Compagnie Financière Richemont SA (CFR) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the financial year 2020 annual results presentation live webcast and conference call for Compagnie Financière Richemont. I'm Alessandro, your call operator. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it is my pleasure to hand over to Sophie Cagnard, Group Corporate Communications Director. Please go ahead.

Thank you, Alessandro. And good morning. We hope that you, your families and your colleagues are all well in this difficult time. And while we are disappointed that we cannot host a physical meeting as originally planned, we are pleased that you're able to join the audio webcast of Richemont's 2020 Annual Results. This is Sophie Cagnard and joining us today from Richemont from different parts of the world are Johann Rupert, Chairman; Jérôme Lambert, CEO; Burkhart Grund, CFO; Cyrille Vigneron, CEO of Cartier; and Nicolas Bos, CEO of Van Cleef & Arpels; as well as James Fraser, IR Executive. Jérôme will begin the presentation with a summary of our response to the COVID-19 pandemic before taking you through last year's financial highlights and sales. Burkhart will then discuss the Maisons' key developments and group financials. He will hand back to Jérôme for the conclusion, which will be followed by a review of all the questions that you kindly provided. Today's presentation and company's announcements are available on richemont.com, and an archive of this audio webcast will be available on our website at 3 p.m. Geneva time today. Before we begin, may I draw your attention to the disclaimer on our presentation and company announcement regarding forward-looking statements as defined in the United States Private Securities Litigation Reform Act of 1995. Thank you. I will now hand over to Jérôme.

Thank you, Sophie. Good morning, ladies and gentlemen. Thank you for taking the time to participate in today's presentation during this exceptional period for us all. I would like to start by taking you through the actions Richemont has taken in response to the spread of COVID-19. To deal with these unique and challenging times, we have adopted a 4-stage approach: health and safety, business continuity, remediation and restart measures. First and foremost, the health and safety and well-being of our colleagues, clients, partners, communities have always been our top priority. From the outset, we have taken strict precautions, always in alignment with the World Health Organization, governmental and local health authorities' guidelines. We have been in regular communication with our colleagues in addition to providing a 24/7 helpline and well-being support. As the pandemic spreads from Asia Pacific, across Europe and the Middle East and then to the Americas, we temporary closed many of our boutiques and office, some of our distribution centers, notably those at our Online Distributors, and most of our production facilities are either fully or partially. At the end of March, following some reopening in Asia Pacific, close to 45% of our directly operated stores were closed. These figures rose to nearly 3/4 of our distribution when including external point of sales with 3 regions, namely, America, Europe and Middle East, all nearly completely close. Throughout, Richemont has been committed to supporting the communities where we operate. In addition to our early donation to the Red Cross in Wuhan, around 100 support initiatives have been implemented throughout the group by our Maisons and businesses. There are too many to list them here, but let me name a few. In Italy, our Richemont friends and Serapian have pledged over 1 million masks to medical staff and front line workers in Italy in addition to the masks they are providing for our colleagues and their families. YOOX NET-A-PORTER partnered with local charities in London, New York, Hong Kong and Milan to repurpose their delivery fleet and deliver thousands of packages containing food, medicine, additional items and personal protection equipment to those most in need and to hospitals. Cartier has made several donations to organization and program worldwide, including Médecins Sans Frontières visiting their service in New York, the Red Cross Society of China and the Emirates Red Crescent. The second set of measures we have taken relates to ensuring business continuity. We have kept our operations running at a minimum level to be ready to gain momentum when the situation improves. A small number of production facilities remain open to serve essential operations and some distribution centers continues to serve our open stores and online customers, always following governmental and public health guidelines. Many of us have also embraced working remotely. The ramp-up from 1,000 to over 10,000 was done in less than 10 days, and our technology team has done an excellent job making this happen as quickly and smoothly as possible. Our past investment in digital infrastructure have allowed our teams to maintain direct contact with clients, either through our Maisons website, call center or through social media channels. Our Maisons has swiftly embraced those new digital opportunities, and we have, therefore, been able to generate increased sales via our website, third-party website and across multiple digital channels. Before going through the remediation measures, whose benefit will flow through more in financial year '21 than in financial year '20, let me tell you what we estimate the pandemic impact is for the year under review. We estimate approximately EUR 800 million on sales, around EUR 450 million on operating profit and some EUR 350 million on cash generation. Cash is our fortress. It allow us to stay agile and give us the freedom to take a long-term view with our Maisons and businesses, keeping employment high and honoring our commitments to stakeholders. To this end, we promptly implemented a range of remediation measures for cash preservation. We quickly tailored inventories to end consumer demand and adjusted our production capacities and corresponding supply chain needs accordingly. These measures are helping to contain working capital requirements. We have restricting operating expenditure, such as communication and selling and distribution expenses, to business-critical spend only while maintaining our focus on new retail, which is the operating model we are aiming at. It consists of using big data to intimately know our clients and being able to meet their expectation at any time, anywhere and with any device. We are renegotiating third-party agreements where we can. Hiring and salary freeze has been implemented while capital expenditure is being reduced by postponing or canceling projects such as store opening and renovation, and we are limiting spend to only key strategic projects. Remember, there is always a lead and lag effect between initiation of cost saving and cash preservation measures and the time they show in our financials. In a nutshell, our priority is to protect our people and preserve our ability to benefit from any improvement in the environment. In light of COVID-19, Richemont's Board of Directors has also decided it is prudent to propose a lower cash dividend. Let's now look at our restart measures, which mainly consist of reopening facilities whenever allowed by authorities, always maintaining strict safety protocols. This is what happened in March in part of North Asia, including with reduced opening hours and shift arrangements. Restart measures also include focusing on new retail just discussed. The U.S.A. and allocating resources and reallocating stock where sales have resumed, such as China and Korea. Before turning to the numbers, let me remind you that the group financial statement for the prior year ended 31st March 2019 included 11 months of YOOX NET-A-PORTER results and 10 months of Watchfinder's results. Sales for the year increased by 2% at actual exchange rates and were in line with the prior year at constant exchange rate. Excluding Online Distributors, sales for the year decreased by 1% at actual exchange rates and by 3% at constant rate. COVID-19 had a significant impact on the fourth quarter where sales declined by 18% at exchange rate and by 90% at constant rate. As a reminder, sales have increased by 8% and 5%, respectively, in the first 9 months of the year under review. Operating profit was down by 22% to EUR 1.528 billion, largely impacted by temporary store closure in the fourth quarter. Profit for the year amounted to EUR 931 million. The magnitude of the decline can be primarily attributed to the nonrecurrence of the post tax noncash gain of EUR 1.378 billion on the revaluation of YOOX NET-A-PORTER group shares held prior to tender offer as well as the EUR 245 million foreign exchange loss on monetary items. The net cash position remains strong at EUR 2.395 billion. Let me now walk through the group sales performance, first by region, then by distribution channels and, finally, by product line. As always, changes versus last year are expressed in constant currencies. Also, Hong Kong refers to Hong Kong SAR, China; Macau refers to Macau SAR, China; and Taiwan refers to Taiwan, China; finally, China refers to Mainland. Let us start with sales in Europe, where sales increased by 4% and by 1% when excluding Online Distributors. In the fourth quarter, sales were impacted by COVID-19 and declined by 10%, following an 8% improvement for the 9 months ended December 2019. Performance for the year was varied across the main markets. Sales in the United Kingdom grew by double digit while sales in France declined, affected by lower tourists and domestic spendings following strikes and social unrest. There was mid single-digit sales progression at the Jewellery Maisons, which partly benefited from the consolidation of Buccellati and a slight decrease at the Specialist Watchmakers. Sales at Online Distributors rose by double digits, partly benefiting from a comparison to the previous year, which included 11 months of sales for YOOX NET-A-PORTER and 10 months for Watchfinder & Co. Retail sales recorded a mid-single-digit increase while wholesale sales contracted primarily due to optimization of the watch wholesale network. Online retail sales continued to grow by double digit. With 30% of group sales, Europe remains our second largest market. Let us move now to Asia Pacific, our largest region, with 35% of group sales. Sales for the year decreased by 6% and by 7% excluding Online Distributors. The decline is largely explained by 2 factors: social unrest in Hong Kong for the largest part of the year and the outbreak of the COVID-19 pandemic during the fourth quarter when sales declined by 37%. For the full year, sales in China and Korea rose by double digit. This progression, however, was not enough to offset the 40% sales decline in Hong Kong. Sales grew at the Online Distributors, but contracted in all other business areas. By channel, both retail and wholesale sales were lower than in the previous year. Let us now look at the Americas, which accounted for 20% of group sales with U.S. remaining our largest market ahead of China. Sales in the Americas grew by 6% and by 2% excluding Online Distributors. The Online Distributors drove growth by double-digit sales progression while our Jewellery and Fashion & Accessories Maisons posted single-digit increase. The decline in wholesale sales was more than offset by a double-digit increase in retail, both online and off-line. Let's now turn to Japan, where sales accounting for 8% of the group total declined by 1% overall. Excluding Online Distributor, they were in line with the previous year. COVID-19 weighted heavily on domestic and domestic spending in the fourth quarter with sales retreating by 21% versus the first quarter of the previous year. Sales for the year were also negatively impacted by the relatively strength of the Japanese yen and the October '19 increase in VAT. It is worth noting, however, that sales at Jewellery Maisons were stable compared with the previous year and that most Maisons within the Specialist Watchmaker grew from high single to double-digit rates. Wholesale and Online sales posted growth while retail sales declined slightly. And finally, let us review sales in the Middle East and Africa region, which represented 7% of the group sales. Sales were 3% lower overall and down by 6% excluding Online Distributors. While sales in the first 9 months of the year had been stable, they decreased by 12% in the first quarter -- in the fourth quarter. There was a strong increase in sales at Online Distributors, so not enough to compensate for decline at the Group's Maisons as the outbreak of COVID-19 and an unstable environment impacted strongly the final quarter of the year. From a distribution channel perspective, retail sales were in line with the previous year, wholesale sales declined and online retail sales rose sharply. Let us now turn to sales by distribution channels, beginning with retail. Sales in our 1,175 directly operated stores decreased by 2%, affected by temporary store closures during the fourth quarter and following 5% growth in the first 9 months of the year. By the end of March, however, most of our stores in China had resumed activity. Sales for the year increased at Online Distributors and were stable at Jewellery Maisons. Europe and the America delivered growth while sales in the Middle East and Africa region were stable while all the regions declined. Retail sales accounting for 51% of group sales compared to 53% a year ago. Next, let's look on online retail which posted strong double-digit sales growth at Maisons and Online Distributors across almost all regions. Sales benefited from an increasingly digital clientele and from a favorable comparative due to the timing on the Online Distributors consolidation in the previous year. The contribution of online sales to group sales grew by 300 basis points to 19%. Finally, wholesale. Sales were 5% lower after decreasing by 1% in the first 9 months. In addition to the COVID-19 outbreak, temporary store closure at our franchise partners and multi-brand retail partners due to social unrest in Hong Kong and France weighted on sales. Growth in Japan was more than offset by decline in other regions. Sales declined in all business areas. Specialist Watchmakers were, in addition, impacted by network optimization initiatives which contributed into the third quarter of this financial year. Wholesale sales represented 30% of group sales compared to 31% a year ago. And finally, let us move to the sales breakdown by product line. Jewellery sales were in line with the prior year with good sales in Europe and the Americas, mitigated by a slowdown in Asia Pacific. Jewellery was the largest contributor to group sales with 36% of total sales. Lower watch sales reflected wholesale channel optimization initiative and continued disruption in Hong Kong, initially by street protests and thereafter by COVID-19. There was slight decline in leather good sales with clothing -- while clothing grew strongly. The later partly benefited from a favorable comparable with the previous year due to the effect of the Online Distributors consolidation as previously mentioned. Burkhart will now take you through the Maisons and segment highlights. Over to you, Burkhart.

Thank you, Jérôme. Let me start with the Jewellery Maisons. After rising by 8% in the first 9 months of the year, sales rose by 2% for the full year following the impact of COVID-19 in the fourth quarter. Europe, the Americas and Japan led regional growth and more than compensated for lower sales in Asia. Retail sales increased moderately. Online retail sales grew strongly. The decline in operating margin was limited to 28.8%. This contraction can be partly attributed to higher gold prices and a muted increase in costs linked to continued investments in retail network renovations and digital communication initiatives. In addition, the outbreak of COVID-19 led to store closures and event cancellation fees. Let us look at the key developments over the past 12 months. Growth in Jewellery was moderate with notable performances from icons, such as Juste un Clou at Cartier and Alhambra from Van Cleef & Arpels as well as from the -- on the successful launch of Clash de Cartier at the beginning of the financial year. The Clash collection has continued to gain momentum with new references in white gold and amazonite recently introduced. Since its acquisition in September 2019, Buccellati has performed well, notably its emblematic Macri Collection. In watches, sales were moderately lower compared to the prior year, particularly impacted by protests in Hong Kong and the COVID-19 outbreak. There was strong performance from Panthère and Santos at Cartier and Alhambra at Van Cleef & Arpels. Retail sales growth partly benefited from new store openings, notably in China, the reopening of renovated stores in several locations across Europe as well as from the integration of Buccellati. Online retail continued to perform well with double-digit growth. This was aided by the launch of Cartier flagship store on Alibaba's Tmall Luxury Pavilion in the fourth quarter, which had strong initial takeup. The decline in wholesale sales reflected several months of street protests and a difficult trading environment in France and Hong Kong. Let us now review our Specialist Watchmakers business area, where sales declined by 4% in an overall challenging environment despite increases in Japan and the Americas for the year under review and good growth in China during the first 9 months. Retail and wholesale sales as a whole declined for the year following a stable performance in the first 9 months before the impact of COVID-19 in the fourth quarter. There was strict cost control of both of inventories at our multi-brand retail partners and, of course, throughout the year. Cost savings were, however, not sizable enough to compensate for the combined effect of lower sales, higher gold prices and a stronger Swiss franc impacting the cost base. As a result, operating margin was 220 basis points lower at 10.6%. Let us look at some highlights of the past 12 months. Sales declined across most Maisons. There was, however, notable growth at Lange & Söhne and Panerai with good response to the new Odysseus line and various anniversary additions at Lange 1 at Lange & Söhne and the launch of the Submersible Carbotech at Panerai. The decrease in retail sales reflected a sharp contraction in Asia Pacific primarily attributed to COVID-19. All other regions posted growth with a double-digit increase in Japan. Online retail sales continued to expand, albeit from a low base, with broad-based growth across Maisons and regions. Lower wholesale sales primarily reflected unrest in Hong Kong and France and the subsequent effects of COVID-19. Sales were also impacted by the optimization of the wholesale distribution network, which was completed at the end of the third quarter. Now let us turn to Online Distributors, where sales increased by 15%. Nearly all regions, led by the Americas, posted double-digit growth. This performance was achieved notwithstanding the temporary closure of the Landriano distribution center in Italy following a storm last summer and the temporary closures of distribution centers in the fourth quarter linked to the COVID-19 outbreak. On a technical note, let me bring to your attention our decision to reclassify the amortization of intangible assets and inventory adjustments made on acquisitions. Going forward, these costs will no longer appear in the operating results of each business area. We have done this so that operating results better reflect the operational performance of each business area. Prior year figures have been restated to reflect this change, which will primarily apply to Online Distributors. Online Distributors posted an operating loss of EUR 241 million for the year compared with a EUR 99 million loss in the prior year. This reflects a number of factors: a highly competitive pricing environment for online fashion, higher fulfillment costs partly linked to the Landriano storm, increased communication spending and continued investments in IT, mostly linked to MR PORTER's and more recently NET-A-PORTER's platform migration as well as international expansion costs at Watchfinder & Co. Let us look at some operational developments. Since April 2019, YOOX NET-A-PORTER Group has introduced more than 600 new brands, including Audemars Piguet and launched more than 300 exclusive capsules, notably with Saint Laurent. Expansion of key categories has continued, notably hard luxury and beauty. MR PORTER's migration to the new platform has been successfully completed, and the process has commenced for NET-A-PORTER. The FENG MAO joint venture with Alibaba continues to develop favorably. After 6 months of operations, the NET-A-PORTER flagship store on the Tmall Luxury Pavilion now features more than 165 brands, including some Chinese brands. Among the many digital initiatives introduced this year, I would cite 2 at YOOX utilizing artificial intelligence. YOOXMIRROR enables customers to develop avatars to try on outfits and share the looks. Also at YOOX, a new size and fit tool helps customers identify the right clothing size. This year saw the launch of YOOX NET-A-PORTER's Modern Artisan Project, a sustainable luxury capsule collection of men's and womenswear in partnership with The Prince's Foundation. This complements the Net Sustain platform, which promotes sustainable fashion, and encompasses 100 brands in its second season. Watchfinder & Co enjoyed strong growth on a full year comparable basis. Performance was strongly driven by the U.K., and the business has now expanded into France, Switzerland, Germany, Hong Kong and more recently the U.S. Finally, let us move to Other, which primarily includes our Fashion & Accessories Maisons. Sales were 5% lower for the year following a stable performance for the first 9 months. Growth in the Americas was offset by declines in other regions, particularly in Asia Pacific. Sales were lower in the retail and wholesale channels while online retail showed robust growth. Operating losses increased by EUR 46 million to EUR 141 million. The deterioration can be explained by lower sales and a EUR 45 million asset impairment at ALAÏA, Dunhill and Purdey. However, it is worth noting that a tighter capital allocation leading to a reduction in inventory and CapEx led to a lower cash outflow. Let us look at the developments of the main Maisons. There were contrasting results across Maisons. Montblanc's growth in the Americas and Peter Millar's globally were not able to offset declines at some of the other Maisons and regions. Montblanc had notably good performance from its tech products and from new categories such as trolleys. Retail sales were lower, impacted by temporary closures, though Dunhill and Montblanc showed resilience with higher sales in most regions. The decline in wholesale sales was contained by good growth in the Americas. The strong growth in online retail sales was driven by Montblanc and Peter Millar, which were some of our first Maisons to embrace this channel. Overall, for the Fashion & Accessories Maisons, online sales reached 9% of total sales compared to 5% a year ago. Let me now walk you through the rest of the P&L. Gross profit was broadly in line with the prior year. At 60.5%, gross margin for the group was down by 130 basis points, mainly due to higher gold prices, lower manufacturing capacity utilization and a competitive pricing environment in online fashion, in addition to the full year dilutive effect of the Online Distributors. The group Maisons gross margin, however, was strong at 66%. Let us now look at our operating expenses. Overall, expenses increased by 6%. Selling and distribution expenses increased by 2%. The limited increase reflects early mitigation measures following the COVID-19 outbreak and postponing of nonessential renovation of store openings. It also includes the first-time adoption of IFRS 16 leases. Selling and distribution expenses represented 50% of total operating expenses compared to 51% in the prior year. Communication expenses rose by 6% despite efforts to limit expenditures in the fourth quarter of the year as some spending was already committed. Effectively, when canceling a number of campaigns or events, charges were incurred for those with only partly refundable fees. The most notable was the EUR 22 million charge for Watches & Wonders Geneva, which was to take place in April. Excluding this charge, the increase in communication spending was limited to 4%. Communication expenses represented 9.9% of group sales, slightly more than the 9.6% in the prior year, but accounted for 20% of operating expenses, in line with last year. Fulfillment expenses at EUR 352 million increased by 54% and represented 5% of operating expenses. These costs are related to the fulfillment of online orders at the Online Distributors and the group Maisons. Almost half of the increase was due to the first-time inclusion of fulfillment costs for group Maisons that were reported across other expense categories in the prior year. Remaining increase was mostly driven by the full year effect of the consolidation of the Online Distributors and extra costs due to the storm damage in Italy last summer. Administrative expenses grew by 10%. The increase can be mostly attributed to the strengthening of the Swiss franc, IT and logistics spending and digital initiatives at Online Distributors and group Maisons as well as the strengthening of some teams, notably in digital. Other expenses amounted to EUR 254 million. These included EUR 200 million for amortization of intangible assets on acquisition primarily related to online distributors. Also included were EUR 48 million of nonrecurring items mainly related to impairment charges for the group's Fashion & Accessories Maisons. The prior year period included onetime expenses of EUR 95 million. This leads us to operating profit, which was down by 22% as operating expenses increased at a higher rate than group sales growth. There was a time lag between the impact of temporary store closures on sales and the effectiveness of cost mitigating measures promptly implemented in the wake of COVID-19 in the fourth quarter of the year under review. Operating margin for the year stood at 10.7% or 14.9% excluding Online Distributors. Let us now review the P&L items below operating profit, starting with finance costs. Net finance costs for the period amounted to EUR 337 million compared with EUR 183 million in the prior year. The increase was mainly due to a EUR 233 million increase in net foreign exchange losses on monetary items and new lease interest expense from first-time adoption of IFRS 16. These were partly offset by a EUR 44 million net gain on hedging activities that compared with a EUR 112 million loss in the prior year. Profit for the year decreased to EUR 931 million. This was primarily due to the nonrecurrence of the EUR 1.378 billion post tax noncash accounting gain on the revaluation of YNAP shares that we held prior to the tender offer. Also contributing to the decline was reduced operating profit and the higher net finance costs just mentioned. I would now like to focus on our cash flow from operations. Cash flow generated from operations improved by EUR 466 million to EUR 2.797 billion. This was mainly a result of EUR 724 million in higher depreciation, including EUR 618 million for right-of-use assets under IFRS 16. Lower working capital needs arising from a lower increase in inventories and lower trade receivables, largely due to lower wholesale orders, also contributed to the increased cash flow from operations. Let us now turn to our gross capital expenditure, which amounted to EUR 735 million. Expenditures were 11% lower than the prior year as some projects were postponed or canceled due to COVID-19. 44% of expenditures were focused on points of sale. It's mainly related to boutique openings, such as Cartier at Hong Kong K11, and renovations, such as Cartier in Old Bond Street in London and Van Cleef & Arpels on Rodeo Drive in Los Angeles. Manufacturing spending amounted to 13% of capital expenditures, mostly related to R&D and machinery, the largest portion being at Cartier. Other investments at 43% of total spending included IT expenditures, mainly at YOOX NET-A-PORTER and to a lesser extent at the group and the Maisons. Let us now discuss free cash flow. Free cash inflow amounted to EUR 1.24 billion, a decrease of EUR 122 million. Higher cash flow from operations was more than offset by the inclusion of lease payments under IFRS 16 as well as higher taxes paid. Let us now turn to our balance sheet. Our balance sheet remains strong with shareholders' equity representing 57% of total equity and liabilities compared with 61% a year ago. Net cash of EUR 2.395 billion is EUR 133 million lower than the prior year. The decrease can be partly attributed to the Buccellati acquisition. Let us now talk about the dividend proposal. In these unprecedented times, without visibility on how the environment will develop, our Board of Directors has decided that it is in the best interest of all stakeholders to preserve maximum liquidity in the short term and therefore to lower the dividend proposal to CHF 1 per A share. In order to reward loyalty and long-term shareholders, the Board is also evaluating an equity-based shareholder loyalty scheme as a supplementary benefit to enable shareholders to capture any ultimate improvement in global conditions. The scheme will be announced prior to the publishing of the AGM notice. I will now hand you back to Jérôme, who will conclude the presentation.

Thank you, Burkhart. Before making my closing remarks, I would like to update you on the main digital initiatives that took place this year within the group. First, the acceleration of the digital agenda of YNAP and our Maisons. At YOOX NET-A-PORTER, MR PORTER's platform migration has been completed successfully and work has started on the replatforming of NET-A-PORTER. On the Maisons side, with the sudden temporary closure of so many of our stores, our Maisons digital capabilities have had to develop further, notably for a number of our Specialist Watchmaker. We are also looking to extend the range of service offered and the reach of our Maisons e-commerce facilities into new markets by having fully localized websites. ALAÏA, Chloé and Dunhill have already joined the YOOX's online flagship store platform, and we have started to roll this out for Montblanc before adding all the Maisons. The long-term objective is to offer a seamingless experience to our clients through greater access to inventory. It will also give our Maisons visibility of our inventories across fulfillment center and stores. The second element is the increased collaboration with Alibaba through FENG MAO, our JV with Alibaba, which led to the launch of NET-A-PORTER flagship store on Tmall Luxury Pavilion last fall. The store already retailed 165 luxury designer brands in China, and its early results are promising. We are working closely with Alibaba to maximize traffic to the store. The collaboration also extends with the opening of flagship stores on Tmall Luxury Pavilion for a number of our Maisons, starting with Cartier in the fourth quarter of the year under review. Despite launching amid the COVID-19 outbreak, the Cartier flagship has performed ahead of expectations. We are, again, working closely with Alibaba to target their vast client base and to extend our reach beyond first and second tier cities. In addition, this partnership recently allowed us to help the Fondation de la Haute Horlogerie host Watches & Wonders on the cloud following the cancellation of the physical event in Geneva. The event was hosted virtually from China with many Richemont Maisons launching new collections online, a unique and innovative ways of delivering the experience of the salon to the partners and the public. Third and last element, Watchfinder, our other digital native business which is on track with its internalization plans, which include locally based showrooms, retail stores and websites in local language and currencies Watchfinder expanding 1 year in 5 areas: France, Switzerland, Germany, Hong Kong and the U.S.A. To conclude, sales operation and demand have all been strongly impacted by COVID-19. Also, we have seen some resilience in Jewellery and clothing and have also experienced a notable acceleration of online sales at our Maisons. In this context, safeguarding our people, brand equity, assets and partners remains our #1 priority. Beginning in March, in China and Korea, we have seen a gradual and cautious reopening of stores, workshops, manufacturing sites, distribution centers and offices. This is slowly extending to the rest of the world as government and local health authority sanctions are loosening off restrictions. This different time scale will require from us a lot of agility. Our restart measures will follow 2 axes: one is focused on the U.S. and maintaining a good level of activity in part of Asia where our sales have resumed and the second one is digital. What we refer to as new retail. This crisis with a new social distancing norm has undoubtedly accelerated the digitalization of our world, and this means expanding our service and improving experience for our clients. We have the capacity to withstand this crisis, thanks to our strong dedicated teams and a robust balance sheet with over EUR 6 billion in total liquidity. Our collective ability to adapt to the changing aspiration of our clients and to navigate a constantly evolving landscape give us confidence that we will emerge from this crisis even stronger. I would like to thank everyone at Richemont for their hard work and continued commitment. We'll now open the floor to questions. Thank you.

Thank you, Jérôme. And thank you to so many of you, having taken the time to e-mail your most pressing questions and concerns. We really appreciated your activity and many questions were widely shared. I will read them in the descending order of prevalence for you. The most frequently asked questions relate, let me look at the list, to COVID-19 impact. Basically, what is the impact and especially the long-term consequences? Do you have any thoughts on if and how consumer spending habit will change in terms of product, channel, brands? What implications are there for Richemont business model? Will there be an even more aggressive focus on digital omni-channel? And consequently, what would be the implications on the store footprint? So I don't know whether it's -- yes.

It's Johann Rupert here. Yes, obvious we've had a massive impact, like a number of industries. Will consumer spending habits change? It's a very good question. Yes, it will. I suspect that in 10 years' time, you people are going to be asking my successors how's your off-line business going instead of how is your online business going. Already when we're in China, we speak to Alibaba, the main discussion is online. And then when we get to new retail, we start talking off-line. I think that companies that have ignored it and have been resistant to change will find that the catch-up is very, very difficult. So when you ask about questions on NAP, any really -- any of the online businesses, it should be viewed as new retail and it should be viewed as our clients wishing to have a seamless experience with the product of their choice and with the Maisons of their choice. Now we've seen from FENG MAO, through -- if you look at our joint venture in China through to Peter Millar in the United States through to where we've opened stores in Europe, a migration in where we've opened in Europe, we have a far higher conversion rate in store when the customers come to the store because they've basically made up their mind online and inquired. And in many cases, it's becoming we'll buy and then pick up. So that's a trend that will continue. We have been active in it through investments in NAP where originally it was fashion, but we're bringing in more and more hard luxury onto the platform, not only our own but competitors. It's a way in which we, in our attempts -- so it's twofold. Firstly, it's serving the customers. And secondly, it helps us to change fixed costs of leases into variable costs, which is critical, and we will continue to advance down that road. But I think in a sense, it helps not to be scared. I mean some of you are old enough that you remember that I told you that I was the first Apple computer agent in South Africa, in the '80s. I mean Richemont was built on Apple Mac IIs. And it's hilarious today to have to explain that one DJI drone's little SD card has the memory capacity of 1.5 million Apple Mac IIs. But -- so we have, from the beginning, embraced technology and how it makes our lives easier. So this is not new. But now we have something where technology make our clients' lives a lot easier. And instead of worrying about it and bad mouthing it, we've embraced it. If we can move and continue to move more and more of our sales of our -- well, out of our stores but online, we will change our operating leverage in the right direction, and that is the real goal with our business model. And will it accelerate some decisions? I'm not sure. Are we aggressive enough? All I can say is we are embracing new retail. We are learning enormous amounts from our association with Alibaba. And the one thing I request that even throughout the standstill was that we would not cut back on the cost of developing new retail in China. So yes, we are emphasizing it, and yes, we're moving ahead. Is that sufficient? Any of my colleagues want to add? Because the next question is YNAP, how can it become a good investment for shareholders. It is a good investment right now. And returning to profitability or not, they had a disaster with the tornado last December -- November, December where the distribution center was shut. Obviously, we had to shut the distribution centers. It would not have been prudent. So we even shut this -- a distribution center though it was not legally...

Required.

Legally required. And we do not regret the NAP buyout. I'm just reading from the next sentence and maybe Sophie you can direct and help -- ask our colleagues to add to it.

Sure. Jérôme, would you like to add anything?

Yes, Sophie.

So maybe I can read the question because Mr. Rupert had it in front of him, but for the benefit of the audio, our investors and analysts listening to us. So basically, the question was whether YNAP was a good investment for shareholders and whether we were regretting doing this 50% buyout and how can we articulate -- and what was basically our omni-channel strategy going forward.

Yes. Sophie, just 2 things to help. Just Johann mentioned some DC closure, indeed, and we closed the DC in England, our DC 1 now, which is our main NAP DC very early in April, to adopt a very strict and secure conditions of work for our colleagues there at that time. And what is also very important to say that the interconnection between NAP and the global ecosystem of Richemont is progressing well. So we have already Chloé, Dunhill, ALAÏA that are operated through UFS network and are on their way to adopt a new era, which is the omni-stock model of NAP. Montblanc is moving on the platform this summer and then will be followed by the other Maisons. When it comes to another good example of the ecosystem, it's FENG MAO, Alibaba in China. We -- this year, we don't -- we have not had Watch & Wonders physically in Geneva. So we had to replace it by a digital event to present the new products, and Richemont is with the other Maisons of SIHH or Watch & Wonders are among the only ones who have presented their new products this year, thanks to a digital platform. The digital platform was presented on Tmall, on FENG MAO. It was their first multi-brand event organized on Tmall simultaneously on the various brands' Pavilions and on FENG MAO retail. And it was having hundreds of millions of impressions. We reached several millions of hundreds of impressions throughout that network presenting the new products, and we have seen a significant impact on our e-commerce in China this year. What is also very interesting is, as Johann was saying, even after opening, we see a change in attitude and behavior. So I mean e-commerce in China for hard luxury goods was already progressing strongly in January, February. But even now in this month, in China, we see up to triple-digit growth with our e-commerce despite store opening, underlining that it has changed behavior and then there is a stronger fusion between the off-line and the online store.

Thank you, Jérôme. The next question relates to dividends and whether we can comment on our dividend policy. I think that's a question for you, Mr. Rupert.

Sophie, as I'm responsible for this, I ought to field this and not let poor Burkhart defend my suggestions. We have always believed in protecting our balance sheet. We've always had a sufficient dividend cover in order to have enough liquidity at the center. For years, a lot of investment banks questioned us about that it's a lazy balance sheet, et cetera. But having been through this in '87 and in '99-2000 and in 2008, we -- and it's not being Rupert the Bear or anything. It's just being in the position where we could make our own decisions, where we can safeguard our colleagues' positions and where we're in-charge of our own destiny. So we did that bond issue. It's long-term. And we are in a secure cash position to ride out even if this COVID-19 tragedy extends for longer than we hope. In other words, that it doesn't end as quickly as we hope. Now until there is a readily available vaccine, and I stress readily available to many, many, many people, that people will live in fear. So even though China has opened domestically, and yesterday, we learned from a director of ours who has been between Shanghai and Beijing for the last 1.5 months, and things are normal, again internally and we are seeing the results throughout our stores, so -- but they're not traveling. Nobody is traveling. And until people feel sufficiently safe, I doubt that we will return to a pre-COVID stage. Now we have hundreds, but at least 100 top institutions working on the vaccine. Then we have similar brains working on tests, easy testing because testings as important. We are still, as a society, working through this, and I don't think anybody has any idea as to when a vaccine will be available. But my friends in this scientific world tell me it's going to be a lot longer than what politicians, especially those who are running for election in November, hope. But that there would be others -- that there'll be good news in other fields, not in the vaccine field, in the interim. So in order to conserve cash, we halved our dividend. I've cut my salary in half. So even though I do give it to charity, I think it's important to set an example. However, I didn't want the loyal 30-year shareholders that have been loyal to us to suffer by having to sell, if they need the dividends for cash flow reasons, and to miss a potential uptick if a vaccine or not -- should I say when a vaccine is found. So I suggested to our investment bankers 3 days ago, is there not a way in which we can give our shareholders, at the dividend date, a warrant where they can buy Richemont shares at a future date. It's an option, which is really an option on the ingenuity of man. It's an option in the hope that we will find some kind of a vaccine during the period of that option because, frankly, folks, if we don't, the whole world is going to be in such a mess that whether you own shares or options, it's not going to make a damn difference because we're all going to be in even deeper trouble. But it will reward shareholders for the pain that they're taking now. And we, as a management, will share that pain. We are going to cut cost, salaries included. We are also looking at all of the CapEx so that we, as management, have a commonality of interest with all of our stakeholders, the shareholders and all of our colleagues. I think it's with that view that we structured the dividend as we did. Now I know it's going to lead to more questions, but that was the rationale behind. We have enough cash to ensure our survival. And when you look at like a number of our Maisons, it's seen the First World War, it's seen the Second World War, it's seen war upon war and problem after problem. And as the guardians of these Maisons, all we have to ensure is that we see through this COVID-19 pandemic. I don't know. It'll probably lead to more questions, but Sophie, that's the best I can do for now.

Thank you, Mr. Rupert. It was very clear. So the next set of questions actually relate to jewelry, so really for Cyrille and Nicolas. The one what was most often raised relates to new entrants in jewelry. And notably, how do we counter new entrants, possibly ramp-up of Tiffany following LVMH integration and whether we consider LVMH acquisition of Tiffany to be a game changer? And what -- and how do you see Cartier and Van Cleef in the relative market share gains? And maybe I'll stop here and ask the other jewelry-related questions after.

I will just start by saying that we will obviously offer Tiffany as well. And when you look at the free cash flow of Tiffany, Van Cleef's free cash flow is higher than Tiffany's free cash flow. And -- but I'd leave it over to my colleagues to discuss the potential of new entrants.

How do you counter them, basically?

I think if you have a look at the online sales -- or sorry, the auction sales of Christie's and Sotheby's, you will invariably find that the items that attract the most demand and desire are Cartier and Van Cleef. And recently, they sold a Tutti Frutti bracelet for $1.3 million online. And I would say until we see some of the new entrants having such a demand, it's not countering them, but it's making sure that we carry on doing what we're doing internally. But I'll ask Cyrille and Nicolas to expand.

Yes. So I will carry on from then, and I will pass to Nicolas. So for this question, I think there are 3 parts of answer. The first one is that Tiffany is not exactly a new entrant. It's been in the jewelry work for quite some time. And of course, when being acquired by the big group, you can expect that to make more effort to be more competitive. So as Johann said, I mean, that we have to be even more creative on one side to develop faster our brand equity, but to continue what we have been doing for many years and make also the product line being successful also on the vintage market or the auctions. The other side of the question is that the branded jewelry, especially international brand, is continuously gaining share against the nonbranded. And probably with this COVID-19, the smaller players would face more difficulties than the big ones. So probably, the share of the branded jewelry will increase after this crisis. And on that, bigger leaders in the market would be best placed. So I think it will be in some way -- the outbreak will be quite different, but positive to the branded jewelry as a whole. So it's both, in some way, a competition and also helped to support the branded jewelry as far as we stay true to who we are and having stronger identity in design and in DNA and the other side continue to develop the international brand stature. And the third part, in jewelry, what is difficult is to make some identifiable products because contrary to watches, you don't put the name on it. And so to find strong recognizable designs is quite difficult part. And whether both for of Van Cleef or for Cartier, we have both strong icons like LOVE or Juste un Clou or Trinity and the recently launched Clash which will be immediately recognized and linked to the brand, but also in more collective design like Panthère as an overall theme or the Tutti Frutti as an iconic style, not only one single product, Cartier has many. And these are the keys to be successful, I think, in the international market. So we're confident that we can ride through that. The biggest issue being the COVID, but after the COVID, probably our situation would be stronger. I let it to Nicolas to continue.

Thank you, Cyrille. Basically, you covered a bit everything. I think that, first and foremost, yes, the branded jewelry has been developing in the last 2 decades and will probably continue to develop in the future. And there have always been a variety or diversity of players, some more creative, some more local, some more fashion oriented. There are not so many that have really withstood over time, over generations and centuries. Cartier and Van Cleef & Arpels are part of that group, and we see the long-term value and the long-term appreciation and the way it translates at auction, as the Chairman was mentioning. So we are quite confident there. It's a world with a diversity of players that represent, when they do their job well, diversity of style, diversity of identity. The stronger the identity, the better the success. And as Cyrille was mentioning, it's always about being in balance between icons, if you're fortunate enough to be a brand with icons. And for Van Cleef & Arpels, it would be the Alhambra collection or pieces like the Zip necklace in high jewelry and to balance that with creativity like the Perlée collection, for instance, that we've been developing very, very successfully over the last few years. And so new players or acquisition within that category, we don't consider really that they're going to be a stretch to what we do.

Thank you, Nicolas. We've got 3 more questions on jewelry. So let me start with the first one. With high jewelry sales driven by the feel-good factor and by the VIP events, likely to be reduced going forward, do you expect that segment to suffer more than entry or mid-price jewelry for Cartier and Van Cleef & Arpels in the year ahead? Nicolas, would you like to continue before...

Yes. Thank you, Sophie. I can. I think that high jewelry has a lot of dimensions. I mean, we're talking mostly about unique exceptional pieces. They are appreciated as works of art. They're appreciated for their investment value. And they're also appreciated sometimes as a beautiful extraordinary accessory that you're going to wear. In times like that, of course, the investment value, the artistic dimension may be prevailed. And the way we interact with high jewelry collectors and clients, it's true, it's through sometimes very visible, beautiful events, international gatherings, launches, but it's mostly through very personalized long-term relationship with these clients. And this relationship, even in times like these, are kept, are nurtured, are still there. We keep the contact, of course, with these clients and collectors. So there's going to be probably less visible fireworks, less beautiful events, but the true relationship and long-term relationship with clients and collectors remains, and it's probably even stronger than before.

Thank you, Nicolas. Cyrille, would you like to add anything?

Yes, I fully agree on that, meaning in this period, and as Johann was mentioning before, people are traveling less, so meaning we have to come closer to them. In a period of confinement, it can be, of course, a bit difficult. But we have there the strong customer base, and we know them one by one. And we have still a beautiful offer. I think we'll find a way to make it work. For the time being, everyone had to stop, and it -- and the events have to be canceled because there is no public gathering. It doesn't mean that the interest for the high jewelry will stop and that the one-to-one contact will maybe even more valid and that the social occasion, you have things which are more on private things, will still be there. But by the way on private, you also still to have to express who you are. It's not because there is the confinement that there won’t be any more weddings and that there won't be any more social occasion to be together and to appreciate these products, but we have to come closer to the clients on our own.

Thank you, Cyrille. The next 2 questions on jewelry are will price increases be a lever to help offset cost pressures and support suppliers and employees. And if not, is there a need to increase the pace of innovation in jewelry to drive demand and keep up with increasing competition? And maybe the next one might be for Burkhart, not this one but the following one that I'm going to read, which is given that your 2 key brands are already posting optimum, so it's the highest margin in the industry, will profit growth be driven essentially by top-half growth going forward rather than margin expansion? The first one relates to the price increases and innovation. Well, Cyrille, do you want to continue?

Well, I guess if I can start on that. I know he mentioned there is a gold price increase and on that, we -- it will gradually reflect. But to say we have a very large offer, which is quite, I think, well perceived by customers for the value of the design in there, so we don't see as a big threat for the time being. We have, on the other hand, also very, very big movements in currency, so we have to adjust in there when the markets are gradually reopening. But it's kind of a normal part of our activity constantly to have the right offer rightly priced for clients. So currently, we don't see that we have to make massive price increases to face that. It is kind of normal adjustment what we have been doing in the past. The most important is to have products which are in desire. And I think we are quite well in there. And as we had mentioned before about creativity, yes, of course, we have to develop and to adjust to probably different taste or aspiration or things you want to be more subdued and more geared to value for money. But also, again, we have everything in our portfolio. Nicolas, to you?

Yes, I can only concur. I think that as Johann, our Chairman, was mentioning, our customers are not really looking at our jewels for the weight of gold that they represent. They are looking at our jewels for their creative dimension and their meaning. So I think it's even reinforced in periods like that, and I don't see either massive price increases becoming necessary in the foreseeable future. But then for creativity, it's quite interesting to -- in periods like the one that we're going through today, to look at the way how this reacted during wars or very, very deep and strong crisis. And there was usually a surge of creativities and a very strong impact of style. And if you look, for instance, at the jewelry that was created after the second world war, it was very much about yellow gold and color stones, some pieces that were more discrete but reflecting really a positive vision of life and an element of luck and celebration of happiness. And this is typically the type of value that we're even pushing more in our creations as we speak, trying to reflect also on the evolution of taste and expectations of our clients when they are facing the drama that surround us and trying to interpret what they will appreciate in the future in the style and the design. So this is one way to express creativity and innovation and to adapt to these times.

And to continue on that, most of our design, most of Van Cleef and Cartier are timeless. Meaning the LOVE was created in 1969 and Juste un Clou in 1969 and Tutti Frutti in the 1920s and the Panthère forever. So the part with timeless is that it's contemporary to old generation and basically in all circumstances of their life. So we will ride through that as well.

Thank you, Cyrille. Thank you, Nicolas. So the question on jewelry related to profit growth, whether it will be driven essentially by top line or whether you can expect some margin expansion.

Yes. Thank you, Sophie. Just a couple of points that I would like to raise in this -- as to this question. Now if we look at the nature of our, let's say, operating model, it is a model that is today, for the Jewellery Maisons, strongly geared towards our own retail network, which, by the very nature of it, consumes capital for mainly CapEx for our store network, the inventory that goes with it and is, by nature, I would say, more geared towards a higher fixed cost base and a lower variability of the cost base. That's nothing new. So against that fact, obviously, growth is a necessity. And that applies to all the businesses that we have with a big portion of physical retail. So if we stay fixated on that, that would mean, yes, growth is the necessity going forward. Now the Chairman spoke about it or has spoken about it for a very long period of time that we are going into a new retail environment. And one of the underlying fundamentals of the new retail environment or business model is not only serving customers better wherever and however and whenever they wish to be served by our Maisons. But also -- and that is what we are experiencing today in China, especially through our partnership with Alibaba, is that it allows your cost model or your cost structure, your economic model to become more variable. And this means that there will, over time, clearly be a shift of resources from fixed resources to more variable resources, which will help us absorb cost pressures better, especially if they're short-term cost pressures as we're experiencing right now, and it will help us. And that's clearly our outlook to assure growth, but also to assure, over time, margin expansion. Now there's no guidance here. This is a question of how we structurally view the way forward. Sophie?

Yes. Thank you, Burkhart. Sorry, I was on mute. So the next question relates to the portfolio of the group. How do we -- how do you imagine the scope of the group in 10 years and your own succession planning? Also, investors would love for Richemont to be only Cartier and Van Cleef & Arpels. Tell us about portfolio construction and if there's anything you would have done differently. Is there a scenario, an opportunity to shrink the group to its better performing assets? And conversely, are you looking for possible targets?

The answer is we always look at everything all the time, full stop.

Then there's another question on M&A. And whether there is a debate at the Board on the opportunity to merge with another industry player?

I think that is best asked from our friend at Bernstein since I keep on reading that he has information that I don't have access to about various proposals from mergers and acquisitions, et cetera. We have got no intention of merging or being acquired.

Thank you, Mr. Rupert. Actually to be fair to Luca, that came from 2 other brokers. So -- but the one that I'm going to read is -- actually came from Luca.

But the one that's always giving me the heads up what we're about to do that I don't know about, it's always been Luca.

Okay. So the question from Luca actually relates to our critical mass in F&A and whether we have an F&A in soft luxury, including fashion and leather goods and whether we have any strategic plans basically to make an acquisition, I would think, looking at the question.

It's a very good question and something we have been discussing, obviously, regularly. Right now, I'm extremely glad that we are not very heavily exposed to fast fashion because I think the problems that we have in our supply chain with watches 3, 4 years ago before, luckily we cleaned everything up to the extent that up to the 15th of January this year, our Watch division was really a key leading performer. I just am glad that we are not caught in that horrible situation where the inventories for the fall and winter season are nowhere to be found, they're not in the market. And the stock that is there will be viewed as old stock. So I think the whole idea, it's just -- so in a sense, thank God, we weren't as successful as some of our competitors. However, I do believe there is going to be a relook by society at our habits that we've developed of turning what should be consumer durables into consumer disposables. This idea that you just wear a full season and then next year you get another full season and you get the new cruise line and you get this and that, I'm not sure that people will not look back -- in decades ahead, look back and say, what were these people thinking, buying and throwing away to such an extent. But this is across all product categories. I think our habits have been wasteful as society. As I said earlier on, if you take every human being alive today, every single one of us and you pack us in like sardines, we will easily fit in 1 cubic kilometer. And yet we carry on consuming all the raw materials, we carry on as if there is no global warming, we carry on polluting the ocean, cutting down forests. And maybe nature gave us a good pause, so that we can look at some of our habits as human beings. And I think that will guide consumers, and it's certainly going to guide us at Richemont.

Thank you, Mr. Rupert. The next question relates to -- more to wholesale, maybe fashion, but I would think also watches, whether we can comment on the situation at our main third-party dealers and share feedback on potential order cancellations, inventory buybacks from Chinese and whether, post COVID-19, we will need to close down wholesale doors further following last year's closures. I think more for Jérôme.

yes, I am. Just so for -- when it comes to inventory, the first fall for the inventory is the one for the watch activities. We introduced 2 good years ago, 3 years ago, a system that is called booster on that is giving us the opportunity at Richemont to know every single month the evolution of our sellout, to know the evolution of the stock. And the supply chain of the Maisons is being adapted to this sellout, and we transformed our system. It was a long transformation. It moved from a sell-in logic to a sellout logic and to a true demand supply chain-driven approach. So as Johann was saying earlier, that adaptation, that took quite a lot of energy and is giving us the opportunity to have an industrial approach, which is what we call internally, follow the trend, where we, on a weekly basis, adapt our output. So here, the risk is very much under control and the stock level end of March compared to 1 year earlier has not significantly evolved. So that's the biggest and first take-out. So when it comes to soft luxury, we have been as well very -- on the -- focusing on the stock evolution for Maisons like Chloé, so Chloé being very much active in having a very strong stock management. You see it in the numbers that Burkhart was underlying where the Fashion Accessory Maisons have reduced their consumption of cash. So you can imagine if they could do it internally, they had to have the same level of discipline externally with the other players. There, the process is less, of course, organized, less systematized than the other one. And finally, when it comes to inventory, again, the new retailer dimension is the next challenge for us because within new retail, we have the omni-stock. And with the omni-stock, it is full availability of stock in a given of time for all through the whole device -- or through the any device, any location and through any channel, which is our next challenge, will gives us the opportunity throughout areas of crisis to have even more availability on our stock. Today, we have a good control. What we want to have through the good control is a good availability of our stock anywhere, any time into any device. Thank you.

Yes. Thank you. Another question related to gross margin and basically inventory, so I think it's more for Burkhart, whether we've booked any major provisions at the end of March '20. And what measures are we taking to protect gross margin? That was in relation to potential excess inventory in hard luxury at YNAP and the fashion brands.

Yes. Just -- thank you, Sophie, for the question. Let me just add to what -- or build on what Jérôme just spoke about. If we look at our inventory position, I think, and we've had many of those discussions over the last few weeks, we are extremely happy now that we have very early on addressed -- and you remember the heat we took from that -- for that over the last few years when we addressed the inventory situation in the watches side in the trade, but also in our own inventories. And that went all the way through flexibilizing the manufacturing side of it to really reorient all operations towards true demand -- true end customer demand. We're very happy that we did that, and we're very happy with the inventory position we have in Specialist Watchmakers because it reflects the business development that we've seen and was able to flexibly adjust towards the end of the year, towards the fourth quarter, which, by the way, was not just the fourth quarter. We started early on because already in summer, when we saw the significant disruption that we've seen in Hong Kong impact the watch business, we immediately addressed the resulting inventory questions. On the, let's say, Fashion & Accessories business, and we're exposed to that both directly at our own F&A Maisons and through our Online Distributor, YOOX NET-A-PORTER, there has been a very strong inventory discipline. Inventory levels have even come down at YOOX NET-A-PORTER in terms of coverage. So there has been a very strong focus on that. Once again, the mantra that we're talking about is true end customer demand. So we're happy on that. The inventory position is constantly and consistently assessed. Inventory coverage rates are virtually flat compared to the previous year. So I take that as a good sign of good reactivity. So no need, at the present time, to worry about that for us. Obviously, this is a constant monitoring process. Now gross margin was, I would say, more strongly impacted by -- on the Online Distributor side. We've talked about it in the past. There has been a lot of pressure on the commercial margin due to the very competitive pricing environment. YOOX NET-A-PORTER has suffered from that, but has also taken a stand to not follow through with the same pressure that we've seen from the market side because the long-term relationship with the brands that are distributed through YOOX NET-A-PORTER's platforms and YOOX NET-A-PORTER's own brands has to be protected. The basis of their success is the healthy relationship with the brands that they distribute. That's why, at a certain point, they took a stand. So we've had margin pressure throughout the year for YOOX NET-A-PORTER, and that is the biggest element that is -- that has led to a relative dilution of -- in the gross margin. The Group Maisons gross margin has remained, as we flagged in the investor presentation, has remained strong at 66%. There is a bit of impact from the FX side, obviously, due to the strengthening of the Swiss franc. There's also a bit of effect from the strengthening of some of the raw materials that we use in watches and in jewelry, especially gold. We talked about that. My jewelry colleagues have commented that, for the time being, we may be able absorb that without having to resort to price increases. So I'd say, for the time being and especially reflecting on the situation which we are, we are quite content with what we have achieved. Obviously, we are still in the same situation, and the efforts have to continue. Sophie, back to you.

Yes. Thank you, Burkhart. So the next questions relate to the clientele, especially Asians. So are you -- are we concerned about less balance in our revenues going forward with an ever more dominant Asian client base? What are the risks? And how do we address them? And another question related to it, more specifically to the Chinese, spend in China. Which tool are we using? And what are the prospects in our views? Thank you. So who would like to -- Mr. Rupert, I don't know whether it's Cyrille or Mr. Rupert.

Let somebody else answer for a change.

So Cyrille, would you like to...

I can comment on this one, yes. So let's say, there have been some, over the past year, a kind of reduction of price differential, making that we had a rather solid customer base locally in every region and, of course, also having a travel retail network. But what we see now that the Chinese are traveling less, so they are buying more in China because we have a strong presence in China, both in retail and e-comm, and this presence in there. We see things doing very well with Korean domestic while the Korean duty free is not there. So in some way, we have a broad base which was already geared to local client down and supporting them wherever they buy. So in some way, we are less exposed compared to those who are only targeting the traveling customers when they are in trouble. And with some of the brands, we're having very, very low price in Europe just to attract customers to come and buy there and had a substantial part of their sales there done with customers coming from abroad. So I think we are less exposed than some others and because we can address customers wherever they are, again, with the policies we had to try to develop customer base wherever they are and also to treat them wherever they buy. And we continue to do that, adjusting to the new world.

Thank you, Cyrille. So looking at the next questions, let me go down the list. Regarding distribution, more specifically for watches. Are there more changes to come to positioning and distribution in watches? Jérôme, would you like to reply to this question?

I think that when it comes to the watch distribution and the watch offer, the first element that we see around the collection is what my colleague said as well for jewelry, that the importance of iconic lines. So we see that the iconic lines of the Maisons, Pilot's, Reverso, names in there along the Maisons of Richemont are stronger -- have been stronger and stronger in the last few years and are the ones that will be the ones that benefit as the most or already seeing the best and will show the best resilience over the period. Between the quest for value and the recognition effect that these iconic lines have, they definitely are very strong line. These iconic lines are also the lines in which our Maisons are expressing their true DNA and then expressing yourself through your iconic line can mean as well a lot of creativity and a lot of reinvention. Again, you see the Reverso at Jaeger-LeCoultre that's being aligned and continuously reinventing itself decade by decade and getting more and more value and success. When it comes to distribution channel, the watch distribution will probably see, and we have seen it throughout, firstly, Europe in the last 3 to 5 years, a consolidation of the distribution. We see that the bigger wholesale channel are representing a larger and larger share of the business itself. And the U.S.A. is are a little bit more fragmented. There is a little bit more doors, but it follows roughly the same trend of consolidation. It offers us, this consolidation, also some opportunities because it helps us to build strong partnerships. It's important to maintain a strong presence and local anchoring and that we can do only over the time, and the consolidation that is happening is helping us doing so. So external partnership, external boutiques that are being developed with these strong partners are reinventing wholesale. And here, there is no opposition between the model -- with the model of new retail because these shops can be very much part of the new -- the omni-stock model and as well the extension of guarantee of last year is that you -- you probably remember. There is also an opportunity to create with the partners a better service for the end client with them and to entertain a longer relationship with the client, including them into the cycle of service and value creation. Thank you, Sophie.

Thank you, Jérôme. While we're still on watches, so a bit of a provocative question, how do you explain that only 3 to 4 privately owned brands have captured nearly 100% of the industry growth over the past 2 to 3 years? And why should it change going forward?

For the -- first, I don't know what it -- as numbers are not really given on the market, we say the question is asking to make a comment on numbers that are not published. So if somebody has a market share or a presentation, then it would be very interesting. If we speak from demand, there are some indicators that are very valid that there's a number of products that are offered in gray markets at a discount rate on the products. What we have seen over the last years is it's a constant decline on these elements. So it means in somehow the capability to better capture to -- better capability to capture the demand of our end consumer. And again, that's what we want to do and what we aim to. If you see the development of our Maisons these days and we speak a lot from China, but we can also, and Cyrille did it, speak from Korea just now. You will see there the presence of our Maisons, their extension. And it's not a big secret to say that 3 to 5 years ago, a big part of the business done in Europe was not done with end consumer of Europe and big part of it was reexported in other parts of the world. It's a decision that we took to stop it and to focus either local in each market and on serving and developing our capacities and presence in the market where we had the strong development in terms of demand, such as China. It has given us the opportunity of capturing a real better part of it. So I won't say that 3 Maisons have captured everything and the other one has not captured, and I don't know the other one. But when it comes to Richemont, we have more end clients today than we used to have before.

Thank you, Jérôme. And the next question relates to Watchfinder, whether we can comment on the performance of the pre-owned market for watches in the COVID-19 environment and whether Watchfinder benefited from it?

Yes. I may give an answer on that, Sophie. That's an interesting market. And again, it's part of giving more service to the clients of high-end watches. Long, long time ago, clients were used to buy one watch, then they started to buy more watches -- more than one watch and therefore came the dimension and the necessity to have more fluidity in their collection. And what Watchfinder is integrating, that's in somehow a reduction of friction of -- in that new ecosystem of owning expensive hard luxury goods like watches. Since the start of the COVID, we had the first 2 weeks Watchfinder being very present in U.K. So I would -- what I would say is primarily representing U.K. and Europe. We saw first 2 weeks of decline and then we saw a very strong rebound of demand. And today, in the digital segment, on digital offer and network, Watchfinder is growing. So it's somehow the attention to the watches that you are looking for, collectors and lovers of these watches has not been diminished. Of course, the shops that are closed are not operating, but the e-commerce digital part is very active.

Thank you, Jérôme. The next question is for Mr. Rupert, that basically whether we're satisfied with the progress made thus far and the fact that we stated 3 years ago that Richemont needed to be ahead of the curve, whether we think we are ahead of the curve and how is Richemont going to navigate big uncertainties from here.

When we used ahead of the curve, I never thought we'd see a COVID-19 and the curve, the famous curve. But our curve that we've had was that we wanted to find out the true demand. We cleaned out the watch business totally and we downsized, rightsized watch business so that our [ sell-in ] would be less than our sell-out. That's led to a very good period up to around about the 15th of January. So I'm very happy that our watch business is in very good position. As for being ahead of the curve, our goal is still to move as much of our fixed cost into variable costs. We have managed to put on very important new leases with no minimums, but with profit sharing, which I don't think any of us should mind because it moves the operating leverage in the right direction. We have embraced and will continue to do so new retail. And as we said earlier on, I guess, in 10 years' time, those of us who are still around or those of you that are still around here, will be asked questions, how it is your off-line business going? So yes, we are moving in the right direction, and we will try and continue. For instance, during the Chinese lockdown, the one thing we carried on doing was to support our Chinese progression, broadly put, our Chinese new retail business.

Thank you. The next question relates to travel retail and also our stake in Dufry. So basically, what is the stake in Dufry as of mid-May? What is the future of that investment and how we see the future of travel retail?

Jérôme?

Yes. As Johann was referring to the business until 15th of Jan or 20th of Jan for the watches, where indeed we're taken surprised by what was happening in Wuhan. For travel retail and Dufry, we had the same path. We are growing -- our business, our sellout business, was growing over 30% between Dufry and Richemont. So it was very significant step. We managed to open significant shop between -- with Dufry in China, with Cartier and Montblanc, for example. We had strong developments of the presence of Montblanc in travel retail with Dufry with their strong sellout performance, again, over 30% of growth. So -- and until end of Jan, we had a very -- we're progressing well on our road map. We all know that in between what happened with travel retail. Said that, it may take a little bit of time, but when it comes to aggregation of clients and physical aggregation of clients, we know that airport and new transport ways will continue to be important. And a good demonstration or good proof of it is, again, probably China. In China today, the inside China travel retail is progressing extremely well, extremely quickly. The Sanya area or in bay are statistics that we saw a couple of days ago were showing that basically everything was booked for the next 12 or 18 months, and the activity in travel retail there are progressing. And Watch & Wonders will have a presence there. But many other luxury Maisons not from our group will be present there and will organize Pavilions and presence. So there is a new travel retail, which knows a new geography that is taking place. We have to further work in time. And for sure, when we speak from reinventing the distribution, it's also true from the -- for the way we distribute our products, including watches. And the possibility in future to reinvent our multi-brand shop with Dufry in this point of aggregation of traffic is definitely very important. But that's a 3-, 5-year view when it comes to what we can build together there.

Yes, Sophie. And on the other element of the question or the other part of the question, current stake is 8%. We had acquired 7.5% and then due to the share buyback and subsequent cancellation of the shares done by Dufry over the last 2 years, our stake went slightly up to 8%, and that's where we are standing today. Back to you.

Thank you, Burkhart. There's a question from a South African analyst for Mr. Rupert. Does Mr. Rupert foresee a world restricted travel restrictions, such as visa, health certificates of some sort encouraged by countries?

Yes, it's a very good question. Well, we have COVID-19 passport. I think I'm probably the only one old enough to remember that those of us from the so-called colonies, India, et cetera, South Africa, had to travel with yellow fever certificate. I -- without going into details, I do believe that we will -- pretty soon, we will have kits available where testing will be quicker and immediate. There are various projects on the go because I do not believe that airlines can function and restaurants, et cetera, et cetera. So that's what I alluded to when I said testing will be critical. I think it already exists. I don't think you'll get into China or New Zealand without some form of proving that you don't have the virus. But how and in which form, I'm not sure.

Thank you, Mr. Rupert. We don't have so much time left. So looking at the other questions raised, there were quite a number of questions again around e-commerce. And if we can maybe give -- provide an update on -- that was partially answered already also during the presentation. But on the transformation of our e-commerce platform, what we can -- what we think that we can deliver in the year ahead and any updates on our advantage -- sorry, synergies on income, thank you, including our expansion plans in Asia.

I can start to give first part of the answer, Sophie. So when it comes to platform, first part is the replatforming work at YOOX NET-A-PORTER. MR PORTER was successfully achieved. Now we are working on MR PORTER itself. And the team is working on -- within that re-platforming, to introduce localization of NAP new geography, so -- which is with this time will bring another dimension of -- and a direct positive impact on client reach, which was not done before. So yes, confident enough now to add a new dimension to the re-platforming. So that's one positive thing. Second one, when it comes to synergies, yes, indeed, we announced it 2 years ago that making a better use of the platform of -- the technical platform of NAP or namely the UFS one for Maisons, the one -- the UFS one is the one that have been provided many Maisons within the luxury industry and many of them offer in the Kering environment. So there, we had already 3 Maisons with Dunhill, Chloé, ALAÏA. Montblanc will move there before the end of summer. So that's -- it will give the opportunity to the Maisons to have a much modern platform and to have more client -- a front end much more adapted to client needs and to cover new geographic. And then we follow the steps one after the other. So that's on one hand. The other hand is all deployment of distant sales within all our network, and Richemont has a chance to have built now, or years ago, a very strong network of call center. We have hundreds of colleagues working in our call center, giving a very high level of service and, as said, having informed force, particularly now in the U.S., to maintain a high level and qualitative service. So here as well, we accelerate. All our Maisons -- all our watchmaking Maisons will be e-commerce active until the end of this fiscal year, which is a major acceleration. So in a nutshell, we can say that all what we had in the pipe for the next 3 years, we try to encapsule now in less than 18 months. As Johann said, the investment in new retail is not being cut. On contrary, they've been our primary focus, to maintain and to accelerate the transformation. Thank you, Sophie.

Thank you, Jérôme. To continue on that subject, you partially also answered, can you please give us an update on the JV with Alibaba in China? What has worked well and what has proved challenging so far? And could you share your long-term vision for that business from a top line and profitability standpoint?

So I will stick to what has been done so far because it has been quite a journey. Johann launched the JV in November 1 year ago. So that's only 15 months after -- or 18 months -- 15 months after him shaking the hand of Daniel Zhang to launch the operation. Remember that we launched it 6 -- less than 9 months after in September, October. In between, it indeed progressed very well. We have more than 165 Maisons already active on the system. We will have for fall/winter next season again another 20 to 30 Maisons to join and very significant names. What is very interesting in the case of FENG MAO is that they are, because it's genuinely started now, that the biggest -- bigger presence of hard luxury goods. So we are currently at 10% of our business, which is very high within FENG MAO. And then the role now and the importance of FENG MAO in the Watch & Wonders launch and all this digital dimension is very important for what we can do there. So yes, indeed progressing very well, more and more Maisons joining and a very strong team to the point that we will make local buy, local video, local content production from -- in the next weeks and days to come. Just built a studio for that locally. And with the setup of the technical partnership, this famous TP, that's a very agile setup. So it's progressing at the right speed. And even the COVID times, that has been and somehow freezing the activity during 4 to 6 weeks has been completely absorbed. And when we are back on track with -- if not advanced compared to the agenda that we set ourselves.

Thank you, Jérôme. So it's already 11:30. So really no time unfortunately to take questions from the phone. Two questions, one is very short. What is the percentage of stores, manufacturing sites and distribution centers that are currently closed across the globe? And the next one and last one will be whether you can provide an update on new management for the F&A area. And notably, how is Mr. Bellini fitting with Chloé, for instance? Thank you.

Yes. Sophie, I can start to give some information on -- as a percentage of manufacturing and stores that are open. Today, when it comes to manufacture and to facility site, we estimate that we have up to 78% of our facilities that are open. They are not all producing in 100%, but we are at 78%. So our manufacture are open at 40% when it comes to that. And when it comes to the distribution view today in also called heat map, we have today 40% of our distribution that is open when we take retail and wholesale. Our retail is more open. Now we are up to 55%. Then if we mix retail and wholesale, we are at 40% of opening.

Thank you, Jérôme. And on the F&A question.

So the F&A question is about management and so...

That's right.

Yes, indeed did. Yes, we have Riccardo Bellini that just started in late autumn at Chloé. So that's a good period to well learn and understand your Maisons, that they are going like all the other Maisons in a lot of creativity work. And that's very interesting to see how they're inventing a new way of communication. If you -- they have been very active, for example, with voice and sound. They have launched very active program called Chloé Voice, for example, where Natacha has been inviting many friends of the brand, and they've been interacting with lovers, clients of the brand. The brand has also been very active in supplying goods for the community. They had a very nice initiative providing cover blouse for nurses in France to the -- throughout the hospital. And finally, they are launching very interesting initiative as well with live streaming in China. So we have been launching already 5 sequential operation in live streaming associating shops, live streaming on different digital formats and client connection and sales transformation. So that's, again, part of this new retail transformation in which the team is very active. And as Burkhart was saying, in the same time, they are working a lot on their -- like all the branch, as well the supply chain. They are being, like all the soft luxury, very active with their production in Italy, running after the lost weeks of the closing to maintain a good supply and a good level of presentation of collection and as many of the players are a big part of this presentation in the weeks to come will be done as well digitally. Thank you, Sophie.

Thank you, Jérôme. Well, this is the -- now the end of our full year '20 results presentation. Thank you again very much for your questions and participation. That was really very much appreciated. And obviously, James and I are at your disposal to answer any kind of questions if you still have any. And have a good day. Speak soon. Bye-bye.

Thank you very much.

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