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

Ladies and gentlemen, welcome to the Financial Year 2021 Richemont Interim Results Presentation. I am Alice, your call operator. [Operator Instructions] And the conference is being recorded. [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, Alice. Good morning. Good morning, everyone. Hope you're all keeping well. Johann Rupert, Chairman; Jerome Lambert, Chief Executive Officer; Burkhart Grund, Chief Finance Officer; James Fraser, IR Executive; and I would like to thank you for joining the audio webcast today to review Richemont's results for the 6 months ended 30 September 2020. We would like to remind you that the company announcement and financial presentation can be downloaded from richemont.com, and that the replay of this audio webcast will be available on our website today at 3 p.m., Geneva Time. 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. First, Burkhart will take you through the financial highlights of the first half before reviewing group sales. I will then present some key developments at the Maisons and Online Distributors. Thereafter, Burkhart will walk you through the financials and offer some concluding remarks. This presentation will be followed by sort of Q&A session, the same as last May. And I will now hand the call over to Burkhart.

Thank you, Sophie. Good morning to everyone listening, and thank you for your time. COVID-19 has significantly impacted the lives of our colleagues, clients and partners and has forced us to close operations for an extended period of time in the early part of the year. The pandemic also caused major disruption, notably to global travel, which significantly impacted our operational and financial performance. As a result, sales for the first half of the current fiscal year decreased by 26% at actual exchange rates and by 25% at constant rates, with all regions, distribution channels and business areas posting lower sales. However, sales in August and September resumed growth at constant exchange rates. This limited the sales decline in the second quarter of our financial year to 2% at constant exchange rates. We will provide more detail as we go through the presentation. Operating profit decreased to EUR 452 million, resulting in an operating margin of 8.3%, and profit for the period amounted to EUR 159 million, down from EUR 869 million in the prior year period. The net cash position was EUR 2.1 billion. While this represents a EUR 284 million decline compared to the net cash position at the end of March, it is worth noting that, excluding the dividend payment of EUR 529 million, net cash increased. Now turning to some of the first half highlights. First, our Maisons and businesses have demonstrated resilience in a difficult environment, with a notable performance from our Jewellery Maisons, which generated an operating profit of EUR 922 million and an operating margin above 30%. This achievement is commendable. This business area was the first to rebound upon emerging from the lockdowns driven by a strong presence in China and a well-developed online offer and the enduring appeal of their iconic collections. China also stood out with significant double-digit growth since the month of May, as we will see later. Further, online retail sales at our Maisons enjoyed triple-digit growth, and now account for 7% of overall Maisons sales or 10% of our direct-to-consumer sales. Despite the marked decline in sales, the group maintained stable cash flow from operating activities versus the prior year period. And finally, trading was stronger in the second quarter. Let me now walk you through the group sales performance, first by region, then by distribution channel and finally by product line, with changes versus last year, as always, expressed in constant currencies. Sales declined in all regions in the first half. As you can see in the waterfall chart, Europe and the Americas recorded the most substantial sales contraction in value terms, while Middle East and Africa and Asia Pacific were relatively resilient. The latter largely benefited from the sharp growth in China. These 2 regions also enjoyed double-digit sales growth in the second quarter, while sales were stable in the Americas and remained in negative territory in Europe and Japan. Let us look at the geographical review, beginning with Europe, which along with Japan posted the highest rate of decline in sales at minus 44%. Europe was particularly impacted by temporary store and fulfillment center closures early in the year, the lack of international tourism and muted local demand. Nevertheless, the Online Distributors showed resilience, confirming that online purchasing has accelerated during the pandemic. Online retail sales from our Maisons showed very strong growth. The region remains our second largest region, but its contribution to group sales declined to 22% from 30% in the prior year period. Let us now move to Asia Pacific, where the sales decline was limited to 4% overall as the region returned to growth from July onwards. You can see in the chart that sales in the second quarter grew by 22%. The region represented the largest share of total group sales at 47%, up from 37% in the prior year period. As previously mentioned, China showed very strong growth, increasing by 83% year-on-year and overtaking the U.S. as our largest market. There are several reasons for this. First, China was the fastest to emerge from the COVID-19 lockdowns and its economy has recovered faster than those in other regions. Second, our mainland Chinese customers are still not traveling internationally, which is prompting them to repatriate their purchases. In contrast, sales declined in the rest of the region. Retail sales grew by high single digits driven by double-digit growth in China and domestic Korea. China recorded triple-digit growth in online retail sales, partly sustained by the opening of flagship stores on Tmall Luxury Pavilion during the period under review. Overall, there was good sales growth at the Jewellery Maisons. Let us now look at the Americas region, where sales decreased by 31%. The region accounted for 16% of group sales compared to 18% in the prior year period. All business areas and channels declined during the period. Among the business areas, the Jewellery Maisons were affected to a lesser extent. Looking at distribution channels, online retail posted a low single-digit decline. It is worth noting that online retail sales delivered triple-digit growth at the Jewellery Maisons and double-digit growth at both the Specialist Watchmakers and Fashion & Accessories Maisons. Momentum improved significantly in the second quarter compared to the first quarter, with positive growth in the month of September. Retail sales were broadly stable overall, supported by growth at the Jewellery Maisons. Online retail sales grew by double digits driven by triple-digit performance at the Jewellery Maisons and double-digit growth at the Specialist Watchmakers and Fashion & Accessories Maisons. Let us now turn to Japan, which represented 7% of group sales. Sales in the region were 44% lower than in the prior year period. In addition to the aforementioned impacts of the pandemic on international tourism and customer sentiment which prevailed around most of the world, the region also faced challenging comparatives. You may remember that sales increased by 13% in the prior year period, ahead of the implementation of the October 2019 VAT increase. Online retail sales posted growth. And finally, Middle East and Africa, representing 8% of group sales in the period. Sales were 5% lower than the prior year period, sustained by 36% increase in the second quarter of this fiscal year. Increased regional tourist spending, a repatriation of purchases and strong growth at the Jewellery Maisons, partly driven by the internalization of its operations in the Kingdom of Saudi Arabia, more than offset a lack of inbound tourists. Sales at the Online Distributors were stable compared to the prior year period, but the group Maisons' online retail sales grew triple digits, benefiting from the development of their online offer. Let us now turn to sales by distribution channel. First, the retail channel, which is by far our largest channel, contributing 53% of group sales. Sales in our 1,179 directly operated boutiques were lower by 22%. There was a high single-digit increase in Asia Pacific, with China and domestic Korea both posting strong double-digit growth. Part of the double-digit increase in the Middle East and Africa can be attributed to the internalizations in the Kingdom of Saudi Arabia just mentioned. All business areas reported declines, with the Jewellery Maisons being less affected. In the second quarter, sales were broadly in line with the prior year period, with positive sales growth since August. Second, online retail, which represents sales from YOOX Net-a-Porter and the online sales portion of both Watchfinder as well as the group's Maisons. Despite the closure of fulfillment centers in the early part of the period, this distribution channel increased its contribution to 22% of group sales, up from 17% in the prior year period. Excluding the Online Distributors, the group Maisons' online retail sales represented 7% of group sales. Online retail was the most resilient channel, as increases in Asia Pacific, Japan and the Middle East and Africa contained the channel's overall decline to 3% versus the prior year. The remarkable triple-digit growth of our Maisons' online retail sales was led by triple-digit growth at the Jewellery Maisons and Specialist Watchmakers, and double-digit growth at the Fashion & Accessories Maisons. Second quarter sales increased 17% versus the prior year period for the channel as a whole. Third, wholesale, which includes sales to franchise partners and to multi-brand retail partners as well as royalty income. Wholesale sales were 42% lower than the prior year period. This channel was the most significantly impacted by COVID-19 and social unrest in some locations. The largest declines were in Europe and the Americas. Watch inventories remained under control, with sell-out exceeding sell-in. Wholesale sales stood at 25% of group sales declining from 31% a year ago. And finally, let us move to the sales breakdown by product line. All product lines recorded lower sales, with jewelry and clothing showing the most resilience. Jewelry now represents the largest product category for the group by far at 41% of sales. Jewelry sales grew by double digits in both Asia Pacific due to the strength in China and in the Middle East and Africa, sustained by the internalization of stores and strong demand for the group Maisons products primarily in jewelry. Watch sales have declined in all regions, partly due to their high exposure to wholesale, our hardest hit distribution channel as well as pandemic-driven point-of-sale closures. In clothing and leather goods, momentum picked up at the Online Distributors once fulfillment centers reopened, but this was not sufficient to fully stem the decline in sales across the period. Over to you, Sophie.

Thank you, Burkhart. Let me start with the Jewellery Maisons, which include Buccellati, Cartier and Van Cleef & Arpels. While they reported an 18% decrease in sales overall, Asia Pacific posted mid-single-digit sales growth, and Middle East and Africa, high single-digit increase, the former supported by very strong growth in China. Online sales at the Jewellery Maisons increased by triple digits, with the Cartier flagship store on Tmall Luxury Pavilion contributing to its performance in China. This momentum, however, could not outweigh the decline in retail and wholesale sales. Second quarter sales increased by 4% overall driven by growth in Asia Pacific, Middle East and Africa and the Americas. The Jewellery Maisons' operating results were down by 24% to EUR 922 million as a result of lower sales, reduced manufacturing capacity utilization, higher gold prices and a stronger Swiss franc. The operating margin remained above 30% due to good cost control and targeted investment in digital communications initiatives, along with some store renovation and a few strategically important openings. Let us look at the main development over the past 6 months. While stores were closed and various physical events canceled, digital initiatives such as watchmaking encounters and high jewelry previews proved to be innovative and effective ways to continue to engage with our customers globally. In-store interactions were replaced with distance sales, call center and digital interactions with clients, notably through social media. The limited number of store renovations and relocations included Cartier's boutiques in Shanghai Plaza 66, Athens Voukourestiou and San Diego Valley Fair. And for Van Cleef & Arpels, Place Vendôme in Paris and Prince's building in Hong Kong SAR. In addition, Buccellati acquired the rights to its historic store in Rome, originally opened by Mario Buccellati in 1926, and is in the process of relocating its London store further down Albemarle Street. Product launches were well received. Buccellati enhanced its Tulle and Macri jewelry collections and Classica watches. At Cartier, the successful Clash jewelry collection has been expanded to include a white gold offer. In watches, Cartier unveiled its latest women's watch, the Maillon de Cartier, and rejuvenated Santos and Pasha watches. At Van Cleef & Arpels, the Frivole, Perlée and Alhambra collections were further enriched. Let us now review our Specialist Watchmakers business area, which consolidates the results of 8 Watch Maisons. Sales were 38% lower declining in all regions, though Asia Pacific was relatively resilient. Online retail reported a triple-digit increase with strength across most Maisons, partly driven by the opening of flagship stores on Tmall Luxury Pavilion. However, this was more than offset by declines in other channels primarily due to the Specialist Watchmakers' exposure to multi-brand retail partners. Due to our work in previous years, we entered this challenging situation from a sound position, having sized production to the true level of demand and optimized our distribution networks. Our Maisons have tightly monitored inventories, which are sound, in the channels. We sell out remaining above sell-in. In the second quarter, sales were down by 18%, a marked improvement from minus 56% in the first quarter. Strict cost control and reduced investments partly mitigated the impact on profitability of weaker sales, lower levels of manufacturing capacity utilization, higher gold prices and the stronger Swiss franc. As a consequence, the operating loss was limited to EUR 8 million. Our Maisons have been quick to respond to the new challenges arising from the global pandemic. They have launched or facilitated a number of digital initiatives to enhance clients' experience. Let me give you a few examples. They facilitated and participated in Watches & Wonders on the cloud, following the cancellation of the physical Watches & Wonders Geneva fair in April. This included virtual product presentations and interviews of our Specialist Watchmakers' CEOs. In parallel, a digital campaign was launched on Tmall Luxury Pavilion to showcase the Watch Maisons latest products to clients in China, with interactive experience capabilities such as virtual 3D pop-up stores and augmented reality functionality. The success of this virtual event paved the way for the organization of 2 further Watches & Wonders exhibition, blending of online and off-line events in Shanghai and Sanya. IWC and Piaget both launched innovative boutique experience where clients were able to navigate around a virtual store and view different products with a 360-degree panoramic view. The Maisons also brought the in-store experience to clients through distance sales initiatives. Selective store investments included a new IWC flagship store in Zurich, with a live link to its manufacturing facilities in Schaffhausen. It also included the opening of 5 flagship stores on Tmall Luxury Pavilion for IWC, Jaeger-LeCoultre, Panerai, Piaget and Vacheron Constantin. Iconic collections were further enriched. In the first half, product launches included the redesigned Master Control at Jaeger-LeCoultre as well as new references for Portugieser at IWC, Possession and Limelight Gala at Piaget and the Overseas at Vacheron Constantin. Now let us move to Online Distributors, which regroup YOOX Net-a-Porter and Watchfinder. Sales of our Maisons' products on YOOX Net-a-Porter are shown on both the Maisons' respective business areas and Online Distributors. They are subsequently eliminated on the intersegment elimination. Sales decreased 21% to EUR 934 million. There was relatively outperformance in Europe, the Middle East and Africa and Japan. Since the reopening of the fulfillment centers, all regions have seen gradual improvements. In the second quarter, sales increased by 2%. However, good cost control could not fully offset the sharp drop in activity and margin growth by COVID-19 and a highly competitive pricing environment, thus leading Online Distributors to post an operating loss of EUR 138 million, with a EUR 49 million EBITDA loss for the period. Cash flow for the Online Distributors was positive for the period. During the period under review, YOOX Net-a-Porter celebrated its 20th anniversary and continued to consolidate its position as a leader in online luxury fashion. 165 exclusive brand capsules were introduced, and Net-a-Porter's replatforming is on track. As physical events were canceled, YOOX Net-a-Porter partnered with Fondation de la Haute Horlogerie and Alibaba to bring the Watches & Wonders fair experience to the Chinese clientele online. The joint venture with Alibaba, Feng Mao, continues to progress successfully. Net-a-Porter's flagship stores on Tmall Luxury Pavilion has increased its offering to 202 luxury brands, including 15 local Chinese designer brands. In addition to the online flagship stores of Alaia, Chloe and dunhill, YOOX Net-a-Porter began operating Montblanc's e-commerce facilities in August and Carter.co.uk in October. Sustainability initiatives continued to be a key focus area, with the introduction of electric delivery vans and the renewal of The Vanguard mentorship program for its fifth season. The now well-established program supports emerging designers to become successful brands over the long term. Watchfinder received a positive customer response to their strengthened international presence, which includes France, Germany, Switzerland, U.S.A. and Hong Kong SAR. Watchfinder and Richemont Maisons have continued to explore opportunities to better meet our clients' expectations. Finally, let us move to the other businesses, which primarily includes the group's Fashion & Accessories Maisons and watch component manufacturing activities. The 42 sales decline was broad-based across regions and locations, with the exception of China, where sales grew. Overall, online retail grew by double digits mainly driven by strong performances at Montblanc and Peter Millar, whilst Alaia, Chloe and dunhill's online flagship stores were negatively affected by the temporary closure of the YOOX Net-a-Porter fulfillment centers. Wholesale sales were affected by the difficulties of some department stores in the U.S. and Japan as well as greatly reduced footfall at airport duty-free shops. The segment posted an operating loss of EUR 108 million, resulting from lower sales and a lower gross margin, which were partly mitigated by good cost control. Included in the overall operating results were losses at the group’s watch component manufacturer. Let us look at the development of some of the Maisons. The Fashion & Accessories Maisons accelerated their digital transformation in the wake of the pandemic. This included spring buying campaigns at Alaia, Chloe, dunhill and Serapian, which employed fully digitalized showrooms. Also, as with some of our other business areas, distance sales tools and live streaming events were organized to allow clients to discover and buy products. Three new flagship stores for Chloe, dunhill and Montblanc were opened on Tmall Luxury Pavilion and early results are promising. Also, Montblanc's online flagship store is now managed by YOOX Net-a-Porter, which has strengthened clients' online experience. Product launches spanned across categories. The most notable ones included the Mini Daria bag at Chloe, Court sneaker at dunhill, the M_Gram collection at Montblanc and Hyperlite Shield OuterWear at Peter Millar. In writing instruments, Montblanc launched a Meisterstück Le Petit Prince & Planet, and in clothing, dunhill launched a capsule collection with Japanese artist, Kenta Cobayashi. This concludes the review of the first half performance of each business area. Burkhart, over to you now.

Thank you, Sophie. Let me walk you through the rest of the P&L, starting with gross profit. Gross profit decreased by 31% and gross margin by 450 basis points. The 57.8% margin was impacted by several factors. The primary factor was lower manufacturing capacity utilization due to COVID-19. Other factors included adverse currency movements, notably a stronger Swiss franc on costs, higher gold prices and a highly competitive pricing environment in online fashion. To be noted, short-term work compensation scheme contributions of EUR 56 million only partly compensated for significant sub-activity losses. Let us now look at net operating expenses, which decreased to EUR 2.7 billion, a reduction of 21% at both actual and constant exchange rates. Despite early and decisive actions to reduce our cost base, we were not able to fully compensate for the decline in sales and margin, given the mainly fixed nature of most of our costs. I will now walk you through the expenses by category. Selling and distribution expenses, which accounted for 53% of total operating expenses, decreased by 17% at actual exchange rates, by 16% at constant exchange rates. This decline reflects strict cost control across all lines, positive cost impact linked to temporary closures of points of sale, including rent relief and, to a lesser extent, public support schemes. Communication expenses fell by 50% at actual exchange rates or by 49% at constant exchange rates, well above the level of sales decline. This resulted in a lower communication expense ratio at 6%. Given their more variable nature, we had greater flexibility to reduce these costs. Also, most physical events were canceled for health and security reasons. Fulfillment expenses decreased by 4% at both constant and actual exchange rates mainly due to the temporary closure of fulfillment centers early in the period. Administration expenses, which are more fixed in nature, declined by 11% or 12% at constant exchange rates. Strong discipline and cost control more than offset a stronger Swiss franc and continued technology investment at the group's Online Distributors and Maisons. Other expenses, at EUR 97 million, were 5% lower than the prior year period at both actual and constant exchange rates. That included EUR 87 million related to the amortization of intangible assets at the Online Distributors compared to EUR 90 million in the prior year period. Net operating expenses as a percentage of group sales rose from 46.6% a year ago to 49.5%. This leads us to operating profit, which is down by 61% versus the prior year. The reduction in operating costs, while significant, was not enough to compensate for lower sales and lower gross margin. The operating margin declined to 8.3% from 15.7% in the prior year period. Let us now review the rest of the P&L items below the operating profit line, starting with finance costs. Net finance costs for the period amounted to EUR 117 million compared to EUR 110 million in the prior year period. The limited EUR 7 million year-on-year increase can be explained by a combination of factors mostly offsetting each other. The EUR 43 million reversal in financial expense and a EUR 41 million higher net loss on monetary items were mostly offset by a higher net gain of EUR 68 million on hedging activities and lower fair value adjustments. Let us now turn to the profit for the period, which decreased to EUR 159 million primarily due to the decrease in operating profits. There were other minor items that offset one another, namely higher net finance costs and lower taxes. Our effective tax rate for the period amounted to 55.2%, reflecting the geographical distribution of profits and a much lower profit before tax. Cash flow generated from operating activities at EUR 926 million was broadly in line with the prior year period. This achievement reflected lower taxes and a significant improvement in working capital, which can be primarily attributed to the reduction in inventories, while the progressive improvement in the wholesale channel led to higher receivables at the end of the period. Let us now turn to our gross capital expenditure, which amounted to EUR 188 million, 33% lower than the prior year period. Investments were significantly reduced in an effort to preserve cash. As a percentage of group sales, capital expenditure was broadly in line at 3.4% compared with 3.8% in the prior year period. 45% of gross expenditure related to points-of-sale investments, including internal and franchise boutiques. Investments were mostly related to selective store renovations and openings, including Cartier's boutique in Shanghai IFC and in San Diego at Fashion Valley as well as the renovated Van Cleef & Arpels flagship store in Hong Kong Prince's building. Manufacturing spends declined from 12% of gross capital expenditure to 10% primarily related to development costs and machinery, mostly at Cartier. Other investments accounted for the remaining 45%. They mainly reflected investments in information technology at our Online Distributors and Maisons. Let us now turn to free cash flow. Free cash inflow amounted to EUR 444 million, an increase of EUR 104 million compared to the prior year period. This increase mainly reflected a stable cash flow from operations, lower capital expenditures, as just discussed, and lower lease payments primarily due to rent relief. And now onto our balance sheet, which remains very strong, with shareholders' equity accounting for 51% of the total. Net cash decreased to EUR 2.111 billion at 30 September 2020, from EUR 2.395 billion at 31 March 2020. Excluding the dividend payment of EUR 529 million, the group's net cash position would have increased by EUR 245 million. The dividend payment this year was approved at CHF 1 per A share or 10 B shares compared to CHF 2 per A share or 10 B shares in the prior period. I will now make some concluding remarks before turning to questions. First, starting with the environment. Despite the macroeconomic uncertainty, we have seen a number of clear trends emerging and are actively responding to these across our Maisons and businesses. We have seen a rapid rise in online luxury shopping, a trend which we believe is here to stay and will continue to strengthen. A softer recovery in wholesale sales due to difficulties at Japanese and U.S. department stores and at multi-brand watch retailers that do not offer online services. This, along with temporary store closures and lower footfall, has contributed to greater direct engagement with end clients. Although the interaction with customers has become less physical, our sales colleagues have been very resourceful, contacting the clients via various social media channels. Overall, our teams have demonstrated strong creativity in promoting our Maisons' products, with virtual tours of boutiques, online product launches and digital watch fairs. In the absence of international travel, we have also seen Chinese customers reshoring purchases previously made overseas. It is hard to say how much of international tourism will return once the pandemic is finally behind us. We are monitoring this closely as, together with higher online sales, it may have long-term implications for our retail network. Omnichannel is much talked about, but in practice, few in the industry have fully embedded the model, which employs connected online and off-line retail networks. Reflecting the increased weight of our Asian clientele, our clientele on average is younger, with more millennials and Gen Z looking for iconic creations and more direct digital engagement. Finally, with the pandemic, we have seen a heightened focus on sustainability issues. Richemont Maisons and businesses stand for timelessness, quality and craftmanship, values that are particularly sought after in uncertain times and in a more sustainability-conscious world. We have a long-standing commitment to conducting business responsibly. We know that there's always more to do regarding corporate and industry-wide sustainability efforts and strive to improve each year. Last year, we accelerated our efforts with a transformational sustainability strategy that reflects our ambition to see luxury create benefits for all and represents Richemont's movement for better luxury. Looking at our half year results, as just reviewed, I'm not really revealing anything new by saying that these have been very challenging times with the pandemic affecting all of us. Having said that, we would like to highlight that during our second quarter, we began to see improvement in sales, starting in China and then, to a lesser degree, in some other locations. As a result, the decline in sales was limited to 2% at constant currencies driven by positive growth at the Jewellery Maisons and Online Distributors. The group as a whole resumed growth in August at constant exchange rates. Going forward, the lack of visibility surrounding the pandemic and macroeconomic uncertainty oblige us to remain cautious and agile. Obviously, the safety of our colleagues, clients and partners is at the core of everything we do. Given the recent sharp increase in the number of cases in many parts of the western world, we will continue to be extremely vigilant. We will also continue our unrelenting focus on cash to continue generating positive free cash flow. We will continue to monitor inventories, keep tight control on costs and make targeted investments that support our strategic journey towards new retail. Our Maisons and businesses will accelerate the digital transformation and continue implementing innovative initiatives to generate sales. We have demonstrated our ability to adapt quickly. We are confident we will emerge from this crisis stronger, thanks to decisive actions and making the right calls in investment and creative initiatives, all supported by a strong balance sheet. This concludes our presentation. Thank you for your attention. And I will now hand back over to Sophie.

Thank you, Burkhart. And thank you to so many of you for taking the time to e-mail your most pressing question, including this morning, after yesterday's announcement. We thank you very much for your reactivity. And actually, lots of questions as you can gather were widely shared. We'll read them in descending order of prevalence for you. So unsurprisingly, a lot of questions surrounded yesterday's announcement. So basically around the rationale, what is the strategic rationale? And as one analyst put it, why do this transaction, given the problems you're having with YNAP? I can't see any innovative scale advantage. So that would be question number one. And then I will read the other questions around that matter. I think, Mr. Rupert, this is for you.

Boy, do I have to? I told the press this morning. Our journey really started about nearly 20 years ago, when we were in the process of selling our shares in Vivendi, that we got out of the exit of our pay-TV business. And the shares were trading at about EUR 68, and I was uncomfortable because we had a lockup for a year. So we asked Lehman Brothers, and they had a genius there by the name of Arnaud Massenet and he only got us EUR 68. And a year later, when the lockup was over, we'd obviously sold, gotten the cash. By then, the share price was EUR 8. During that period, we got to know Natalie Massenet, and she was dreaming about starting an online store, and we were intrigued and a colleague of ours, Eloy Michotte, brought it to our attention. And we took a small stake and got to know the business. But we only requested one thing. If we were going to share the journey, we didn't want to go through all the pain and learning and then to find out that another competitor would buy it. So we said, please could we have preemptive rights if you ever wish to sell? And all the shares we bought subsequently were at the behest of shareholders in NAP. And we never really had the intention to buy it, control it, et cetera. We always respected the neutrality of NAP. And some of you may recall in 2015, at the FT Luxury Goods conference, I made an appeal to the other luxury goods companies to join us. And I expressed the view, our view, that this was a very big game that I was not sure that any single luxury goods company, no matter how big, could do on their own, and appealed to the other groups that we would form a platform and really do it like Spotify has now done with the content providers or shareholders, but it's run as a neutral platform. Well, that fell on deaf ears, and obviously, the prisoner's dilemma took over and everybody acted in their own worst interests. We then realized we needed more scale and we did the YOOX deal. In the meantime, technology has advanced. So whilst we were doing well in the curatorial side, and it's of special value to Richemont. Now you've got to understand that we've got to look at it from a Richemont perspective and then from a YNAP perspective. From a Richemont perspective and from all brand owners, people prefer selective distribution. We were approached. We did not initiate this conversation. And it made sense to me because I've always been interested in technology. In fact, we're now -- before Richemont, we had Rand Merchant Bank, and we were partners with a genius, unfortunately since passed away, Tielman Luden, who had a company Siltek. And we were the first Apple distributors in South Africa, and we built Rand Merchant Bank on Apple Macs. We're, in fact, the first bank to computerize. I then got everybody, all my colleagues, Macs. And to think when we started Richemont, all the planning, everything done on Macs, 128,000, to think that a little SD card on a DJI drone today has the memory of 1.5 million of those Macs. So we always approached it from a technology side, everything. Now the difference between Farfetch and a number of others, they -- these competitors were platforms created by people from the software platform side, they were coders. We also found, when we met with and got to know the Alibaba people a lot better, they are also coders. So we had the coders creating the platform, and then the curators, Natalie and then Federico, who could do the curation. Now for our clients, the curation is very, very valuable, and that was also the interest of Alibaba when they approached us to do the joint venture in China. Clients like it. So when the opportunity arose now to work together in China, as I've said, we did not initiate it. We looked upon it as providing 1P and 3P put together, a hybrid model. We absolutely believe that online and e-commerce and new retail will grow. Now this has obviously accelerated almost exponentially due to the COVID crisis. And I don't think -- I think it's a reset for all of us, not just a pause, and we wanted to make sure that we were leaders in that field. It combines 1P and 3P, and it gives optionality to brand owners, and clearly our new partners also believe in that. Now let me be quite clear, Farfetch will continue to be run by José Neves and his team. And I'm not just saying it now, and -- but I -- ad infinitum, as long as José wishes to. So secondly, as per question from the press, no money is taken out of the company. It is going into Farfetch China, Farfetch, and we have optionality to later on convert into the holding company shares. We will work together. It's been very difficult during COVID times to advance any further discussions, but over the next 2 to 3 years, we will work together. Currently, the 2 companies, in his words, have got different blood types. So there's a lot of work to be done. I don't want to speculate. They're a public company. There's nothing in the -- that should be put in the public domain now. We're very, very cautious. But clearly, we are looking at getting to a model that gives the best optionality for clients on the one hand and Maisons, ours, now Kering has joined and others to use this platform. I don't know. We could carry on for 2 hours on that, but it's a limited time. And I'm sure Jerome and Burkhart and others can add to that.

Otherwise, I've got some more questions that maybe I can raise now. Like would it be possible to understand what this proposed transaction means for YNAP and Richemont e-com strategy moving forward? What are your thoughts on the key strategic synergies between your brand portfolio and Farfetch, and also between YNAP and Farfetch? How does it impact on Feng Mao? And so...

Sophie?

Yes?

Sophie, we just announced the deal last night. I think that is really a work in progress.

Understood. So I'll move on to more questions on YNAP itself. And notably on YNAP's business model. Many analysts asked whether there were any plans to shift YNAP from wholesale to a more platform-based business model? And if so, to what extent? And if not, why not? And...

Well, that's been answered in the first answer.

In a way, yes. Then the other questions relate to YNAP losses. With losses now and next year, what is the time frame for YNAP breaking even? And what are your levers to achieve it?

Sophie, I need to address all of this. You -- in your business philosophy, you can either build goodwill or you can buy goodwill. And the way in which the accounting profession and financial analysts, how we're modeling it today is they applaud you if you buy another company and you pay a fortune in either your own shares, which is the worst, or in cash, to make an acquisition where you reward the previous shareholders. But the goodwill, the brand equity, the systems that you've built up that got amortized over the years, that went through the previous company's P&L. And you keep on getting questions and questions. Now if you look at when we started with Van Cleef, the company wasn't losing nearly what we paid for it annually and every year, not only from analysts, but from directors, nonexecutive directors specifically, I would get the question, "Now when is it going to turn profitable? When is it going to turn profitable? When is it going to turn profitable?" Sometimes you've got to invest. And sometimes, you've got to build and develop. And that's part of building goodwill and building knowledge. So I think this obsession with what is it going to cost, what are the losses going to be, if we hadn't done it, we wouldn't have been able to get into the situation now where hopefully we can build a model with 1P and 3P that's attractive, not only to Richemont, but to other brand owners as well. Obviously, we will not amortize -- we won't have to amortize a lot of the programming that we had to because we will be able to access it in another way. But that is to be negotiated. But that's the intent.

Right. The next question is, I think, for Jerome. When will the migration of Net-a-Porter be completed?

Yes. Thank you, Sophie. In foreground, I want to stress and underline that YNAP and Watchfinder, our 2 Online Distributors, have been through a very intense journey. You'll remember that distribution center were closed in the early spring. But since June, the team has been working very hard there to recover. And as stressed by Burkhart in his presentation, a very tough work has been done there by the team in terms of cash flow. And we saw a significant improvement to take his word in terms of cash flow situation for our Online Distributors and particularly at YNAP, and that's what the team has been very active doing. They've also been recovering a lot into -- in terms of client relationship and in terms of bringing the level of service back to where it was before COVID. When it comes to replatforming, the team has been, despite COVID, also working very intensively. We are on track with the last mile of that phase of replatforming, which is NAP replatforming and the cutover, which is localization -- mainly the localization of and the upgrade of our NAP platform, the cutover zero which is in the Middle East, have been achieved by the team with success. So this one is quite remarkable. The second one, which is also quite important, is that the onboarding of our Maisons on YNAP is progressing. And again, all what our Chairman said this morning is putting this embarking -- is making this embarking even more important for the future. It was Montblanc in summer, and it was cartier.uk -- cartier.com.uk in just a few weeks ago, and these 2 are replatforming has been achieved October -- has been achieved per agenda in the conditions that were expected and specified. At Montblanc, we could even see that there were no regression, but a continuous improvement of the performance. Yes.

Thank you, Jerome. We can move now to the Jewellery Maisons, and there's a question more related to Cartier and Tiffany, maybe for Burkhart. From what angle would you expect the competition to intensify from a geographical, product and retail channel, price point in America versus Europe or Asia, entry price versus high end, bridal, high jewelry versus other type of products, new store concept? So what approaches are you taking in this respect? And also, whether this change your outlook on revenues growth and margins at Cartier?

Sophie, thank you for the question. I think I cannot be really helpful on this because it's -- we do not comment on our competitors and their respective or prospective plans. And we cannot really make any statements around this at the present time because, as we all know, the culmination of the deal between those 2 groups that you just named has not yet closed. So it's -- I think it's way too early to make any coherent statements about that.

The next question actually relates to Clash and whether the launch of Clash has enabled Cartier to take market share at the expense of competitors? Or has the launch actually been at the expense of the other Cartier lines? In other words, as you've been in cannibalization?

Listen, I can only refer to, I would say, an undisturbed situation because obviously the pandemic that we have been going through the last 6 or, shall we say, 8 to 9 months has changed many things. What has become very clear is that Cartier has had a very strong acceleration or, let's say, reacceleration over recent months. They have clearly emerged the quickest out of lockdowns and the disruption that the pandemic has caused. Their jewelry lines have been enriched, as we know, through the launch of Clash, where we now have -- and that's what we usually do over the years, extend and enrich the collection through additional functionalities, additional materials, additional offers. This has been done now, and Cartier successfully added the white gold offer to the Clash line, also higher positioned in terms of pricing. And once again, referring to what we've seen and also discussed during the last year, we have not seen cannibalization. We've seen the other jewelry lines accelerating in line with the very strong success around Clash. And you remember that in the last fiscal year, we spoke about it saying that we had even situations in the first 6 months after launching the line where we could not satisfy the customer demand due to it vastly exceeding our initial planning. So -- and I think that still holds true, very strong growth, obviously, over the last 2 years for this new line, and no visible cannibalization effect that we have seen.

Thank you, Burkhart. The next question relates to the percentage of online sales done by Cartier and Van Cleef & Arpels, and where do we see this -- what is our long-term target?

Well, Sophie, you should know this better that we will not break this out.

Yes, I do. But there's no censorship.

I know. Let's say, by individual Maisons. What we have seen and what we've commented on quite largely throughout the presentation and also through our press release is that Jewellery Maisons have had greater exposure. And I would say were advanced -- more advanced than some other businesses, especially watch business, in their online penetration. As you know, we've deployed our online operations over the last 10 years -- 10, 12 years around the globe. One of the biggest markets historically has been the American market, the North American market, where the Jewellery Maisons and Montblanc have been the leading Maisons. So on that success, Jewellery Maisons have significantly increased their online penetration in the U.S. as they have in Asia primarily in China because we have added stores to that, notably the online, Luxury Pavilion online flagship store or Pavilion flagship store, as we now call it, for Cartier. So the online penetration for Jewellery Maisons is higher than for the Specialist Watchmakers, but still lower than the Fashion & Accessories Maisons, which had the highest online penetration even before the pandemic. So I'd say the question is less about what is the weight or the penetration of each individual channel, be it online or off-line retail. But the question is more about how do we actually link those 2 channels in terms of customer intelligence, in terms of inventory intelligence, and that in part will be addressed through this partnership that we have now established or are in the process of launching between ourselves, YOOX Net-a-Porter, Alibaba and Farfetch. Thank you, Sophie.

Thank you. So we should move now to more portfolio-related questions, which are more for Mr. Rupert. So quite a number of analysts wrote, you stated in May that the group would not be sold or merged. Are you still in the same mind frame? Is it time for transformational view, including merger or being taken over?

I had a chat, as you know, to Andrea before about this.

That's right.

Article that was really quite a surprise because I didn't know that we were in any way for sale at all. And I think it was just a bit for a red herring during the -- at that stage, problems between the LVMH and Tiffany. So there was no substance to it. And we have so often spoken about these so-called transformational deals. So neither are on the horizon.

Thank you. The next question relates to business diversification. Does Richemont have a business diversification that it should have? Or would it consider to expand or strengthen in other area? And if so, which one?

I think we've just done one.