Earnings Call: H1 2016

Aug 30, 2016

Good morning. Thank you everyone for taking the time to come to our results presentation. Today, we have our Chairman, Mr. Tim Parker CEO, Mr. Ramesh Timwala and CFO, Mr. Kyle Gendreau with us to present our first half results. And without further ado, I'll pass the mic along to Tim to begin to give some opening remarks. Thank you. Okay. Thank you very much indeed, William, and good morning, everybody. I'm genuinely pleased to present this set of first half results. I think it's a very good outturn, and I'll explain why in a moment. Just to go over the key numbers. Currency has not been our friend again. So the increase in actual constant currency figures is somewhat higher than the actual dollar expansion. You can see that net sales reached a record, dollars 1,209,000,000 up 1.1 percent, 4.1 percent in constant currency terms. And that was pretty much an increase across all regions. Gross margin up 4.8%. Again, slightly higher than the 4.1% increase in net sales, but that really the result of an increase in the share of direct to consumer sales and some cost reductions across the regions. And EBITDA up 3.3% in constant currency terms. Again, some of the slightly lower increase compared with sales, the result of the impact of fairly flat like for like sales across our retail estate. And adjusted net income increasing at a rather slower rate in constant currency terms, down in actual dollar terms. That, of course, is due mainly to foreign exchange translation effects on the balance sheet, but also affected by depreciation charge being slightly higher as a result of investments, again, in our retail estate, primarily in Europe, and also in product development. Just to comment generally, I think it's fair to say that the tectonic plates of consumer behavior are shifting somewhat out there. I think it's hard to generalize across the world, but I would say we have a more cautious consumer and a consumer who's looking for value and is often finding that value online. And a lot of the larger markets that we operate in are heavily affected by this transition phase, I think, where online business is growing at an extremely fast rate. This is proving disruptive to obviously a lot of bricks and mortar operators. And it also, I think, has an impact on the average price realized for products because a lot of the online trade is still being conducted along lines of price competition, more brands on average lower prices. And that has an impact on our average realized price. If I was talking purely in terms of units today, we'd be telling a very different story. Certainly, in the Travel segment, our unit sales are up in double digits across the world. So there are some shifts going on there. Also, the strong dollar, of course, doesn't just affect the translation of profits and sales. The strong dollar has had the impact of still depressing sales in the gateway cities across America, although I'm pleased to say that the downward pressure has been diminishing as we've traded through this year. And of course, it's affected locations like Hong Kong, whereas everybody will be aware, the tourist tourist trade is very much down. And we are seeing a disproportionate effect on profitability because of the intensiveness of our retail trading on the island and roundabout. So that's a very sort of brief snapshot of the overall environment. I would say that our strategy, multi brands, multi category, multi channel, I think, is very well adapted to reacting to changes across the world in consumer sentiment. And of course, we have a significant increase, I think, in the strength of our business through the addition of Tumi. Tumi is a major positive, in fact, the most major positive change to our business, I think, in the last certainly 10 or 20 years. It fills the gap at the top of the market in terms of super premium lifestyle products. And because we've ended up, I think, with very, clement financing costs, so the average cost of interest costs for this transaction, once we fixed, will be somewhere in the region of 4.5%. We can expect earnings accretion from a cash perspective right from the very beginning. And I think that's very positive. And everything that we are seeing in that business has measured up to our initial assessment. So we are very pleased and excited by that. So the right strategy, a very, I think, exciting addition to our business. And finally, I would say that we see no reason really to change our guidance for the full year. We are trading well through the big summer months. And I see, if anything, improving prospects as we move through the year. So with that sort of general overview, I will hand over to our CEO, Ramesh. Good morning, everybody. As Tim rightly said, these numbers I would say that is proving the resilience and of our multi brand, multi category and multi channel strategy. And we are very, very pleased with the numbers. If you look at by region, and I'm on Slide number 5, that our Asian business grew 3.7%, North America grew only by 0.5%, Europe 8.6%, Latin America where we have been rolling out a new Latin America post strategy grew by 13.6%. And all different brands, including Samsonite grew by 2.7%, American grew by 2.3% and different categories travel 4%, business 5.5%, casual was the only one which de grew, but that's more on account of classification. Accessories grew by 23.6%. And also, we see a strong growth in our direct to consumer business. We have seen that the net sales growth of 11.3% in total direct to consumer channel, retail up 10.6% and e commerce up 15.6%. The total e commerce business including our own e commerce and wholesale business to the e retailers likes of Jingdong and Amazon grew 18.4%. And that now makes up for around 8.3% of our total net sales, which is up from 7.2% in first half of last year. The marketing expenditure in first half was $65,900,000 which is slightly down 40 basis points as compared to last year. Coming to Page number 6. This gives you a snapshot of different countries. As I was mentioning that North America, our business have been flat and a big part of it is to do with the strong dollar moderating the arrival of tourists into gateway cities. China has been also flat. South Korea was flat. India was more or less flat. Japan had a strong growth of 17.3%, Germany 13.6%, Europe continued to have stronger growth. But if you when you go to the next page, you see that the developing countries have continued to deliver very strong growth for us, including markets like Mexico, Brazil, where we have started to make new investment to grow these markets. I thought the key market challenges because this is always interesting to know because there were a few markets, which are large markets which were challenged during the first half and for variety of reasons. Some of those reasons have been covered by Tim, but I will repeat them some of them again. Our wholesale business in U. S. Excluding spec, that's a core business, grew by 1.3% with strong shipments to online retailers and other key customers, while net sales were down most notably within the warehouse clubs. Warehouse clubs have been going through a channel fix channel. I mean their buying pattern has been changing. So it's more about a change in buying pattern. Our secondary sales and our market share in Warehouse Club continues to be very strong. Excluding net sale to this customer that means the warehouse club, the wholesale net sales grew by 6.9% in the first half of twenty sixteen as compared to last year. And we believe that in the second half of 2016, this warehouse club part which was causing this moderation in our wholesale business will be well taken care of and our outlook for second half is more positive for U. S. Wholesale business for the same reason. U. S. Retail net sales grew by only 0.3% compared to last year, mainly on impact of the new store which were opened. But on the same store basis, the sales were due grew by 5.1%. But when you look at quarter by quarter, you look at it in the quarter 1, it was down by 7.6% and quarter 2, it was down by 3%. And we have some early outlook for quarter 3 because we have the trading numbers for July August, it is coming in flat. So our outlook for the second half is there that the North American business should be able to get into positive comp sales in 2nd in the Q4 of this year. The U. S. Direct to consumer e commerce excluding spec was down 1.5% with our own e commerce sites achieving strong growth of 24.2%. This is mainly on account of the buying pattern of Amazon again changing. So Amazon and Warehouse Clubs, Costco are the two reason why you specifically see more moderated growth in North America, which has nothing to do with the secondary sales, it's all about that they were changing the way they have been buying in our products. To be more specific with Costco, what they were doing in the past was there that you bring in a collection and for the next collection, you first pipeline fill it and allow the previous collection to slowly fade out. And what they have now decided is that they will allow the first collection to completely fade out before the buy in the second one, so which has a direct impact on our primary sale in the first half of this year. But going forward over a couple of quarters that will streamline itself and those numbers will not be seen in the same way. The difference between the primary and secondary will not be there any further. The spec net sales were down 1.2%, but that was mainly on account of the iPhone 7 launch, which as you know today it has been announced that it will be launched in 6th September. We have the first numbers for August. It is coming in very, very strong. I think iPhone 7 is expected to be a big launch from Apple and which will have a very, very significant effect on our spec business. So second half of spec will be extremely good. It is I mean, as of now, the pipeline fill for the iPhone 7 covers are very, very strong. China, which is the 2nd country 2nd important country where the business was challenged, year on year, our sales was flat. The wholesale sales were down 3.3%, retail growth was 1.6% and direct to consumer e commerce grew by 71.1%. As Tim was saying, this is the big channel flux which is happening in China. The e commerce or our business to the e retailers have starting to now contribute 13.3% of our revenue as compared to 9 0.8% in the first half of last year. Now as Tim has touched upon it before, China is one market where we see their impact the most that our unit sales in China have been much higher than the value sales. One reason has been also the e commerce because e commerce we book the sales at the wholesale rate as compared to the department store and retailers where we run the concessions and we book the sales at the retail value. The decrease in wholesale to TV home shopping has been another reason why the sales have been moderated. That also has come down, which is again TV home shopping has been losing the business to e commerce. But that has been partly offset by B2B sales, which as many of you remember, we have talked about in 2015, the B2B sales have fallen off the cliff and 'sixteen has been the period when it has been gradually coming back and the B2B sales have grown 14.3% in first half of twenty sixteen. Hong Kong and Macau continues to be a challenged business, I would say, both in account of strong U. S. Dollar and less Chinese deciding to come to Hong Kong. Our net sales in Hong Kong, the wholesale went down by 10.6% and retail came down by 23.6% resulting into net sales degrowing by 15.6 percent in the first half of twenty sixteen. Retail comprises of approximately 37% of our net sales, which has a damaging impact on the profitability of our Hong Kong business. I would say that Hong Kong business continues to remain challenged. So I will definitely see that the U. S. And China, the other two markets that I talked about it, the second half outlook is very, very positive. I would say definitely U. S. Will deliver something like mid to high single digit and the same is our outlook for 2016 second half for China, whereas Hong Kong is yet to find its bottom. So, though luckily for us, Hong Kong contributes only 2% of our sales, but we see that July August, the 2 trading months numbers that we have, still it continues to de grow. But of course, the rate of de growth is slowly coming down, but it hasn't found the bottom as yet. South Korea, another key market which was challenged in first half of twenty sixteen has been flat due to consumer low consumer sentiments. And also we have been challenged on account of degrowth in TV home shopping and hypermarkets. These were the 2 channels where we have seen de growth in our business mainly because both these channels and the consumer in these channels have traded down in terms of the price point. American Tourister in China because American Tourister is the key brand which we engage these 2 channels in Korea, operate at a price point of $150 and above in Korea. And what we found is that the consumer was looking at prices, which was sub $100 price point. As I speak to you in the month of July August, we have launched our brand Chameleon in Korea now to engage these 2 channels and we find some very encouraging, let us say, gain back of market share that we lost to some of the local or private label of these 2 channels. We are gaining back the market share that we lost to the private labels of these channels with the help of Camelon and our outlook because of that in second half in twenty sixteen for Korea also is more hopeful and positive as compared to first half. So these were the 4 key markets where our business were challenged. And our outlook now for second half out of the 4, 3 of them have become more positive. We do believe that all three markets which is the U. S, China and Korea, Korea should be able to deliver mid single digit whereas U. S. And China for the reason which I just cited should be more like mid to high single digit in second half of twenty sixteen. And hopefully same momentum would continue in 2017. Asia, I'm on slide number 10 now, continued to deliver constant currency revenue growth in spite of challenging trading conditions. The first half, the sales grew by 3.7%. The retail business have been challenged there, specifically in few pockets, which is Hong Kong, Macau and South Korea. Other than these two markets, which is Hong Kong, Macau and South Korea, we had a positive comp in retail business. It was excluding these challenged markets, the comps were 4.8% for rest of Asian region. The direct to consumer e commerce net sales grew by 35.5%, driven mainly by China growth of 71.1%, but we have also seen strong growth in e commerce in other markets, more particularly India and Korea. There was a growth of 2.8% in wholesale channel with 22.8% growth in net sales to e retailers. Samsung net sales grew by 3.7%. There was a small decrease in American Tourister mainly on account of TV home shopping in China and Korea, which I just spoke that we lost some of the share to the private label of these channels, which we are now regaining it back by deploying Camillen. Because as I spoke to you when we met last time, the Camillen was another brand that we have launched below American Tourister price point. And our strategy was first to launch that brand in China and Middle East where it is doing extremely well, but we were waiting to launch that in 2017 'eighteen in other markets, 1st to learn what we were able to do it in India and Middle East. But because we were losing market share in TV home shopping and hypermarkets because of the price point, we deliberated we have 2 choice. We could have brought down the price point of American Tourister itself to reengage and regain the market share, but it's very easy to go down on the price point and then when the market conditions get better, you will not be able to trade up the price point. So we decided to launch Kamalayan earlier than what was originally anticipated. And I think that was a right strategy and we start to see that we are able to slowly regain our market share in TV home shopping and hypermarkets both in Korea. And in the next quarter, we are also doing the same thing in China. The strong growth of Y Sierra 19% and Gregory 16.4%. Hartman, though it's a small brand, which is also getting delivering 82.4%. And as I spoke about Camulun, which is off to a very, very strong start in India and Middle East. But now we are expediting the launch of Chamillion in other parts of Asian markets for almost similar reason as I cited for Korea and China, because we do see when the market conditions are tough that consumer is also trading down and looking at the price point which are lower than where American Tourister price points are operating. So we intend to now extend the reach of Kamiliant in second half of this year to practically all Asian countries. Travel category grew by 5%, business grew by 14%, SSV grew by 16.5%. Casualty grew by 13.1%. That was mainly because of Samsung Red. We changed the product classification from casual to business in South Korea. Otherwise, casual also as a category has continued to grow. The adjusted EBITDA is down to 20.8 percent, which is down by 130 basis points, mainly on account of channel mix because there's been a higher proportion of B2B sales and lower proportion of department store sales. And also there have been a slightly higher 110 basis point higher selling expenses, which is on account of lower sales in some of the key markets in Hong Kong and Macau in our retail doors. North America, our growth in wholesale other than Costco and Amazon, which I gave you the reason there for, has been strong. It has grown by almost 6%. And we believe that with now Costco and Amazon coming back, the wholesale business will do better in second half. The direct to consumer net sales were relatively flat year on year. I already talked about you that quarter 1 was minus 7.6%, quarter 2 was minus 3%. But when you really take away the gateway cities, then it was only minus 2.5%. And when we look at our quarter three numbers already July, August, the comp sales are coming in flat versus last year. And we believe continuing with the same trend, quarter 4, it should get into positive territory. Direct to consumer e commerce, net sales grew by degrew by 6.5% mainly on account of spec and which was more on account of launch of the new device, which is iPhone 7. We believe that, that sales will recover in second half of this year. We already have the number for August and we have the orders for September and they're all coming in very, very strong for spare. American Brewster grew by 7.9%. Hartman grew by 18.7%. Gregory grew by 17%, 16.6%. There have been practically a good growth across all brands. Samsonite sales have been more moderate. It is minus 0.6% mainly on account of Costco buy in pattern which has changed in the first half. The travel category net sales have grown by 1.7%. Casual was down by 0.5%, which is more on account of Hycyra. Hi Sierra is also affected mainly on account of Costco, but the secondary sales of Hi Sierra is also positive. And we believe that in second half, both Samsonite as well as Hycera will be in the positive territory. Adjusted EBITDA, net sales was down by 50 basis point despite improvement of 70 basis point on the gross margin, which is more on account of retail channel delivering negative comp, which has which are largely fixed cost channel and that has impacted the EBITDA in the first half. As I said, second half, we believe that the comp will be in the positive territory, which will then have a positive impact on the EBITDA percentage for North America in the second half. Europe continues to have a strong sales, 8.6% on constant currency basis in spite of very difficult, I would say, trading conditions that was prevailing in first half on account of an act of terrorism which were happening in Europe which was keeping the tourists away. Constant currency net sales grew by 8.6% led by Germany 13.6%, Italy 19.6% and Russia made a very strong comeback of 23.3 percent Spain 15.3%. Definitely, other two markets, France had a negative growth. Strong net sales growth of 18.1% direct to consumer channel. Retail was up by 17.6% and comp sales were plus 4.6%. And rest of it was because of the annualized effect of the acquisition that we did last year, and we also added 2 new retail door in the first half of twenty sixteen. Direct to consumer net sale direct to consumer e commerce net sales increased by 23.3%. Net sales growth of 4.6 percent in the wholesale channel with 33.6% growth in net sales to e commerce. Samsung net sales grew by 4.1%. American Industrial continues to gain traction as we are getting more distribution, grew by 25.7%. There's also strong sales in other newly acquired brand, namely Lipfo 62.4 percent, Hartman start with a small base but plus 189%, Gregory plus 32%. Net sales in travel category grew by 4%, business category grew by 22.5%. We spoke about it last time when we met that we are now launching we have been working since last couple of months on a non travel push strategy and the growth in non travel is a result of that. The adjusted EBITDA grew by 2 50 basis points, both on account of improvement in the gross margin and also moderation in our advertising spend in the first half. Latin America is one of the bright spots where we have seen very, very strong growth because Latin America is one market where we had launched a year from a year back a new strategy to go direct because before that we were operating many of the market through distributors. So it had a very, very strong growth, 13.6 percent driven by Mexico 26.5 percent, Chile 6.4 percent, Brazil is minus 22.5 percent because Brazil is still going through that restructuring we are getting out of our wholesale business and now launching retail. But our second half outlook for all these three markets is very, very positive. The first half I mean, first two month number for Mexico is up 44%. Chile is continuing to grow. Brazil is into positive territory. So we believe that now Latin America is set to deliver very strong 20s kind of 20%, 25% kind of a growth over next 2, 3 to 5 years and making Latin America deliver growth similar to what Asia used to deliver 10 years back. And we are actually implementing a strategy which is very similar to what we had done 10 years back in Asia, which is to go for a 2 brand strategy for travel that's Samsung and American Tourister. We're also pushing backpack of business category strategy and more retail. So these are the 3 pillars of the growth strategy in Latin America. So our team is very, very confident that they should be able to continue to gain momentum in Latin America in second half of twenty sixteen, continuing into 2017. You see the EBITDA coming down slightly, but you will find that there is more on account of the investment that we are doing in infrastructure in Latin America. I have no reason not to believe that our EBITDA in Latin America in next 3 to 5 years' time would be not similar to what Asia is today delivering it. Strong growth in e commerce and targeted retail expansion. As we spoke before when we are talking about region by region, direct to consumer net sales increased from 19.7% to 21% in first half of twenty sixteen. Net sales growth of 18.4% in e commerce was driven by 15.6% growth in direct to consumer e commerce platform that is our own dotcom sites and 20.4% growth in net sales to e retailers, which are included in our wholesale business. Net sales growth of 10.6% in retail store were driven by targeted retail expansion, mainly focused on airport locations, multi brand concept that we are launching now and a broader presence in Latin America. We have added 32 new retail stores in first half twenty 16, and there's also a full year impact of 162 stores that we had acquired in 2015. I already spoke about the comp. The overall comp has been minus 0.5, but if you peel away the challenge market that the gateway cities of U. S, that is New York and Florida besides Hong Kong, Macau and South Korea, the comp in rest of the market has been plus 3.3 percent in first half of twenty sixteen. And the outlook for second half of twenty sixteen is that the overall comp should be positive and we should be more like 4%, 5% comp for the full for the second half of twenty sixteen. And we remain similarly hopeful for 2017. There have been stable growth in all the core brands. Samsung grew by 2.7%, American Twister 2.3%. It is slightly moderated, mainly on account of as I spoke, that TV home shopping in hypermarkets, mainly in China and Korea, we did lose some market share to private label, which we are now reengaging by launching by preponing the launch of brand Kamiliant in these two markets. So American Duster, I believe, should be able to get back to growth get back to a bigger growth than what you're seeing here. High Sierra to minus 2.7% was mainly on account of the timing of the Costco business. In second half, it should be in the positive territory. Specs should deliver very, very strong number in second half of twenty 16 on account of launch of iPhone 7. Specs has been minus 1.1%, Gregory otherwise is 17.6 percent and other brands are smaller, but they all have been growing. If you really look at it today, our ratio of Samsonite, we have spoken during IPO IPO days of fifty-fifty strategy. What we meant was that it was part of our strategy that we wanted the revenue contribution of Samsonite to be 50% and bringing up the revenue contribution of rest of the brands to 50%. Already in the first half, that number is 60%, 40%. So 60% is coming from Samsonite and other brands starts to now contribute to 40% of the revenue. And if I include Tumi first half, it already is fifty-fifty. So including Tumi, now we are at fifty-fifty, but definitely the other brand contribution will now continue to increase because they're starting with a smaller base. So what you will find in Tumi also has a lot more to grow over the period. So it's now not going to be more like a fifty-fifty strategy. It probably become more like a third coming from Samsonite and 2 third coming from all other rest of the brands. Acquisition of Tumi, August 1, 2016, we completed successfully the acquisition of Tumi. We bought it, as you all know, for $1,800,000,000 all cash, funded by syndicated senior credit facility consisting of term loan totaling to 1,900,000,000 and a new revolving facility of 500,000,000 15 was around $548,000,000 and EBITDA of $127,000,000 respectively. Some of these numbers are already in the public domain. As Tim said, Tumi probably is truly a transformational deal for our business because when we were implementing our multi brand strategy, we always had this gap at the top end of the market. To me, not only fills the top end of the market, but it will also help us to make our presence more credible in the non travel segment because to me it tends to do better than us in many of the brands, especially in the business category. We believe that's an ideal and complementary fit to Samsonite. It will enable Samsonite to strategically expand into highly attractive premium segment. It presents tremendous opportunity to leverage Samsonite's extensive global retail and wholesale network and its strength in distribution, sourcing, technical innovation and localization of the products. It reinforces Samsung's strong platform for long term growth and profitability and it creates potential significant operational and top line synergies. Some of the cost synergies, you will already start to see it flowing into our numbers over next couple of quarters. The revenue synergies, you will start to see them sometime end of 2017 or beginning 2018 as we will be able to bring new products which are using Samsonite technology. I saw that quite a few of the people who are looking at the Tumi products, they're all very great products, but they're not necessarily lightweight. And we all know that the Asian consumer and the European consumers are today almost obsessed with lightweight. That is what we will be able to bring to me in terms of our technological competence. And the new product should be in the market we are targeting for end of 2017. We also intend to because Tumi is operating largely in Asia through distributors. It is our it's very much our intention to go direct. The way we the strategy, which is very similar to what we did with Samsung in Asia 10 years back and what we have started to do now in Latin America for last 2 years. And we have seen that, that strategy delivered us extremely good results in Asia and now Latin America is off to a great start. So we intend to implement a similar distribution strategy, which is to go direct, use our feet on the ground to expand the business of Tumi in Europe and Asia. Of course, that whole process is anything between 6 to 12 month process. You will start the impact of the Asia Europe push strategy for Tumi coming into our numbers sometime in second half of twenty 17 and going into 2018. These are the first half numbers of Qimi. I'm sure many of you are already aware of it, these numbers. Their reported net sales growth was around 6.8%. Also on account of consolidation of Tumi Japan because Tumi Japan was a joint venture business, which they were booking on the wholesale basis, but they brought back that business in the beginning of the year. Net of the consolidation of Japan on like for like number has been 0.8%, which is very similar to our own numbers. Direct to consumer North America was up by 0.6%. So if you look at their trading numbers are very similar to our own trading numbers. And the outlook for second half for Tumi as is the outlook for our own number for second half, we believe that it should do better in second half as compared to the first half. Our own outlook for our second half number is more like mid to high single digit for second half. I would have similar outlook for Tumi's business for second half of twenty sixteen and similar number getting into 20 17. Page 19 covers some of the pictures of different brands that we have, same as 20 21. 2022 broadly covers different categories, as I spoke before, other than casual, which is more an account of reclassification, some of the products which went into red were classified in casual have now moved to business. Otherwise, every single category have delivered reasonable good growth. The advertising spend is slightly down from 5.9% to 5.5%. One, it's also because of the tough trading conditions. We have also shaved off a little bit of advertising money to be able to navigate the current situation. But we believe that the advertising spend that we are doing it, our share of voice continues to rise because the media costs have also come down significantly. Our advertising agency or media buying agency tells us the weighted average cost of media buying has come down by 25%. So as a result, even though we have reduced our advertising spend by around 7%, 8%, but our share of voice has been higher than last year the same period because the media buying we have been able to buy more media from slightly lower dollars. I'll ask Kyle to cover the financial highlights. Okay. Good morning, everyone. Just some key takeaways. Ramesh has probably covered a few of these, but I'll just drive some of the points home. Thank you. Constant currency sales growth close to $50,000,000 4.1 percent reported, as you know, is up 1% a little over 1%. And currencies continued, though not as dramatic as what we've seen in the prior years, continued to cause some pressure. So around $36,000,000 of currency pressure on reported sales. Excluding the impact of currency, our EBITDA was up 3.3%, which is roughly $6,500,000 generally following the increase in sales. We've continued to generate strong operating cash flows in the business, dollars 81,100,000 in the first half, up from roughly $79,000,000 last year. So our ability to generate cash even as our trading from a sales perspective has come down a bit from our historical levels, are still able to convert EBITDA to cash flow very strongly. Our working capital, our net working capital has been fairly consistent, 13.8% was roughly the same number for the second half I mean for the first half of last year and still running below our target of 14%. From a capital expenditure CapEx perspective, we spent about the same as we spent last year, dollars 25,900,000 I'll show you in a slide, but largely around retail expansion that Ramesh talked about and continuing to invest in some of our manufacturing capacity within Europe. Adjusted net income, if you take out FX, gainloss, which is really a currency translation of balance sheet items, was up 1.7% year over year. And as most of you know, we paid a dividend in July of $93,000,000 That's up around 6% to what we paid last year, dollars 88,000,000 And as you know, we'll continue our dividend policy even on the back of the Tumi acquisition. And then as we all know, we completed the acquisition of Tumi. And what I'll do is give you just a little bit more insight on the debt structure with what we've done to fund this acquisition. So if you go to our balance sheet, strong cash position, dollars 273,000,000 as we're heading into this is end of June, so we're heading into paying a dividend and also closing the transaction, and that's up close to $70,000,000 from last year. And again, we generated $80,000,000 of cash flow offset largely by CapEx of $25,900,000 So we're still generating very strong net cash growth in the business. Working capital, I'll cover. I have a slide on that. What I would point out in our balance sheet, and you'll see it in our reported net income numbers, is we funded the Term Loan B ahead of closing the transaction for Tumi. So in May, we actually funded Term Loan B into escrow. And so you'll see $671,000,000 of restricted cash. So it's sitting in a restricted cash account, but you'll see those borrowings in our long term debt numbers and we start to see some of that interest cost just ahead of closing the transaction. So this was really securing that term loan B down where we thought rates were at a good point to lock that in and that's what we've done. As far as the senior credit facility goes, I think most of you probably read it, but I'll quickly cover. So we have a term loan A facility, dollars 1,250,000,000 The rate on that is LIBOR 275 initially, and that will have step downs as we delever the business and I think we will hit that first step down as we move into next year, which will move that to LIBOR 250, which is a great outcome. The term loan B has this has initial interest rate, but it's the interest rate. So it's LIBOR plus 3.25. This has a LIBOR floor of 75 basis points, which kicks in initially, but LIBOR should grow over time. We have a revolving credit facility, dollars 500,000,000 this will be largely undrawn as we get to the end of the year. It had a small balance going into the closing, but we've already paid a good chunk of that down and by the end of the year that will be 0. And this really gives the capacity we like to have in having a revolving facility if we have other opportunities that come up as we manage the business. We did enter an interest rate swap to fix a portion of the interest rate. So we hedged around 65% of our borrowings. The hedge kicks in on January 2017. So it's effectively a deferred start on the hedge And it will set LIBOR or it will fix our LIBOR rate at 1.3%. Looking at LIBOR today, that looks a bit off, but I think we all think that the Fed is going to move on rates and rates are going to creep up. And we consciously hedged a portion of our debt. So we have 35% of our debt that will stay floating and 65% will be fixed. And that will amortize down. So as we're repaying the debt, it will follow kind of our scheduled and our outlook for how we're going to repay the debt. So that's 65% or the amount outstanding under our hedge will come down over the life of the loan. And we'll get cash flow hedge accounting or under IFRS. So it will just flow through interest expense. You'll see no kind of swings in our P and L with the hedge. It will just flow through as we settle the hedges. Working capital, again, very consistent to where we were last year at 13.8%. We've seen inventory days up just a bit. It's probably a function of certain markets having slightly lower sales. So I would give ourselves good scores for managing inventory and our overall net working capital in a good scores for managing inventory and our overall net working capital in a period where we're facing a little bit of headwinds. And we've been able to kind of shift our payable days up slightly, largely around the vendor financing program that we've been putting in place largely around the vendor financing program that we've been putting in place over the last 2 years that continues to be very successful. From a CapEx perspective, we've covered, but largely retail expansion, if you look at where we're spending, it's Asia, it's Europe, and it's now picked up a little bit in pace in Latin America as we lay retail footprint in markets like Brazil. And we'll expect that to continue for next year. We've continued to invest in product development R and D, fairly consistent year over year. We are we've invested in our Hungary facility, as I think we talked about last time we were together. So you're seeing kind of the last pieces of that flow through in our product development CapEx spend. And then IT spend is just ongoing maintenance CapEx for our IT systems. So with that, I'll turn back to Ramesh. Okay. The engines for future growth, it's not much a change in this slide. If you really look back at our previous decks, we have talked about the same thing in the past as well. So the continuing growth in the global travel and tourism number, what we find that in the Q1 of this year from the period January to April, in spite of different act different like in spite of political uncertainty, financial uncertainty, yet the travel numbers have come in strong. It's plus 5.3% for the Q1 January to April 2016, which is in reality slightly better than 4.6% in 2015. And that is what is the underlying number which drives our business. Our outlook for as I spoke for the 2016 second half is that in first half, our business, core business grew by around 4.1%. And we believe that we're more like mid single digit to slightly higher than that in second half of twenty 16, primarily driven and also the gross margin is expected to as I said, the revenue is expected to be better on account of better performance that we're expecting in some of the key markets, more particularly North America and in China. And we have the numbers for the 1st 2 months, and they're pointing in the same direction. The margin, which moved up from around 52% to 52.3% in the first half, probably the trend will slightly continue in the same direction. It may creep up to around 52.5% or something like that, which is just a normal trend and it's agglomeration of our different businesses. It is not happening anything which is artificially we're increasing the margin of any particular brand within the portfolio. The result of that would be that our EBITDA would be seen as growing faster than the EBITDA growth in the first half, primarily because in the first half we were also getting impacted by negative retail comp. And we are looking at positive retail comp in the second half, which would mean that the profit growth, EBITDA growth in the second half would be higher than the EBITDA growth that you have seen in the first half. Tumi business in the second half would be more or less following the similar trend as our own business in terms of the revenue. So they're also looking at it mid to high single digit revenue growth. Rest of the numbers as far as the gross margin and everything else on the standalone basis would be almost the same. Of course, you will start to see some of the cost synergies would start to get reflected, especially those who are relating with the top management in the company and some of the public company costs, they will start to go away. But it will be more in 2017 that you will start to see more impact of the cost synergies of Tumi and maybe by end of 2017 on the revenue side. We intend to leverage the regional management structure, sourcing and distribution expertise in the marketing engine to extend strong Samsung brand into North America and to grow North America wholesale and also to introduce lightweight luggage for Europe and Asia. But all that thing you will find more particularly impacting our business by end of 20 17 because it takes time for you to get the product strategy in place. Continue to execute fifty-fifty strategy that we have spoken about it, which is to grow the company, develop the company into well diversified multi brand, multi category, multi channel company. I'm very happy to relate some of the numbers for you that how do we stand now with Tumi. So already in terms of the brand, it's fifty-fifty. I said that our vision now changes over the next 5 years. I'm now looking at it that other brands should contribute to 2 third of the business and 1 third will be coming from Samsonite. We also intended to grow our non travel component to 50%. So the core business as I speak to you now, standalone without Tumi stands at 33% of our business now comes from non travel category. With Tumi, it comes up to around 40% of the revenue. And I have no doubt in next couple of time, we will be getting to that 50%, 50% mark that we have been speaking about. Increase the proportion of net sales coming from direct to consumer including e commerce and select brick and mortar retail. As of now, without Tumi that number stands at 21%. Within that, e commerce is at 8.3%. Including to me that number stands at 27% and e commerce is still around 8%. Definitely that number also as you will see as e commerce is growing more that number may not get to fifty-fifty, but I have no doubt it probably more like 30%, 35% of the business will start coming from direct to consumer channels. Techfully deploy a multi brand to operate wider price segment and broader consumer demographics in category. These are all the statements I'm just copied back from the IPO documents. So we're still continuing with that. It's just the only chain we are making is that the Kamiliant brand, which was supposed to be getting launched in many of the markets in 2017 'eighteen is getting preponed because of the reason I cited that we lost some of the market share of American Tourister in Korea and in China to private label to regain those market share. That brand is being preowned to be launched not only in China and Korea, but in other Asian countries as well. Execute on market opportunities for newly acquired brand to further diversification product portfolio, We have been doing that for the next near future. We'll be busy, more than busy with Tumi. Continue to invest in the company's co brand and sustain R and D spending to produce exciting and innovative new products as well as new materials supported by effective marketing and drive awareness among the consumer. I think this is also something that we have been always talking about it. It is my vision. And as we are now starting the business planning process for 2017, we are once again aiming to move up our advertising spend. We do that every year, but sometime the market conditions are not favoring us. So as a result, we are still staying stuck to around 5.5% kind of an ad spend. My vision remains intact that we would like to see A and P spend to trickle up to around 7%, 7.5% over a period of time. As we are starting our business planning process for 2017, we are looking at creeping up our advertising spend once again from around 5.5% in 'sixteen to go up to around 6% plus in 2017. Tumi is one brand which is grossly under invested. Two things about Tumi, it's a great brand. It has been very well run business in North America. But there are 2 parts of the business which was grossly underinvested. 1 was on the technology. When we really look at the systems and the IT where they use it, I'm now working in their office for last 3 weeks in New York. I have no Wi Fi there. So they keep moving my tables in different locations. And they tell me, Ramesh, if you sit here, it will work. So it's grossly underinvested in terms of the technology. And the second place where they've been grossly underinvested is A and P. The A and P spend is 0.5% and below, which was the number I remember was a number not I mean, we all can laugh about it. But before Tim came on board, Samsung numbers were also the same. We are also very, very under invested in terms of A and P spend. So it is definitely our intention that as we work on their business, I believe that there is a lot of possibilities to improve their cost structure because the sourcing side and the target which I've given to the team there is that they need to bring up the A and P spend to 6% to 7% of the sales and there is definite possibility that all of that can get funded by reducing their cost, mostly on account of improving the gross margins because the cost of goods are there is lot of opportunity, I'll put it like this, to self fund that A and P spend. So you will already see that in next couple of months, we will start to spend some additional money on Tumi in North America already in this holiday season because I feel that that is one area where they have grossly underinvested. And as we get the distribution in place in Europe and Asia, we'll also start to invest more money on A and P and Tumi, which is again also part of our strategy. So I think what gives me confidence and make me hopeful not only about second half of twenty sixteen, but also going into 2017 is that our core strategy that we spoke about it since IPO days or even before that, we have seen that it has tested good times as well as bad times. And we see that there's no need for us to go away from our core strategy because sometimes your strategy is only good for the boring times when the economy is booming. But the same strategy probably cannot stand when the market conditions are tough. But we are finding that our multi brand, multi channel, multi category strategy is also standing up to the difficult times that the business is faced with. This whole A and P spend that we are doing it is also makes the business that much more fundamentally resilient, also allow us to navigate that we were wanting to get up to 6.5% when the market conditions are tough, buying the same amount of media, share of voice still increasing, you can shave off 100 basis points from that. So we can keep the advertising spend of 5.5% and yet our share of voice is higher than any other brand in this segment. So this is the strength of our business and that gives me a confidence that second half will definitely be more hopeful and 'seventeen would also be getting better, Probably the worst times which we have seen in our business, which started from sometime in second half of twenty fifteen and beginning of 2016 is getting behind us. Thank you. Thank you, Ramesh and Tim and Kyle. And now we open the floor to questions, starting with Raymond from Credit Suisse in front. Thank you, management. This is Raymond from Credit Suisse. I got three questions. The first question is we already talked about the U. S, Latin America and also Asia. Can you call about like how do you see the European business going into the second half? And how do you see like based on the recent month, how does the negative impact from the terrorist attack trending like? That's my first questions. And the second question, you also mentioned about like Tumi, you're seeing the second half demand momentum will be better at mid to high single digit in line with how you see at the group level. But you explained why we're seeing better in the U. S, but can you elaborate more why you see Tumi momentum also likely to accelerate? And excluding some internal factors like what you mentioned about like Costco, Amazon and also spec. Do you see any fundamental change on the U. S. Side on the buying into the luggage and travel product? And my third question is on the Tumi acquisition. So in the next 3 months, well, 3 or 4 months for this year, what's your first priority? Yes. Thank you. Okay. A lot of questions. Europe, the first half was around 8% growth on constant currency basis. And our outlook for second half is very similar to first half. We definitely feel as fine that when you have an act of terrorism like what happened in Paris recently or Belgium later on. Over next couple of months, the sales of that particular country definitely gets impacted. But we are also finding that you can find that the same sales getting picked up somewhere else. I'll give you a concrete example. When we find that the charisma which would happen in France already this summer holidays also, France have not been able to recover because the holiday season, people already plan well in advance. But you find some very strong number coming from Germany and Austria. So I was personally in Vienna myself. I was surprised with the number of Chinese in Australia. I could not believe that. And in some of the very strange places, Salzburg or something like that, saying that what the hell are they doing here. But probably they find that it's more safe there. So people don't change and did not cancel their holidays, but change the location. So I would say that I see no reason why I should change my outlook for the European business. And we have just traded 2 biggest month for Europe, which is July August, because July August are the peak month for our sales and they have traded all right, which gives me confidence that we will be more or less fine. Coming to Tumi's number, why I say that I'm seeing that the trend of Tumi business will be more or less similar to our own business for two reasons. Let's say the first half of Tumi was also moderated for the same reason. Number 1, strong dollar keeping the tourists away. So if you really peel down the Tumi's like for like number and if you remove the gateway cities, so their sales was also delivering negative comp in the gateway cities of New York, Florida and L. A. And Francisco and some of these cities. Now beyond that, the numbers were strong. Now what you're finding and we are finding in our business and they're also finding and now we are finding in their business also, it's partly our business only now, is the like for like is coming back. I have the number for July August. Let's say, I would not like to say that what I'm seeing the number in July August is a reflection of the whole year, but they are just too good. From a negative comp, we are into a positive we are like Samsung owned business is coming in flat versus last year in July August. So that means you're leaving the negative comp to flat, which gives us the confidence to say that quarter 4 probably we will be in the positive comp. Tumi is already in the positive comp on the retail, so which gives me confidence that Tumi should be all right in the second half of this year. And your third question was the first priority for Tumi. The first priority for us today for Tumi is to make the teams on both sides comfortable because there's no doubt when you acquire a business, there are processes, there are cultures which are different in 2 companies. They are the people are the suspicious that what will happen with Tumi. Are we going I mean, one of the questions people ask me is, I mean, the word polite, but I'm looking for a polite word. I'm not getting it. But let's say, I'm going to fuck up Samsung, to me. But they feel that what are you going to do it to me? So are you going to make it go down? Or will it become subsidized? That's their worry. That's their concern. So I'd say what is happening right now for us is there to make the people comfortable, make them understand that there's no reason for us to acquire Tumi if I wanted to make it Samsonite. Because we acquired Tumi because of the strength of the brand. Of course, there are pockets which we believe that some of the things we can do better, which is like they know very well they have lost business on the travel luggage segment. We have the view of the number. In last 5 years, continuously the travel luggage sales have been coming down. It was never visible to the outside world because they did so well in the business category that the number looked okay. It was very good numbers. But they lost share on the travel luggage business mainly because the consumer preferences changed towards the lightweight luggage and they could not overcome the technology barrier to produce lightweight luggage with Samsung that can provide the technology backbone to them. I think this is our priority today to make them feel at home. We had a party in Samsung Asia office yesterday where we bought all the Tumi people. We welcome them Samsung people, Tumi people. So I think the cultural integration and giving out core messages to them. Of course, I'm also not shying away by telling them that I want to increase the spend on advertising, but it has to be funded. It cannot come from shareholders pocket. There's enough and more opportunity for us to improve our margins, improve our cost structures. And we have done that with Samsonite in the past and we know that to me is stronger brand than Samsonite to be able to do the same thing. Aaron Fisher in front. Thanks. It's Aaron from CLSA. Actually, Robert, I had an exact question a bit more on the Tumi advertising. I mean, I'm not concerned that it's increasing substantially, but just trying to understand why because if I look at your advertising spend in the U. S, it's about 4% of sales and Tumi also has a high percentage of retail, which should limit the level of advertising spend. So I just really want to understand why you think the advertising spend needs to go up so much and maybe that needs maybe it's because you need to invest more money in Europe or Asia? Let's say to me today when you really look at it, Tumi is a very strong brand, but its franchise is very limited to people who are associated with the financial world. If you really get out of that world, people even don't recognize it. I spent a holiday with a few of my friends who are working in a hospital in Austin and he's middle aged like me, I talked about Tumi, he was saying, what is it? He even didn't heard about Tumi and he's a doctor. He's a very famous surgeon. So makes tons of money. So he is a core customer. He can be a customer for Tumi, but even he doesn't know about it. So the franchise is very limited. The second thing what is happening is that they have some very great women products. They have a collection called Voyager, which starts to deliver. This is strongest category which they've opened up for themselves. But today who are buying it, accidentally a woman lands up into the store looking for a bag for the boyfriend or the husband something like that, they say, oh, so Tumi is also making some great women products. You cannot just make great products and you believe that wait for somebody to come to your store. You are then limiting the power of the brand. The third thing is you become highly dependent upon only the product because you need to create more than the functional benefit which consumer is delivering it because there would be some sort of consumer who would love Tumi because to me is a great functional product. But there are people who want to aspire to buy a brand because it makes them just feel good. So that is the reason why we want to increase the spend to me in North America. You're right. In North America, since the brand franchise is already strong, the spend relative to what will be needed to be spent on Tumi in Europe and Asia would be still lower as a percentage of sales for the same reason. Even the media costs are lower in North America as compared to when you really look at Asia, media cost is crazy. When you really look at China, Japan, India, the media is really expensive in these countries. So the percentage of spend could be different in different parts of the region, which will be more or less mirror what we spend with our own business in with Samsonite. But Asia and Europe, we need to first fix the distribution before we start putting the money. So that is the reason why you would find that we will be getting out of the gate first with North America. And beginning of next year, we will start spending some money in Japan because Japan, the distribution I've evaluated is reasonably well. So these two markets will start spending the money. And as we get the distribution in place, which will take something between 12 to 18 months, you will find us gradually increasing the spend. Okay, thanks. Just one other question. If I look at the performance of the smaller brands, it seems to me, if I remember correctly, that this is possibly the best performance for these smaller brands over the last few years. Is this a function of just owning these brands for 2 or 3 years now and reaping the rewards? I wouldn't say that you got the reward because we expect much more to come from them. What is definitely happening is that 1 or 2 years, 3 year goes by for you to really bake the brand, to really understand the brand, where is the the opportunity, get the distribution, get the products right and also warm up your own team. So we have got the teams in place in some of the markets. We've got the product strategy getting right there. We are also getting some traction on the distribution. I would say that's just the beginning. Like Lippo, I mean, there's no reason that number looks to be great in terms of the percentage growth, but we haven't bought the business for that kind of a number. We expect there's no reason why Lipo should be a couple of $100,000,000 business. So I think you will find that the higher growth in some of the new brands will continue year on year as they get more and more settled within the team. Edward here with Morgan Stanley, please. Hi. This is Edward Lo from Morgan Stanley. I've got three questions. The first question is on Tumi. It's got about 2,000 point of sales versus about 49,000 for Samsonite. Just wondering, eventually, what is the kind of ceiling for the number of stores? Obviously, it's a premium brand. It probably wouldn't have as many stores as Samsonite. So just wondering what's that upside versus the eventual ceiling? My second question is about our e commerce business. How do we think about is it mostly a same strategy for every country for our e commerce strategy? And how do we think about our DTC versus wholesale to e tail is what kind of the right mix? Or are we looking at eventually having kind of all DTC given I assume they have high margins? That's my second question. My third question is about consumer trading down that you talked about. I'm just thinking about cannibalization between Samsonite and American Tourister and new brand, Kamiliant. So are we looking at to maybe sacrifice a bit of Samsonite? And then should we expect higher growth for the more value brands going forward? Or are we also changing the strategy for Samsonite to kind of go more towards cater to these customers who are trading down? Thank you. The first one, Tumi, as you rightly said, at 2,000 dose, Samsonite at 49,000 dose. When we have roughly run the numbers, the opportunity for distribution expansion for Tumi is more in a market outside of North America. So if you really ask me a number, which we have run some of the numbers internally, it's more like 5,000 doors for Tumi as compared to 50,000 doors, which we can think are the potential doors where you can possibly sell Tumi. Now whether that happens in 1 year or 2 years or 3 years, no one happens just right out of the gate because we will be gradual in getting out of and opening up the distribution in many of the markets. So but that's the kind of a ballpark number you can look at it. E commerce, our strategy for e commerce is to drive because as we said that if you look at our core strategy with multi brand, multi category, multi channel. What does multi channel mean? We want to be in every single place where people looking for buying a luggage or bag. And then we decide which is the more appropriate brand for you to sell there, what are the different price points which are sold. For example, most of the e commerce which are the wholesale e commerce sites, they are still working on price arbitrage. So when we work on price arbitrage, then they are primarily selling American Rooster and Kamiliene. But there could be some channels which are also able to sell higher price point like JGE in China. They want to sell full price and they want to sell at a higher price point. They also sell Samsonite, but they also sell American Tourister. So we are not preferring one over the other. Are also developing our own dotcom sales. So our vision, if you really look at it, is there that over a period of time, the split between the wholesale and retail would be more like 1 third and 2 third. On our brick and mortar channel, I would see that almost similar would become for the e commerce also. So 1 third could happen from your dotcom sites and twothree can still come from likes of Amazon, Steam Mall, JDs and things like that. The consumer trading down, the consumer is definitely trading down and looking for the better value, But I don't think at this stage he breaks the boundaries of the brand. So within Samsonite, so if we look at our numbers, Samsonite growth or American Industrial growth or every other brand's growth are more or less the similar. So what we are when we analyze our numbers, we do find that the AURs of practically all brands have come down. So Samsonite AUR, which used to be more like $2.50 in Asia is now more like $2.30 So you almost lost 10% of the value of American Tourister. Now same thing you can find in American Tourister where your AUR for the travel luggage I'm talking about was more like $118 And now when we look at our number, it's more like $105 So there is on an average about 8% to between 5% to 10% AUR drop between the brand. I don't think a Samsonite customer today gets excited to buy American Tourister because that is too much of a sacrifice for him to make it because and within Samsonite there is enough for him to trade down. So people are buying less of very expensive Samsonite, but they don't really move to the next brand. I don't think if it was so easy, we would not have bought Tumi. Tumi customers don't buy Samsung Lite. That's a problem. I know many of the guys never admitted to me in the past. Now they come to me and they tell me, I must say, I'm actually a bigger fan of to me than Samsonite. But I never told you before. One of the guys just told me that. So we all have our own brand choices. So we don't change the brand, but we're looking for different price within the brand. Okay. Before we take more questions from the floor, just want to check any questions from online, please? Okay, great. First, Peter in the back from Mr. Hope and then we'll probably end with Spencer in front from UBS. Hi, thanks for taking the question. This is Peter Zhang from Mizuho. Just a couple of questions. Firstly, on as you look at Camellian, what kind of what is the margin profile that you foresee for that brand? And on the same basis, what kind of margins are you doing on e commerce right now in China? And what do you think will be the implications for the EBITDA margins in the Asia business going forward given those two sides are going to expand? And secondly, on the Tumi business, before, I think you mentioned that there was a real revenue opportunity there. But with the A and P ramp as well as the retail strategy, do you still foresee a margin opportunity at the EBITDA level in the coming, let's say, 12 to 18 months? Many thanks. Okay. Kamiliant, Kamiliant still is an overall pot is still a tiny But I would say like all our other brands, when you launch a new brand, in the beginning, it starts with slightly lower margins. But as it gains traction, yes, it ends up delivering similar margin at the operating margin levels as every other brand because it also works at a different cost structure. So gross margin could be slightly lower. But between when we are backfilling now some of the market share that we lost with American News and TV Home Shopping and iPhone market, I would say that the margin is not only brand related, but it's also partly to do with the channel margins. So the impact of Kamiliant on our business in terms of the margin both at the gross margin level and the operating margin level will not be any significant. You will not be able to see any change on that. Coming on the e commerce, e commerce tends to be more profitable, both our own e commerce for the obvious reason that you do not have the 4 wall cost on e commerce when you run your e commerce sites. You have slightly higher delivery charges, but it's not that high that it covers up I mean, it still can deliver you higher profitability. And same is true for e commerce when you do with the wholesale partners also. Their expectations are lower margin. But I would say that's a today's situation. But I would like to believe that over a period of time, it all settled down to a similar margin where the wholesale business is. I'm told that Amazon has hired a lot of guys from Macy's, Targa's and things like that. And one of the key thing is to understand that what do the brands have been offering to the brick and mortar guys and how they can bridge that. But okay, it's a good way to start. But if you the brands are not going to offer you the similar margin right out of the gate. So it will go through a process of negotiation. But over 3 to 5 years' time, I would not say that e commerce growth will deliver higher profitability. It should come down to the similar level as the brick and mortar profitability. Tumi EBITDA, definitely I believe that there is no reason why Tumi EBITDA should not be higher than where it is today. Because if you look at Tumi's business today, it is more retail centric and I'm saying that we need to spend slightly higher money on A and P. I would look at it, Tumi's brand positioning and the business model is very similar to Samsonite's business model in Asia. And I'm not saying Samsonite in North America. Samsonite in North America is a different animal. But Samsonite in Asia is very similar to Tumi in North America. And that is what we will do for Tumi also in Asia where it has to be largely retail centric business, not necessarily retail retail. When I say retail centric means it is the concessions in the department store and few odd retail store that you run it. Our own profitability of EBITDA in Asia other than Japan, because Japan is where we are still getting to speed in terms of getting higher growth in terms of the revenue there. If you leave Japan, our EBITDA is more closer to around 24%, 25%. So there's no reason why Tumi should not be as similar lower our profitability. And we invest around 5% to 6% of our sales on advertising. So Tumi should get there. That is the number which I have shared with Tumi's team. So we've given them few months to digest that and then we'll get back to how we get there. And they know that they can get there, like suppliers. I had a supply meet last week in Hong Kong. They are the same suppliers who deal with us. I haven't got one supplier. Every supplier is coming and asking from with me is there. So when will the new price will get applicable from? Nobody is asking that whether we're going to get back to a new way of price calculation. Everybody is asking whether they will have 3 months' time or 6 months' time, it will be from 1st January 2017 or we will have 9 months gap or it should be all open orders should be dead like that. But they all know that some standard will go into a bill of material way of costing. So which means that there would be costs which will come down. CNC is one of our biggest suppliers for Tumi. Barry met me, he sent me a mail today morning, I was reading on to it. He's already offering a 6% cost reduction. And I've sent back a mail reply to him that it's far short of my expectation. We need to start with a bill of material. I need to first build the cost structure and that's how Samsung works with the vendor. We want to work with an open book kind of a system. So I told Barry, find 6 person, but please send me the bill of material that how did you arrive to the 6% number because when I'm running that number, it should be something like 20%. But doesn't matter, he's not going to give me 20%, but at least he's offering me 6%. So we'll get there. It's going to take 1 or 2 years. It's not going to happen or not. Okay. Final question from Spencer and then we'll close the conference. Spencer Lo from UBS. Two questions. It was quite a comfort to know there's no trading up, trading up between Samsung and American Tourister because largely because of the price gap. What do we think about the price gap between Samsonite and Tumi going forward? Do we worry about trade up, trade down between the two brands as the economy get better or worse? That's my first question. 2nd question, as we restructure businesses outside of U. S. On the Tumi side, and we might take back some of the distribution. Do we expect some disruption? Is that assuming your and how you look at the business in the next 2 years? Thank you. Yes. Trade up, trade down. I don't think there is anybody any of the Tumi customers would be so willing to buy Samsonite. If that was the reason, we did try very hard in the past as well. We will launch a brand called Samsonite Black Label for that precise reason. We thought that by creating a sub brand called Black Label, we will be able to fight back to me. Sometimes it's not about product, because we know how to get the product. But it's about product, brand, the ubiquity of the brand Samsonite does not necessarily make the people who are looking at something more aspirational to trade down to Samsonite. So I wouldn't really like to believe that that would happen, would significantly happen, the one few crazy guys moving other way around, it's fine. But there would be other way around also that some of the guys who are buying Samsung may move up. Some of the guys who are buying Tumi, they may find that Samsung is also as good. But it's not going to be a significant number there. The distribution take back, it will be a gradual process. But the business sitting with the distributors are minuscule. The China $5,000,000 of sales of Tumi. I mean, what does it mean? I mean, Samsonite will be $300,000,000 So the potential in China for a brand like Tumi should be at least $100,000,000 plus. So whether I have worry about what happens with the $5,000,000 When it would become 0, fine. But if no one becomes 0 because we are already in early discussions with the partner. And good thing with Tumi has done it is that he has kept all the relationship on a handshake basis. So there are no contractual obligations. So I want I can start tomorrow. The take back is only about that he has let's say 5, 10 dose plus all these people are from the same industry. So why would you like to do something behind the back? Otherwise, I can start tomorrow myself in China because I have no legal obligation towards him. But we will go through a process of discussion. We have already started those discussions. And very likely Chinese business we probably would be operating already from 1st January. So there is a reasonable good understanding. We will pay a small compensation. It will be a miniscule compensation because of $5,000,000 what can you be making? Great. Thank you very much for coming to the presentation today. Thanks.