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

Ladies and gentlemen, welcome to the Financial Year 2021 Richemont Annual Results Presentation. I am Alice, your call operator. [Operator Instructions] 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, and good morning, everyone. While we are disappointed that, once again, we cannot host a physical meeting, Johann Rupert, Chairman; Jerome Lambert, Chief Executive Officer; Burkhart Grund, Chief Finance Officer; Cyrille Vigneron, Chief Executive Officer of Cartier; Nicolas Bos, Chief Executive Officer of Van Cleef & Arpels; Jim Fraser, Investor Relations Executive; and I, are pleased that you are able to join the audio webcast of Richemont's 2021 annual results, and hope that you are all keeping well. 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 3:00 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. Also, I would like to note that throughout today's presentation, Hong Kong SAR refers to Hong Kong SAR China. First, Jerome will take you through the year's financial highlights and sales. Burkhart will then discuss Maisons' key developments, group's financial and key initiatives. He will then hand back to Jerome for an insight into our digital strategy and the conclusion, which will be followed by a Q&A session. I will now hand the call over to Jerome.

Thank you, Sophie. Good morning, ladies and gentlemen. Thank you for joining us today. As we are all aware, it has been an unusually challenging time as we had to navigate the uncertainty associated with the global pandemic. And I would like to pay tribute to the dedication and perseverance of our colleagues at Richemont. We acted quickly and decisively on all fronts with a primary focus on protecting the health and well-being of our teams, clients, partners and community at all times. In these exceptional circumstances, Richemont demonstrated remarkable agility and resilience, delivering growth in a number of segments and geographies, and a significant increase in net cash. Richemont delivered a strong financial performance with sales for the year decreasing by 5% at constant rates and by 8% at actual exchange rates. There was a marked contrast between the first and second half of the year. From April to September, sales decreased by 25% at constant exchange rates and by 26% at actual exchange rates. Following widespread temporary store closure in the first quarter, performance improved in the ensuing quarter as initially lockdown measures began to lift. From October to March, sales rebounded with year-on-year growth of 17% at constant rate and 12% at actual rates, including a fourth quarter sales increase of 36% at constant exchange rate and 30% at actual exchange rates. This momentum has accelerated in the month of April. Operating margin increased from 10.7% last year to 11.2%, despite operating profit slightly decreasing to EUR 1.478 billion, given good cost discipline and a sharp rebound in sales in the second half of the year. Profit for the year amounted to EUR 1.289 billion, a 38% increase from EUR 931 million in the prior year. Cash from operating activities was strong with an EUR 848 million improvement. At EUR 3.393 billion, our net cash position was almost EUR 1 billion above the previous year. To help you compare our first quarter and full year sales to pre-COVID-19 level, here, we are providing ourselves by business area on the 2 years basis. Overall, fourth quarter sales were 10% and 7%, above level seen 2 years ago at constant and actual exchange rates, respectively. So Jewellery Maisons and Online Distributors both delivered growth above the 2019 levels for this period. Sales at the Jewellery Maisons were 28% and 24% higher than in Q4 2019 at constant and actual exchange rates. Sales at the Online Distributors were 7% higher at constant exchange rate and 4% higher at actual exchange rates. So Specialist Watchmakers and Fashion & Accessories Maisons were more impacted by the pandemic due to the greater variance on wholesale sales. Respective fourth quarter sales were lower than in the same period 2 years ago. Full year sales compared with -- to financial year '19 showed a similar pattern with Jewellery Maisons and Online Distributors posting higher sales, while Specialist Watchmakers and Fashion & Accessories Maisons recorded lower sales. Now turning to some of the year's highlights. Faced with the unprecedented impact of the global pandemic, our colleagues acted quickly to preserve cash and find new ways of engaging with clients. As a result, the group was able to deliver a strong financial performance, led by the Jewellery Maisons, Online Retail and Asia Pacific. Notably, the Jewellery Maisons grew sales beyond pre-COVID level with a 31% margin, a testament to the enduring appeal. So Specialist Watchmakers returned to growth at constant rate in the second half of the financial year. Their team adapted swiftly and efficiently to changing levels of demand, effectively managing large swings in production from a throw in Q1 to a peak in Q4. Mainland China was the first among major markets to begin the recovery and generated triple-digit growth for the group as the Maisons' strong local presence and the lack of outbound travel contributed to increased domestic spending. Notwithstanding lockdown measures, retail sales delivered growth at constant exchange rate. Online retail sales at our Maisons grew by triple digit, underscoring the success of our digital transformation. This led to a penetration rate of online sales that more than doubled to over 7% from less than 3% of Maisons sales in the prior year. Overall, online sales accounted for 21% of group sales. We are fortunate that the digital transformation we embarked on several years ago was already well underway when the pandemic hit. This activity has accelerated rapidly over the past year as many in-person interactions such as essentials, launches and the Watches & Wonders fair were successfully transformed into virtual events. Our Maisons also implemented fully digitalized fashion shows, virtual boutique visit; and the Online Distributor benefited from an improved use of artificial intelligence. In recent years, we have made strong efforts to increase direct communication and engagement with end clients. This has served us well, and now over 3/4 of our sales are generated directly with end clients. In this context, cost and working capital discipline were essential. And thanks to the effort of our teams, Richemont was able to achieve a significant increase in cash from operating activities and free cash flow versus prior year as the recovery started to gather pace. Let me now walk you through the group sales performance. First by region, then by distribution channel and, finally, by product line. Let us first look at the geographical overview of sales at actual rates. Sales decreased in all regions, except in Asia Pacific, where double-digit growth partially mitigated declines in other regions. Europe and Japan were the most affected by reduced travel and temporary store closure. This pronounced divergence in performance between geographies led to a rebalancing of the regional sales mix. With Mainland China leading to the macro -- leading the macroeconomic recovery, it has now become the #1 location in terms of sales. In Asia Pacific, at present, posts a larger proportion of sales in Europe and the Americas combined. In the upcoming slides, on sales, please note that changes versus last year are expressed in constant currencies, unless stated otherwise. Let us begin the regional review with Europe. Sales declined by 30%, and were significantly impacted by recurring periods of temporary store closures, the shutdown of a number of distribution centers in the first quarter and a continued lack of international tourism. This was only partly mitigated by increased local demands. All main markets recorded double-digit declines, except Russia. We saw an [interval] improvement in the second half of the year with a decline in the first quarter limited to 7%. Jewellery Maisons, Online Retail sales grew by triple digits, helping Online Retail in the region achieve moderate overall growth. Sales in the retail and wholesale channel both recorded double-digit declines. All business areas posted lower sales. Also, the relative outperformance of the Online Distributors is worth mentioning. Sales in Europe represented 23% of group sales, down from 30% in the prior year. Let us move to Asia Pacific, where sales increased by 22% for the year, with varying performance across the main markets. Sales in Mainland China grew by 107%, benefiting from a strong local presence and international travel restriction, which favored strong domestic spending. Thanks to the group's historical presence on Hainan Island, Richemont benefited from the impressive growth of this duty-free hub. The lack of Mainland Chinese tourism weighted heavily on Hong Kong SAR and South Korea. So both locations saw a noticeable improvement in H2 with only single-digit declines in sales. Overall, sales in the region grew by triple-digit in Q4, but with less demanding comparative as the impact of the pandemic were felt from the fourth quarter of the prior financial year. Both the Jewellery Maisons and Specialist Watchmakers posted double-digit sales growth, including triple-digit growth for both business areas in Mainland China, while sales for the Fashion & Accessories Maisons and Online Distributors declined. Retail sales increased across all business areas, and online retail enjoyed double-digit growth, including triple-digit growth in the Maisons online retail. Wholesale declined only slightly with growth at both the Jewellery Maisons and Specialist Watchmakers. Overall, sales in Asia Pacific increased to 45% of group sales from 35% a year ago. Let us now look at the Americas, where sales accounted for 18% of group sales compared to 20% in the prior year. Overall, sales declined by 10% year-on-year, but we saw sequential improvement as the year progressed, and the effects of the pandemic began to ease with economic activity gaining traction. Sales were flat or increasing from Q2 onward, including a robust 21% increase in Q4. Online retail sales showed strong growth with a triple-digit increase from the group's Maisons. This was more than offset by lower sales in other channels. Jewellery Maisons showed relative strength with single-digit sales growth, while sales at the other businesses areas declined. Let's now turn to Japan. While sales for the year were 21% lower than the prior year and affected throughout the year by international travel restriction and a sharp fall in inbound tourism spend. Second half sales showed growth but with easier comparative due to the prior year impact on the VAT increase in Q4 and the impact of the pandemic in Q4 -- in Q3 VAT, and the impact of pandemic in Q4. Sales were lower in all business areas. In terms of channels, online retail posted good growth on the strength of the Maisons Online sales, which more than doubled. Sales in the region represented 7% of group sales, broadly in line with the prior year. And finally, Middle East and Africa, where sales rose by 4% for the year, with a sharp increase in the second and third quarters due to increased tourism spend and resilient local purchasing that partly benefited from the repatriation of sales from location with travel restrictions. Double-digit increase at Jewellery Maisons and Online Distributors more than offset decline in the other business areas. Increased retail sales were partly due to the internalization of Jewellery Maisons operation in Saudi Arabia. Online retail sales grew by double-digit with solid growth from the online distributors and the development of the Maisons Online offer. Sales in the region accounting for 7% of group sales, in line with the prior year. Let us now turn to sales by distribution channel. First, the retail sale -- the retail channel, which is by far our largest channel, contributing 55% of group sales, up from 51% in the prior year. Retail operations were impacted by recurring period of store closures due to the pandemic. Consequently, sales in our 1,190 directly operated boutique rose by 2%. Asia Pacific and the Middle East and Africa grew, while the other regions saw declines. Also in the Americas, it was limited to single digits. Strong growth at the Jewellery Maisons more than compensated for decline in the other business areas. Sales in the fourth quarter increased by a robust 62%. Second, online retail, which includes sales from Net-a-Porter, MR PORTER, YOOX, THE OUTNET and the online sales of Watchfinder as well, as well as the group Maisons. Sales rose by 9%, supported by growth across all regions, led by Asia Pacific and Middle East and Africa. In the first quarter, sales increased by 22%, partly benefiting from new flagship stores on Tmall Luxury Pavilion. At the Group Maisons, sales grew by triple digit in all regions, now representing 7% of sales, excluding the Online Distributors and with North America contributing more than 50% of the total. Online retail sales accounted for 21% of group sales, up from 19% a year ago. Direct-to-client sales, a combination of both online and off-line retail sales, represented around 3/4 of total group sales. And third, wholesale, which includes sales to franchisees and multi-brand retail partners as well as royalty income. Wholesale sales were 25% lower than the previous -- in the prior year. Temporary store closures, a lack of travel retail and a lower digital penetration all contributed to this decline. Sales were down in all business areas and regions with Asia Pacific, however, broadly in line with the prior year. Wholesale sales stood at 24% of group sales compared to 30% a year ago. Burkhart will now take you through the Maisons and segment highlights. Over to you, Burkhart.

Thank you, Jerome. Let me review our business areas with all numbers at actual rates, and starting with the Jewellery Maisons, which include Buccellati, Cartier and Van Cleef & Arpels. The Jewellery Maisons demonstrated continued strength with full year sales rising by 3%. Sales improved significantly as the year progressed, with fourth quarter sales up by 54%. As a result, full year sales exceeded pre-COVID levels. Both Asia Pacific and the Middle East and Africa recorded solid double-digit growth. And in the Americas, sales were resilient with a low single-digit decline. Robust sales growth in the retail channel, notwithstanding recurring store closures and a triple-digit increase in online retail, more than offset lower wholesale sales. The operating result improved by 11%, and the operating margin was solid, increasing to 31%. This 220 basis point improvement over the prior year can be explained by sales growth and strict cost control, which successfully mitigated higher gold prices and a stronger Swiss franc. As was the case last year, investments were focused on digital initiatives and selected store openings and renovations. Let us look at the main developments over the past 6 months. The team showed incredible agility and flexibility in reacting to site closures, a sharp drop in demand at the beginning of the year, followed by a sharp recovery. The management of production, inventory levels, product launches, overall resources and engagement with clients was commendable. The Maisons successfully enriched the product offerings to support the enduring appeal of their most iconic collections. In Jewelry, new reference were added to the Clash and Juste un Clou collections at Cartier. To the Alhambra, Perlée and Frivole collections at Van Cleef & Arpels and to the Macri and Tulle collections at Buccellati, to name but a few. In watches, Cartier launched Santos and introduced the Maillon de Cartier, while Van Cleef & Arpels added new references to its Frivole, Rendez Vous Moon and Poetic Complications watch collections. Jewellery Maisons leveraged their omnichannel capabilities to capture growth opportunities arising from changing consumption pattern. These initiatives included distant sales and new digital interactions with clients through online and mobile platforms. Digital events, such as the watchmaking encounters platform at Watches & Wonders, with a digital preview launch for Cartier's high jewellery Jaeger Royal Collection, ensured that our Maisons were able to interact with clients. Selective investments and renovations and store openings continued throughout the year and included renovations of the Dubai Mall and Paris Vendôme boutiques for Cartier, the Wuxi Center 66 renovation in Mainland China for Van Cleef & Arpels. Buccellati expanded internationally and Van Cleef & Arpels launched an online flagship store on Tmall Luxury Pavilion. Let us now review our Specialist Watchmakers business area, which consolidates the results of 8 Maisons. Sales were 21% lower than in the prior year with a significant improvement in the second half, including an 11% increase in the fourth quarter. For the year, Asia Pacific recorded a double-digit sales increase, including a triple-digit increase in mainland China, while sales declined in other regions. There was triple-digit growth in online retail, and sales in the retail channel were resilient, registering a single-digit decline. Wholesale sales suffered the most as the pandemic had a more pronounced impact on multi-brand retail partners. Due to a close partnership with our retail partners, inventories continue to be tightly monitored with the ensuing sell-out, sell-in ratio above 100%. The operating margin decreased by 470 basis points to 5.9%, largely due to lower levels of manufacturing capacity utilization, higher gold and a stronger Swiss franc. These were partly mitigated by tight cost control and reduced investments, which were targeted at select boutique renovations, new franchise and online flagship store openings as well as research and development initiatives. Of note is cash generation, which was significantly stronger than last year. Sales reflected the lasting appeal of iconic collections with launches mainly focused on new references across iconic lines. These related to the Portugieser and Pilot collections at IWC, the Master and Reverso lines at Jaeger-LeCoultre, the Luminor family at Panerai, the Possession and Limelight Gala lines at Piaget as well as the Overseas collection at Vacheron Constantin. The Specialist Watchmaker Maisons accelerated the digital transformation with innovative online events such as Watches & Wonders, which were complemented by physical events in Shanghai and Sanya, and digital campaigns on Tmall, Net-a-Porter and MR PORTER. Jewellery Maisons further engaged with clients through virtual boutique experiences, as, for example, IWC, Piaget and Roger Dubuis in support of distant sales. The retail network increased with new store openings, mostly franchise, in Mainland China and South Korea. In addition, IWC Schaffhausen, Jaeger-LeCoultre, Panerai, Piaget and Vacheron Constantin all launched flagship stores on Tmall Luxury Pavilion. Let us now move to online distributors. Sales of our Maisons products and Net-a-Porter, MR PORTER, YOOX and THE OUTNET are shown under both the Maisons' respective business areas and online distributors. They are subsequently eliminated under intersegment eliminations. Sales contracted by 9% to EUR 2.197 billion. After the closure of several distribution centers in the first quarter of the year, sales showed sequential improvement and rose by 3% in the fourth quarter compared to the prior year period, with a positive performance in the second half. For the year as a whole, growth in the Middle East and Africa could not offset declines in other regions, although Europe and Japan demonstrated relative resilience. We continued to see a highly competitive pricing environment for online fashion. This benefited the off-season businesses of YOOX and THE OUTNET, which together posted higher sales, but it proved to be a challenge for Net-a-Porter and MR PORTER, where lower stock levels and temporary site closures also weighed on sales. The operating loss improved by EUR 18 million to EUR 223 million, reflecting strong cost control. Strict cash preservation measures led to an improvement of the inventory position. Compared to the prior year, the EBITDA loss halved to EUR 37 million despite increased custom duties related to Brexit. Cash outflow decreased steeply as a result of strong inventory focus, notwithstanding continued investments in information technology. Let us now look at some developments over the past year. As part of the previously announced succession plan, YOOX Net-a-Porter welcomed the new CEO Geoffroy Lefebvre at the beginning of January. Prior to his new role, Geoffroy drove the expansion of Richemont's e-commerce initiatives and previously has held several other executive positions within Richemont. This appointment reflects the need for a new organization to support an evolution of the business and operating model, as Jerome will explain later. The migration to Net-a-Porter's new global technology and logistics platform made good progress and is on track for completion in the autumn of this year. Net-a-Porter and MR PORTER successfully expanded their watch and jewelry offer with new launches, product curation, interviews and editorial content. In Mainland China through the joint venture with Alibaba, which is developing according to plans, a digital Watches & Wonders campaign was successfully run on Tmall during April and September. Watchfinder continued its internationalization with new stores opened in September in Geneva and in November in Paris. Overseas sales now account for over 16% of sales. Watchfinder is also collaborating more closely with Richemont Maisons and other businesses to a part-exchange program, which is now available in more than 80 of the Specialist Watchmakers boutiques, and since March through the personal shopping service at Net-a-Porter and MR PORTER. Finally, let us move to the other businesses, which primarily include the group's Fashion & Accessories businesses, and the group's unbranded watch component manufacturers. The 25% sales decrease was broad-based, double-digit declines in all regions despite relative outperformance in Asia Pacific, thanks to strong growth in Mainland China. Wholesale sales were notably impacted by temporary store closures, particularly in Europe and international travel restrictions with its resulting decline in travel retail sales. Online retail recorded strong growth and represented 17% of sales, an increase from 9% a year ago. Peter Millar showed resilience with only a limited sales decline. Operating loss increased to EUR 241 million. Cost mitigation and strong cash protection measures were deployed early into the year yet were not able to fully mitigate the adverse effects of the reduction in sales. In terms of main developments of the Fashion & Accessories Maisons, there have been notable enhancements in leadership and creativity. With the arrival of Philippe Fortunato in September as CEO of Fashion & Accessories Maisons; and new Creative Directors at Alaia, Chloe and Montblanc. In line with the group's strategy, the Maisons made good progress on the digital transformation agendas. Peter Millar launched a new e-commerce platform with a richer customer experience. Chloe, Dunhill and Montblanc, all opened new flagship stores on Tmall Luxury Pavilion, further enhancing their presence in the important Chinese market. Meanwhile, many Maisons introduced digital fashion shows and fully digitized showrooms. In addition, the highly acclaimed launch of AZ Factory took place in January. Across our Maisons, core categories in iconic products, including writing instruments at Montblanc, leather goods at Chloe and menswear Dunhill were resilient. This was supported by notable product launches such as the Editions collection at Alaia, additions to the Woody Collection and Gabriela Hearst’s first collection at Chloe, the Petit Prince and Planet writing instruments at Montblanc, the future expansion of G/Fore at Peter Millar. Let me now walk you through the rest of the P&L, starting with gross profit. Gross profit decreased by 9% and gross margin by 70 basis points. The 59.8% margin was primarily impacted by lower manufacturing capacity utilization due to COVID-19 and adverse currency movements. The impact of a stronger euro against the U.S. dollar and renminbi affected sales, and the stronger Swiss franc also weighed on costs, as did higher gold prices. And the sales shift towards locations with higher duties and a highly competitive pricing environment in online fashion, albeit to a lesser extent. These factors more than offset the positive impact of a greater share of online and off-line retail. Let us now look at net operating expenses. At EUR 6.383 billion, operating expenses were down by 10% rate, which outpaced the decline in sales. At constant exchange rates, operating expenses were 9% lower, demonstrating strict cost discipline. I will now walk you through the expenses by category. Selling and distribution expenses, which accounted for 51% of total operating expenses, decreased by 8% at actual exchange rates and by 5% at constant exchange rates, in line with the decline in sales. This reflected strict cost control from the beginning of the year, EUR 67 million in rent relief relating to store closures and EUR 46 million from government support schemes. Communication expenses fell by 27% at actual exchange rates or by 26% at constant exchange rates, primarily as a result of aggressive cost-cutting during the first half of the year as well as the cancellation of physical events throughout the year. This resulted in a lower communication expense ratio of 8%, down from 10% in the prior year. Fulfillment expenses increased by 1% at actual exchange rates and by 3% at constant exchange rates. Higher fulfillment costs resulted from the strong increase in online sales, partly offset by lower expenses at the Online Distributors. Administration expenses declined by 5% or by 4% at constant rates. Expenses included expenditures in IT and new retail initiatives at the Online Distributors and Maisons. Other expenses at EUR 272 million were 7% higher than the prior year at both actual and constant exchange rates. This increase was primarily due to a nonrecurring investment property expense. Net operating expenses as a percentage of group sales decreased by 120 basis points from 49.8% a year ago to 48.6%. A resilient gross margin and rate of cost decline that outpaced the rate of sales decline contained the reduction in operating profit to 3% versus the prior year. Of note is the operating margin that was up by 50 basis points compared to the prior year at 11.2%. Let us now review the rest of the P&L items below the operating profit line, starting with finance income. Net finance income amounted to EUR 25 million compared to a net finance cost of EUR 337 million in the prior year. EUR 362 million positive swing can be explained by several items. A EUR 294 million favorable variance on noncash net foreign exchange gains on monetary items and a EUR 255 million improvement in fair value adjustments, mostly related to the Farfetch and Dufry convertible notes. These positive factors more than offset a negative swing of EUR 72 million of financial income to financial expense, primarily due to lower interest income and higher bond interest expense, and a EUR 124 million negative swing in hedging activities. Let us now turn to the profit for the year, which increased by 38% to EUR 1.289 billion, with a profit margin rising by 330 basis points to 9.8%. The increase primarily reflected EUR 362 million positive swing in net finance cost just seen. Our effective tax rate for the year amounted to 15.1% versus 22.6% in the prior year, a rate broadly aligned with a 14% Swiss tax rate. The trade also reflected lower trading in higher tax jurisdictions, better trading in lower tax ones and the unrealized noncash investment gain in Farfetch notes, which led to a nontax gain. At EUR 3.218 billion, cash flow generated from operating activities were 36% or EUR 848 million higher than the prior year. This is mainly explained by a EUR 856 million positive swing in working capitals due to strict cash protection measures implemented early in the year, with a reduction in inventories, increased trade payables more than offsetting increased trade receivables as a result of increased wholesale orders in the fourth quarter. Let us now turn to our gross capital expenditure, which amounted to EUR 513 million, 30% lower than the prior year. Investments were significantly reduced in order to preserve cash without compromising strategic progress with a focus on the selective renovation or relocation of existing boutiques and investment in IT, mainly at the Online Distributors. Capital expenditure as a percentage of group sales amounted to 3.9% compared with 5.2% in the prior year. 45% of gross capital expenditure related to points-of-sale investments, including internal and franchise boutiques. Renovations included factory boutiques in Rue de la Paix in Paris in the Dubai Mall in United Arab Emirates and on Rue du Rhône in Geneva, as well as Van Cleef & Arpels in the Prince's Building in Hong Kong SAR. The locations included Vacheron Constantin on Madison Avenue in New York and Cartier in Osaka, Japan. Manufacturing spend accounted for 13% of gross capital expenditure, related primarily to R&D and machinery, mostly at Cartier and the Specialist Watchmakers. Other investments accounted for the remaining 42%, mainly reflecting investments in information technology at Net-a-Porter and YOOX. Let us now turn to free cash flow. Free cash inflow amounted to EUR 1.790 billion. The EUR 766 million increase compared to the prior year primarily related to the higher cash flow from operating activities, lower capital expenditure and lower lease payments, partly due to rent relief, all of which more than offset investments in the Farfetch convertible notes issued. Now on to our balance sheet, which remains very strong, with shareholders' equity accounting for 51% of the total. Net cash increased to EUR 3.393 billion at the 31st of March 2021, up from EUR 2.395 billion at the end of the prior year, as a result of the items discussed on the previous slide. The Board has proposed a dividend of CHF 2 per 1 A share or 10 B shares. The doubling of the dividend over the prior year, back to pre-COVID levels, reflects an improving economic environment, solid cash flow generation and attractive long-term prospects for the luxury goods industry. Before summarizing the past year's performance, let me update you on the progress we have made on our sustainability road map. Richemont has a long-standing commitment for doing business responsibly. In 2019, we stepped up our efforts with the introduction of our transformational CSR strategy named movement for better luxury. Recognizing the need for continual progress, our targets have been grouped under short, medium and long-term targets. And our 2021 sustainability report will be published in July. Let me highlight some of the good progress made across our main focus areas. We have strengthened our governance through the creation of a Governance and Sustainability Committee, which is made up of non-executive directors, with senior executives and ESG specialists attending. Its purpose is to assist the board in reviewing and approving management proposals regarding strategy, policies and guidelines on our environmental, social and governance matters. It'll also provide direction on best practices and ensure compliance with all relevant regulatory requirements. This represents active engagement from the highest levels of Richemont's organization and shows how seriously we take these responsibilities. Richemont is also co-chairing the new SDG task Force launched by The Responsible Jewellery Council last month to track and aid members progress in implementing the 17 U.N. sustainable development goals. On the social front, we have introduced WeCaRe, a global employee assistance program to support our colleagues' well-being. We have launched dedicated training for our teams on diversity, equity and inclusion matters. We have also initiated the development of a global diversity, equity and inclusion community, which is led by the heads of DI we began appointing across the group, Maisons and geographies some 2 years ago. We continue to give back to the communities in which we operate and have rolled out a global volunteering framework to encourage increased volunteering. In addition, we have launched several initiatives through our Maisons to promote children's education and literacy, notably by partnering with UNICEF. Richemont is committed to transparency and traceability in raw material sourcing and will continue to work collaboratively with industry organizations and business partners to promote best practices across our full supply chain. We're committed to respecting responsible business practices, human and labor rights and the environment. Today, over 95% of the gold we purchase is RGC chain of custody recertified and comes from recycled origins. After several years of collaboration with peers through the Coloured Gemstones Working Group, we participated last month in the launch of the Gemstones and Jewellery Community Platform to promote responsible business practices across the gemstone industry. Richemont is committed to sourcing 100% renewable electricity across group operations by 2025, in line with our E100 initiative objectives and is finalizing its formal commitment to science-based targets in line with the Paris Agreement. The 2021 sustainability report will report against our short-term targets to March 2021 and will include enhanced disclosure in areas such as water consumption. Let me now highlight a few noteworthy sustainability initiatives. In 2020, Cartier established the Cartier for Nature of fund to preserve biodiversity and healthy ecosystems across the planet. The Maisons also participates in the Richemont-led plastic shift initiative and since 2020, has eliminated all single-use plastics from packaging. This March, IWC achieved certification to the stringent chain of custody standard of the Responsible Jewellery Council and is the only Swiss luxury watchmaker qualified to date. Other Specialist Watchmakers are on the way to obtaining certification. At the 2021 Watches & Wonders fairs, Panerai revealed its submersible eLAB-ID concept watch, made of 98.6% recycled-based materials by weight, the highest percentage of recycled based material ever in a watch. The appointment of Gabriela Hearst has accelerated Chloe's ambition towards lower-impact materials. In its first show, more than 80% of cashmere yarn was recycled, and more than 50% of silk came from organic agriculture. In addition, ESG metrics have been incorporated into Chloe's senior executive KPIs. At YOOX Net-a-Porter, the infinity program aims to promote circularity through a number of pilot initiatives to reduce pre and post-consumer waste, and empower customers to make more conscious, sustainable and circular choice purchases, notably through the net sustained offer. Moving back to numbers now with some final words on our financial year performance from my side. First, Richemont delivered a strong performance in exceptional circumstances with a sharp rebound in the second half, led by the Jewellery Maisons, Online Retail and Asia Pacific, especially in Mainland China. The Jewellery Maisons generated sales exceeding pre-COVID levels and a solid 31% operating margin, highlighting the enduring appeal of Cartier, Van Cleef & Arpels and Buccellati. Second, our strategy was executed with discipline and agility. On the outset of the pandemic, our teams reacted swiftly to manage costs and protect cash, which led to an improved operating margin and substantially higher cash flow from operating activities and free cash flow. We have an efficient and well-established process to manage the sell-in, sell-out ratio with our wholesale partners. This control has contributed to tight inventory management. While our digital transformation began a few years ago, this year we witnessed benefits from our progress to date, and so an acceleration of new retail and digital initiatives as Jerome will expand on shortly. Third, as just reviewed, we further progressed on our transformational CSR journey. Fourth, our strong balance sheet with a net cash position of EUR 3.4 billion, not only acted as a fortress, but also provided flexibility and acted as an engine to support our ambition. Back to you, Jerome?

Thank you, Burkhart. Before concluding, let me share with you some insights into our digital strategy. This year, our official digital strategy has accelerated strongly. Online retail sales at our Maisons grew by triple-digit and represented 7% of our Maisons revenue compared to less than 3% a year ago. In addition, digital initiatives supported our ability to connect with customers and thus underpins our retail sales performance. Maisons leveraged new tools and communication channels, including mobile sales, video and social media interactions to enable more diverse customer journey. This led to significant distant sales. We have strengthened our new retail foundations with the rollout of our sales force CRM program across 8 Maisons and a client telling application for sales assistance, which enables a better use of data. Most of our Maisons and businesses have now localized their website in the Middle East and we will now pursue this in other locations. New omnichannel routes have been activated, such as mobile and Cartier clicks from store and boutique appointment, and we have implemented new touch points with customers, notably in Mainland China with 9 new flagship stores on Tmall Luxury Pavilion. We have also made progress in upskilling our teams through our digital training programs in new hires. In November, we announced a partnership with Alibaba and Farfetch to accelerate the digitization of the luxury industry and to provide luxury brands with enhanced access to mainland China. This includes a USD 300 million investment by Richemont in private convertible notes issued by Farfetch Limited and our intention to take a 12.5% stake in a joint venture being credited in Mainland China with Farfetch and Alibaba. Another important part of our digital strategy relates to the evolution of the business and operating model at Net-a-Porter, MR PORTER, YOOX and THE OUTNET. To complement their wholesale offer, Net-a-Porter recently introduced a consignment offer for some key brand partners. This transition for an hybrid model, mixing 1P and 3P will accelerate this financial year. For YOOX, we are looking to establish a marketplace offer during financial year 2022. The operating model of these businesses is also evolving in several key areas. We are progressing with the localization and our operating model to capture even more growth, notably in Mainland China and the Middle East, building on strong local partnerships. Businesses are also increasingly tech savvy. So migration of Net-a-Porter to a new platform will enable a single view of the inventory and our customers to improve service and support sales. Ultimately, all this evolution will enable us to better meet our clients and partner needs and lower our capital requirements. In conclusion, Richemont, its Maisons and businesses demonstrated strength in the face of unprecedented level of global disruption. Our performance was supported by several factors. First, the brand equity of our Maisons is rooted in their strong heritage craftsmanship, creativity and innovative spirit, which strengthens the enduring appeal. Second, the ability to connect with clients throughout new retail initiative and a customer-centric mindset, reinforced by a strong local presence in markets such as Mainland China, the U.S. and the Middle East where demand recovered faster. Third, Richemont showed agility, adapting quickly and prioritizing investment into the most strategically important areas. It is worth reiterating that through online and off-line retail sales, 3/4 of our Maisons sales are now directly generated with end clients, which enables a closer relationship with and better understanding of our clientele. Finally, the strategic partnership we have forged over recent years with, for example, Alibaba, Dufry Watches & Wonders and [ Officine Panerai ] has enabled us to seize meaningful growth opportunities. We very much believe that partnerships make you stronger and we'll continue to take this approach. I would like to close this presentation by thanking all of my colleagues throughout the organization for their dedication, ingenuity and discipline during what has been a challenging year for everyone. Together, we'll craft the future. This concludes our presentation. Thank you for your attention. I will now hand back over to you, Sophie.

Thank you, Jerome. We can now start the Q&A session. [Operator Instructions] So thank you. The Q&A is now open virtually.

The first question comes from the line of Louise Singlehurst with Goldman Sachs.

Just sticking to the 2 questions. If we look at the Jewellery Maisons, to begin with, I wonder that you could help us think about the retail component. Obviously, the 62%, would it be fair to assume rerail would be near the 80% mark if we look at the kind of the wholesale dynamic going through there as well? And I wonder if you can talk about, obviously, volume, but the positive impact from mix going on in the quarter? And then secondly, if we could just have a look at the spread model. Sounds very interesting for YOOX and Net-a-Porter. It's very clear from a brand and also the consumer perspective. It completely makes sense. What does it mean in terms of the volumes and the margin impact? And is that only the third-party on offer for a few larger brands? And then just finally, on that same point, when we look at the brands, is it available for the whole inventory catalog? Or is it just from a curated edit perspective?

I think first question on Jewellery would be for Cyrille and Nicolas. So I would just like to hand that question over.

Nicolas, you want to start? Oh, I can. So for the question, the -- by channel, the strongest channel for -- throughout the period has been the e-comm, which has gone about triple compared to what it was before, and then a strong retail everywhere. The part which has been, of course, lagging behind has been travel retail as many airports and travel retail destination being closed. It's good but natural. And then on the other part of the specialist retail and wholesale, it has been also a bit behind. So yes, the strongest network has been e-comm; second retail; third, I would say, franchise retail; and third -- and fourth coming the specialist network. Nicolas?

Yes. Thank you, Cyrille. If I may add to that. In terms of mix within the collection, we've seen performance pretty much across the board. What we've seen in jewelry during this year is some difficulties for high jewelry due to the difficulty to organize events, and international events for our clients to travel, and also due to a certain lack of social opportunities for clients to wear new pieces of high jewelry, and growth being much higher and performance being much better with more daywear jewelry and day wear lines, as it was mentioned in the presentation, both for Cartier, Van Cleef & Arpels or Buccellati.

And then Jerome Lambert, speaking. I will answer to your question about the evolution of the operating model or the business model at YOOX Net-a-Porter. Indeed, what we described here is the development of a more hybrid model within YOOX Net-a-Porter. Here we speak from mixing 1P and 3P and heading to our excellent experience in creative model, or the marketplace -- as a marketplace approach. As we know, whole -- working in 1P give you a higher lifetime value from your clients. And that's what YOOX Net-a-Porter has been building over the time with excellent service and business with the so-called EIPs of the brand. Said that to further expand and recruit the opportunity of 3P is bringing an even larger platform when it comes to products availability. It's true for Net-a-Porter because the connection that has already started with the concession model shows a higher capability to answer to the needs of our clients, both in terms of vertical and horizontal. So we have -- basically, we have a larger choice of assortment with the concession model. And we also have a deeper or more available products for the best seller of it. The second and very interesting approach of the 3P model to the 1P model, particular when it comes to YOOX, is a linearization within the year of the supply flows. Indeed on top of creating and carefully choosing the product to be present on our website, will bring an additional adaptation to last trends and last demand trends with our immediate presence. YOOX, you saw the numbers. Yes, that's 14,000 brands already, and we can foresee a 20 -- a good 20% of additional offer without impact on our capital, thanks to the model.

And the technology to deliver the third-party, is that all in self constructed? Is that something that's all in the CapEx program so far? That's my last question.

For the concession model, yes, indeed. There is a concession model and the dropship are pure -- are currently and purely powered and make available and possible with recent work done on the replatforming. The replatforming is also allowing a stronger localization capabilities from a tech perspective. So it's within the same frame. For YOOX and for other countries like China, we are currently finalizing the choice of technology that will come on top of the technical stacks that we have today, but within the frame of our CapEx, as said and as fixed in the past.

Next question, please?

The next question comes from the line of Francesca Di Pasquantonio with Deutsche Bank.

2 questions also for me, please. The first is on watches. If I look at the performance of the category as compared to the performance of the Specialist Watchmakers division, it seems watches as a category outperforming. Is this mainly a result of the channel with Cartier more exposed to retail and online? Or is there something else that we need to take into account in terms of product flow, innovation or strategic decisions beyond wholesale? And the second question is on a comment which was made by the Chairman this morning about the long-term strategy to build assets over time. I was wondering whether you could provide some color around the statement? And what areas of focus should we have in mind?

Maybe on the watches. Thank you for your questions. And it was I would say you heard partly the answer to your question in the comments of our Chairman this morning where he was highlighting some significant stock rebalancing happening for the Specialist Watchmaker in the Q4 of this year. And that's how you can understand the delta of performance between the two. Out of that, what we see that's more a time difference between the flows than any other material elements. I pass over to the Chairman for the second question. The Chairman?

Mr. Rupert?

Yes. It's a very difficult question because we try to build brand equity over time in all of our Maisons. Some take longer. That's what I highlighted with the -- I mean Panerai was very quick frankly, we were more careful. It took us a while to really look at all the possibilities to go through the archives. And so that took longer. But it depends on -- it's a very good question, but one that I can't answer because we have to look at various categories. You can do very well in the category that is not growing very well, and it will not affect your P&L. So it's a question of capital allocation and human resource allocation. And I'm not going to speculate on the next one. I just tried to highlight the difference in approaches between different companies. Our goal has always been to build brand equity and to build value instead of just buying it and paying goodwill, even though, I guess, the markets reward the second strategy a lot quicker.

We can move to the next question.

The next question comes from the line of Ashley Wallace with Bank of America.

I have 2 questions as well. First on jewelry and then on speciality watches. My question on jewelry is really just about like, it's a big picture question. Some investors, we speak to, believe that luxury was a COVID or lockdown beneficiary. And I think that this is especially true for the perception of the jewelry category strength. Today, you've obviously delivered a very solid quarter in jewelry with revenues up close to 30% on a 2-year stack. How do you think about the impact of reopening on your jewelry business and the sustainability of the performance that you're delivering? I guess do you see reopening at the net positive or negative on impacting jewelry demand? And then my second question on specialty watches. Is -- just on a comment that's in the report, which says that sell-out was ahead of sell-in, but that in the first 4 months of the calendar year that you're trading above 2019 levels when corrected for a significant stock rebalancing. Should we read that to mean that there was a big stocking event in April? Or can you just explain exactly what that comment means, please?

I will answer the second question. it's Johann here. No, we've been reporting this as a metric for a while. We took a hit on our returns on net assets, et cetera. The metrics that we use in capital allocation for 4 to 5 years already. As we cleaned up the watch market and we invested heavily in logistics software systems, et cetera, for online route to market. The -- we look at our clients or our wholesale partners stock and our own stock. And after growing for years at 30% to 35%, that was obviously not going to last. So we acted proactively over 4, 5 years ago already by cleaning up the market. And one thing that we wanted to make sure of is that we were not force feeding the market. Because in the end, your wholesale partners get stuck with stale stock, which they then immediately put into the gray market. They don't like it. We don't like it. Your brand equity is affected. And so we -- it's a deliberate decision to not to pump watches into the market, but to maintain a of sell-out to sell-in ratio. That strategy, which we started a few years ago, obviously benefited us tremendously in this year as we did not have wholesale partners stuck with enormous levels of stock. So this has been going for 2 years. We've had this positively the sell-out to sell-in the ratio over 1 -- for over 2 years. It's a deliberate strategy. So I don't think you should read too much into stocking and destocking. That's not the case and that didn't happen. It's a long-term strategy. But we all benefited from that strategy of having a very clean business during this most traumatic year. You've got to remember that, a year ago, in May, we had a board meeting. We had to report that we lost, in April -- the month of April alone, over EUR 400 million in cash. Now if -- obviously, we started doing extrapolations. It was not very funny. So we did act immediately. And it was, in fact, the biggest stress test response ever -- Well, it's definitely the biggest stress test we've ever gone through. And I've been around since the '87 crash, when most of you weren't born. Obviously, the 2000 and then the mini crash, but with long-term effects of 2008. But this one came out of the blue and it stress tested us. The -- and I think you can really look at our watch business, our jewelry business, all of our businesses as having -- we turn -- really started turning in about August. So by October, November, the numbers and the cash flows are looking better. But then by mid-February, it really started picking up, and those trends are continuing.

Okay. So the comment around the first 4 months of the year being above the 2019 levels, I guess then is to do with what you're seeing in your own retail business rather than anything to do with suggesting that April is much better than, I guess, the minus 16% that you reported in the first 3 months of the year...

See, this has been trends, but we love to extrapolate them [indiscernible] because the world is still the free enterprise, still having to cope with the idea of not having a hurdle, right? We have enormous liquidity. You've got bitcoin. There are signs of bubble signs, if I can put it. And as such, wish all things being equal, we are performing very well even in comparison to our luxury goods rivals. I'm talking about the risk of extrapolating global economic growth and global trade, et cetera, et cetera. One should always just have not an eye in the rearview mirror, but a balance sheet that can withstand further shocks. We'll have shocks. I don't know where they'll come from, but we'll have further shocks. But what is especially pleasing to everybody has spoken about China, but we're seeing real signs of growth in the United States of America. So where the mark -- let me make a general statement here. Where the markets have opened, we've done very well. In countries where the markets have not opened, we have benefited from our online business. That's not to say that our online business is not doing very, very well in countries in Mainland China, for instance, or in China related, if we can put it like that. It's -- and I don't expect our boutiques, but that's -- I think we could ask Cyrille and Nicolas to answer that because they have the daily figures, if they could say. I know that where the boutiques open, it's accretive. It will be accretive. Is that fair statement, Cyrille and Nicolas?

Yes.

Indeed, if I may. Of course, we just confirmed exactly that. We've seen very, very good resilience. What we've seen throughout the period is that the attractivity of jewelry remains very strong. And as you said, Mr. Chairman, it's about food to market. So when -- the only route to market was e-commerce, we saw that route to really grow. But every time physical retail reopen, we saw customers and we see customers coming back and enjoying the physical experience.

But I do...

And to answer -- yes, sorry.

Sorry. Sorry, Cyrille.

Yes. So for the first question, let's say, will the reopening retransfer the customers' appetite? It's not an equal pie. It's a pie that is varying and can be volatile. So that's a difficult part. So in some way, the positive part when we see the kind of post-crisis rebound, like was in 2010 to '12, there can be some robust rebound, but there can be some shock in between. And there is a long-term trend for branded jewelry. Let's say on long-term perspective can be quite positive, and also appetite for customers and many new ones, especially in China or as mentioned in the United States or even Middle East. So the question is, say, how do you see what can happen within the calendar year or a fiscal year? It's very difficult to predict. But the long-term perspective, we think are quite positive.

We can move to the next question.

The next question comes from the line of Luca Solca with Bernstein.

I have a question on clienteling and remote sales. What we saw during the most recent quarters is that there's been a bit of a bridge between digital and in-store sales, and some of your peers been using clienteling and CRM as a way to try and offset store closures. I wonder if you feel that you're on path on this remote selling and clienteling activity? Or is there's more that you are planning to do and preparing to do that could boost your capabilities down the road? As a second question, I seem to understand that even in the third quarter, there was not much contribution from high jewelry. Do we understand correctly that high jewelry is still to come back and was not present in the fourth quarter as well to any meaningful extent, and could possibly be rebounding once -- occasions of use and also events come back in the second half of the calendar year '21?

Thank you. I will -- Jerome Lambert speaking. I will answer to the first part of -- to the first question. When it comes to distant sales, indeed, during the first part of the pandemic, distant sales was the only way and all the clienteling developed around. We're the best, if not the only solution to maintain contact with the end client. So in the second part of the pandemic, or in countries like China where very rapidly after the Q1, most of our doors, if not all our doors were reopened. We're still managing a new way of buying and a new way of interacting. When it comes to China, it's obvious that live streaming event took, I would say, a larger and stronger impact. And besides that as well, work done within the Pavilion on Tmall has been given the opportunity to leverage much more data and marketing intelligence in that in the past. So in China, we see already the impact of this new performance marketing approach and how it leverages the level of performance and how it gives us the opportunity to create new way of aggregating clients. When you come to the rest of the world, Richemont has been investing for in call centers. And we have now more than 300 colleagues working in the different call centers around the world. And there, the interaction with our colleagues in the call center, offering continuity in service, even when boutiques are closed or out of the working -- the traditional boutique working time as being a new source of client service, and being part of the journey of our clients when it comes to discover the products, asking for more informations without always to come to the centers of the cities. And there are partly closing or the restriction in travel as being a strong initiator to discover this new route. So yes, indeed, in the first part, it was -- this solution has no other solution. And the second part, we see new ways of interacting -- new hybrid ways of interaction that we leverage. Cyrille and Nicolas for jewelry?

Yes. So the first half of last year have been really, really slow because most of the events were canceled. And for the second half, started to have some events, especially in Asia. So we had in Taiwan, in Shanghai, in Tokyo and Seoul. And we could see that the appetite of customers there was quite good. But of course, with no traveling for many regions, it remained globally under. But the Q4 in high jewelry was quite promising to what can come at some point. This said, it's still in a lockdown in many countries in Europe. There is still not a kind of -- even if there's some of vaccination, authorization and so forth, not there. So high jewelry will come back. Again, the question how fast this can reshape. Because the customers appetite is there. Nicolas, do you agree?

Yes, I fully concur, Cyrille. And I would say also that we kind of reshifted the way we present high jewelry from major international events that we like to organize that we are completely impossible to probably more smaller size, more intimate, local or sometimes regional events. So it's also more diversity in the ways we interact with high jewelry clients and the presentations. And we see already the results of that, and we will probably see that improving again during the coming year.

Next question please?

The next question comes from the line of Zuzanna Pusz with UBS.

I have 2 questions, please. My first question is, I'd say broadly on jewelry, but also pricing specifically. So it's pretty clear that you are outperforming your peers and the growth is very strong. I mean I think -- as you mentioned, you think that it's just an underlying strength of the brand. But I also have the feeling that, obviously, over the last couple of years, you were a bit more cautious with pricing, especially versus other product categories like soft luxury. And we probably ended up in a situation where jewelry does look like relatively good value versus perhaps even some of the handbag prices. So I'm just curious to hear what are your plans when it comes to pricing? If you think maybe is the strong growth continues? If you could maybe have some room to increase prices? And obviously, I remember you've been historically kind of rebalancing prices across regions, but I'm sure you're talking about kind of net price increases at the global level. And my second question is maybe just broadly on regional performance. So you've seen a very nice acceleration when you look on a 2-year stack in the U.S. Middle East saw a bit of a deceleration. So could you maybe share a little bit of kind of color behind that? And specifically when it comes to the U.S. Because Mr. Rupert mentioned that, he thinks that there is maybe some sort of kind of long-term concerns regarding a bubble or something like that in the market. But at the same time, he said that the U.S. was very healthy. So I'm just curious if you actually believe that the momentum in the U.S. we are seeing is an actual kind of underlying momentum of the U.S. consumer? And if so, what is driving that, given that it feels like the U.S. and especially for you now in Q4, is going ahead of kind of a long-term growth line?

I can pick up on the first question for a few things. Well, we don't comment for the other part of luxury. But it's through the strategy that worked this time. Say, we have to leverage the overall price worldwide because customers are traveling. And if you have some parts in the areas where it's structurally overpriced, of course, except for the part of VAT and sales tax that we don't control. But then it makes some perception from customers that the price at home is too high. If -- we've seen that the strength of our sales and robustness of rebound domestically -- also because customers knew that it was not over price, other in China, in Russia and Middle East. So on some time, we didn't try to make higher yield in period where everything was doing fine has been paying off there. Then this side, we have increase in Swiss franc, increase in gold price. But at some point, we have to reflect, it's just part of a normal management of our pricing. So I think there is something that can come because of gold price is very high and because of cost of goods coming to Switzerland, the fact you have equal pricing policy worldwide as shown it's more resilient in the long run. Nicolas or Jerome, do you want to comment as well?

Nicolas?

I really -- yes, I agree with that. I think that over the past few years and before that crisis, we really gone to an international frontier, what we call fair pricing, as Cyrille was describing, and to have more and alignment between the different prices in the different regions. And it's clearly a factor also that helped us somehow redirect sales from tourists to more local clients because they know that they will pay pretty much the same price, excluding taxes and a fair price. And I think that we've not been opportunistic when it comes to price increases, as Cyrille was saying. Of course, we have sometimes to adjust to current -- to exchange rates and to the price of materials. But it's also -- I think part of the feeling that goes with jewelry, that there more long-term view, more permanent when you buy jewelry than sometimes other categories. And I think that you have, once again, a homogeneous pricing and also a non-opportunistic approach to a price increase is well understood and appreciated by our clients.

Sorry, it's Johann here. I think also embedded in the fair pricing. I'm always pleased when I look at Christie's and Sotheby's and Phillips and even watches at the core, and when I see that the Maisons represented, they are inevitably Cartier and Van Cleef. And also in the watches, that Cartier and [Luminor], et cetera, fetch prices that make them value in the long term. We judged earlier on with a press that there was a Cartier London watch that was sold at Phillips. It's a baseball or a pebble model. And I thought I was going to go big. And I -- but the highest end of the estimate only to lose because somebody else paid 5x more. So if you are in the jewelry and especially high jewelry business, you want your clients to have residual and investment value. So if you have a look at the sales at and, they -- our products do well. So there is a fair price as well.

Okay. And probably, Burkhart, just want to address the question about the regional sales split. I think what was said by the Chairman before is very important to understand where markets reopen, we're doing very well. And this has been proven throughout the year. And this is not just a, let's say, story line where we have had a very strong business in China due to, let's say, the effects we know. The demand is no longer outbound given the current circumstances. So we've had a very strong growth in China. But it is important to understand that the other major markets like the Americas or the U.S., particularly, have started to stabilize and summer have started to grow again and have sequentially accelerated as the sanitary conditions have improved. Middle East, same thing, started to stabilize and grow again in summer. Now there is no signs of deceleration that we have seen. We've spoken about some, let's say, more technical effects that have weighed on the fourth quarter, such as boutique internalizations where actually you take back the inventory from dealers and actually then shifted into your internal directly operated stores, some rebalancing of inventory between regions. So that's more a technical effect. The underlying growth trends. So dynamic has been, as in the U.S., quite strong. It really depends on sanitary situation, reopening of markets and in a way, also the customer mindset that is associated with that. I think in Europe, we've had the same evolution over the year. Fourth quarter, definitely better than the 3 quarters before. However, as we've seen, we've had -- we've seen another wave of closings in Europe in our last quarter, which are now starting to lift. But we now see Japan, again, closing down and buckling down. So it is really still a bit of volatility out there, but that doesn't change, I'd say, the underlying trends that we've seen through the year. Once it's open, we are doing quite well.

That's very helpful. Can I just very quickly follow-up on your comments on the regional sales because, obviously, the group is very diversified. You have many products at. Can you maybe just give us an idea, especially that the U.S. is a region where things have reopened, so -- and probably, hopefully, won't be closing, so you have probably the best picture. What have been the strongest performing and the weakest performing categories in the U.S.? Would jewelry leading the way or watches? Or what was it?

I wouldn't generalize these trends. It's -- and my colleague, Cyrille, said it in the earlier call today. This is not necessarily about categories or product categories. This is one luxury customer. And with changing dynamics, with changing purchasing habits. And then to that, you can add the appeal of the Maisons. Its product offering. It's positioning. So I wouldn't necessarily project a trend by product category. It's one customer.

And then just to what you said, Burkhart, what we see is more a time pattern following in somehow a different client journey when it comes to the different categories. And what we have seen along the different continents was a kind of same pattern when it starts with jewelries and it goes to Specialist Watchmakers, then it goes to most of the accessories in soft luxury, and online distributor being more on-off when the distribution center and when the operations are back to normal there, we enjoy your growth and the building and recovery.

Okay. Thank you. We can then move to the next question.

The next question comes from the line of Anne-Laure Bismuth with HSBC.

I have 2 questions. My first question is on Jewellery Maisons. So after such a stronger operating performance this year, how long it's going to take to reach big margins in Jewellery Maisons going forward? And my second question is about the time value concept. What is your development plan going forward for this concept?

Probably let me introduce the topic on Jewellery Maisons before, I think, Cyrille and Nicolas can add to it. What you call peak margins, I believe, you referred to margins 6 to 8 years back. Situation is not comparable. And as you know, we will not give guidance for the simple reason that we have no clear view on where we're going to be in the next 5 years, let alone the next 6 months. Volatility is there. And if anybody knows how to reliably project out over the next 3 to 5 years, I'd be very interested to have that because I probably would not have to work any longer because I would just invest on that basis. Sorry for the...

Mr. Rupert, we don't hear you.

I've said both will cut and we would probably be sitting in the safe shelf by then.

Yes, absolutely. And not just for a week or so.

If we can know what will be the gold price, what will be the dollar price for the renminbi price versus Swiss franc, that would probably have a clue. And if we can project that in 2 years from now, it would help -- and we don't know all of these. Many factors are playing in, and so we don't know when it can be a big margin or not. I think we have a good margin now already considering that we have a gold price very high, Swiss franc very high, and something has been adverse in terms of dollar and things. So it's -- considering that, I think it's quite positive.

And when it comes to time value, a few words. Just to, again, do a little bit of update on the concept -- further concept, if you remember, was launched 7 years -- more than 5 years ago -- I think, close to 7 years ago because we had so-called hold in our distribution in China, not only in Tier 1, but already at that time in Tier cities. So the concept was launched on how to bring quality, how to bring product training for end client in Tier 2 cities in China. What we have seen now is with the stronger -- even stronger performance of -- in China itself with a lot of Chinese residents buying in China, it's not only Tier 1, Tier 2, but it's also Tier 3, Tier 4, even to Tier 5 cities. So the challenge that we had 5 years ago has come back, but now to Tier 4 and Tier 5 cities. And the concept are being -- has evolved quite nicely in between. And we see now again, a second wave of success for itself. Very clear. It is always done with a partner. So always our distribution -- I would say, our traditional retailers when they want to spend in a city or they are ready existing of the city are owning the shop. The staff that are working there are their staff. It's not only a Richemont concept because it's not only our Maisons that are sold there, but you see as well some other Maisons are present there in terms of distribution. What we have seen as well now as an additional factor, it is also a strong factor of modernization of the wholesale distribution because it gives the opportunity to develop a luxury new retail with them as well in the spirit of partnership. So we see it as a further factor of acceleration of the partnership with our traditional partner and a good way to embark our partner in that better service for the clients for the future.

Thank you. We can move to the next question.

The next question comes from the line of Antoine Belge with Exane BNP Paribas.

It's Antoine at Exane BNP Paribas, 2 questions. First of all, to come back on this question about margins, maybe I understand about the moving parts, but there is one moving part, which showed significant decline last year, that was communication. Is it possible maybe to have an idea of the speed at which that communication spend could come back, especially in light of one competitor being acquired by a larger one? And the second question relates to the partnership you announced last year with Farfetch and Alibaba. Is it possible to have a few comments about that, the sort of testing? And maybe what you expect in terms of that partnership?

I can take that, Antoine. It's Johann here. We will, obviously -- I wouldn't say it's -- obviously, it's a good question, but we will go back to supporting our Maisons in terms of communication. But a lot of communication also goes into high jewelry expenditure on private events. It's not the traditional communication that we used to have 10, 15 years ago. So a lot of it was forced upon us. We just simply could not hold events. And -- but you can expect it to return back to a more stable percentage -- long-term percentage. But it will be different. It will not be like it was 5 or 10 years ago. I suspect it will be a lot more digital. And it will be a lot more focused on individual consumers, as we learn more and more and more through our data management. The -- to give you an idea, when -- before, when we sold 800 -- let's take our the figure, 800,000 watches, we only got data on 15% of those clients we then introduced an 8-year warranty because we feel comfortable with it, but they have to register. Suddenly, data capturing goes up multifold. So now we can communicate directly. It's just one tiny example of the redirection of communication spend. In terms of our joint venture and cooperation with Ali and with Farfetch, it's going according to plan and we are working towards getting that hybrid model. The -- but as [Jose] said in the beginning -- as you said to me right in the beginning, you've got to understand we're 2 different blood types. Data platform is stage 3P, we're 1P, so we're working towards a hybrid model and deciding on platforms and -- but they're all leaders in the platform business. And basically, they are a tech company and we're a luxury goods company in terms of our approach to online business. But our clients want duration, but they want. They want -- you don't want to go on a website and the stock is not available. So the blend is the best model. It's going according to plan. We've already had the first benefits of our relationship with Ali in China, and you will see high. I'm confident that the investment was worth it, and it will become more apparent to everyone over the next 2 to 3 years. Antoine, you remember, we always discussed the problem of turning fixed costs into variable costs. Now if you look at our total lease costs, it's still -- I mean correct me, Burkhart, between EUR 900 million and EUR 1 billion.

Yes, per year. Yes.

That's per year, Yes, per year. A large portion of that, of course, is boutiques. Now how do you create an asset turnover jump? You've got to make -- you've got to keep your fixed costs down whilst increasing your turnover. Now especially in things like the Fashion & Accessories business where we, for instance, 1 plant got hammered this year with travel retail. It's because they would expose it. If -- not if, but when we are fully omnichannel and any device, we should be able -- or no, not should. We will be able to increase our asset turnover, and we will turn variable costs -- fixed costs into variable costs, and that is the goal. And there are many components underlying into that mix. But the real goal is to keep fixed costs steady and to lower it whilst increasing turnover. And that is where -- if you're not a leader in online, you're not going to be able to do that.

Maybe just a quick follow-up. I mean I think Burkhart mentioned stricter cost control at Van Cleef & Arpels under a new management team. Without asking for guidance, I mean can we expect that -- I mean we already saw that in H2 that the losses should go down in the fiscal year 2022?

You know I think we've got to have a shift in mindset a little bit, Antoine. If I go and buy a company for EUR 10 billion and EUR 8 billion of its goodwill, then you amortize it, and none of you folks or shareholders, the press, nobody asks the questions. When you build the goodwill and you take it through your P&L, we get continuous questions. Now I know we're wasting. It's like advertising. If you spend the EUR 100 million, 50% of it's wasted. We just don't know. We know a lot more now and better, which 50% of it's wasted. But when you are developing your systems, your logistics and you're on a big learning curve, we make mistakes. Obviously, we've made mistakes. But if you look at it in terms of the quantum of our free cash flow and if you look at it in terms of what we're really investing, we have to go through that experience. Will it be -- continue to be as burdensome? No. That's why we're going to a hybrid model. But Antoine, we hadn't done that. We wouldn't have been able to do the deal with Ali. And if we hadn't done the deal with Ali, sure they would never have approached us.

Next question, please?

The next question comes from the line of Jon Cox with Kepler Cheuvreux.

Congrats today on the figures. Just a question on the cost side of the equation. Obviously, I think you guys have shown you can do a fantastic job when things are going so well. We saw it 10 years ago with the financial crisis, et cetera, et cetera, and further back. But now, obviously, things are going back to normal. Just in terms of -- do you think you've found a new way to do business during this whole crisis in terms of costs? Or should we just naturally expect an inflation in costs because you've been really squeezing the business over the last 12 months or so and actually, we're going to get quite a big part of inflation in costs? My colleague was talking about communication, but I'm really talking about across the board and furloughs, everything, et cetera, et cetera. Or as I said, has there been a fundamental change as part of your omnichannel where you don't see that sort of a return to really inflationary cost during the sort of recovery phase? And then same sort of question on the cash flow side. Fantastic cash flow again. The -- maybe you can just tell us what your thoughts are on CapEx for this year? But also on working capital because I'd imagine that will -- there'll be a negative probably EUR 0.5 billion, maybe even EUR 1 billion in the working capital this year, just as things recover and normalize again. Just your thoughts on the cash flow side of the equation as well?

Well, Jon, just to give you a bit of background, what -- the way this year has unfolded. I mean on the sales side, I think I'm not spilling the family secrets here that the first half year has been challenging, extremely challenging, top line down. And actually, we've had quite significant -- and you remember the half year results in November, quite a significant and sharp drop in our respective cost clients. I would say, across all major cost lines. I would even say with a strong focus on A&P or our communication expenses, a big part, because physical events were not possible, the travel retail channel, I would say, was nonexistent. So -- and many other businesses and, I would say, communication opportunities severely disrupted. And then as we've outlined, in a way we've seen a year of 2 halves, we've seen a sequential recovery, accelerating out of the year of our top line for our sales base. And actually, behind that, we have done the same on the cost side and also on the cash flow side. So in line with an accelerating business, we have reinvested in the business where we believed it was the right area to invest in. And actually, over the second half, many of these different spend lines have already started to normalize. I think then, we've come out with a pretty decent, say, performance in the second half on all lines. The -- and what we have been talking about for some years now is -- and the Chairman touched on it again, is how do you actually transform fixed costs into more variable costs, which go up and go down the way your business goes. I think this has seen an acceleration with the acceleration of our digital, not only sales share, but also the digital spend attached to that. And I think over the years to come, this should continue on these trends in line with the increasing online share of our sales. Obviously, we will not guide into the future, but I just wanted to give you a bit of context of how to think about that. And this is -- this applies to the cost lines and the cash flow lines.

CapEx?

Any thoughts on working capital or CapEx at all?

CapEx, I mean we've -- if you look back over the, let's say, even the last 10 years, we've somewhere -- we've always been between 5% to 7%. Over recent years, we've been more around the 5% mark. This year, obviously, for obvious reasons, we dropped below even 4%, at 3.9%. I would expect that to normalize, but still be in the lower range of the 5% to 7% range. But once again, we will always invest the ventures that we believe will bring us towards our strategic objectives.

Next question, please?

The next question comes from the line of Edouard Aubin with Morgan Stanley.

Just 2 questions for me. The first one for Cyrille. So Cartier has clearly outperformed since you came back and that continued in the fourth quarter. In recent months, if you could help us understand what kind of -- is continuing to drive the outperformance between product and communication and distribution? I'm sure it's a lot of all of that. But if you could help us rank in terms of order of importance, that would be very nice? And then the second question is on the Others division. So the quantum of operating loss was quite a bit higher than expected. Was it relatively broad based? Or was it mostly explained by Montblanc kind of high exposure to travel as hinted by Mr. Rupert? And if so, should we expect a relatively significant narrowing of losses this year?

Cyrille, you wanted to start?

Yes, yes. For the first question, what we have seen is not very different for what Van Cleef has seen as well. So on that, we are not the only one. The element, we can say that size matter. And when we have a bigger size and also being a geographical presence, which is well-established with strong retail also having gone with also development on the e-comm side. And we were kind of a proactive in China, in the U.S. as well, then it adds -- meaning they have been clearly on the market, a premium to the biggest and the well-known and stronger brand equity. So that can explain. On the other category with, let's say, slightly better for jewelry, watches coming behind, and that being a leader in the market helps. So this, I think, are the key factor in what we said before, the fact we had gone to very strong flexibility in our supply chain, which can also help to answer the element on the working capital. The more we go with velocity, the less we have in the pipe and then we can go directly from manufacturing to sales without having to pile up a lot of things in between. The more we come to e-com, the better. So it's a continuous improvement in that and all the elements work together, looking also from omnichannel, where we can use any point of sales to be the resource, but the other also helps reducing the value of the inventory in the middle. And on that, I think we have really worked altogether with all our Richemont colleague to do that. And we have seen that we could rebound fast and we can also shorten and shut down very quickly and adjust the inventory needed in the middle. So I think those plus strong brand equity, equal pricing, meaning that the customers repatriated basically everywhere, we were on -- by clientele, we went positive from September basically everywhere in our country. Not by regions because some regions are very dependent on incoming tourists. But by clientele, we have seen the growth coming back quickly. So that's size, diversity, treating all clients well, being close to them. Even when there was the close down, lockdown, the remote sales worked very well because the staff were in contact and had bonding with our customers, there were some region we didn't have e-com, like at some point when we did distance sale. And then we implement very rapidly the e-com. That worked super well as well. So again, agility and adjusting to context. Does that answer your question?

Yes. Perfect. I mean I could listen to you for -- talking about the strategy and so on for a long time. But that's -- in a nutshell, that answers the question, yes.

And I will pick up the second part on the Fashion & Accessory category. So indeed, there is here -- what we see here is a factor that was a strong contributor to the result of that category. And as for -- as we did with, we decided last year to close manufacturers for -- to preserve the brand equity of our Maisons and manage quantity of goods in the market. We have had to absorb last year, a large part of non-fixed option, so-called OMM, it's the nice languages of [indiscernible] when it comes to that. So that indeed what you see it's the, as I say, is turning afterwards in a large category, and it's due mainly to that stopping manufacturer during. They are back now to work.

We can move to the next question.

The next question comes from the line of Thomas Chauvet with Citi.

I had 1 question on Spec Watchmakers. Just 2 points of clarification, please. On Spec Watchmakers, a couple of years ago, Burkhart, you had guided for a target of 20% EBIT margin medium term. You've reached 11% in H2 despite a weaker-than-expected Q4. What is the EBIT margin bridge to 20% from here? Is it mainly a function of the sales base? Do you need to add what's been lost in the last 6, 7 years. So I think you're EUR 1 billion below previous peaks in Spec Watches. And just on that distribution of Spec Watches, can you explain the 10% increase in the footprint of the franchise stores year-on-year? I mean is it a way to offset the closures of those over the past 3 years you've done in traditional multi-brand also? And the 2 points of follow-up. One is for Cyrille and Nicolas. Perhaps when you talk about hydro resales being promising, was there growth year-on-year in hydro in the fourth quarter compared to what I think is a 30% revenue decline in Q2 and Q3, you had indicated previously? And second follow-up for Mr. Rupert. In his media interview this morning, when you said caring approach to a year ago, not for an acquisition of your stake, but for collaboration. What type of collaboration could you envisage beyond the existing relationship in eyewear? I mean is it potentially buying, working more closely together on Farfetch or on secondhand online platform? Is it ESG sustainability best practices discussion? I'd like to hear about this.

Yes, John, let me -- Burkhart here. Let me start with the first question, if I may. Now first of all, we don't guide, so I didn't give guidance. I think my exact quote was any self-respecting, decently-sized watch Maisons, I would expect to target that area, that range.

I'm sorry, Burkhart. The question was would it be possible to reach 20% again?

The peak margins, right? So 20% or even higher in terms of peak margin. So I left it much more open because if you look at our different Maisons, we have all very different characteristics based on their heritage, their positioning, their geographical spread. I would expect, and this is very much the pattern that we see that the Maisons that have that emerged first that have -- out of COVID crisis or disruption, accelerate not only their revenue lines, but obviously the profitability lines. So that being said, this is still standing as a comment. But let's be very clear here. All Maisons have different path of how to achieve their strategic objectives. And this is not a one size fits all approach. And I think it's very important to understand. You were talking in the second part of the question about the expansion of the franchise stores for the Specialist Watchmakers over the recent years. I think there's 2 elements in there. One is, over the years, multi-brand points of sales have been successfully transformed into more franchise store offerings for Maisons, meaning a branded environment in the multi-brand point of sale, and that is part of basically expanding -- a reclassification of some of these points of sales or customer relationships we have there. And secondly, operating and opening in promising markets with strong local partners. And remember, we very much value the partnership has been quite a successful route for Specialist Watchmakers in recent years to expand their presence without carrying the heavy cost base. So I think local heroes working with our Maisons in promising markets is a very good approach that the Maisons have chosen.

Next question is relating to...

Jewelry?

Yes, in Q4. Whether it's positive or negative?

I leave that to my colleagues.

Nicolas, you start?

Yes. Thank you. Regarding [ hydro, ] basically, with [hydro] as you know, it's quite difficult to measure performance on a short term. So quarterly basis, is really too short a frame to measure. What we've definitely seen is activities restarting and resuming better and more frequent contact with clients, high level of interest in many countries. So that should lead to promising transactions in the coming months.

In our side, we had a Q4 to Q4, mildly positive. But I would say, yes we cannot measure it just on 3 months.

And then there was a final question maybe for Chairman about.

I've tried to answer that a few times, in that we are willing to work with a lot and -- with our competitors where it makes sense. And obviously, in terms of ESG, it is not a competitor -- it is, as I said earlier on, human beings should start acting responsibly. So it's not only an industry wide, and it should be a responsible caring, spelled C-A-R-I-N-G, attitude. So -- and in terms of e-commerce, in 2015, I plead it with all of our competitors to join us that we could have a common platform. And we have just taken control of -- we've been investing in people on time. I invited everybody to join us. That stage, our competitors all thought they could do it by themselves. And I feared that this was a classical case of dilemma. Well, it turned out to be that way. So we carried on, and we get done. And then in the end, we were approached by Ali, and we met and we concluded a partnership in China and then a partnership -- then came and we realized the need for a hybrid platform. Now that platform is open to everybody. And you will remember that Caring also invested, but it's open to everyone to join. Some people have chosen to join, some people have not chosen to join. And we will continue to do collaboration with what you deem to be competitors if it will lower their variable costs because these will be very -- and ours. So it's -- we're prepared to talk to everybody. And that caring news is I don't know where to originate that it ended in the block, but it was so old and stale and second-hand and then it got picked up by serious people like Bloomberg. And it's just unnecessary because it's an inconvenience to and to me. We made it quite clear, we're going to remain autonomous. They will, and we'll be friendly competitors. We already collaborating eyewear, but we do it with others as well.

Thank you, Mr. Rupert. We'll take the last question because actually, sorry, 11:36.

Last question comes from the line of Rey Wium with SBG Securities.

I was just curious -- basically, I also have 2 questions. One, dealing with the Online Distributors. I've noticed maybe just in terms of the gross margin of the Online Distributors, I see this time around, you have not disclosed that. I mean, it was 33.2%. Maybe just an idea where it was this year versus last year? And then the other question just revolves around the tax rate. I appreciate it. Like you say, it's down to the Swiss tax rate around about 14%. But I mean we said with the first half, where the tax rate -- what was the...

55%.

55%. And -- yes, now in the second half, it was up like 3% or 4%. So I mean maybe if you can just sort of clarify the? But just help us this thing where we should throw the dot at -- for this coming year tax rate? I mean I know in the past, you said 20%, 22% is sort of a tax rate. So maybe just help us on that one?

Yes. Let me probably start with the tax rate. I mean we -- the midterm guidance we've given is never a hard target. It's a range, right? And we've been guiding for some years now, 19% to 21% tax rate. And actually, the underlying rate today behind the 15.1% that we've shown here is around 20%, 20.2% to be exact. Prior to, I'd say, one-off effects, which this year have brought the rate down to 15%, which last year actually have brought the rate up to 22.6%, so above that range. You shouldn't read it as H1, H2. That would be a bit too simplistic. It is based on a given geographical sales mix, which actually drives then behind it an estimation of the full year rate. And then when your business accelerates across other geographies, actually, the geographical mix of your profits and your high tax and your low tax markets can change quite significantly. So it's not that we do H1 and then an H2 rate. We always try to project out given on a -- given a mix what the effective tax rate will be for the full year. So in this case, 19% to 21% range is the range in which we are bar one-off effects, which can go in both directions.

And if I pick up the financial performance of because if we speak from our online distributors, it's mainly wind up. 2 things to say. First, yes, indeed, the gross margin recovered during the last fiscal year. So we saw a nice increase. You can read it in the EBITDA improvement with the -- as the losses of the EBITDA that have during this year, and it was also mentioned that the biggest part of that loss of the EBITDA is linked to a one-off effect of the Brexit effect with impact on the stock -- the value of tax on the stocks that we have to consider. It was a big work done by the team, led last year still by Federico. And then they did it in the context of warehouse closure, that as we all know, is not the best to maintain margin and to keep costs under control. So it is really their work and strong contribution from Federico and his team during last year.

Okay. Excellent. So just -- so I mean -- so what you're saying is that the margin improved versus the prior year despite the first half, it was so much lower?

Exactly, yes, definitely.

So thank you all. The presentation is now over, and very much for your participation. And if you have any additional questions, please call, James or me and. a good day. Bye-bye.

Thank you very much. Have a good day.

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