with Net A Porter there's nothing on it, not even a T shirt. But net up or tail 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 will be one of the survivors. But the space is getting increasingly crowded. But 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. But it's a very good question, but it's not critical to our critical to us is Kathir and in the future and our watch business as 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? And practically on a 5 to 10 year view, how would you seek to enter those markets?
Okay. I'll start with India. India is a federal state. And 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 to keep the brands and the Maisons top of the mind awareness, but to for instance communicate on let's take Emirates Air Flies Into 5 Indian okay?
And if we okay? And 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, Mont Blanc. Mont Blanc could do incredibly well there and 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. And I thought quite 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 quite unquote very, very well and Africa is doing well. Will it be big? No, you can look at the demographics, look at the GDP, look at China versus the rest. But will it sustain 2 or 3 stores? Yes.
Will Rio de Janeiro? Will Sao Paulo? Will these cities? Certainly. But if I were to say to you before Bo's demise, chanting, you would have said what?
Go on, be honest. Whom have you would have heard of that city before this murder trial? And yet it's a city with 33,000,000 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, but let's say 5.5 days taking goods from there to Europe by rail goes through 5 or 6 countries without stopping for duties. They bought the railway now, is there?
The problem folks and I'll leave you with that last thought, that railway line is twice as expensive as anything else and I think you all know why, because it goes back empty. Empty. It leaves China it leaves China full and goes back empty because there's absolutely nothing that Europe can put on that train back to Chongqing. Now this is what President Hollande ought to discuss with Chancellor Merkel. I want to show videos of the train arriving full and going back empty.
Thank you. Luckily, we send our stuff by air and we don't have to thanks.