Earnings Call: H2 2018

Mar 13, 2019

Morning, good afternoon, and good evening, ladies and gentlemen. Welcome to the Samsung International 2018 Annual Results Earnings Call. Please note that this event is being recorded. I would now like to hand the conference over to Mr. William Yu, Director of Investor Relations. Thank you. Please go ahead, sir. Good evening, everyone. Welcome to the 2018 results earnings call for Samsonite International S. A. We're pleased tonight to have Tim Parker, Chairman Kyle Gendreau, CEO and Reza Tellegani, our CFO joining us tonight for the call. And I will now hand over to Mr. Parker for him to make a few opening remarks, and then we'll go right into the presentation. Thank you. Okay. Thank you very much indeed, William. And I'd like to welcome everybody today and just give you a brief overview of what I think is a very strong set of results again. The highlights are really fabulous expansion with Tumi. I think the we've made enormous progress with the American Surista brand. We've had very, very robust direct to consumer growth. We've started to pay considerably more attention and to integrate environmental and social governance that has an impact across our business. On the negative side though, we have seen a deteriorating economic environment in the second half. So just running through these main themes, the first point I would make is the incredible success of the Tumi acquisition. To call this a textbook doesn't really do justice, I think, to what has been a truly outstanding performance, and we're very proud of what has been achieved here. Overall growth across the group of 12%, Good showing in North America, up 4%. Rapid progress in Asia, almost 30 percent growth, laying down very solid foundations in Europe. And we have started direct distribution in Latin America. It's very robust set of products and a lot of activity on new development. American Thurister had a fantastic year, buoyed of course by the incredibly successful campaign around Ronaldo. Growth in the U. S. Of 16%, in Asia, 9 percent and incredible, 39% in Europe and up by over a half in Latin America. And this has not just been a one off campaign, along with some very exciting product introductions. I think this has really established a new base for the brand and we have great expectations of the future. Moving on to the next main theme of the results for 2018. The company continues to make more progress in increasing the share of direct to consumer business across the group. E commerce continues to rapidly expand, up almost a third and we've added a considerable number of stores across the world, our retail business up 11.6%. And this has been something that we have invested in all of the regions across our business. On the negative side, I think it's fair to say that we're a business that has been affected by the tariff uncertainty and continues to be affected by that. We have seen 2 key markets terms of, again, the security situation. And China, the impact, again, of the tariff uncertainty has begun to weigh somewhat with consumers there. And of course, in Europe, the impact in France of the gilet jaune demonstration has had some impact as well. Most of the pressure came on in the second half. And I must say, as I look ahead to 2019, I think we could be facing one of the toughest trading environments that we have faced in a long while until some of the key uncertainties are removed. And there's also some understanding, I think, of the future path of growth in China in particular. As we have highlighted, the company is starting to focus a lot more on environmental aspects of our business. We are putting in place a significant target to reduce carbon emissions. A large number of our product developments are now incorporating sustainable materials. We have one range, which is made entirely of recycled plastic bottles. And this I think is only the start of are very focused on obviously making sure that our suppliers meet the very stiffest requirements in terms of the treatment of people. And indeed, our own people, this company has been a very diverse and quite decentralized business. And we have concentrated quite a lot this year on making sure that a very wide ranging business across the world does have common standards and a very clear principle in relation to our own people. And so in essence, our business depends on brands. Our 3 core brands have seen very good growth this year. And I'm pleased to say that some of what you might call the subsidiary brands, which we have acquired, have also enjoyed a very strong year. So in summary, we're very pleased. Having said that, as we look ahead, we think there may be some storm clouds on the horizon. And with that, I'll hand over to Kyle, our CEO. Kyle? Okay. So good evening, good morning, everyone. I'm on Page 12. I think it should be on your screen. So a business overview. When we look at our sales, Tim's covered some of this. But if you look at our sales for the full year, we were up 8.4% on a constant currency basis, adding over $300,000,000 in sales. There is a bit of a benefit from Ebags, which is in there. But even if I adjust Ebags, which was acquired in May of last year, we're still up 7.5% underlying constant currency growth for the year. Our gross margin expanded as expected. We saw a 9% growth in our gross margin. And from a margin rate perspective, we added 40 basis points, some of that coming from our Tumi business, which continues to grow at a faster pace, along with good margin management within most of our business. Our EBITDA was up 5.7%. We did see some pressure on EBITDA margin. We had been talking about EBITDA margin in the middle of the year being flat to slightly up as we saw some slowing in our business. And Q3 and Q4, the margins kind of slipped back a bit. So we're at 16.2. A lot of that is around some of the investments we're making. So when we get into the regions, I'll show you where we've seen that, particularly in markets like Europe and Latin America, where we've been investing to drive growth within those businesses. And then our adjusted net income was up at a faster clip at 12.2%, benefiting from reduced tax rates. So we had a slightly, slightly lower effective tax rate. We also had $9,000,000 of reduced interest cost year over year with the debt refinance we did in the first half of the year. If I go to next slide, a sales bridge, really to give you a sense for the building blocks. And so I think it's important when we break this down, when you look at underlying core growth of this business, taking out the movement we've seen in the Tumi business, we saw $167,000,000 of growth or 6%. This is coming from brand Samsonite, American Tourister and other brands excluding eBags and Tumi. Our Tumi business was up almost 12%, dollars 80,000,000 of sales added across all of our regions, as Tim just explained. We also had 4 additional months of eBags, which again was acquired in May of the previous year, which added sales on a smaller impact on the positive side from currency. When you look to the side here, you can see all of our regions are growing nicely: Asia up 7% North America just under 3% growth Europe at 8.4% growth and Latin America, 13%. So across regions, very strong growth. If I look at our Tumi business, as Tim covered, Asia is up 30%, Europe is up 10% and building momentum as we've laid the footprint, and our North America business was up 4%. We did some conscious decisions within North America for Tumi to stop selling to some customers that shipped into the Asia market. If I adjust that out for North America, our underlying growth was up 5.6%. As we said earlier, all of our brands are growing. So our core brand Samsonite really growing nicely at 3.1%, growing in all regions. And our Tumi business up 12% American Tourister up 16.5%, again across all regions, as Tim explained, and other brands, really driving very nice growth with some of these the key initiatives around the brand Kamiliant, which is a very entry level brand, used largely in select markets in Asia, up close to 45% our spec business, up close to 9% Gregory, 10 percent with a big initiative in pushing in Asia and North America and our core eBags business and the eBags brand within eBags growing very nicely as well, separate from the 4 additional months for eBags. And then we as we said earlier, we're focused on pushing the female category. And when we start to look at these numbers, products geared towards female consumers up 30% across the portfolio of brands doing very well. We've had some very exciting product in the year. We at the start of this year, we relaunched the Alpha 3 collection. That's off to a good start. We fueled that with a very good campaign with Zoe and Lenny Kravitz. That has been well received, and hopefully, many of you have seen that in the start of this year. And then from the Samsonite side, we had some really terrific new products both on hard side. You can see here clearly some of the women's products working in and some new materials working into our some of our business and carry on bags with this SXK Expandable Spinner Bag, which is made out of a material in conjunction with Keflar, and it's doing very, very well. Just an overview of Tumi on the next slide, Page 16. Again, our North America business for Tumi, up 4%. We saw, again, this reduction in shipments to our sales to trans shippers. If I take that out, our North America Tumi business up 5.6%, still running a bit ahead of where we targeted when we acquired the business. Direct to consumer up 8% with really strong e commerce growth. Our retail business up 6.4% with store comps close to 2%. And we've added 7 stores in 2017, and we added 9 stores in 2018 in North America. And the decrease in our wholesale business is again the reduction in these trans sales to trans shippers. Asia really on fire with 30% growth. I would label it as building momentum. Direct to consumer up significantly, with retail up 49 percent with strong same store comps close to 10% and 15 stores in 2018 38 stores in 2017, some of which were, us taking direct control and some of the countries where it was through distributors. And the wholesale business up close to 16% as well. So Asia continues to do very well. Our Europe business up 10%, 20% growth in B2C, where we're starting to really lay the footprint there. E Commerce up close to 40%, retail up 18%. We've started to add stores with 12 new stores in 'eighteen, 7% in 2017 and comps of 3%. And also in Europe, the wholesale business was down slightly as we're adjusting which customers we're selling to, again, to stop some of the trans shipping that's been happening into Asia from the Europe market. And I would say, Tumi, Europe is building momentum, so we're at 10%, but with a strong trend as we move into 2019. As Tim said, we've seen some slowing in the back half. So on this next slide, just to give you some sense, we had a very strong Q1 of last year, 15.5%. And if I take eBags out, that number is around 11% growth Q1 last year. Q2 was very strong. And as we started to message in the half and really into Q3, we are seeing some headwinds in certain markets that's driving a lot of this. So we saw a 5.2 percent growth Q3, 4.3 percent overall of just under 5% growth for the second half. And as we lean into the start of 2019, we're seeing the same pressures. Against a very strong Q1, I would say, our Q1 outlook is looking like it could be flat to slightly down, again, off a strong growth in Q1 last year. And for the same reasons, we're seeing kind of headwinds in the back half of twenty eighteen. We're seeing them carry in into 2019 to start the year. The next page gives you a sense by kind of major markets and where we're seeing some of this. And so if you look at first half, North America, we're up close to 5% in the first half, 3.5% in the second half. China quickly adjusted itself. First half, we're up 11%. We're feeling very good with that. And that's adjusted down to 3.2% in the second half. Again, a lot of this is around consumer sentiment, particularly around tariffs and some decrease in B2B orders, which we seen in that China business, particularly as the government has kind of tightened up our monetary policy that impacts some of our B2B business in China as well. South Korea, we had we've had a few years now of South Korea being slower. We saw a little bit of upside in Q1. We gave a lot of that back in the second half of the year. In Chile, where we've been messaging as well, Chile continues to be under some strain, some of it around some of our business shifting to Argentina, but general sentiment in Chile. And within our business, where we're well penetrated, we're seeing some softness in Chile in the second half of the year as well. The reason these are important, these are big markets both across the regions but in an overall sense for our business. For North America, next slide, we saw an overall growth of 6.5%. If I exclude eBags, it's around 4% growth. And the EBITDA margins here for North America is expanding, particularly with the help of Tumi. So if we go down the page here, our wholesale business was up 1.8%. If I adjust for the trans shippers for Tumi, we're up around 3% in our wholesale business. Direct to consumer up very strong in North America, 13% growth. Again, if I adjust for eBags, close to 8% growth. E Commerce growing very, very nicely at 26.9%. A little bit of benefit of VBags, it's still 15% growth. And our retail business is up nicely as well with 5.9% growth, close to 2% comps. We've added a select number of stores in 2017, 'eighteen, 'twelve and 'eleven, of which most of those are actually Tumi stores that are within the North America business. Across brands, we've seen good growth across brands. Samsonite up 2.5 percent Tumi up 4 percent American Tourister, as Tim said earlier, with the success of specs, the launch of many new products, up close to 16%, and growth in our other brands up 13% with Speck. And again, eBags kind of core brand within the eBags business growing very well. Our core travel category up close to 4%. And as you'd expect and as we've been guiding, our non travel category growing faster at 10% growth. If I move to Asia. Our overall for the year growth of for Asia is 10.2%, led by India, Japan, Hong Kong and China for the full year. We saw in our wholesale business growth of 6%, and we saw 27% growth in our direct to consumer channel, partly impacted by the takeover of some of the Tumi distributor markets where we're running those direct. Our e commerce business up 44%, really growing nicely across most of our markets in Asia. And our brick and mortar retail up 21% with a strong store comp of 6.6%. And we added 54 stores in 'seventeen, again, 30 of those coming from Tumi Take Back and 12 net new stores in 'eighteen, all performing well. Our across brands, all of our brands grew Frasia. We saw American Tourister up 2.1%. Some of that is a shift. We had a shift in 2018, wherein our in some of our business, particularly in China, we've shipped some of our B2B business to American Tourister, which helps some of that American Tourister growth, which slows a little bit of Samsonite growth within this region. Tumi up 30%, American Tourister up 9%, again across all of our major markets, India, China, Hong Kong, all doing very well. And then we saw some of our other brands up 23% with Kamiliant in that market and Hi Sierra in that market growing very, very well. Travel category up 8%. And just like other markets, our nontravel category is up close to 14%, with business growing very strong, casual and accessories all growing well. We've done a good job of improving EBITDA margin in Asia. We're up around 30, 20 basis points, getting some benefit of the Tumi expansion, which has higher margins. But the overall margin management in Asia has been very strong as well. In Europe, we saw a very strong year at 8.6% growth, slightly slowing down in the second half but still really positive results. So the first half of last year, I think, were up a little over 10%. For the full year, we've ended up pretty close to 9%. We saw around 5% growth in our wholesale business, and we saw 15% growth in our direct to consumer business with strong retail growth and strong e commerce growth of close to 30%. This is a market where we have been investing in brick and mortar. So if we look at what we guided for stores in 2017 2018, 32 stores in 2017, 40 in 2018 as we really kind of lay some footprint down in select markets in Europe from a retail expansion perspective. In doing that, it puts some pressure on the margins. So as we were talking all through the year and at the end of the year, you can see our EBITDA margins for Europe at 16.9% last year, 15.2%. A lot of this is laying down the foundation for this brick and mortar expansion within Europe. Our brand Samsonite is up 3%, the Tumi business up 10% and building momentum, and we had strong growth in American Tourister as we're in the 3rd year of American Tourister in the Ronaldo campaign, extremely successful in Europe, coupled with some very exciting new products that we've launched. Core travel business up close to 8% and our non travel business up 10.5%. If you look at our EBITDA margins, just to kind of recap on that, we saw EBITDA margins down around 1.7%. This is a little bit of a decrease in gross margin as the mix of American tourists with that rapid growth pulled the gross margins down a bit. But on the non advertising SG and A expense, we saw that increasing as we've added some retail footprint to the European markets. We're really in this investing mode in Europe to push this direct to consumer strategy in a more aggressive way. Similar to Latin America, we saw very good growth with $18,000,000 of sales added, 15.5%. And if you look at our EBITDA margin, slightly down. But again, this is us investing in some of the retail footprint there. Our wholesale business was up 15.5%, and our direct to consumer business was up 15.5% as well. Retail sales up 12.7%, 29 new stores added in 2017 and 21 stores added in 2018. Visa stores largely in the market of Brazil. We're opening some stores in Mexico as well and a bit of store opening in Argentina but largely coming from Brazil and Mexico. Our e commerce business, which was virtually nonexistent in Latin America 2 years ago, is added is up to $2,300,000 in sales for the year and really growing rapidly within this business. So I expect a lot more from e commerce in the coming years. Samsonite was up 16%. American Tourister was up 51%, And we had 2.1% growth in other brands slower than Samson and American Tourister because within our Chile business, we operate with the brand Saks line and Extreme. And as our Chile that causes the other brands to be down just a bit. The net sales growth for travel, up 13%. And again, just like other regions, the non travel is growing faster at 17.4%. Go to the next slide, you can see just a snapshot of our kind of more significant markets. And if you really go across the page, you're seeing growth across most of these markets. We I would point out just a few. We saw France slowdown in the second half of the year with the noise we've seen in France, but still delivering some growth in 1%. You can see Chile at the end, which is effectively flat for the year, off many years of kind of very extensive growth. And South Korea, I would point out there as well, which is, a bit flat for the full year, as we continue to see pressure there. U. S. Business up 6.6 percent and our China business in constant currency up close to 7%. And then our what we would label as our kind of emerging markets, the blend of all of our emerging markets continue to grow at a faster pace, 20 close to 20%. And across all of these, other than Thailand, which has had a little bit of kind of political noise, really nice growth across each of these markets with markets like Turkey, Russia, even markets like Mexico growing very nicely. Indonesia is a very exciting opportunity for us. We recently changed the leadership there and we're seeing very good growth in that market as well. On the direct to consumer front, Tim covered some of this, but our direct to consumer business overall has increased from 33.4% of sales to 35.9%. When you look at our wholesale business, up 5%, which is very solid, but as you'd expect, a direct to consumer growing faster with 16.5% growth. Within that, we've added 84 new stores in 2018, with our brick and mortar retail up 11.6%. Percent. And we had the full year effect of 127 new stores in 2017, some of which were the Tumi take back and some were around investments. And our overall retail comps for the year across our retail footprint was up 3.2%. We've continued to invest in advertising. We've held our advertising at fairly consistent percent of sales of last year, 15.8 percent last the year before, we were 15.9 percent. We spent a total of $221,000,000 in advertising. You can see the spread across regions. We've been very focused on pushing and promoting the Samsonite I mean, the Tumi brand as we push that across the regions and also American Tourister. You'll see us this year shift some focus into the Samsonite business. So we're about to kind of launch a meaningful campaign for Samsonite in the next month or so, and that will be very We're looking forward to that. And we're continuing to invest in Tumi, while we continue to support the American Tourister business as well from an advertising perspective. And you can see across all regions, we're spending fairly consistent amount at around 5% to 6% on advertising. The next slide just gives you a snapshot of some of the campaigns. You can see the Ronaldo campaign. You can see some success we're having with Gregory. The Tumi campaign, which really rolled out at the start of this year off to a great start. And we were using Generation Go for Samsonite last year, but you'll start to see the next campaign for Samsonite in a much bigger way as we move into April May. With that, I'll turn it over to Reso. I'd just say welcome to Reza. I think it's the first time Reza is presenting for us and has been here for about 3 months and I would say fully integrated at this moment. So Thank you very much, Kyle. And with that, we are on Slide 29 of the deck. So we will just recap some of the financial highlights of the year, some of them which we've net sales net sales growth of 8.4 percent or 7.5% excluding eBags. Solid, as it was mentioned a little bit earlier, despite second half headwinds, we still managed to increase materially. Adjusted net income increased by $34,000,000 or 13%, And that's once you adjust for 2 onetime items, which we'll bridge on a subsequent page. But in 2017, obviously, there was the impact of U. S. Tax reform, which had a noncash benefit of about $111,000,000 And then there was another noncash item in this year due to the debt refinancing of $53,000,000 as well. So once we adjust for that, those are the net numbers that we're talking about in terms of growth. Operating cash flow for the year, dollars 307,000,000 as compared to $341,000,000 so slightly lower than what we had in 2017. The largest driver of that is due to changes in working capital. So obviously, we had to we had growth in adjusted EBITDA. We also benefited from a slightly lower effective tax rate. It's about 1 point lower than what we had in 2017. But the changes in working capital drove some of the cash flow usage, and that's something that we're focused on in terms of inventory as we look at this year. Looking at net working capital efficiency, 13.6% as of the end of the year. So we're back within the range, but I would say that we're continuing to focused on this, especially as it relates to inventory levels. So we're continuing to try to push in terms of getting that further down as we look into 2019. We did complete the successful refinancing of the credit facilities last year. There was a benefit of a 50 basis point reduction in terms of rates and obviously extending the maturities as well. So our liquidity position remains very strong, but we had a $9,000,000 benefit on an annualized basis from lower interest costs as well. And that benefit will continue as we look into this year as well. The net debt position as we generate free cash flow, we have been focused on delevering. So we have brought our net debt position to $1,500,000,000 and we continue to focus on managing our credit accordingly, and we'll cover that as we look at the balance sheet. Overall, we're in compliance with all of our debt covenants and with plenty of headroom, I would say. And we ended the year at 2.45 times as compared to 2.74 turns of leverage in 2017. As we look at CapEx for 2018, it was largely in line as compared to the prior period. So we ended the year at $100,000,000 of CapEx. There was some retail expansion, as Kyle alluded to, as we increased our store count by 84 stores. So there's some CapEx that's going into that as well as some product innovations. But we ended at $100,000,000 as compared to roughly $95,000,000 in the prior year. The tax rate, effective tax rate of 25.2 percent, slight improvement, largely driven by where we've been generating our income in the year. And that had a benefit on cash flow as we just discussed. Today, the Board is recommending that we increase the distribution to $125,000,000 as compared to last year's $110,000,000 so up 13.6% in terms of returning cash to shareholders given the fact that we've increased our net income. Going to Slide 32. We thought it would be helpful just to provide a bridge because there was 2 noncash items both in 2017 2018. So as you look at the adjusted net income, obviously, we had an increase of profitable attributable to the equity holders by 53 point $3,000,000 or 23.9 percent. Just looking at the left hand side of the page, if you look at 2017, there was $111,000,000 due to the tax changes that happened in the U. S. So there was a reduction in tax rate to 21% in the U. S. That drove a noncash benefit of $111,000,000 as a onetime for last year. If you work your way all the way to the right hand side of this page, you'll see that there's a $53,000,000 on an aggregate basis, Net of tax, that will be $39,600,000 That was due to the fact that we did a refinancing as well. So again, noncash. And so when you look when you back those out, as you look at the profitable that's attributable to shareholders, you're looking at an increase of 53,300,000 On this next page, we cover the balance sheet. Again, I think the key messages here are net debt has decreased by $100,000,000 Our net leverage as a result has decreased to 2.45x. Just for reference, our covenants are set at a max amount of 5.5 times, so obviously plenty of headroom there. And our interest coverage is around 3 times as compared to a covenant of I'm sorry, 9 point 3 5 times as compared to a minimum coverage of 3 times. Again, a very big benefit has come as a result of the refinancing that's happened, and we have a large component of fixed rate debt, but that will continue to give us benefit in this year as well. Looking at working capital. We touched on this a little bit earlier. But as you look at it, obviously, we're focused on the inventory levels that you see in here in terms of the change that's there. But our efficiency at 13.6%. We really want to try to target around a 13% number. So we're continuing to focus on getting the inventory days down further from the level that we're looking at the end of the year. So that is a focus area for 2019. We did lower purchasing, especially as we went into Q4 of last year, just to manage the inventory levels down. So that sell through is happening now and we expect that to be a focus for us in 2019. Looking at CapEx. Overall, the CapEx number is largely in line. So we're looking at 100,000,000 dollars as compared to 95,000,000. A lot of this has been driven by remodels and investments as we're making into the direct to consumer component of our business. Kyle touched on Europe as one example, but overall, we have 84 stores net that have been added. We are actively managing the store levels as well. So if you're looking at the overall closures that we had, if you look at across the regions, we added 100 and and 50 stores, but we shut down non performing stores of 66. So the net number of that is 84, but I think that's an important component as we look at headwinds of managing the individual store level as well. With that, I'll turn it back to Kyle for the outlook. Okay. Just real quick on the Slide 37. When we look at overall international international tourist arrivals, they were very strong in 2018 from a travel perspective, increasing 6% to $1,400,000,000 in international arrivals dollars, not people, I'm sorry, in 2018. And obviously, that's ahead of overall global growth. Our strategy remains very much intact. We're very focused on deploying kind of a multi brand strategy to operate kind of the price points across the spectrum, both in the travel and non travel categories. We have had very good success and we'll continue to have success on the non travel component while still driving our core travel business very nicely. We are focused in select markets and driving our direct to consumer mix in the business. Across all markets, we're hyper focused on e commerce and ensuring we have the right people, teams and infrastructures to drive that with very good success across regions. And then in select markets, we're pushing brick and mortar expansion as well as we've talked about. We'll continue to invest in advertising. You should expect we'll spend around the same percent of sales in 2019 on advertising. And as I said, we'll continue to push Tumi. We'll put a little bit more emphasis on Samsonite as we lean into 2019 from an advertising perspective. We are still very supportive of our regional structure, which has been a huge source of success. And we're focused on, as Tim said earlier, with the SGA, making sure we're sure we're managing our teams and people and empowering them to kind of drive the business at a very local level. We continue to invest in research and development, which is a really important part of our story. And so we have some very exciting new things coming as we move into 2019. So in the coming months, I think you'll see some very exciting material innovation that will start to work into our business. But in addition to as each year, we have really exciting new designs and technology working into the products that we're selling. So a lot to come in 2019. And we're really managing all of that into this kind of well diversified multi brand, multi category and multi channel business. I'm selling both bags and luggage across the markets that we're operating in. So that stays very much intact. When I look at key initiatives for 'eighteen or for 'nineteen, we're very focused on expanding the Tumi business, which as Tim started with, has been highly successful. We're expecting that to continue in a very strong way in 2019. We are monitoring sales trends and focusing on increasing our EBITDA margins. So we're focusing on improving some of the smaller brands that we've acquired like eBags. We have increased our retail brick and mortar presence, and we're really focused at the moment on making sure we kind of expand the profitability associated with that expansion. So as we said earlier in the year, we've slowed down the pace of openings in Europe. We'll allow some of that, the benefit of these stores to play out in the margin side the business. As Reza said, we're very focused on working capital. We're at around 138 days of inventory at the end of the year. I think this business can operate in this kind of 120 to in this kind of 120 to 125 day range. So you should see our working capital efficiency moving closer to 13%, which will clearly drive cash flow in the year. We're very focused on that across all of our regions. We're diversifying our supplier base as we look at things like tariffs that have kind of worked into the story. And so we're working to shift some supplies from China to other markets. We're having very good success there while ensuring we maintain the quality standards of our products. So the teams are focused there. As Tim said, we're weaving in ESG into our business, which we've been doing for the last few years. We are we have done our kind of materiality assessment. We're focused on our carbon reduction. We've taken our first footprint. So when you see our ESG report come out in the middle of the year, you'll start to see some measuring on where we are and what we're excited about as far as driving improvements in that across all of our business. And we're starting to think about additional acquisition opportunities. And so as we've been integrating acquisition Tumi into the business for the last 2 years, our debt level is continuing to improve. We start to relook and consider opportunities as we roll into the second half of this year and into 2020. So with that, I will turn it back to William for questions. And thank you very much. Operator, we will now begin the Q and A session. Sure, ladies. We have someone on the in the queue already. So let's proceed. Ladies and gentlemen, we will now open for questions. Thank you. Our first question comes from Maria Nicole with CLSA in Hong Kong. Thank you. Hi, management. Thank you for taking my question. I actually have two questions, if I may. The first one is on, I guess, recent trading trends. If you could comment, I guess I'm sorry, but Recent trading trends. Yes. I think we've covered that, but I'll go through it again. As you looked at our first half, second half, you've clearly seen some slowdown in the second half. I think we're seeing economic pressures along with some of these larger select markets that are really seeing impacts from the noise around kind of trade tensions. So we've seen our U. S. Business and China business feeling some strain. As we roll into the first half of the first quarter of this year and bumping up against a very large growth quarter last year, we're seeing that the Q1 looks like it will probably be flat to slightly down off of that large growth, really off of the same kind of macro noises that we were seeing at the back half of the year. As we're sitting today and we think about the full year, we still think the full year for this business is mid single digit growth, but we're obviously kind of stepping into the year with a little bit of turbulence, which I think a lot of consumer goods companies are seeing. We're seeing some of the same turbulence. Thanks. Just a bit of a follow-up more on a back brand basis. For Tumi, do we have any sort of full year expectations? We'll be able to maintain double digit type of growth rate for Tumi overall globally? Yes. Tumi is continuing to rock. So if you think about Tumi in the markets that we're pushing, it's new territory for us in many cases. So our view for Tumi is that still maintains a very strong double digit growth. Asia is off to a very, very strong start this year. In Europe, where we were laying the footprint last year, we're seeing a good start to this year. And our core North America business will operate in this kind of mid single digit range, and we see no real changes for that in our North America business as well. So Tumi will is continuing this terrific trend that we saw in 2018 as we step into 2019. Great. Thank you. Yes. Thank you. Our next question comes from Chen Luo with Melinjiang. Please go ahead. Thank you, management. I've got three questions. First of all, I think there has been a lot of market focus on the Operator, I think we lost him. Yes. We'd like to check with the question again. Why don't we go on to the next one and when Mr. Lal comes back online, we'll go back to him. Absolutely. Let's go to the next one. Sure. Next question comes from Amlan with Deutsche Bank in Hong Kong. Hi, management. Thank you very much for taking my call. I have two questions. The first one is just would you elaborate a little bit in terms of the current trading environment by markets and also by brands in terms of where are the areas that you think that is stronger? Where are the areas that you think that is weaker? And how for the U. S. Market in particular, how do you see like the tariff, the 10% tariff? There's been lots of question about like whether the U. S. Whether there will be a lift in the 10% tariff and should the if you're able to lift the 10% tariff, will you be able to keep the 6% to 7% increase in terms of the FOB price that you did? Okay. I've given you a Tumi overview for kind of the trends. The rest of the trends, I might say, are more kind of geographically focused versus brand focused. So we've not seen any sort of unusual movements in brands Samsonite or American Tourister other than the overall trends we've seen in some of these markets, which we've covered here. So China, into Q1, on the back of B2B business that has come down is definitely running softer. We will see a negative China. But if you peel into our China business as we lean into 2019, our underlying kind of core consumer business looks to be in the mid single digits, upper single digit growth range. But B2B is clearly adjusted down, and so we'll see some noise there. That's impacting overall Asia. Korea within China has definitely continued this negative trend that we saw for the back half with maybe even a little more noise as we lean into Q1. That's not surprising for Korea. And so overall, Asia is seeing something that's a bit lower than what we saw for the full year. Our North America business is being impacted with these tariffs, really around the bigger customers we have who are waiting to see not just the 10% tariff, which we've already pushed through, but what's the overhang of this potential additional piece of tariff, which feels like it will head in the right direction, but continues to leave people uncertain, that's causing customers, as far as our bigger customers, to solve some of their buying behavior. So we're seeing North America in the first quarter feeling a little bit off, but we're but a lot of that is just customers pushing to the second half or the second quarter as they wait for the tariffs to kind of to play out. And if you know, our North America business is largely wholesale, 75% wholesale business with these big customers. So that's causing a bit of noise as we lean into Q1 in North America. Our Europe business has seen a little bit of slowdown from where we were trending last year. So our full year was around 8%. Our second half was around 6% or 7% growth for Europe. And as we lean into the start of the year, we're still in growth territory, but I might say mid to lower single digits as we start to see some headwinds in markets like Germany. And I think that's generally the sentiment across Europe is seeing some headwinds. And that's carried into our business, but we're still producing positive growth across our brands. And obviously, is building some momentum, so that's helping kind of our Europe business as well. But we're seeing more pressure than what we saw as we were in 2018 within Europe. And then Latin America has had a noisy start, but a better as we lean into March, a better March than what we saw in January February. And so Latin America has not escaped some of the headwinds that we've seen, and we'll see how the full year plays out for Latin America. That's a market that tends to be a little bit more volatile in monthly increments versus for the full year. I still think there's a growth story for Latin America. So that gives hopefully that gives you a little bit of color by market. From a tariff perspective, we passed the price increase along. We covered that in our Q3 results announcement. That has been received by the market. But as I said, the bigger driver in our North America business is how our wholesale customers are managing the timing of their purchases as they wait to see the tariff piece way out. Just saying that's happening in North America and it was happening at the back half of last year is inbound tours, particularly Chinese tourists into the North into North America. As we look at our gateway cities continues to be strained. So I think partly tied to the kind of pressures around this kind of this trade tensions. We've seen that impact arrivals into the North America business in our gateway cities. Thank you. And we have a question from Mr. Chen Luo with Merrill Lynch. Thank you. I got three questions. First of all, what's our guidance for the adjusted EBITDA margin for 2019? And secondly, actually, this year, we are going to see the introduction of the IFRS 16, the new lease accounting standard. What's the impact on? Did you have another one? Or is that 2 questions or 3? Those 2 questions. Okay. Well, we don't give forward guidance on EBITDA from a margin perspective. But what we have been guiding is that we think we can expand the margins within the business. So as we see a bit more turbulent times, we're managing that closely. One of our clear initiatives is on making sure we can manage the margin side of the business. I'm still a believer that we'll deliver some leverage in the business as we've slowed down the expansion of our brick and mortar, in particularly Europe. And I think we can see kind of 30 bps or so of margin expansion. But I would caution that with kind of turbulence, that will be a bit of managing that we need to do. And so for sure, we should be flat on margin, but I'm still hopeful that we can push for expansion. We'll have a better view on that as we kind of get into kind of second quarter in the half. And then as far as IFRS 16, I'll maybe hand it over to Reza for that. With regards to IFRS 16, so we have approximately $7.80 million of operating lease commitments. As many of you know, that basically comes on balance sheet. In our case, the vast majority of them come on balance sheet. So if you're looking at a range of between about $645,000,000 to $715,000,000 that would be recognized as right of use assets and lease liability. The net effect of that, just so you know from a reporting standpoint, just to make sure that we're transparent with everybody, we will break out the different components of it as we go into the Q1. So you can try and do the comparisons operationally to what we did last year as well as far as the adjustments are concerned. Obviously, it's a non IFRS standard that we're showing, but we'll disclose that to you. But just in terms of rough numbers, you would be the net effect of that would be about kind of around $30,000,000 $33,000,000 of capitalized lease interest expense if you were looking in 20 18. And then you have about $194,000,000 $195,000,000 of amortization. So if you were to have IFRS in place last year, that would be ballpark what you would be looking at. And obviously, as we go through each quarter, now that it's the standard is in place, we'll be disclosing that. Okay. Thank you. Operator, can we see if there are any more questions from the callers? Yes, we do have another question. Okay. Then I'll put that caller through, please. Thank you. The question comes from Mr. Amandan Singh with Ampek Capital. Please go ahead. Thank you. Yes. Thank you for the opportunity, sir. I have three questions regarding Indian market. So sir, in Indian market, which is the fastest growing for you, firstly, can you help us understand how sustainable do you think these growth rates are since 23% constant currency growth rate in 2018 on a relatively higher base seems fairly high to be able to sustain for next 3 to 5 years? Additionally, can you please provide breakup for volume and value growth for India business? Okay. We had a very strong India for 2018, and a lot of that is around initiatives around products, really kind of team focused. And if I look if I took a 3 year view and talk to the team, they're very positive on the ability to continue to grow our Indu business in very strong double digit territory. I might say 15% to 20% is a good target for these guys. And it's really around initiatives around products. We've had very successful back pack run that continues. We're operating more of the market with the brand, Chameleon and American Tourister continues to do very well. We actually believe there's some opportunities within the upper end of Samsonite. So the teams are focused there as well. But the sheer driver of growth in this market is coming from these entry level brands and very successful, what I label, backpack and casual duffel bag business within the marketplace. So I think we feel pretty confident we can maintain this strong growth. We've seen a little bit of a slow start like we've seen in other markets in Q1. But I was just meeting with the India team over the last 2 days in Hong Kong here, and the team still feels very motivated on delivering this kind of high levels growth. So I think there's a lot to go out in India. It's a market that's the market itself is growing strong, and we've got a terrific team and network of people across that market that I think we can deliver very good growth. I don't have the exact numbers on value and volume, but when you look at where we're driving growth in India, it's really at this entry level price point. So it's not that we've been moving pricing in India. It's really around a volume driven game coupled with a mix of products. So when you think about growing backpack and casual bag business, it typically is at a lower AUR than maybe a core travel product. So from a pure kind of numbers perspective, I'm sure we're growing volume at a faster mark than value within that market based on what we're pushing into the market. Thank you, sir. Thanks. And sir, we understand a large portion of growth was led by growth in entry level brand, Chameleon, as you said, right now also, which was up 44% this year. However, when we speak to few of our channel partners in India, we understand that growth in Chameleon is part is in part adversely impacting growth for your American Tourister brand. So is our understanding correct? And like if you could give us the brand wise growth for India, American Tourister, Samsonite and Kamiliant in the luggage category? I don't have those right in front of me, so we can get back to you with William on that. But what we're really doing with Kamiliant is largely and it's not that different than what we did with American Tourister when we started 7, 8 years back in Asia. Kamiliant is allowing us to protect the American Tourister brand, which has really established itself very nicely across the globe and particularly in Asia. And so as that positioning of American Tourister has moved up, what we're doing with Kamiliant is actually protecting it from having to stretch down into real entry level pricing. And the strategy with our Grand Kamiliant is we can play in a more aggressive way from a price perspective. Much of that market is operating now below where American Tourister has positioned itself. And so we're really kind of ring fencing or protecting Samsonite with chameleon in a way that American Tourister can be well positioned and continue to grow while we address more of this kind of very fragmented, what I would say is extremely entry level pricing. Camellia pricing is typically in a range of, let's say, kind of $65 to $90 And American Tourister has positioned itself very nicely in the market at, let's call it, $100 plus across Asia and some markets reaching close to $2.50 So this brand American Tourister over the years is well established, Kamiliant helping us protect that and still address that entry really extreme entry level market. Thank you, sir. That was helpful. And sir, my last question, can we get some sense on how is the competitive intensity panning out in Indian market with both the market leader and also the 3rd player are becoming very aggressive over the last few years? Yes. I think we've always had that in India, right? It's the one market where we have a big number 2 player. And so just like I explained with this Kamiliant strategy, we're deploying and using the portfolio of brands we have to compete nicely in that market. And the advantage we have is kind of the global benefit of kind of product design and development. So when we think about what we bring to market as far as kind of new products, new materials, bringing this global expertise we have now been developing in this non travel category of bags and duffels allow us to compete very nicely there. And there as you'd expect with the number 2 competitor, they're fighting right along with us. So but I do think we have the ability to kind of outspend them from a product design development and also from a marketing perspective where we're deploying as you've seen last year, particularly with American Tourister, very nice campaigns that are driving consumers to our business. So not only did we use Ronaldo, but we used we're going to forget his name, the cricket player in India. Virat Kohli. Yes. We've been very, very successful with our business. And so we shouldn't underplay the importance of advertising in the market that we're driving sales growth like we did in 2019. Okay, sir. That's from my side. Thank you very much. You're welcome. Operator, I think we are coming close to the end of the hour. So we'll take maybe another set of questions and we'll wrap up the call. Who do we have next on line? And our next question is from Dustin Wei with Morgan Stanley in Hong Kong. Thank you. Thanks. Hi, management. So my first question is related to the guidance. So Kyle mentioned the mid single digit constant currency sales growth for 2019. Just wondering a little bit more on the key assumptions here. So what kind of the confidence that you have, especially for the second half of this year? Presumably, your first half of the sales growth could be pretty flattish. And is that based on your assumption for the new products that Samsung is going to launch or continue to strengthen Tumi or some of the pickup in U. S. So just want to know a little bit your confidence for the second half of twenty nineteen. Well, I think we Tim said it nicely and I've said it, it's probably the more the most turbulent market we've seen in a while as we lean into 2019. So I would say with confidence on initiatives that we're pushing that we're pretty excited about what we have to play out in 2019. We do have a lot of new product initiatives. We have some great campaigns that we're going to be launching. But we shouldn't shy away from the fact that we've seen a turbulent start in Q1, which kind of weighs out. I do think our second half will be stronger than the first half. Obviously, just when you look at what first half last year to this year was, that's just a natural play. The teams are confident in the strategies that we're pushing. As I said for Tumi, we're highly confident Tumi is going to continue its trend. And I think if the tariff and trade tensions can sort out and kind of the world gets a little more relaxed on that front, I think that will be very helpful for us. I'm quite hopeful like many people that, that will get sorted in the coming months. And again, the rhetoric feels like it's heading in the right way, but it's a bit hard to call here. But I'm feeling like it probably ends up in the right place and I think things will settle down. With that said, it's guidance is as much a piece of what the macro is going to do to us for the year. So I think all of our strategies are right. We'll see how the macro plays out, and we'll be managing the business accordingly as we kind of navigate the turbulence we're seeing at the start of the year. Thanks. So follow-up on the tariff side that you sort of mentioned that your wholesale customer in the U. S. Kind of waiting for something. So my understanding is that if they are trying to avoid the another like 15% raise in tariff, they should sort of buy now to stock up? And or you think they are kind of waiting for the current 10% tariff to be removed, so they want to buy at a cheaper price? So could you sort of elaborate the dynamics there? I think it's neither, to be honest with you. I think, one, these customers don't buy forward. So we even when we were dealing with the price increase at the end of last year, These guys manage their inventories quite tightly and they don't kind of play in. I think what they're watching for is if this tariff ended up going in and the market became highly disrupted with the tariffs, they want to just make sure they're not caught up in the fray with a bunch of inventory in the markets not performing. So they're I think just being more cautious in when they step in versus trying to beat the game if the percentage goes in, if you know what I mean. I think people start to feel like it's not going to play out. You will see a better Q2 than Q1 in the U. S. Because of the way these consumers are buying. But I think it's more around just being caution of the uncertainties versus them feeling like they need to game the system and buy ahead, which these customers don't do. So I don't think there's anything any magic other than all of the kind of overall uncertainty with tariffs that's causing some of this. So sort of the uncertainty with the general macro demand? I think that's exactly right. And just what consumers are going to do and just these guys are just managing very tightly. It's not just us, it's in everything they're buying, so that they until they know where kind of ultimate kind of consumer sentiment settles out. Thanks. So but what if the tariffs got removed luckily into the April because of the trade talk? Are you going to reserve those price hikes? Or are you going to reinvest into the marketing? Yes. I'm not sure I have exactly the answer. You should know that our customers are very aware of that, right? So and they're sourcing themselves with tariff impacts. So my sense is there'll be some level of negotiation that happen with our customers on the other side of that because it's a very fairly transparent with these guys, right? Many of these customers are sourcing their own brands as well. So I don't have an answer on that, but I think it'll get negotiated like you'd expect if it unwinds itself. Thank you. So just lastly on the margin side, on the GP margin, could you talk about your Tumi GP margin for 2018 and your expectation for 2019? So our overall margins and really when I look at the margins, we've been pushing kind of the U. S. Margin to get close to 70%, which is the biggest piece of the Tumi business at this point. We, at the end of Q4, ended up at that level. And my sense is margin expansion for Tumi has played out. So when we look at where we're exiting 2018, we've delivered on the overall gross margin for our Tumi business. And you shouldn't see any further expansion because I think we've done a very rapid job. So if you remember, even at the half of this past year, we were talking around an 800 basis point, 900 basis point improvement in margin with Tumi. And that's really kind of settled in nicely. And so you should assume that for 2019, we're effectively maintaining the margin levels for Tumi. Now as Asia grows at a faster clip, that has a slightly higher gross margin, I think as you'd expect in that business. So you maybe get a little bit of weighting impact, but it's not going to dramatically move the overall margin profile for Tumi the gross margin profile for Tumi. I still think there's some EBITDA margin opportunities. We're not reporting that for Tumi because it's well integrated into our business now. But when we just kind of study Tumi, a lot of this infrastructure relaying is starting to play out. So as you kind of have retail expansion in these developing markets as these things rapidly ramp, you'll start to see the benefits there. On the U. S. Business side, we've been maintaining the EBITDA margins at a very nice level for all of 2018. You should expect the same for 2019. Sounds like for the GP margin level, the 2019 expansion won't be as big as 2018. Is that fair? Yes, that is exactly fair. Okay. Thank you. So on the OpEx side, if you are going to see some of the operating leverage, should we expect the efficiency improvement on the distribution cost side or on the admin cost side for 2019? We're very focused on the what I would label the non advertising SG and A. So I'm hopeful that we'll see some leverage there. Again, turbulence causes that to take a little longer. We're within the business. We're focused on that and focused aggressively on looking at all of our costs in the business as we were guiding last year with a kind of expanded emphasis there. So I'm hopeful that we can move the needle there. But if we're in more turbulent times, it takes a little bit longer to achieve that. So but I do think that we're managed well. We should see a bit of leverage, but I caution that as I cautioned earlier, let's see how trading plays out Q1, Q2 and then we'll have a better sense for it. Okay. Thank you very much. Operator, just want to check if there's anyone else online? We do have a final question. Okay. We'll take this one final question and we'll finish off. Sure. The question comes from Anming with Deutsche Bank in Hong Kong. Thank you. Hi, many questions. Sorry, one some follow-up questions for me. Regarding, I think like how earlier mentioned that the company will revisit the acquisition opportunity from second half 1.9. So my question is like, what is the rationale behind that, revisiting acquisition again, given the fact that we still haven't paid down our debt at this stage yet, right? Although the interest expense is being refinanced and a lot lower. So would you share with us like what is the rationale? What are the brands that or channels that you think that will fit into the portfolio? So what are the names that you think so what type of brands are you thinking about? And the second one is more on the finance side Regarding the effective tax rate, what sort of effective tax rate that you're guiding for year 2019? Thank you. Okay. From an acquisition perspective, really what I'm guiding is, as we integrated Tumi, we were very clear that we would be very focused on integrating this brand for the 1st few years. We stayed very focused on that. We've been bringing the leverage levels down in the business. We're at a little under 2.5x. I think by the end of year, we get close to 2x lever. And really what I'm guiding is in the second half, we're going to start to kind of stir up the engine a little bit to see what's out there. We've as we've guided in the past, I think there's some very interesting non travel opportunities in the marketplace as we think about things like casual bags, backpacks and such. And I do think that there's some opportunities that can kind of start to play out in the back half of the year. There aren't really other luggage brands that we're actively thinking about. And I would say, if we start thinking in the second half of the year, it probably means that we're thinking about something for 2020, which again, this business has capacity to take these things in. We've got start to relook at the opportunities. And as they kind of unfold, we're going to start to relook at the opportunities, and as they kind of unfold, be ready to take them on. Very focused on the deleverage we've guided. I think we're going to get to the target levels as we step into 2020 of getting to 2 times lever. And I think it's the right time to look at the acquisition opportunities as businesses. This business has the scale to do that. We've got the infrastructure to do that. And with the learnings, particularly the learnings up to me, which has been highly successful, we feel confident we can bring in some of these other categories and allow us to continue to expand this non travel segment of the business. I won't necessarily comment on brands on this call, but you can kind of assess the marketplace and have some sense for what we might be considering. We made a little bit of noise on handbags in the last few years. I'm not so focused there, but it doesn't mean we won't be evaluating some of that as we go up. But I'm actually I think the bigger opportunities for us are non travel that kind of fit the DNA of who we are, which is really around a lot of these kind of casual and everyday bags, which are growing at a faster clip in this segment than many of the other categories. And we're seeing good success with the brands we have in hand. And I think we could add some more to expand that. ETR. And effective tax rate, I think it will be about the same as last year. The effective tax rate was very good this year, roughly 25% and change. I think we've always guided effective tax rates around 25%, 26%. So I would with conservatism, if you're doing some modeling, I would put in 26% effective tax rate for the year. And that seems like it's It's a function of the mix of where the profits are being generated. So we can move it. Yes. There's no changes. We are starting to evaluate our tax structure. We have a Luxembourg tax structure that has some time period to it, really kind of leaning into 2021. We need to do some adjusting. We're starting to do some work on that. We think even with that, evaluating kind of how we manage our tax structure, we still can probably stay in the same range that we're in today, 25%, 26%. We'll be doing a little bit more work really as we lean into 2020 2021 to make sure that we can kind of continue to deliver this effective tax rate in this range, which I think we can. Okay. Sorry, one final question is on the financing side. Any what would you be would there be any chance that you will bring down your like debt level by the end of year 2019? Are you paying down some of the debt? Yes. Yes. We'll generate good cash flows. We're focused on working capital. We'll generate extra cash flow there. In the debt refinance, we pushed out kind of this mandatory cash payment on debt that will kind of kick in at the end of 2019. So you'll see us continue to bring down the leverage in the business as we generate cash. So it's just part of the cycle for this. And to your point, if you're looking at 2018, obviously, when we're looking at it from a net debt position, it's an increase in cash that's happening as opposed to the paying down the debt. Please do bear in mind, if you're looking at where we are in terms of our overall cost of debt, it's incredibly low. So there is the debate as if you're in a rising interest rate environment, you necessarily want to prepay that as opposed to using that more efficiently as well in terms of the returns that you can generate on that. So that's the balance that we're looking at. But obviously, as we mentioned, the net leverage will continue to get the covenants or the levels down. Okay. Thank you. Great. Thank you very much, everyone, for dialing in tonight. And with that, we will end the call tonight. And thanks, everyone, and thank you, Tim, Tao and Reza. Good night. Thank you. Thank you. Thank you for participation. This concludes the conference.