Samsonite Group S.A. (HKG:1910)

Earnings Call: H2 2020

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Mar 17, 2021

Good morning, good afternoon and good evening, ladies and gentlemen. Welcome to Samsung9 International 2020 Annual Results Conference Call. Please note that this event is being recorded. I would now like to hand the conference over to Mr. William Yu, Senior Director of Investor Relations. Thank you. Please go ahead, sir. Hello, everyone. Thank you for taking the time to join this call. Today, we have our CEO, Carl Gendreau and our CFO, Reza Telangani, are here with us. And to kick off the call, Kyle and Mr. Gendreau will be making a few remarks. So without further ado, let's turn it over to Mr. Gendreau. Thank you. Okay, great. Thanks, William. Thanks, everyone, for joining in different time zones. So I'm going to start on business update, Page 4. And we've got a good presentation. I'll give you some overview of what we're seeing. Reza will give you some financial views. And then we'll wrap up with Our views and outlook. So it's probably an understatement to say 2020 for our business was turbulent. But Here in the company, we think there are many accomplishments to celebrate when we think about what we've done to position the company for future success. Just a few highlights on this page. Our liquidity level is still at $1,500,000,000 It's about the same level from when we last Presented to you, we've done an amazing job on managing kind of the cash burn, which is really next point, we've dramatically reduced the cash In the business, we're close to breakeven levels in Q4, just a slight negative of $4,000,000 some $64,000,000 better than last Quarter and dramatically better than Q2. As you know, we've been on a mission to manage all of the levers We can and we've generated over $670,000,000 in cash savings as we navigate this business through including Or in addition to that $126,000,000 reduction in our working capital. So in total, close to $800,000,000 of in year cash Benefit that we've generated and we'll walk you through the details of that. Our employees have been Amazingly dedicated to this business, rising to the challenges across the business. We're all personally impacted. Every employee in the company took a pay reduction. We've all been involved in restructuring the business to position it for future success. And as you know, we've reduced our workforce And it takes a lot on the employees in running this business. But what I would tell you is we've got an amazing team, Amazingly dedicated and amazingly excited about our future. We've dramatically restructured the business. As you know, we've been talking about this for the last two quarters. In year savings, operating fixed operating expense savings of $325,000,000 and this is from a starting point really end of March stepping into April. I think more importantly, the annualized run rate fixed savings As we step into this year, we'll be $200,000,000 and we continue to deliver on that and these will easily carry into This year, there's a few bits left to do. It's in that number and it's really around a handful of stores that will continue to close as we're moving into 2021. I think equally exciting and on the celebrating side is we've continued this amazing push of Our responsible journey, which is our ESG efforts and we've got some amazing products that we'll be launching and stepping out as business really starts to turn on With products like this Magnum Eco, which I'll show you a little bit later in the deck, which is a fully sustainable product, the shell, the lining, the inside of this product Made out of 100% post consumer waste, really an amazing story. And then we've continued to drive as you know our direct to consumer business with great success. And our non travel products have continued to play really well in the mix of this. As you know, we embarked on this several years ago to change And that's played really well during the pandemic for us. So let me go to Page 5, just shifting And I'll make sure the slides keep up. So we are and I use the words carefully, we are successfully managing. We, In our view, it manages business through this pandemic. It's the entire pandemic. It's the entire team. Okay. And what have we done? Early actions To reduce the cost and the cash burn of this business, really has positioned Samsonite for an amazing future success. As I said, dollars 670,000,000 in in year cash savings, driven by over $325,000,000 in fixed operating reductions. Fixed SG and A within adjusted EBITDA just for Q4, dollars 94,000,000 lower than Q4 of 2019, down around just under 40%. And our total SG and A in Q4, just to give you a sense, is down 43% when I work in advertising and variable expenses. We'll have some details on that, but really dramatic pulling up the levers that we can pull in the restructuring of this business to position ourselves for Our teams on the working capital side have done an amazing job. I think I said on the last call, our sourcing teams I've really managed this business amazingly well. Our working capital is down $126,000,000 despite sales being In the high 50s for the year and that's really a function of managing inventories and managing our supplier base just perfectly. And we now start to lean forward. You'll see when we talk about outlook that we're starting to bring in some inventory getting ready for this business to turn back on. But we achieved maximum benefit on the working capital side within the year. All of that combined really speaks to this Q4 Cash burn, which was virtually breakeven, better than what I think we guided you last time by quite a bit As we continue to kind of pull on all the levers and a $64,000,000 improvement from what we saw in Q3 of 2020. We have significant liquidity, dollars 1,500,000,000 Again, as I said, the same number as when we last talked. And I am highly confident this company has the Navigate through pandemic as we start to see really positive signs of improving trends. Our cost savings actions have really impacted the profitability of this business. When I look at Q4, our sales are down 58% And we really start to get EBITDA approaching breakeven if I adjust out bad debt and inventory reserves, which are really a function of us Just making sure our balance sheet is in the right place. Our EBITDA would have been a loss of $24,000,000 in Q4 with sales down 58% really speaks The accomplishments we've done in managing the business. If we go to Page 6, this gives you a good picture of the trends And really just a continuation of what we would have shown you at Q3. And you can see at the low in April, we were down 81% And sales and what we've seen since then through much of this year, a very consistent improving trend so that by the time we hit November, we're down around 55%. What we are seeing and you can see it in the world news is a bit of a slowdown in that recovery where it's Kind of leveled out at down around 57%, 58% and it's really a function of kind of the resurgence we've seen in some of The COVID cases, that starts to feel like it will be offset with the amazing progress we're seeing on vaccines as well and I'll show you And a little bit later and you guys are all living it together with us as we watch the world navigate through this. On Page 7, just clear, we've been focused on cash preservation and fixed operating expenses in this business. And it really is to position this business for a wonderful turn on when things start to move again. As I said, we identified $670,000,000 in year cash savings. That's coming from fixed expense reductions, 325, meaningful permanent headcount reductions, I'll walk you through some of that. Meaningful adjustment in some of our store fleet with store closures. On a bit more of the temporary side, we've been able to achieve significant savings from furloughs, Salary reductions, bonus eliminations, amazing work on rent rebates and abatements and we'll walk you through that and other Savings that all feed into our ability to manage the cash. We've pulled the levers on advertising as we've talked about in prior quarters. Full year impact around $160,000,000 of advertising saving year over year. And really, in my view, very little impact The whole world is kind of trenched in here on travel and we'll push this lever forward when we're ready to, but it was the right thing to do in this past year. We suspended distribution to shareholders, dollars 125,000,000 year over year. We will continue to suspend that as we're in 2021. Our CapEx has been amazingly managed. Ressa will walk through some of the details, but $103,000,000 reduction in CapEx when we look at that versus the 2020 plan. And we continue to execute on savings initiatives. We continue to manage Very close. There's not one employee in the business that isn't focused on ensuring every dollar we spend is tightly monitored. And really it's spoken to the movements we made in EBITDA and more importantly to cash flow. And I think when you blend all that together And despite kind of a weak environment, these savings really do impact where we are in the business from an overall cash perspective, $800,000,000 in your cash savings from all the levers that we're able to pull. On Page 8, this just gives you and we showed you I think a version of this In the last quarter and it's discontinued, really how quickly we've been able to adjust the cost side of this business. I mean you can see Q2, Q3 and Q4 all down in the solid kind of mid-forty percent. We start to see it being a little less than what it was in Q3 and Q4 as we start Turn on some store openings. So as the world started to move, you end up with a little bit more store openings. But I think what's really important is when you look at the fixed cost structure, Which is the dark blue line and that's staying very consistent as a percentage of sales continues to dramatically improve when against the sales numbers. So Reza will cover some of that in more detail in his section. And then on Page 9, and just making sure the slides are keeping up, I think they are. Really just a bit more color on what we did to manage the cost structures. We've taken the very difficult actions to position this business for the future. That included significant reductions at headcount, meaningful store resets in every other spot where we can manage our fixed costs. And I think what's important here is our teams remain engaged, energized and ready to capture the demand as the travel business really starts to turn on. Overall, between headcount reductions and store actions, we have in year permanent savings of $65,000,000 That translates to run rate savings as we exit into or we step into 2021 of $200,000,000 We've taken significant action on the organization With a 26% reduction in our non retail headcount across the globe, okay, which is resulting in around $80,000,000 of go forward savings, Of which we're Reza and I feel very confident we'll be able to maintain as the business turns on in 'twenty one. We've taken significant action on our retail fleet. Well over 50% of our retail fleet, we've taken some action on, including store closures, where we've closed in year 2 60 stores. And we have negotiated early exit for additional 34 stores in 2021. And we've renegotiated Leases and the rents on 200 stores resulting in in year savings of over $10,000,000 and that will carry into next year as well. Page 10, I think, does a very good job of capturing the progress we've made. There's a few points on this page. First is the purple line that you see on this page. Okay. This is the cash burn and you can see Q1, which is typically a quarter where we use some cash as we get ready for The seasonal inflow of inventories as we get ready for the summer sell in. And so Q1 was really pandemic kicking in at the end, but we had a cash Which is normal for us. You can see dramatically the Q2 impact as our business effectively stopped moving in April And how the $167,000,000 negative cash. And then we're happy to report in Q3 when we reported to you That we dramatically reduced the burn there by almost $100,000,000 to $67,000,000 And then as we were looking forward to Q4, Our indications at that time was we'd be burned probably around $50,000,000 or $60,000,000 Well, we came in well ahead of that With a cash burn of just $4,000,000 or just shy of $4,000,000 for the quarter. I think the other important piece is looking at the progression we've On EBITDA, which is the blue bar in the page, dollars 127,000,000 negative in Q4, dollars 50,000,000 in Q3, 45 in Q2. And if I adjust the I mean Q4 numbers for inventory reserves and bad debt, that number is a negative 24. So really dramatically and quickly adjusting the EBITDA impacts of the pandemic as we've taken actions across the business. And then I point out the red bar which is Asia. This is Asia consolidated and Asia had shifted to positive EBITDA in Q3, remains in Q4 And we're seeing positive EBITDA for Asia in Q1 as that business continues to progress. We have a slide on China. China has And all of Asia has done an amazing job of getting back to positive EBITDA. On Page 11, really just a little more focused on kind of our cash position. So again, significant liquidity, dollars 1,500,000,000 I have full confidence in the ability from a liquidity perspective for us to navigate this business through the pandemic. Our cash At the end of the year is $1,500,000,000 versus the end of the previous year was $467,000,000 Our net debt is 1,700,000,000 versus we entered the year at 1,300,000,000. That's really a function of us navigating through the pandemic. We bolstered, as you remember, our balance sheet. We drew on our revolver $810,000,000 We went out to the market and Took in another $600,000,000 of term loan B, really to ensure we had liquidity and control to navigate this thing through this business through the pandemic. And you can see here again a repeat of the chart, but how quickly we've adjusted the cash burn. And this is really what gives me the solid We've pulled every lever that we can in this business to position ourselves to navigate through of which we will. Switching to the next slide. A couple of bright spots on initiatives and areas of focus that we were focusing on well before the pandemic, But then really played into some of our successes this year. One is our non travel continued to do well and As a percentage of sales, the blue bars to the left, went from 10% of sales to 14% of sales, which would be obvious considering The lockdowns that we saw on retail footprint, underlying growth of our e commerce business down 43% versus our Brick and mortar stores and wholesale customers down closer to 63%. And then if we look at our non travel category, non travel in this year is 50 A little over 50% of our sales, which is a target we've always set out for ourselves. Again, a bit obvious that there would be more non travel than travel products. But as a percentage of sales, that's a meaningful improvement. And again, and a decline year over year down around 47% versus travel being down around 64%. So the mix of this non travel category in our business, which will continue to be a huge piece of our forward success, played really well during the pandemic And on the next page, you can get just a snapshot of how the brand is performing. You can clearly see brands within our portfolio that were non travel Form dramatically better. Gregory Outdoor Bags, really an amazing year, down 27%. We start to see some really positive shoots as we step into the beginning of this year As people got outdoors and had more time for active outdoor exploring and Gregory has played really well. Specs continue to do well against the rest of our business. And I think the thing I would point out is within all of our core brands, the non travel components within brands Samsonite and Tumi particularly continue to perform very, very well in the midst of the pandemic. And then just a bit on outlook. So we've seen the slowdown in recovery Sure. Okay. You can't miss it in the news, particularly in markets like Europe where we're seeing kind of fresh lockdowns. We see pockets within Europe starting to Figure out how to turn on, but we've seen Italy switch off. We've seen vaccination rollouts really benefiting the U. S. Market. But all of that really means this resurgence has resulted in a bit of a slowdown in travel really from travel restrictions And some force closures that have carried into Q1. Our view from where we're sitting today is our Q1 growth rate looks about like what Q4 looks like, But we start to see really positive signs as we step into Q2. We'll cover that in a bit. Positive news on vaccines really Starting to pick up pace, but the rollout will continue to take time. We've seen traffic ticket bookings slow down at the beginning of 2020, But our forward booking trends across the globe, we see really positive improving signs and dramatically in the U. S. We'll cover that in a second. And again, as I said, I continue to focus on travel and our competitive cost structure. This business is really positioned well as travel rebounds and we start to benefit from that. On Slide 15, Just a snapshot on the U. S, okay? This is effectively employment, so numbers of travelers in the U. S. You can see the low was in 80%, really dramatic down around 96% at the lowest point. And you can see how much that's improved over the year, Down 48% at the end of February versus 'nineteen. In the last week, we've seen amazing travel numbers in the U. S. Passenger employment, 1.3 1,000,000 from the 1,000,000 kind of high that we saw in October really stepping up. So across this past weekend, we saw over 300,000,000 travelers through the U. S. PSA and that trend continues in the U. S. So I think that's very positive. If you look at the next page, this gives a bit of a global overview of travel. And I think 2 things to take away on this page. 1, This is a consolidated number. This is global revenue passenger kilometer per kilometer. And you can see that a very steady trend. And right at the end this was the red line, right at the end in December January, you can see the slowdown that we were talking about here really around resurgences That we saw across the globe from a virus perspective. That slowed that down. We see that kind of carrying into February, particularly in markets like Europe, but we start to feel some positive signs on forward bookings for that as we step into end of March and into April. I I think the international travel as we'd all expect is going to take some time to move as borders start to open. But even here you've seen a slow steady sequential improvement in international travel. And that I think will need more time for vaccinations to roll out before we start to see that really move for us as well. On the vaccine side, there's lots of data points that you can go look at, but we've tried to capture here kind of in a summary. This is updated as of March 16, so pretty updated. 381,000,000 vaccines dose has been administered worldwide. You can see the number of doses a day has dramatically improved. I think globally we're just shy of 10,000,000 doses a day. The U. S. Is approaching 2,500,000 a day and I think that will continue to grow. You can see the number of shots first and this chart is number of first shots And the percentage of people have received at least one dose. And you can see every one of these things moving. We've been updating this every other week and it's quite dramatic how this continues to move. This is important for us. As the world gets vaccinated and starts to move, this will make a difference on the travel sector for sure. And just from a U. S. Perspective, I think the latest I've seen is that we're assuming that we'll be close to 70% vaccinated by the time we get into the August timeframe For the U. S, which is really a dramatic improvement. Okay. And then we've stayed committed to our sustainability push. As most of you remember, right at the start of COVID, we launched what we call our responsible journey, which is our really focused Approach to managing the business ESG program. And we've continued with that in the midst of this. And I think it will be one of The wonderful pieces that we step out of when things really start to turn on, we're well positioned here to continue to tell the story. And we're well positioned to show some amazing products that we've been working on that we'll be launching very quickly. Our entire team has embraced this And I think it's a big part of what we've done. One of the measures that we've been using is water bottles. We've diverted more than 68,000,000 RPT our PET water bottles into our products. And I'm about to show you some products we're really starting to Use other post consumer waste into our products as well. So we're quite excited about this. We have a lot of story to tell as the business starts to turn on in this front. We've been on Page 19. We've been working with partners around the world from a materials and a recycling perspective. And we're quite excited. We had launched this product Secure Eco, I think 2 years ago now. And this past year, This won an award in Europe. It won kind of recycled household and leisure product of the year in 2,002 for plastic recycling in Europe. This is an amazing product. When I first saw it, I immediately asked for 1 in my office. And it's just an amazing story of what you can do. This is 100% post consumer waste outer shell inner lining post consumer water bottles, a really good story. And if we go to the next page, I'm quite excited for this Magnum ECO, which we'll be launching in the second half. We will start to Talk about this very quickly here. And this is a product that's really the next generation of that secure eco. I'm on Page 20. And it really talks about all of the initiatives we have from a sustainability and recycle perspective. We call this bag effectively the yogurt cup. It's made out of the outer shell 100% post consumer recycled waste, regrinded and turned into a shell. The interior lining is made out of recycled water bottles. We've been able to work in amazing colors into this as we as the technology And the partnering with the producers here to really get something that's wonderful. And this will be launching. We're going to have this as a global launch. So often we have products that run well within 1 or 2 regions. This we're going to launch around all of our regions across the first half of 2021 and into the second half of twenty twenty one. So I'm quite excited for this. Watch for that. And there's a wonderful story there. If you go to Page 21, all of our brands are focused. So that was a Samsonite example. Every one of our brands are focused here. And I thought this example was a wonderful Tumi example I wanted to share. This is launching in the back half of the year. This is our 19 degree polycarbonate Which has been usually successful and in the second half of the year we'll be launching this made out of 100% post Industrial polycarbonate into the shelf, the liner will be 100% post consumer RPET with effectively water bottles And a wonderful story for Tumi and it's just a small example of many collections that we're working on across all of our brands on a recycled materials basis. And I would tell you our teams are highly energized as we move forward on that journey. So with that, I'm going to turn it to Reza for a financial update and I'll come At the end with a little more context on outlook. Thanks, Kyle. And we are on Slide 23. So overall, the results highlights, The annual results, net sales, we're reporting a little bit north of $1,500,000,000 in sales. I think what's important on the sales number is to look at the to the point that I'll raise a little bit earlier the sequential improvement as we were looking at the various quarters. So Q4 was down 58% in constant currency terms. Obviously, Q2 was the low point for the year, but it's almost down 80% in terms of sales. So that The sequential improvement, I think, is important to our business. What's also important is the actions that we've taken around the cost structure to try to Some of that and there will be a bridge that I'll do in a couple of slides to cover that. In terms of gross margin, gross profit margin decreased 46% for the year. It decreased to 46% from 55.4%. What works its way into gross margin, obviously, there's the impact that's happening Sales mix, but there's also increased provision for inventory reserves. We also operate our own factories. So the cost of those factories is spread out over a lower sales number. If we were to exclude the impact of those inventory reserves, fixed sourcing, etcetera, gross margin decreased by 3 74 basis points. And again, obviously, that's due to the weakened sales environment that we have. As it relates to adjusted EBITDA, we did manage to While back due to the actions that we've taken significantly on SG and A, we're reporting adjusted EBITDA of negative 219,000,000 Again, I think the story quarter after quarter is important here. So we started off the year with a positive EBITDA of $4,900,000 Q2, we were negative to the tune of almost negative $128,000,000 Q3, we managed to have the benefit of some of those cost saves coming in. So we were around negative $50,000,000 and then Q4 EBITDA on an adjusted basis was negative 45,000,000 So we are approaching that breakeven point due to the fact that we've taken significant actions on costs. And as we look at net income, it's the flow through effect of the EBITDA and obviously we have increased interest expense this year due to the fact that we've Boost has bolstered our liquidity position as well. The one point that I'll just also make on adjusted net income because I'm sure the question will come up a little bit later. The tax rate this year is going to be a little bit wonky, driven by the fact that we actually had an income tax benefit of 94,000,000 As compared to an income tax expense in the prior year of $31,000,000 So the reported ETR that you're going to see is 6.8 But I think for modeling purposes, we're going to just make sure that you're looking at a normalized EBITDA if you were to exclude all of the one offs that happened due to impairments and other things is around the mid-25s is what we will guide you to in that regard. On Page 24, As you're looking at sales across the regions, obviously, all of the regions were impacted by COVID, but Asia did have The benefit of entering it a little bit earlier and exiting it a little bit faster as well. So Asia is moving a little bit more so than the other regions. And what I would draw your attention to is on the bottom of the page really the Q4 number just to update everybody since the last time that we gathered together. North America in Q4 was down minus 56.6 percent Asia down minus 56 percent Europe Down 67%, which is really the point that Kyle was alluding to that there are Europe is behind on the vaccine front and you have countries that are shutting down again. And then Latin America down 43%. Our Latin America business obviously benefits from the fact that Chile is the largest country and Chile on the previous chart that you saw on vaccination It's far ahead of many countries internationally, so that helps the Latin America numbers for us. On Page 25, This is the bridge that I was referring to in terms of looking at what happens with our savings initiatives over the course of the year. So on the left hand side of the page is the reported EBITDA number that we had for 2019 at $492,200,000 There was a bit of FX impact in the next bar. The next bar that you see is the almost $1,150,000,000 of gross profit decrease due to the fact that of COVID related decrease in sales that happened over the course of the year. So if we just sat on our hands, we would have been in an even deeper hole than we ended up. And so and then you had a component of that, which is the next bar, which is there was also some gross profit decrease due to lower margin. I think the point there is really that if you were to take out the inventory reserves that we did in terms of trying to make sure that our balance sheet is in the right position, that Would have been closer to $88,000,000 $88,900,000 And then we began basically all of the actions that management has taken, which we're very proud of over the course of the The decrease in variable SG and A, the $169,000,000 benefit, that's the point that we've talked about through the year is really around the fact that our business does Naturally, so that variable component of SG and A happens as a result of the lower sales. We did have some Bad debt, so approximately $23,000,000 of bad debt expense as you would imagine going into this period, which we did manage actually pretty closely. And then the significant amount of the actions that I would say that we're very proud of is we pulled the advertising lever very, very early on. And so we have almost $116,000,000 benefit from decreased advertising. And then the large component, the next bar is the $312,000,000 of SG and A decreased from our savings actions. That was very, very hard work, which we're very proud of. The other thing that I would note is This is the EBITDA component of it. There's another $16,000,000 of non EBITDA savings that also came about as a result of these. So there's Depreciation savings, stock comp savings, etcetera as well. So said in another way, if we hadn't done anything, we would have been unfortunately sitting in a position of negative 647,000,000 But through these actions, we managed to narrow that to negative $218,800,000 And obviously, these benefits that we've taken Continue into this year and beyond, which is something that we're looking forward to. On Page 26, just a little bit Increased information and a deeper dive in terms of the gross margin pressures. We felt that we should basically decouple this a little bit so you can see the walk between the 2019 gross margin of 55.4 percent working its way down to the 46% that we saw this year. There was a Change in inventory provisions for inventory reserves, so that had about a 3.5% impact. It's roughly a little bit shy of $60,000,000 of inventory reserves That worked its way into the gross margin number. The manufacturing and sourcing expenses that are on the lower net base, again, this is from the fact that we have our 3 factories They're still running and you have lower sales that had a 140 basis point impact on gross margin. We had an 80 basis point impact of restructuring charges and non Going to the next page, just in terms of some of the additional financial highlights. So as we mentioned, net sales decreased by 57.75%. And again, I think the point is really looking at the quarterly progression And the negative 58.1 percent for Q4. Obviously, adjusted EBITDA, We just said $218,800,000 negative. More than half of the annual adjusted EBITDA loss was attributable to Q2, But then we quickly addressed the cost savings initiatives and tried to narrow that gap over the course of the year. We had $63,000,000 of restructuring charges. That's basically a breakdown in terms of headcount reductions for severance payments that we made, store closure costs and some other that are in that. So it has a meaningful impact in terms of the fixed cost base. And then during 2020, we had impairment charges, which we've talked about on our previous calls. The bulk of them were early on in the year in Q2, but non cash impairment are in aggregate totaled $1,060,000,000 of that is for the lease right of used assets that we have on the books, dollars 35,000,000 for PP and E And then $775,000,000 non cash impairment of goodwill and trade names. Most of that again, that last point was done earlier in the year, but we do We do our impairment testing at the end of October, so there was a little bit more that was in Q4, but the bulk of that was earlier on in the year. On Page 28, Net working capital, dollars 126,000,000 lower than 2019. Again, the bulk of that You'll see on a subsequent slide was lower inventory and then that's something that we aggressively worked which is if you think about it in a lower sales environment They'll be able to meaningfully work down our inventory levels as a testament to the sourcing team, how actively we managed the operations in terms of new inventory coming in And still managing down inventory levels during the course of the year. CapEx, we had a virtual freeze after basically Q1. And if you look at it, we ended the year very positively. So our total CapEx ended up being $26,000,000 for 2020. Again, the bulk of it, You've seen the walk as we went through this on the Q3 results. The bulk of that was in Q1. So it's virtually very, very minimal single digit 1,000,000 CapEx happening right now. We're ending the year with just shy of $1,500,000,000 of cash and cash equivalents, liquidity of approximately 1,500,000,000 Basically the same number that we showed at the end of Q3 and that's largely due to the fact that we had almost no cash burn in Q4. Total cash burn for the year, $360,000,000 obviously the bulk of that was in Q2, which we had talked about before the half and that should benefit. Now as we work our way into Q1, I'll just say that there is seasonal build that happens in cash burn in Q1. So there is going to be some inventory build that will happen there And Kyle will cover that in his section as we talk about the outlook. So on Page 29, I'll spend a little bit of time just digging into the cost savings A little bit. So overall, we're reporting $200,000,000 of run rate benefits, which if you think about the EBITDA number that we have We were just shy of $500,000,000 of EBITDA. And to say that we've actively managed the cost structure of this business to have $200,000,000 of recurring benefit It's a meaningful improvement and it's going to have very good margin impact as we enter next year and beyond. You can see the total fixed costs that we have identified $328,000,000 of savings. The permanent number for 2020 was $65,000,000 But the reason that, that $65,000,000 translates into $200,000,000 is out to the timing of that. So you close a store in Q4, you get a full year benefit of it. If you terminate employee in Q4, you end up getting a full year benefit of that. And so the breakdown of that is basically through a mix of headcount And there is more that's been identified that even in Q1 we're continuing to execute on. So the 2 $100,000,000 is where we think is an accurate number as we move forward. The point that I'll raise in terms of our retail, We have always said that we have targeted expansion as we look at our retail fleet. I think you should think about us remaining very disciplined and very flat in terms of our store count for the year. So the actions that we've taken around stores in terms of meaningfully reducing, we had end of year 2019 just shy of 1300 stores. We ended 2020 at 1096 in terms of our store count and we think that there will be some further store closures that And the net number by the end of the year, you should think of us in the same sort of zip code in that. I'm sure during the Q and A, there'll be On Page 30, the reason we wanted to highlight Asia specifically is because Asia is on the forward end of The curve in terms of coming out of COVID. They obviously, especially if you think about China, they went into the COVID environment Earlier and they're exiting earlier. So what we're seeing in China now is obviously not very much international travel, but domestic travel has recovered. And I think what's important to look at is what happens to Asia overall and then on the next the following slide show you China specifically Given the benefit of the significant actions on our cost structure, what happens to our EBITDA even if we don't return to the same sort of sales level? So as you can see and I'm looking at the Q4 number. Q4 with sales down 58.1% And this is for the total company. Sales down 58.1% compared to 2019. Our adjusted EBITDA was 24,200,000 In Asia, with sales down 56%, they reported positive EBITDA, adjusted EBITDA of $1,300,000 And then if you were to back out, there were some bad debt expense that happened in the region that we wouldn't necessarily expect to be recurring. If you were to back that out, it would have been 7,500,000 Now Asia does have a slightly higher margin profile than some of the other regions. But overall, what we're expecting for our business given the actions that we've taken on cost is A much, much lower breakeven point and more importantly when we return to higher revenue numbers, not even approaching 20 Frankly, but even at a 20%, 30% discount to 2019 levels on revenue, we expect the EBITDA margin of this business to be significantly higher than it's been in the past over the past couple of years. And on the next slide, I think it warrants us looking at China Specifically, so on this slide, you're looking at net sales and adjusted EBITDA margin for China specifically. And what's interesting is if you're looking at the purple Line which shows the 2020 adjusted EBITDA percentage. So obviously Q1, you saw Significant decrease in the sales and you saw 0.3% for that number. As a result of the cost savings actions, by the time we looked at Q4, Q4, the business was showing 17% in terms of the Chinese EBITDA margin despite the fact that sales were still down 33.7%. And so we're looking at this and saying this is what we expect the business overall to trend towards. Again, the margin profile for the country is slightly different. But I think if you're thinking about the cost structure story, you should be seeing something similar for the rest of our business. On Page 32, this is a Slide that Kyle had a little bit earlier. I'll just dig in a little bit in terms of some details on the breakdown. So on the bottom of the page, you'll see What we've done on SG and A including advertising. So total SG and A within adjusted EBITDA decreased by $159,200,000 or 43 percent if you're looking at the Q4 versus Q4 comparison. The reason we're identifying the Q4 number Specifically, it's obviously a lot of the actions on our costs have been taken in Q2 and Q3. But I will tell you, we did continue to take more actions in Q4 and there's more in Q1 as well. So we keep from a management perspective, looking at that exit run rate that comes out of every month and looking at that benefit improving month over month. As it relates to the balance sheet, I think we're very happy in terms of where the cash burn is. So our liquidity position, we feel is very strong. Liquidity of $15,18,300,000 is where we ended the year, which includes our revolver capacity as well as the cash that we had on hand. As we think about our balance sheet as it relates to our covenant, our projections sitting here today are that we feel that we will meet our covenants that will be measured Q3, obviously, that's a function of the sales environment recovering and doesn't have to recover anywhere near where it was in 2019, but we forecast We should be okay to meet those obligations. And we do have significant liquidity and I don't think we have any concerns in terms of our liquidity position going This year given where our cash is. And as we think about Q1, that trend is continuing and we feel pretty good about it. On Page 34, as it relates to working capital specifically, I mentioned this in the highlights at the very beginning that a point that I do think bears Focusing on is the fact that inventories and working capital overall was reduced significantly year over year. This was quite a feat for the team to have inventory levels $131,400,000 despite the depressed sales environment. I think it also helped in terms of some of the SKU rationalization that we were looking at that positions us well in terms of 2021 and beyond. And overall, we also did have some bad debt that worked its way into these. So in terms of the reserve levels of our bad debt, there's been some J. Rice:] The reserves that were taken at the end of the year, yet these numbers still were something that we were very proud of. And really to that inventory point and purchasing, on Slide 35, this is showing you the global supply receipts that were happening over 2020 versus 2019. The point here is that very, very early on, the supply team Dialed back and all of the regions dialed back on their inventory purchases. And you can see what that growth trend line looks like As it compares to 2 years, this is what's really helping us in terms of our working capital benefit. Very, very disciplined in terms of product purchasing And very good focus on the teams in terms of disposing of the SKUs that we felt weren't going to be the runners going into this year and beyond. The purchasing is something that's going to start to pick up in Q1 because we anticipate that this year, especially in the back half, we're going to have to have sales recovery that's going to be happening. And so you should expect that there will be increased purchasing that will happen in terms of the supply chain. And finally, in terms of CapEx, We've talked about in terms of the highlights overall CapEx for the year $20,600,000 if you include the software purchases $26,100,000 compared to CapEx in the prior year of $74,500,000 I think the really important point here is if you look at the quarterly breakdown of it, out of that 26 $1,000,000 $19,200,000 of it was in Q1. And so it goes to show you the flexibility we have in our operating model of really dialing back CapEx when we need to And we're being very disciplined on that as we continue into this year. So with that, I'll turn it over to Kyle to talk about the outlook. Okay. Thanks, Reza. Okay. So I have 2 outlook pages. Normally, we have kind of an overall page, but I have an outlook and then kind of near term focus, which I think are important when you think about how we're positioned here, one on the outlook, we are heightened heartened to see the improvements that we've been seeing, sequential improvements through 2020. We've seen a meaningful improvement from Q4 I mean from Q3 to Q4. We have seen some temporary slowdown. We've seen it carry into kind of January, February as we showed you. March is looking about the same as February. And so we do see some slowdown that we're managing through. But I think our views are the pace of recovery will pick up. We're seeing an improving trend in forward bookings across the globe, particularly in the U. S. As I said. And we're seeing meaningful rollout of vaccinations. And I do think that that's going to Be important to us as this as the world starts to turn on and people start to travel. What I don't think is lost in Any conversation is people's desire to travel. And so I'm sure many of you on the phone are thinking about when your forward trip is going to be. I personally have been booking trips through the rest of the year. And I think that build up kind of demand is definitely coming. We can see it across all of our markets. Just to be a little more specific on what I think We will see. I think our Q1 numbers are going to look very similar to Q4, okay? I think our Q2 numbers will show an improving trend, but I still think Q2 will probably be in the range of down 50%, I'd say low 50% versus 2019. And then when we look at the second half, okay, and what's important in the second half will be what I talk about from a margin perspective. I think the second half for this business will still be down somewhere in the 30% to 40% range to 2019 as the world really continues to recover. I think international travel and borders will be important as we kind of start to take more forward steps. But for second half, I think We'll still be in this kind of down 30 to 40. The positive part with that is at that down 30 40. When we look at what we've done to position the business for success with the actions we've taken, we clearly and comfortably see the EBITDA margins for this business Really exiting 2021, I'm comfortably in the mid teens levels back to levels that we were before we went into pandemic With the business still having kind of run rate for recovery going on. And so I think it's a really positive outlook for us From an EBITDA margin perspective, our teams are all laser focused on this. And from where we sit today, we can easily and comfortably see us getting back to And exit mid teens run rate from an EBITDA margin perspective. From a near term focus perspective, this is both my last slide and we'll go to Q and A. One, we've been very focused on our employees and the safety and well-being of our employees, our customers, our partners. We've stayed in good touch with all of them. And I think it's been kind of top priority for us. We have a good meaningful retail fleet, making sure those employees are safe. Our suppliers, we've been very conscious about the ask we've had across all of our partners and our suppliers to make sure everybody stays safe and it's across the We've taken significant action as you've seen in our presentation on preserving cash and reducing fixed costs. And really what we have our teams focused on, Reza and I are on making sure that we maintain this lower cost structure, which as I just said, will have an amazing impact on the kind of We have a recovery and an opening plan and we've had many Markets where stores have reopened and opening those stores in the most cost effective, safe and efficient way. So as the company really starts to emerge from this, our profit profile We'll be in line with kind of a growing market business and a growing business and we should be able to grow our market share. We are clearly in the right position We've been very focused on our employees. This restructuring action has impacted all of us from an employee perspective and really making sure that our teams stay energized and empowered to navigate through this has been really an important Peace for this. We're a smaller organization, but I think we are a stronger organization as we move into the recovery phase Of the pandemic and I can't be prouder of all the employees. It's just been an amazing effort across the globe. We have an amazing diverse set of All of that is going to play well as we really start to turn on again. And no different than what we would have told you pre COVID. All of That differentiation across regions and this kind of empowered regional teams really will make a big difference as the world opens at different paces as we continue into this year. You heard me say we're continuing to be laser focused on sustainability, innovation and the long term strategies which will help This business will be hugely successful. And we do think smaller players within our space, our competitors will struggle. But I think it will be a highly competitive marketplace on the other side of this. So, but really scale advantage should allow us to kind of step ahead of many of our competitors as we start to move forward. And then as we said a few times, we're fully confident in our ability to navigate with the liquidity that we have in hand, What we've done to manage down the cash burn in this business and I think we're sitting in a wonderful position when this business continues to recover and steps into the end of this year and into next year as well. So with that, William, we can open it up to Q and A. As always, we're pretty thorough, so we use a big chunk of our time here to really give you guys a good picture, but we're happy to answer some questions. Great. Thank you very much, Carl, and that's all for the presentation. And now we are open to Q and A. I think on the line, we have from HSBC, Erwin Randbrook. So why don't we start with him first? Thank you. Our first question comes from Iwan Rumba with HSBC. Please go ahead. Yes. Thanks a lot, gentlemen, for taking the question, and thanks for the presentation. A few things. I think, Kyle, you said that Q1 shouldn't be too different to Q4. I'm just wondering, so I understand There are more restrictions affecting basically January, February, but theoretically, March should be More favorable in terms of basis comparisons. I'm just wondering if you can give a bit more granularity in terms of What sales we can hope for and if you might be close to breakeven this quarter Given what you showed in Asia in Q4. Secondly, you're talking about exiting 2020 comfortably in the mid teens level in terms of EBITDA margin, which is pretty remarkable. Again, I know visibility on this year is not great, but Where do you see the EBITDA margin landing this year? Or maybe not precisely because I guess there are too many moving parts, but maybe a range? Yes. And then last one for Reza. CapEx was cut dramatically to mid-twenty million from, I think, a bit more than Should we expect CapEx to remain relatively low this year? Thank you. Yes. So from a Q1 perspective, Erwin, March is looking from where we sit today about similar to February, which is in the deck here. So down around 58%, 59%. I would say that we're seeing some pockets where it's trending a little better, but then Europe is maybe trending just As tough as what we saw kind of stepping in. So blended, it's feeling about the same as February. And so you can get a sense for what we think for Q1. From an EBITDA perspective for Q1, one thing to remember is these are growth rates off of the previous year and Q1 is typically our Smallest revenue quarter in our smallest profit quarter. Our EBITDA will be better than what you saw Q4 in dollars perspective, but still not be quite the breakeven, really because of the sales shortfalls that we're seeing. We had an intention to be positive in Q1. And all of the initiatives we were doing have driven to that. But the slowdown that we saw That started really in December and carried in just keeping us just shy of it, Irwin. So you'll see improvement, but we won't quite get to breakeven. From where we sit today, we think Q2 will be a breakeven not breakeven, but a positive EBITDA quarter for us. Right. And Erwin, as it relates to CapEx, last year, we obviously dialed back. We are still in Q1 being very, very disciplined around it. If you think about what our CapEx spend goes to, we're not going to be spending on a lot of store remodels or anything like that. There is Some molds and other things that have that racking and distribution centers that we have to spend on simply because things are going to be ramping up again. So we won't be at the same level as last year. We'll probably end up by the end of the year somewhere between 2019 2020. I won't give you an exact number to that, but there is some and there's some also software purchases and things like that that we delayed into this year that will happen. Again, it's going to be a function of right now, we're not doing anything. But if I have to look at the back half of the year and we see the sales environment picking up, then those are the things that we've deferred that we probably will try to get into this year. And then for full year EBITDA Yes, Yes. Full year EBITDA just for kind of range. From where we sit today, we'll have a positive EBITDA for the full year obviously. I have been pushing the teams to get close to 10% in year EBITDA. I think we'll be in the range of somewhere kind of mid single to 10% is the way. If we didn't see this kind of slowdown that we saw in Q1, I think we would have been very close to that. And as I said, I think our exit run rate will be comfortably mid teens EBITDA, so you can kind of do the math from that, Erwin. But we're really pushing ourselves to kind of get to that zone. And really important for us is Kind of run rate EBITDA as we go into next year. And that's where Reza and I and the teams are very excited about everything that we've done because we've positioned this business to have A really wonderful story as the recovery continues. And that mid teens level is still a business that's not recovered to 2019 levels yet, which is really positive Thank you. Our next question comes from Louise Li of Bank of America. Please go ahead. Thank you. Hi. Thank you. Thank you, management. So first question from me is, I remember that we talked about China trends in the last In Q3 earnings call that in October, it seems like China revenue was down 18%, But this time, we actually saw a 34% down. So is there any reason behind that? Can you explain the ups and downs in terms of the recovery pace? And this is my first question. And second question, You mentioned that this year, the adjusted EBITDA margin will be mid to High single digit to 10%, so next year will be like mid teens. So what kind of sales Level in next year will be versus 2019. This is because I think we need to calculate something like net leverage ratio because And interesting color because starting from the Q3 of 2022, we need to be back to the culminate test, right? So just want to make sure we don't have any questions on that part. Thank you. So let me start by answering the China question. You're right. In October, our China sales were down Just shy of 18% or just actually slightly better than 18%. In November December, it actually stepped back down. So if you're looking at the monthly numbers for China, November was down 33% and then December was down 47%. There was Some level of there was some wholesale purchasing that was happening with that. The stores are actually performing pretty well. So that's continuing. I'll tell you that as we entered January February, the numbers are actually pretty favorable. And the reason behind that is they're also comping now against What was a very weak or a weaker January February last year because COVID obviously hit China in the early part of last year. So that's as it relates to China. Did you want to address the second question there? So Talking about sales and leverage, what we're we have run a lot of sensitivity analyses around Q3, Q4. You have to keep in mind that the measurement period is going to be at the end of Q3. As we sit here looking at our revenue forecast by quarter, We feel comfortable that we'll meet our debt covenants both for Q3, Q4, Q1 of next year as well. Just so you're aware that it's part of our going Which Kyle alluded to a little bit earlier that is still down compared to 2019 levels. If it's 20%, 30%, 40%. Even in that environment, we're still able to meet our debt covenants. So obviously, we still have to continue to monitor that to make sure that the sales over the Do pick up and the way that we are looking at that is looking at the vaccination rate that's happening globally. But sitting here today based on even reduced sales levels And with a comfortable cushion on top of that, we feel pretty comfortable that we will meet our covenants both this year and beyond. Thank you. Thank you. Our next question comes from Anne Ling with Jefferies. Please go ahead. Thank you. Hi. Thank you. Thank you very much for the presentation. Sorry, also to clarify just want to clarify the sales assumption. Carl, did you mention that 2nd quarter down 50%, second half down 30% to 40%. This is against year 20 nineteen's level? Yes, that's correct. Yes. Okay. Okay, got it. And then my second question is also regarding the balance sheet. I remember that management talked about the 600,000,000 debt that we raised in the last round, which it carried a higher interest rate. So if there's anything that If things recover, if market recovers, I think you mentioned about towards end of this year, you will pay down this debt. So based on the current trend, do you think that this is what you have in mind? And secondly, also regarding the covenant, Would you remind us like what was the covenant requirement for starting from Q3 year 2021? I remember that we can pick any 3 quarters in year 2019 plus that current quarter, But what was the covenant requirement? Is that like different per quarter? Thanks. Yes. So let me start with the covenant answer just because that's the last one that you asked about. So our current covenant is that we're what we Call a suspension period through Q2 of 2021. So Q3 is the first period that gets measured again. So during this period, the only covenant is minimum liquidity of 500,000,000 Which obviously with $1,500,000,000 we feel very, very comfortable we made that. After Q3 of 2021, there's 2 covenants that come back. There is a total net leverage number and interest coverage. The net leverage covenant is just net debt divided by pro form a adjusted EBITDA And the interest coverage is adjusted pro form a adjusted EBITDA divided by consolidated net interest expense. So those are the 2. As we look at the balance sheet in terms of repayment of debt, We are monitoring it. Obviously, we feel really comfortable in terms of our liquidity position in that $600,000,000 That 600,000,000 There's a non call period that expires 1 year from the issuance. So in April, around the corner is when the non call period It basically goes away. And so after that, we'll sit down with our Board and discuss what's the best thing to do. We are mindful of that is the most expensive piece of debt, but we're also mindful of the other tranches of debt that we have and access to the different markets. So what we'll do is an analysis of what does it do to the liquidity of that tradable instrument, does it do in terms of our relationship lenders in terms of paydown? So that's an analysis that we're going to have to do in terms of the different tranches of debt and figure out what makes Sense to pay down, but we'll do that probably a little bit closer to the half than now until we have better visibility. Okay. And do you disclose per quarter, what are the requirements regarding the net leverage ratio and also the covenant? Yes. So the way that the covenant is calculated, I'm sorry, I think I missed that part of the question. It's basically it takes The current quarter, for instance, doesn't count. So what you're doing is you have this concept of substitute EBITDA that goes into the calculation. So when I say you're looking at adjusted EBITDA, you're taking the last 12 months of adjusted EBITDA, but the first measurement period for that will be Q3. So What you would do is you would take whatever the adjusted EBITDA for Q3 of this year is, then you would take Q2 of 2019, Q1 of 2019 and then Q4 of the now I'm getting my years mixed up, but the same you're basically taking prior measurements and plugging those in. And then every quarter subsequent quarter, so when Q4 happens, You would drop off that substitute Q4 measure from the previous year and substitute it. So you're basically having a normalized EBITDA saying that 2019, we had normal operations and whereas the 2020 numbers don't count. The numbers from the suspended period don't count and the quarter that we said in Q1 and Q2 of this year also don't count towards the measure. And it's 5 times yes, and it's 5 times is the net leverage number, yes. Okay. Okay, got it. Thanks. Thank you. Thanks. Those are all disclosed too. The covenant measures are disclosed in the annual results. Thank you. Our next question comes from Esoo Eun Cho with NF Trinity. Please go ahead. Thank you. Hi. Thanks very much for the very clear breathing. I have two questions. My first question is with all the sustainable cost savings measures you have achieved And as you move towards DDC, which is higher margin, should we be confident that when we return to, let's say, pre COVID level, 2019 revenue level, EBITDA margin will be much higher. I think that's what you indicated right in the briefing. Just want to confirm or do we need to at back sales force, at stores or spend on marketing that the EBITDA margin can't be too different. And my second question is, Could you please elaborate on the gross profit margin trajectory in 2021 'twenty two based on the revenue recovery trajectory you mentioned? Thanks. Sure. So you're exactly right. Our views are as business gets back to kind of 'nineteen levels, A lot of the initiatives that we've done, we should be able to maintain. And you will see a different EBITDA profile for this business. And so Said differently mid teens exit run rate for the end of this year with the business that's still recovering. Once we get to 2019 levels, our EBITDA margin should be in a much Better place, and so all of our forward modelings would point to that. So that's the right assumption. And your second question was? Gross margin. So gross margin, again, as business continues to move and we get out of effectively what you had happening in last year was So mix effects, but also some liquidation effects. The normal run rate profile for this business from an EBITDA margin perspective has been around 55%. And my view is as we get into the second half, we'll be kind of in that zip code. I think it'll be 54%, 55% margin for the second half. You'll see a little bit of pressure in Q1 as the sales continue to kind of be in this kind of down 58% range. But it will build. We won't have the same reserve profiles that we talked about last year, which were a big part of the bridge that Reza laid out for you. And so from where I sit today, I think our margin profile can get back into the zip code of let's call it mid-fifty percent range really in the back half of this year. And the reality is we've had a long history of managing in that level. I don't think there'll be a tremendous shift in kind of Mix profile of the business, and if you really take a medium term view, I think we'll still have a component of wholesale retail and ecom. Ecom will A bigger mix over time, but from a margin perspective, I don't think that's going to dramatically change the gross margin profile of the business on a go forward basis. And just to add to it, on an adjusted basis, the number that we were saying, so if you were to back out just the one time inventory and the other items, So we were just shy of 52% gross margin for the year. And so it's not that much of a stretch to try to get to a more normalized number to the point that Kyle was Can I just ask 2 follow-up questions on NetLab? Actually, I noticed that you mentioned that the normalized margin is Almost 52, but if I backtrack the 4Q 'twenty margin, gross margin with your guidance before, You also mentioned some normalized gross margin in the I think in Q2 and Q3. The 4th quarter margin was a big hit, but Is that like a one off inventory research write off thing like that shouldn't be recurring? I guess that's what you meant, right? Yes. I mean we had about $59,700,000 of just inventory provisions in 2020. I mean that's meaningful. And then we have within the COGS line, you had another shy of $13,000,000 of restructuring and non cash impairment stuff That flowed into the cost of goods sold line. So I mean those are obviously bigger numbers that affect it. Okay. And is it possible to Give some light on like the normalized EBITDA margin after we come out of COVID, like how much higher it will be, What is 2022 or 2023, like when things are normalized? EBITDA margin? Yes. EBITDA margin compared to 2019 EBITDA margin, let's say when sales return to 2019 level, Like what sort of ballpark figure like how much higher EBITDA margin will be? I mean some color on this. What I would guide you is If we get our gross margins in this 55% range, which is kind of where our historic run rate is, which I think we will comfortably do. And if you take $200,000,000 of fixed savings that we think we can maintain and you apply that to our 'nineteen levels, And remember, 'nineteen was EBITDA margin was a little bit low because we had tariffs hitting the U. S. So the U. S. Was feeling Our gross margin was under a little strain at the end of 'nineteen because of the tariff movement. So if you normalize for that and take the $200,000,000 you can do the math to see what that can do to the margin profile of this business. So what I would say is comfortably in the mid to upper teens It's the way to do the outlook, but I'd let you do the math to figure that out. Okay. And we feel very good about the cost, the restructurings we've done in the business and our ability to maintain those. If we're smart around driving revenue growth while maintaining A disciplined cost structure, which we will be able to do, I think the outlook is quite bright for us from a margin perspective. Okay, great. Thanks. Yes. Thank you. Thank you. Our next question comes from Dustin Wei with Morgan Stanley Hong Kong. Please go ahead. Thank you. Hello, management. Thanks for taking my questions. So I think it's very positive To sort of hear from you guys that EBITDA margin could hit like mid teens level in the second half of this year, but just I probably also want to have some of Really downside protection, just in case that international travel doesn't really come back as sort of which we want to Expect that to be. What's your feeling about the lenders now? Like if there's a really some of the derailed of the recovery, you think that the lender will easily to just sort of postpone some of the measurement of the covenant given that the company has Accomplish such a great cost saving initiatives in 2020. And then second question related to The debt payment is that you sort of mentioned that you could pay down some debt in the second half. And I think initially you probably would just use the extra sort of idle cash to pay that down. But going forward, when we think about 2020 2023, You are going to just use the internal cash flow to pay down the debt or you will consider other measures? So those are sort of 2 questions related to balance sheet and I want Okay. Let me take both of those, Dustin. So as it relates to the lenders, and again, I'm going to just tell you having Been a lender for a lot of my career. Obviously, we have very good relationships with our lenders. We have a lender call actually after this just to update them as well in terms of the performance. I'll start by saying that I still think that we're going to be okay in terms of meeting our covenants. If for whatever reason there's not the sales recovery in the back half of the year, What I would tell you is when we went to get our amendment and waivers last year, we were literally Staring at no visibility as to the revenue environment and promising a lot of actions as it relates to cost. That's what we went to our lenders to do. We also at that time put forth a set of projections for them, which we have beat both in terms of the EBITDA measure that was there And significantly beat in terms of what we did on SG and A. So if we had to go back, I think we would go there from a position of having delivered All of our promises and then some. And again, these are very long standing relationships. And as we've said on prior calls, Keep in mind the lenders that we're going to are our core relationship banks. They're the ones that would dictate the waiver, not institutional. I mean, we care about our institutional lenders as well, but it's the core relationship with banks that would determine the waiver. So you never know, but at the same time, Banks don't typically want to put you in default if it comes to that. So I think we go into it with a position of feeling pretty good about our relationships, having delivered on everything that we have And if the revenue environment is delayed, it's delayed. And by the way, we have ample liquidity anyway. So it's not like the business is under stress. So that's the first thing that I would say in terms of on the covenant side. As it relates to debt pay down, obviously, we're sitting on a lot of cash. It does increase the interest expense that we have. So we will probably do something at some stage. We have to sit down with the Board to discuss that As we talked about a little bit earlier. And then yes, I mean we've always stated that our goal is to be in the mid-2s or 2, in terms of leverage. So I don't think that's changed at all in terms of our objectives of this business. This business can support leverage as you've seen, But at the same time, and it can generate a lot of cash flow as you've seen, but that's not the way that we manage the business. We're a conservative bunch here. And so I think we have every intent of continuing to delever. Kyle, I don't know if Heather was Yes. No, I think that's exactly right. So in terms of the measures To pay down that debt, you will probably assume that use the just the internal generated EBITDA to pay that down, right? That will be the sort of default option. Yes. I mean we would use some of the cash that's on the balance sheet obviously as the first token. And again, Just so you understand the thought process that goes with that, if I simply went to it and say, I want to manage the P and L and pay down the most Expensive debt, you would obviously pay down the $600,000,000 we just raised that we never touched as an insurance policy. But if I'm thinking of it as a balance of that versus liquidity. If I pay down the revolver, I can always draw down again. And you do want to be fair in terms of managing the lender group so that People like there's different objectives. There's a different objective of trying to make sure that the pro rata lenders Some of the exposure coming down and it's re borrowable from our perspective. There's an objective in terms of interest rate expense that we would weigh obviously from our side. There's an objective of not paying down debt too much on an institutional tranche so that it's still tradable for those investors. So we weigh all of those things and it's not just a selfish What's best for Samsonite is what's best for the market for everything because these are stakeholders ultimately and we want to make sure that we have access to these markets in the future too. Thank you. That's very clear. And in terms of the P and L, I think this RMB200 1,000,000 sort of sounds like a permanent saving for the company. And I think just to get that right, you mentioned that there is a RMB80 1,000,000 sort of saving related to the non retail headcount like 26% reduction. So the impact of $80,000,000 out of like $200,000,000 Is that correct? And then so for the rest of that segment Yes, I can walk you through the bridge of that, Justin. So the actions taken, I'm going to split it 2 between years as well just to make it clear. So the composition of that $200,000,000 is there's $186,000,000 that comes from actions taken in 2020 and there's $15,000,000 so it's a little bit of rounding, but just another $14,000,000 and change $1,000,000 that is actions that are Being taken right now or have been taken in Q1 of this year. And the breakdown of it is there's $80,000,000 of it between there's $78,000,000 that was headcount in 20 $22,000,000 that's headcount in 2021 and then the store actions was $107,000,000 in 20.20 $13,000,000 in 2021. And the reason for that is basically some of the store negotiations dragged on over the course of the year, so they rolled into Q1. And so some of those store actions are being taken now. So that's the composition of the $200,000,000 Okay. That's great. Thank you. And then, so related to the inventory provision that also hit the EBITDA margin and hit the gross margin, but I believe those luggage and suitcase Can probably can be resold. So I think my question is that, are we going to still to see the inventory provision for 2021 and then some of those luggage that have been sold, Are we going to see the write back on those inventory provisions? You could see some of it, but most of what was done there is we had a separate That we are working on rationalizing the SKUs. So if you looked at the composition of what we had in inventory, there was everything from Certain SKUs like certain colors that were put out or certain accessories or certain product lines that we were discontinuing And the view was to basically rationalize those as much as possible. So what we didn't do is if you had a core collection that continues Obviously, one of the things that we're proud of here is the fact that our inventory doesn't go bad. So if you had a piece of luggage that we think that is still relevant, it's going to be This year, we're not taking active. We're looking at what the sell through is and taking provisions on those. So I wouldn't anticipate a huge number. There'll be a little bit of that, Justin, but it's not We pushed very hard in year to ensure that we position their inventory As clean as it can be stepping into this year. So I think the earlier question asked, can we expect this kind of a one I would say it was a thorough process to ensure, as we stepped into 'twenty one, we're as clean as we can be from so that we can get the margin where we need it. And Dustin, one other point is really, if you think about it, in my sheet where I was talking about the net working capital specifically, we actually Did a bunch of selling already in terms of getting the inventory levels down. So a lot of that happened too. Yes. Got it. Thank you. So sort of last two quick questions is that the GP margin, again, love to see that you said kind of go back to 55% in the second half Likely, but in the presentation you also mentioned that the freight cost and the raw material and there is like I think the GSP were In the U. S. That could become the pressure for the GP margin sort of uncertainty. Could you sort of talk about that? And the last one is really the cash burn. So I think you talked about the inventory build in the second first half in order for the recovery for the sales. But so what was how should we think about the overall sort of cash burn in the potential increase of the CapEx. Thank you very much. Yes. So from a margin perspective, GSP is a piece, but we expect GSP to be renewed. So it's just been stalled in the renewal with the change in administration is our view. All of our kind of insights and say GSP Should get approved sometime in the second quarter is our best read. So that won't have an effect on us On a go forward basis, it's having a bit of effect as we step into Q1. And typically when GSP is renewed, it gets a retroactive treatment. So we'll get some benefit from that. From a cost perspective, we are seeing some costs increase. We're seeing some raw material costs increase. We're seeing some shipping costs increase in the short term. If you look at kind of the news on container shortages and the cost of shipping, that's having some impact as well. You'll see some of that in our Q1 numbers for sure. We're working very close with our suppliers to manage through the cost pressures on raw materials. And what will happen, what typically happens if we have to pass that along, it's the entire industry that will be feeling that. And so we're working closely with our suppliers and our And really as we get to Q3 and Q4, our views, our volumes start to come up where we're able to kind of manage some of the Cost structures of our own manufacturing plants and we'll be able to have managed through some of the pressures on raw materials. We do think the shipping costs will start to kind of settle out. I think they'll remain higher, but I think they'll normalize from maybe what we're seeing initially here in Q1 For sure. And so blend all that together, I think you'll see a building margin story for Q1, Q2 getting to The levels that I indicated for Q3 and Q4. And as it relates to cash burn dustbin, what we would guide you towards is We are in an inventory environment which is normalized. So basically go look at what we did Q1 of last year Or Q1 of any year, frankly. But if you look at last year, we're going to be somewhere in that zip code because we're doing a normal Q1 inventory build to Because we saw the sales slowdown, we pushed it. So that will roll into Q1 as well. But again, if you look at kind of like what we did Q1 of last year, it will be probably within $10,000,000 $20,000,000 of that. Okay. So the full year sort of cash burn will still significantly lower than That in light 2020, right? For sure. Yes. Thank you very much. That's all very clear. Thank you. Thanks. Thank you. We have our last question today and that comes from Terence Liu with CLSA Hong Kong. Please go ahead. Thank you. Okay. Thanks management for the presentation and taking my questions. So I will have two questions. First is speaking of your Like 2021 sales and guidance, I think if I do a simple math and add up all of those new guidance for In the video quarters, I think probably 2021 sales will be around 60% to 70% of 2019. And I think if I remember correctly, I think in the Q3 conference call, you've guided For around 70% of 2019 sales in 2021 and around 100% recovery in 2022 compared with 2019. So I'm not sure Is it fair to say that we are still speaking to that guidance? And my second question is regarding your Fixed cost saving, I think you mentioned around 200,000,000 Run rate fixed cost savings in 2021, but I'm just wondering how much of the like 2020 temporary savings Could we extend to like 2021? And what's your plan regarding the advertising and promotion spending in 2021? Thank you. Why don't I start in terms of your question on the sales forecast? The way that I would think of it is, let's just talk about halves. So and I'm going to pick up on some of the points that Kyle made a little bit earlier. I think if you're looking at where we stand with Q1, If you're looking at the first half, we're probably going to be somewhere and again, this is versus 2019 level. Sales will probably be down somewhere in the mid-50s compared to that. Our expectation on the second half is the 30% to 40% down, which is what Kyle said. So if you blend that, that should give you an idea in terms of where the sales are coming in and it gets you to that margin profile by the end of the year that ends up being in that mid teen EBITDA margin point that Kyle made a little bit earlier. I forgot the second question, sorry. The second question is kind of, so we had given some thoughts on 2022, obviously, and we're all kind of Always looking at kind of where we think this business will be. From where I sit today, if you look at kind of what we where we're guiding for the second half of this year, I think the right way to think of it is, we will probably exit run rate 22 at 2019 levels. So I think When we got into this last year, I don't think anybody really knows exactly when kind of recoveries get there. There's a lot of data out there on kind of Just general travel and when travel recovers, one thing for sure is it will recover. It's just a matter of getting the timing, kind of our best views on the timing. My personal view is we will comfortably exit 'twenty two run rates at 'nineteen levels. And so if we're down 30 or 40 to 19 At the end of this year and we think exit run rate will be really approaching historical levels. You can kind of do the math through the quarters for 2022. I don't think 2022 will be at 2019 levels. I think it will exit at From an advertising perspective, we're managing it very closely right now. And I think for the full year, we'll spend somewhere between 4% 5% on advertising. If we can get a little bit of kind of meaningful tailwind, I do think there is a real pent up travel boom that is coming. So we'll be watching that closely. And we'll make some decisions on dialing that. But I think on a blended basis, you should expect around 4 The 5% advertising from a spend perspective percent of sales? And we're lower than that right now. And we're running higher than that right now. As far as Temporary savings. We are hanging on to a good amount of temporary savings as we step into this year, okay, particularly in Europe where many of our employees are still on Furlough or temporary unemployment as Europe continues to be in many markets pretty heavily locked down where employees aren't in the offices as of yet. And so we are seeing and hanging on to as many temporary savings as we can. And In the U. S, for example, much of our store fleet are open now and many of much of our temporary savings were coming from having kind of our stores closed and employees and The U. S. Is a little further along as far as reopening stores, whereas Europe still has a meaningful amount of stuff that's continuing to be locked down. And so we'll get the benefit of those temporary savings and we'll be watching for how we turn those on and turn those stores on and get people back into The work environment, as we start to release some of those. So there will be some benefits there, mostly in Q1 and Q2. Q1 and Q2, yes. Okay, sure. Thank you. Great. Thank you very much, Carl and Reza for the presentation and the Q and A session. And thank you everyone for joining the call and We will be finishing up now. Thank you very much. And as always, if you have any further questions, feel free to contact me. Thanks. Great. Thanks, everyone. Thank you, William. Thank you. Thank you for your participation. This concludes the conference.

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