Samsonite Group S.A. (HKG:1910)

Earnings Call: H2 2015

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Mar 17, 2016

Morning, everyone. Thank you very much for coming in to join our 2015 final results announcement. Today, as usual, we have our Chairman, Mr. Tim Parker CEO, Mr. Ramesh Khandwala and CFO, Mr. Kyle Ginger with us. And to begin, Mr. Parker will make a few opening remarks. Thank you. Good. Thank you very much indeed, William, and welcome, everyone. It's a great pleasure for us to announce another set of record results. This is the 6th year in a row, I think, that we have come up with these sorts of results. And I suppose the most important point to note is that last year, we faced some very significant currency headwinds. I've been used though in my career to the dollar going up and down, but last year was really the year when the dollar went up very significantly against certainly the Eurozone, but many other currencies as well. And so what you'll see in our results is a pretty wide discrepancy between the actuals and the constant currency measures. So that our sales, up to a record level of $2,430,000,000,000 3.5 percent actual, in constant currency terms, up 12%. And of course, that represents a record which we've been able to continue over this 6 year period and especially since the flotation of double digit growth each year. Our gross margin, percentage wise, didn't move a great deal. So pretty much following sales, up 11.8% in constant currency. And our profits clipping €400,000,000 for the first time. Again, the headline number, 4.4 percent, but allowing for translation impacts, the actual increase was 12.6%. And I feel that's a very, very good result indeed, especially in a world where I think the consumer is becoming more fickle. I think the trading conditions around the globe are much harder to read at the moment. And there are clearly a lot of moving parts to distribution channels, principally driven by e commerce, and also a lot of regional variations too and some degree of lack of clarity over macroeconomic policy in the future. So these sorts of trends, I think, began in the second half of last year. And I feel that the outcome for the year as a whole is extremely satisfactory. And adjusted net income following, in many respects, the move of our key profit measure, EBITDA. And of course, the difference between the 5% 5.2% gain, in fact, in actual terms, 4 or 5 percentage points less than the constant currency growth. So I'm very happy with what, again, looking as a fair measure, was another year of double digit improvement. And on the next slide, we've reiterated what we see as the model that makes up the strength of our business. So first of all, I think we are operating in a very attractive sector. Whatever the macroeconomic trends, and China is a good example, whatever the economic trends generally, travel continues to be a very robust area of growth. And you can see that throughout the world. It's driven by, I think, 1st of all, people's inherent desire to travel. I think if you were to generalize, grossly generalize about consumers, consumers are definitely interested these days in experiences above simple purchases, so people are getting out. Also, we're seeing, I think, the growth of budget airlines worldwide. And obviously, the economics of airline travel are somewhat more attractive than they have been for some time. So travel is a good place to be in. And you can see that most regions of the world recorded growth, which is close or above 10%. So Asia up 13% in constant currency terms, I'm rounding up here. North America up 7%, Europe up 18%, and LatAm up 8.6%. And that's in part, of course, is due to acquisitions, but the underlying organic growth is also very encouraging. We are a multi brand business. So and of course, the big event post or that we've announced in the last few weeks has been to add another very substantial brand to our family or will be, hopefully, if this is agreed over the next 6 months. So we do have 2 enormous brands in the company, Samsonite and American Tourister, and they are about to be joined by the world's premier premium luggage brand Tumi. Samsonite last year, up 5.7%. American Tourists, they're up almost 17%. Another element of the strength of our business is that we rely on no single category of travel. We also are seeing excellent growth in business bags, up 16%, our casual business, up 11% and accessories up 35%. So that is testimony, I think, to the broad base of our business. We're no longer simply a luggage suitcase business. We are a very broadly based business across the travel goods sector. Last year was also another year of incredible growth in e commerce. And you can see our e commerce business is now 8.5% of the total, grew very strongly. And our direct to consumer business, as we've been opening more stores, was up 22.5%, and we not only acquired 2 significant retailers, but we also added a lot of our own stores. And finally, most important, we are the company that invests serious money into marketing. And last year was down slightly in percentage terms. But nevertheless, as often, we remind people, we have just bought or are in the process of acquiring the 2nd most important brand in the world, Tumi. Their sales are $550,000,000 roughly. We spend $130,000,000 in marketing across the world, and that is way more than any other luggage brand or indeed any other brands in travel goods. So that's the circle. That's why I think we've been able to deliver consistent results. We're very pleased with what we've done. The climate, I would say, is a little murky out there. It's a little hard to read how the future is likely to go. But we're content. And I'd now like to hand over to Ramesh to give you a little bit more color. Yes. Thank you, Tim. As Tim rightly said, considering all the macro noises in the background, we consider 2015 to be another excellent year for performance as Asia grew by 11%, Euro 15.9%, Latin America also excluding Brazil where we are restructuring our business also grew double digit. And on this slide you can have a look at it that the currency translation had an adverse impact of almost $198,200,000 As a result, the sales reported in U. S. Dollar value was lower than on the constant currency basis. Maybe Kyle can explain you better the Slide 7. Yes, sure. This slide just gives you some colors on where the currency pressures are. So it's really just repeating what Ramesh said. And you can see the euro is obviously one of the biggest driver, but actually currencies all over the world have seen pressures. And so you can go across Asia, you can go across Latin America, and we're seeing the noise. And what we've also done on this page is shown you the translation impact of the EBITDA as well. So if you look at our EBITDA of $401,000,000 that's negatively impacted by close to $30,000,000 of translation pressure alone. And so as we look at underlying growth, our business grew around $280,000,000 organically or through some acquisition. And we've also grew the bottom line by that much more and an extra $30,000,000 pre currency translation. So what we really try to do here is just peel this back so you get a good sense for how currencies are impacting. We're a dollar reporter as everybody knows. And then if we look at EBITDA margin first half and second half, we want to give you a color as everybody's looking at the numbers and I've talked to a few people before we started. We have seen some of the pressures that Tim has talked about in the marketplace. And so we've painted a picture here for what our growths are first half to second half. And we had a net sales growth constant currency first half of 16.6. As we move to the back half of the year, it's around 8% growth and that's really some of the pressures that we'll cover more as we get into the regions largely with China and Hong Kong that I think everybody is familiar with the pressures there. Along with the U. S. Which is showing some pressures on the retail side around tourists not coming to the U. S. When we look at our gateway cities and our own retail stores, we see real pressures because of the strength of the dollar and tourists choosing other places to go. It might be part of the reason why we're seeing Europe actually up a bit because it's become a very good place for people to travel. And so we're well positioned around the globe as you know, so we catch those consumers as they're moving around, but we see that pressure in the second half in these few pockets, which deliver that. On the EBITDA margin side, we're up in the second half really by for two reasons. 1, our gross margin improved a bit. It has something to do with mix of the business, but also we're starting to see a little bit of benefits of the commodity, benefits that have started to work into our gross margin. We've also in the second half pulled down on our advertising just a bit to help offset the translation pressures on the profits on EBITDA. So you'll see that our advertising spend in the second half was lower than what we had in the first half and that was just a conscious decision. As we've always said, we have that lever in our business and we pulled back on that just a bit to help offset some of the currency pressures in the second half. So the next slide, it's adding giving you some more color on Asia. Asia continues to deliver very strong growth basically driven by China, Japan, Australia and India. If you really look at go by country by country, we had exceptional results in Australia and Japan. Maybe part of it is also coming from more Chinese tourists flocking to these countries instead of showing up in Hong Kong. So overall, there have been a growth of 17.7% in direct to consumer channels, which is including brick and mortar retail and a very, very strong growth in the e commerce. The direct to consumer e commerce business grew by 48.5 percent and net sales growth of 11.8% in the wholesale channel with 73 point 2% growth in the net sales to e retailers because when we sell to the e retailers likes of Taobo and Jingdong, we booked them as wholesale channel sales. Samsung net sales grew by 9.6%, Samsung Red by 23.8%, as we have expanded Samsung Red into few new markets. So the total Samsung brand sales grew by 7.7%. American Dulce have continued to grow by 9%. Some of the new acquired brands like Hystera has grown by 28.4%. And we have also started to now extend the franchise of the newly acquired brand Hartman and Gregory into Asia. The travel category grew by 10.4%, casual bag by 18%, driven mainly by Samsung Red, Gregory and Hi Sara and business category grew by 16.7%. As we have spoken always in the past, that is one of our expressed desire to expand the business of non travel category to grow faster than our travel business to make the business fundamentally more resilient. If I remind you and take you back in the history, 8 years back, the non travel component of our sales was almost insignificant. And from that to the total company's non travel sale, which probably will cover in the subsequent slides, have moved up to around 31% of our total revenue. And definitely, with acquisition of Tumi, which has a better franchise and more experience in the business category, we believe that will help us now to accelerate our objective of balancing our business between travel and non travel to a fifty-fifty percent level, which we had expressed by 2020. There's been the EBITDA margin in Asia have continued to be at 21.2%. There have been a small reduction in advertising, but we have also been leveraging a relatively fixed cost. Part of it, the Asia also suffered some of the margin pressures because of the negative impact of the currency, including increased sales of B2B, which works at slightly lower margin. On the next slide, in our Chinese business, net sales have grown by 13% in 2015 was largely driven by B2B growth. As we have spoken in 2014 'thirteen before that, the part of the B2B business had reduced during those periods which have started to come back. There was a big comeback in the first half. Also, there have been a strong growth of e commerce, which is 92.3% growth over 2014 numbers. So the first half, our sales have grown by 29.8%, which was largely driven by B2B sales. The second half, as a result, has been the growth have got moderated to around 2.6%. The main reason has been also partly mainly because of B2B, that B2B orders have not got repeated in second half, but also it is partly attributed to weaker consumer sentiments, which are prevailing now in China. South Korea net sales grew by 4.5 percent that was also partially affected by the MERS outbreak. As a result, the second half net sales grew by 4.3%, which was down from 4.8% in the first half. India continued to grow strongly at about 12% in 2015. The first half was 13%, second half 10.9%. There's a sharp net sales growth of 37.7% in Japan partly attributed to full year impact of Gregory, But even excluding Gregory, net sales in Japan grew by 26.7%. As I spoke before, I'm sure there has been an effect of an increased number of tourist arrivals in Japan including the Chinese tourists. The combined markets of Hong Kong and Macau, the net sales growth of 3.1%, which was softened by same store comp of 24.2% due to lower arrival of Chinese tourists, which has definitely had a negative impact on our profitability of our business in Hong Kong. Australia, our net sales grew by 39.4%. It was partly driven by the addition of 6 new rolling luggage stores, but even excluding those rolling luggage stores, there was a very strong growth of 31.3%, which was which we can partly attribute to launch of American Tourister now in Australia, which grew by 88.3%, but also partly because of increased number of tourists arriving in Australia. In the next slide, we're adding a little bit more color to our business in China because China is always a country which is of high interest for everybody. 2015 constant currency grew by 13%, driven by 92.3% increase in e commerce and 49.5% increase in B2B business. So B2B business have started to come back. I think if you look at it second half of twenty fourteen, as we have spoken, if you look at our that 2014 numbers already had started to come back. And there have been that is why in the second half of 'fourteen, there is an anniversary year for that. The net sales deceleration in 2015 was largely, as I have spoken before, as timing of the large B2B order was front loaded in 2015 but back loaded in 2014. Other channels had also weaker consumer sentiments and business migrating to online. I must tell you that online business has also an impact on the way we look at our net sales because when we book the sales at our department store because the 2 channels which has suffered during 2015 or continue to suffer in 2015, one of the biggest channels have been the department stores, which at one point of time in 2013, 2014, they made up for around 2 third of our business. They have continued to lose share to other channels. At department store, we tend to book our sales at the retail value because we run concessions there and we book the margins which we give it to the department store on SG and A levels, which is variable selling expenses. Whereas when we make the sale to online channels, we book our sales at the wholesale value net of the margins. For same $100 sale which will book it at department store will show in my book at $100 but will be when I sell it on e commerce channel, it will be booked at $70 So that also has an impact as the e commerce continues to grow at a faster clip and gaining market share from other channels where we generally tend to book the sale on retail levels. So that impact is also there in these numbers. Samsung net sales grew by 19.4 percent driven by Samsung Red sales of 58.3% and all other Samsung brand put together grew by 14.6%, where American Rooster sale grew only by 1.9%. So here you can see this is the impact because online sales, bulk of the online sale is of the brand American Tourister. So our unit sales have increased just because we booked the sales at the lower net sales value. So you find that American Tourister sales have remained range bound in 2015 versus 'fourteen because e commerce picked up the sales at the cost of the department stores. Hycera though are small numbers, it grew by 100% Aatman by 237%, they are still very, very small numbers at this site. The travel category net sales grew by 5.9%, casual bag by 53.7% and business by 23.5%. So our this strategy to make the business grow more in the non travel segment continues to make very good progress even in China. The North American business, which is Slide 12, we had a strong sales growth in wholesale, though we had challenges in our brick and mortar retail due to decreased tourism as a result of strengthened U. S. Dollar. The net sales grew by 7.4 percent excluding brand acquisitions. Net sales grew in wholesale channel was 3.3% increase in U. S. With the sell through continuing to outpace the category in most key accounts and 14.9% increase in Canada wholesale. Excluding brand acquisition, direct to consumer net sales were relatively flat year on year as the retail sales channel was down 1.9%, challenged by 6% decrease in same sales store comp, mainly on lower foreign tourist arrival as a result of strong dollar offset by 16 new stores and a full year impact of 8 new stores in 2014. So if we really peel down our numbers of if I add a little more color on the comp sales in North America, we find 2 very let us say 2 very unique thing happening in our business. Number 1, our full price sale in North America also have continued the comps have continued to grow. The comps have been around 7% to 8% on the full price sales. But our full price stores in U. S. Are very small portion of our total brick and mortar sales. The outlet sales have definitely been affected because of the strong dollar, but if I exclude the Florida and the New York, these are the 2 gateway cities we can say, then the comp sales even in the outlet stores have been flat versus 2014 'fifteen. But when you look at the numbers in New York and in Florida, the numbers are minus 25% to minus 30% comps. So there have been very, very serious drop in the number of walk ins into our stores and we attribute a lot of that is because of less tourists arriving mainly Brazilians showing up less in Brazil in Florida. E Commerce, net sales increased by 14.7% and 18.3% including the acquisitions. Samsung net sales grew by 3.4%, American Tourister by 18.3%, and other brands Hycera and Hartman were down marginally 8.4% or 5.6%. It was mainly because 2014 some of the promotional business were not repeated in 2015 as a part of our strategy to reduce the reliance on promotional sales for these 2 brands. Full year impact from 2014 acquisition of Speck and Gregory delivering an incremental sales of around 20 $6,000,000 $8,000,000 respectively. Travel Business and Casual, all the categories have grown. More particularly, travel grew by 5.2%, business by 3.9%, casual because high SARA, we did not repeat some of the promotional business of 14 have remained more or less flat versus 2014. Accessories grew by 38.6% mainly because of increased sales from spec. The adjusted EBITDA as a percentage of net sales was more or less flat, 15.3%. So it grew in line with our sales growth. Europe was a shining star for 2015 for us. Our business had a very, very strong growth of 17.7% on constant currency basis. Led by UK, 41%, Germany, 17%, macroeconomic and geopolitical macroeconomic and geopolitical challenges that this continent have faced. Strong growth in direct to consumer sales, retail up by 51%, partly driven by an 8.3% growth in the comp sales. 79 new net company operated stores were opened in 2015, including 21 rolling luggage stores and 30 Chick'Accent stores that we acquired. And part of it was because of the full year impact of 25 stores that we added in 2014. Direct e commerce direct to consumer e commerce sales grew by 24.3%. Samsung grew by 4%, but American Tourister grew by 88%. As we have spoken before, we have been launching American Tourister aggressively in Europe after its success in Asia. Other acquired brands are still very small. They have started to make their presence well in Europe. Net sales in travel category grew by 10.9%, business category grew by 39%, mainly driven by success of new products and a push towards growing the non travel category. This is a push that you will see that we are doing it across every single region. The casual category grew by 26.6 percent largely due to growth of Hycera and Gregory. Accessories grew by 55 point 4% mainly because of the 2 new retail chain that we acquired which is Rolling Luggage and Chickasent. Adjusted EBITDA margin remained more or less rain bound, margin dropped by 10 basis points. It was partly because the retail business that we have acquired during the integration phase have been margin dilutive and which has always been the case when we acquired a business in the beginning they are margin dilutive as we get them fully integrated to our business, which would be in the year 2016, the profitability will get up to the same level as our core business profitability. So Europe is one reason I would say that it's done very good job in trying in also protecting its profitability. Look at it was one reason which was most affected in terms of the currency pressures because we mostly buy in dollar and we're selling in euros, but yet our teams have been able to do a good job and also part of the credit goes to our brand power, which allows us to take a price increase without any impact or any negative impact on our revenue growth. Latin America, we continue to invest in retail expansion. We are also restructuring our team and organization there. I would say that all those tasks have been accomplished in 2015 very, very successfully. Credit goes to Roberto, who is now heading our Latin America business. We now have a platform in Latin America to see some very robust growth going forward over the next 3 to 5 years and bring us closer to our goal of getting $500,000,000 sales out of Latin America by 2020. Net sales in Brazil, we are down. Basically, also there have been some challenges in the economic conditions, but we also have been restructuring our business in Brazil. But excluding Brazil, the sales in this region grew by 14.9%, retail sales grew by 18.5% coming from 28 new stores and full year impact of 11 stores which were opened in 2014. Same store comp were up about 2.6%. Samsung net sales grew by 3% with strong increases in Mexico 10.8%, Colombia 80 2% were offset by Brazil minus 16.4%. This is part of the restructuring which was happening in 2015 in Brazil. The other brands, these are brands which are more specific to Latin America. We have a backpack brand called Extreme, which is continuing to do extremely well. It grew by 21%. Sex O Line is our entry price point luggage brand there, which grew by 12.9%. Secret is a handbag brand, which we operate in Latin America, grew by 14%. And American do so largely remain flat as they're getting their strategy in terms of the products right in Latin America. Adjusted EBITDA as a percentage, net sales were up by 70 basis point, which is mainly because of 2 70 basis point improvement in gross margin, largely due to inventory reductions in Brazil in 2014, not repeated in 2015. And also we slightly increased our advertising and marketing spend in this market by 70 basis points. In the next slide, we are covering the other market, some of the key markets growth on a constant currency basis. You see here that U. S. Grew by 6.8%, China by 13%, Korea which was affected partly by MERS grew by 4.5%, India by 12%, Japan 37% and I'll not probably read all the slides because you have the sheet with you. Even some of the other emerging markets, Mexico grew by 17%, Russia, in spite of all the noise which have been there, had a strong growth of 9%, but that did had a definite and a strong impact on the currency loss in Russia of almost about 16.6%. If we look at some of the other markets, also Turkey grew by 39%, Brazil, as we said that we have been doing restructuring our business, they grew Philippines 31%, South Africa 29%, Malaysia is another market where we are restructuring our business, they grew by around 11%. So there have been a strong growth in e commerce and targeted retail expansion. The net sales growth on e commerce was around 40.4 percent driven by 30.8% growth in direct to consumer e commerce, which is samsung.com platform and 48% growth in net sales to e retailers, including our which are included in our wholesale channels like Soft Amazon's and Taobao and Jingdong. Net sales growth of 21.1 percent retail sales were driven by targeted retail expansion mainly focused on airport locations and multi band retail concept and a broader presence in Brazil. This multi band retail concept is a concept that we have been rolling out across Europe And I must admit that acquisition of Tumi will go a long way in making this concept become more viable and more profitable going forward. In our rolling luggage store is the only place where we acquired the business and Tumi was already selling there. Tumi contributes to around 40% to 50% of the sales of rolling luggage store. And we already start to simulate that additional sales will start picking up in our other non multi brand store. That whole viability of our multi brand store goes to next levels. Page 18 talks a little bit about some of the new acquisitions that we have done. Rolling Luggage, as we have spoken before we acquired for improving and enhancing our presence in the airport. This has definitely helped us to improve our presence in European airports and also in Australia. Chick Accent was another retail chain that we had acquired. There are about 30 prime stores in Italy, multi brand retail stores. I think this also is a part of our strategy to expand our multi brand presence, our multi brand store concept. Page 19, all brands delivering strong net sales growth. Because Samsonite grew by 5.7%. I'm reading from the graph, American Duster by 16.7%. Specs since it was not a full year, it's not fair to make a comparison. But all other brands also have grown very, very nicely. American Tourister is a brand which is now being driven more strongly in Europe and we are slowly also getting more acceleration out of American Tourister in North America. So North America, American Durista grew by 18% and Europe by 88.3%. And I believe that for the markets other than Asia, American Rooster will continue to be one of the biggest growth drivers for these markets. And likewise, the other brands also have continued to do well. The brands acquired by us in 2014, I would say that each of the brands that we have been acquiring in the past is all part of our strategy to expand our business into a multi brand, multi category. So as I said before, our non travel contribution is now up to 31%. Lippo, which we acquired, was largely only limited to Paris. In 2015, we started to expand its franchise into Asia. And I do believe that this will be a very nice addition to our portfolio brands, some of the products we have put on the display out there to really expand the franchise of our business into women's segment. Speck also is a brand where I would say that our team have done a very good job to bring up the profitability of this business to in line with our North America business. To remind you, when we acquired this business in 2013, this was a brand which was losing money from that point of 2015 2016. Now as I speak to you, the profitability of spec is exactly in line with the profitability of our North American business. Gregory is a performance outdoor backpack brand with very, very strong brand equity in 2 markets, mainly in Japan and also in U. S. It's off to a very, very strong start. And in 2016, it's our intention to expand the franchise of this brand in few other markets. We have just launched Gregory now in Korea also to very, very encouraging first consumer feedback. Our next slide, which is Page 21. Once again, we are giving you a flavor of different products that we sell in different parts of the world. So left hand side is Samsonite and in North America, Europe, Asia and Latin America. Look at it, there are products which are somewhat differentiated in different regions. There are some common products as well. Now that is the strength of our decentralized business model where we can design and develop product which optimizes the deliverance to the consumer through suitable products, which could be somewhat differentiated between region to region or even country to country. The next slide, which is Page 22, we are giving you a little bit of flavor of our Hotman and Hy Sarah products. Slide 23, it basically talks about what I just covered that is strong growth in all the product categories. Travel 8.7 percent, business faster than other categories, which is 16.3% casual 10.8% accessories 25% and others, which are mainly handbags and some other small things that we do in some pockets of our market, more particularly Latin America. So the total non travel category now contributes to around 13.7%, which is up from 23.4% in 2012. Advertising spend was roughly flat on constant currency basis. As Kyle spoke to you before, we have partly used the advertising money to also navigate some of the currency pressures that we had on our profitability. But I must say that even remaining flat on constant currency basis, we have been able to buy more media than we bought in 2014 because the media cost also went down by almost 30%. So even at the flat level, when we look at our share of voice have increased by around 30% because average media cost went down in 2015 by around 30% compared to 2014. On the next slide is again to give you a flavor of different advertising campaign for different brands that we do in different countries. Once again, this is the strength of our decentralized business model, which allows us to have advertising campaigns, which are individually suited for different markets. And Kyle can take you through some of the financial highlights of the business. Okay. Some of this is repeat, but I'll they're good to repeat. So we talked about strong constant currency growth. As we look at our business, we grew around $280,000,000 in sales in constant currency or close to 12%, offset by roughly $200,000,000 of currency noise. So I think that's an important piece that you should take away from today. Same for EBITDA. So if you look at EBITDA and we peel up just the translation piece of currency, our EBITDA growth is around 12.6% or $433,000,000 of EBITDA. Strong operating cash flow, which we didn't cover yet, but and something that's a pillar, particularly with the Tumi which was up around 13% from 230,000,000 which was up around 13% from $230,000,000 last year. So we're very comfortable and happy with the cash generation of the business. We have very strong balance sheet with a net cash position of $117,000,000 and a revolving facility with availability of $450,000,000 obviously that will get reset with the financing for Tumi but we'll be putting back a $500,000,000 revolver facility as part of that transaction which to me is just good liquidity management for the business. Our net working capital, we've always talked about a target of around 14 percent. We continue to do better. And this year, we actually brought this down even further. So we're just shy of 12% working capital. And I'll show you the details in a few pages. Our CapEx has stayed fairly consistent in line with what we've been guiding. So we spent around $68,000,000 on CapEx, largely around the targeted retail expansion that we've product development, particularly in Europe and a bit in Asia as well. Excluding FX gains, our adjusted EBITDA margins our adjusted net income as a percentage increased by around 30 basis points. So if I exclude FX gains, which is really around some translation of balance sheet items that flow through our net income along with stock based compensation effectively non cash, Our net income grew by 30 basis points really driven against improvements in our adjusted EBITDA margin and also our effective tax rate has come down from 27.3% last year to 25.4%. We've often said our tax rate will run-in this 25% to 26% range. Last year was slightly higher than normal because we were cleaning up some things in the U. S. And this rate at 25.4% is where we generally expect this to continue. So as we model our business, we're assuming a tax rate of around 25% on a go forward basis. And the Board, yesterday approved a cash distribution to shareholders of $93,000,000 that's up about percent in line with our increase in reported earnings and staying true to our dividend policy that we set a few years ago. From a balance sheet perspective, I've largely covered this, but if I walk you through kind of the net cash generation, we increased cash by $44,000,000 last year to this year, driven by operating cash flow of $259,000,000 We did a few small acquisitions, I would call them kind of distribution acquisitions that Ramesh covered, so rolling luggage, which is an airport retail chain $23,000,000 We bought back the minority share of our Russian JV this past year around $16,000,000 and we bought Chick accent in Italy for around $7,000,000 So we had some small acquisition dollars out, we had CapEx of $68,000,000 and last year's cash distribution of $88,000,000 So I think good transparency on what we're doing with our cash. And again, gives me a lot of comfort as we move into the Tumi acquisition where we'll actually have some debt that we're servicing. Strong working capital covered on the next page and again the revolving facility very available to us. So we improved the working capital year over year. Last year we were 12.7 percent, this year 11.8 percent really driven by a few things. 1, our inventory days are slightly up. This is largely due to earlier Chinese New Year and we often buy in ahead of that. So no surprise, our days creeped up just a bit. Our trade receivable has come down just a bit by one day and that's really around mix of business changing. So as we continue to drive some expansion in retail and largely e commerce, you'll expect this AR days probably to creep down over time as we move the retail mix of the business up slightly. So we're seeing what we should see there. And our trade payable days are up from 100 days to 109 days, largely off the back of this vendor financing program that we started a few years ago as we move most of our suppliers to 105 day terms using the vendor financing facility we help bridge for those vendors. So that's been very successful and we're quite happy with how well we're managing working capital. From a CapEx perspective, a bit of the same story from last year to this year, targeted retail expansion. You can see in Asia, where we spent the most around $13,000,000 Europe is next at around $10,000,000 and a bit less in the U. S. As you'd expect, as that market is a bit more mature for us. And now Latin America is starting to show up with a little bit more money than we've had in the past and this is really around laying the foundations in markets like Brazil where we're starting to spend a bit more on retail expansion there. Again, we're investing in product development and innovation. We finished the facilities that we talked about a year ago in Hungary. So we had some effect of that coming into this year and we've also started to invest in our facility in China, so a new warehouse and office facility in China and that starts to show up in 2015 and you'll see that carry into 'sixteen as well. And I expect our CapEx to be something similar to this for next year as well. Back to you. Okay. So the engines of future growth. As Tim said, it is true that the market consumer sentiments remain somewhat challenged in few of the markets, But underlying growth in the travel industry is still expected to be around 5% to 6% over next 5 years. And we look at our business, not really something we are not strategizing our business for the quarter to quarter or for one particular year. We look at our business that we are strategizing our business over a 5 year blocks. So what we achieved over last 5 year and what are we looking at business for next 5 year is that is how we look at our business. So we feel that the strategy that we rolled out over last 5 years, which was primarily of transforming our business, I'm just repeating my words from a single brand, single category business and largely a single channel because it was largely a wholesale business to a multi brand, multi category and multi channel business. Now that has worked very well for us to allow us to deliver strong double digit growth over last 5 years both on the sales as well as on the profit and we believe that's a task which is not finished as yet. And whatever initiatives that we have taken over last couple of years in trying to acquire few of the brands was all in the direction of trying to implement and reinforce this core strategy. So if you have seen that our non travel category from very insignificant numbers where 5 years have gone up to 31% And the few acquisitions that we have done over last couple of years, more particularly Lippo, Lippo when we acquired was a couple of €1,000,000 business. We were never getting excited by because we acquired the business for its couple of €1,000,000 sales, but we were looking at it what can it do to our business, because women category is today globally is expected to be the largest growing category and that is one category where there are brands which are operating at the fashion end of the segment like Pradas, Gucci's and things like that. But then there are brands which are at the very, very low end, this whole mid market which are for serious business travel which are not very expensive but were not very cheap from price bracket of around $100 going up to $300 that's a price segment that we want to go after both with the travel products, luggage product which are designed more specifically for women in mind but also the non travel products. So Lipo was part of that strategy. Look at our casual back segment. We are Hycera is the number one back to school brand in North America. Extreme which is our brand in Chile is by far the number one backpack brand in Chile. In Chile alone we do around $30,000,000 worth of sales of backpack. But leaving these two countries, our backpack contribution to our sale is still very, very small. And our own estimate tells us that a backpack business globally is estimated to be as big as a travel luggage segment. So some of the brands that we've acquired recently, more particularly, Gregory and his Hycera are our platform together with Samsung Red, which we launched on our own. These are the 3 key brands which will allow us to become a more serious player in this casual backpack business. And similarly, when you look at the multi brand strategy is also about acquiring different price points. We want to be an active player in the price point as we have always reminded ourselves. And once again I remind myself saying that the luggage industry is today expect is estimated to be around $25,000,000,000 business. We have $2,500,000,000 of sales approximately that makes up our market share to be around 10%. But there's another 90% of the business which is out there for us to go. So I'm always selling our own team and ourselves including myself that we don't have to wait necessarily for the market to grow. Our business has to be based upon how do we gain market share. When I look at our European sales, if it has grown by 18%, it is not that the European luggage market grew by 18%. It is just that in the past of the entire luggage market, I'm talking about only travel luggage market, we were only operating 20% of the entire luggage market. The luggage market if we start dividing it in terms of the price point, 50% of the luggage market sits at the entry price point, 20% of the luggage market sits at the mid segment, another 20% sits at the premium end of the market which is $300 plus segment where we have a small play now and there is another 5% to 10% of market sits at the super premium segment which is $1,000 plus We don't intend to get into that segment. So what are we trying to do in Europe is we are becoming a more active player with American Tourister expanding the field where we want to have a play. And this is the strategy which gives us the confidence that in spite of whatever macro noises in the market, we should still be able to continue to deliver double digit growth over next 5 years. We're not going away from that. So it's still that our belief in that is still is very much intact because we need continue to grow. The industry is expected to grow around 4%, 5%, 6% kind of a number and we have continued to deliver faster than the industry growth And I see no reason implementing the strategy that we have done over last 5 years, continuing on the same strategy, trying to gain more share, becoming a more active player in the price segments where our market share is smaller. Similarly, getting a bigger share of the non traveler joining spaces where again our market share is lower, we can continue to deliver double digit growth over next 5 years. It is true that 2016 could be somewhat more challenged because still there are currency noises in the background. There are markets where we still feel that there are some currency noises out there. Latin America is challenged as compared to last year. We see some of the Asian currencies are still under pressure. Euro also is anybody's guess what will happen to that. Now if I factor everything around that, so if we end up delivering, let's say, a single digit growth next year or 2016 this year, I won't be disappointed because I cannot today having a visibility into what will happen to the rest of the year. If somebody asked me that what do we expect to happen in 2016 more particularly, we would say that mid to high single is what we are looking at it. If we are getting benefited by some positive tailwinds, maybe we will get into the double digit. If we encounter some stronger headwinds, maybe instead of a high single digit, we may slip down into a middle single digit. But if you factor it against the macro picture, I would say that, that still would be a very good result. The other points more or less I've covered that we are continuing to tactfully deploy our multi brand strategy to operate a broader price segment. I'm just reading it now from the slides. Increase a portion of our net sales from our direct to consumer channels, more particularly e commerce because e commerce is a channel which is continuing to grow. We will also continue to work on targeted retail presence. We're now more confident of our multi brand strategy than I would have said that I was before because if you remember last time when we met, I told that multi brand strategy is working very well in Asia, but we want to be cautious about our multi brand strategy in North America and Europe because we were feeling that we were missing a very credible presence in the business segment in Europe and North America. And also we were missing out on the premium price segment which can easily deliver 20% to 25% of the sales over multi brand with acquisition of Tumi that whole multi brand strategy could be rolled out with more confidence even in other parts of the world. E commerce, our multi brand strategy again helps us to engage e commerce more effectively without having a detrimental impact on our brick and mortar business. But on side by side to protect our brick and mortar business, we are also implementing omni channel strategy. We are also starting to think about rightsizing our retail stores, especially in North America because especially the factory outlet business that we have it. So today our size of stores, I believe, can be right sized to the Asian sizes. In Asia, our average size of our store is about 80 to 90 square meters, 800, 900,000 square feet, where our stores in North America tend to be in the region of around 200 plus square meters. I feel with implementation of omni channel, we can offer a larger range without necessarily having to have a larger retail footprint because when you cut down the size of the store or right size the stores, your cost in terms of the rent and some of the other overheads will also come down because I do believe that e commerce and omni channel is here to stay. Last year, the contribution was around 8.8% of our total revenue. I see no reason by 2020, I rather would be surprised if e commerce is not contributing to a minimum quarter of our sales or even in some countries going up to about a third of our sales. Already in Korea and China, e commerce starts to contribute to around 14%, 15% of our sales. There are some markets where e commerce is still taking some time. The last, we continue to invest behind our brands, more particularly the newly acquired brands like Gregory's and Lipo's and I think in Hong Kong also we are preparing to launch a major campaign with Lipo because we do feel that this is one brand which clearly offers us an opportunity to deliver a couple of $100,000,000 in next 5, 7 years' time. So we will continue to invest behind our brands and more particularly focused at the non travel segment. Even if you have seen some of the ads that we are doing with Samsung brand now also, we are pushing the non travel category. We are advertising non travel product, more particularly backpacks and business bags on our Samsung brand rather than the travel bags because we feel our travel segment, we already are market leaders in many price segments, but we want people to associate our flagship brand Samsonite not only limited to travel but also to non travel. Thank you. Great. Thank you very much, Ramesh. And now we move on to the Q and A section. Starting with Josh in the front. Hi, good morning. Couple of questions. 2 on China and the U. S. Separately. If I look at the China business growth, Samsonite brand is actually up double digits. And I would imagine Samsonite brand is also so mainly in the department stores. So how we reconcile the fact that Samsonite brand is doing very well, but you talked about department store sales being weak. So it seems that the weakness is actually more in the American tourist, which is less dependent on the department stores. And similarly for the U. S. Business, the wholesale channel into the full price seems to be doing okay. The Allied is weaker. And I would think that the gateway cities, the tourists would be impacted more the full price. But again, there seems to be some of that difference there in the numbers. These are the 2 country level questions I have. Okay. So the easy answer. So Samsonite in China, why that's double digit whereas American Tourister is flat. So Samsung double digit growth is coming from 2 things. 1 is because of B2B, because the part of the B2B business as we have spoken before was the airline crew business. That is a part of the business which have started to come back to us again, which was completely blocked as of 2013. So one reason is that Samsung Hut sales start to come back. The second is that department store deals with both Samsung as well as American Tourister. If we really look at the sales which the partner store haven't lost that much to e commerce is Samsonite. The reason being because Samsonite is mostly not so abundantly available on e commerce. E commerce is still largely a promotional and value driven business. So the e commerce channels can more easily grab the sales out of that department store of American Tourister, but it's a promotional sales. So that is the two reason why the e commerce have been able to pick up the sales from the department store more from the e commerce. But I must say that if you look at department store for the breakdown of the sales by brand, we'll see that department store in 2015 have remained flat versus 2014 in case of Samsonite. But they have lost they're almost minus 15, minus 16 for American Brewster brand because that's one reason for China piece. Now when you look at the gateway cities also, on the gateway cities, whether it's Chinese or Brazilian, they go to factory outlets. They don't go to the full price stores. They already have an app which shows them which place to go and where the cheapest product to buy. So the full price sales and now we have some visibility into Tumi's business, for example. So look at their business also, their like for like also on the full price is still very robust. Even when I look at Hong Kong, which is another very peculiar example, when I look at our what is that place, Citygate, the factory outlet near the airport, yes, yes. It's almost fall off the cliff. Whereas when you look at the full price sale, it's not so bad, especially for Tumi, it's not so bad. The reason being because it's bought by people like you. So it still has many bankers and as many meetings have been held in China. So factory outlet business are getting more affected to e commerce as well as to the tourist arrivals. In Japan also we see that there is a very strong growth in the factory outlet business. So when tourists go to another country to shop, they actually want to do bargain hunting. I'll add to China that Samsonite Red, which we started to launch in China is doing very, very well. It's up to percent. And the business have done very, very well in China too and those feed into that Samsonite brand. So those adjacent categories are growing faster under the Samsonite brand. Yes, thanks. And just two questions for Kyle. The translation impact on top line, I think we'll get that. How can you calculate the translation impact to the EBITDA number? Yes. It's probably harder for you to do because there's a lot of moving pieces within it. So what we're doing is taking the same rate as last year and applying it through our consolidation model, right? So you're not going to get all the pieces because not everything is going to translate one for 1 just like revenue. But actually, if you look at the margin impact, if you take kind of a margin impact, it's not that different, right? So if you think about $200,000,000 translating into a little over $30,000,000 of EBITDA, it's about the same margin as our core business. But for you to do it and get to the number I'm getting to will be very difficult because within things like COGS, it's not all translating one for 1. But you take into account the gross margin impact? No, no. This is just translation. Just to say it's translation. Yes. So we're not I'm very careful to say it's translation. I'm not assuming that gross margin is different, right? Yes. G and A, you are not assuming. So the reality could actually be a bit bigger. It works very close to the same margin as our business, right? So I'd have to if you really wanted to play numbers, we could do that. But if you look at marginal translation, it's about the same. But you can't just kind of one for one go to EBITDA and translate because there are a few lines that don't translate the same. And also the currency pressures on the margin, we have been largely able to navigate it to the consumer. So two ways, 1, as you know, Europe, which was a largely affected market, we have the ruling hedging policy. So the translation does not necessarily impact the margin right away. Secondly, there was also an advantage of commodity prices moving slightly backward, which also allowed you to naturally manage and navigate the currency pressures. So quite honestly, when you look at our margins by regions, they have remained more or less same for the same brand across all the regions. So translation effect on the margin, Our no margin pressure, you could have seen there were no currency pressures, you could have seen a slight improvement in our gross margin. But I'm always asked, I'm just pre emptively replying on that, that what happened to the commodity prices. The commodity prices went backwards so much, we should have seen something coming in your books, for example, North America, where there's no currency pressures, still our margin will remain more or less in the same zone as it was in 2014. So there is no benefit which we see of the commodity prices. Long and short of the answer is that the raw materials component in our COGS is about 20% of the total cost of goods. Now commodity prices, we have done a recent calculation, has on an average have gone backward by about 30%. It was not direct related to only polymers, it's also to do with the demand supply like polycarbonate prices have gone down by only 15%. Because if there are less supplies, they can quickly cut down the capacity and not allow the prices to go down that much. But our credit 30% is the commodity prices have gone backward and 20% is the commodity component to that. So 6% should have been theoretically a margin improvement. But in North America, what we are always very conscious of this in the past also that these benefits are not only accruing to us but to everybody. We have never wanted to materially alter the price value equation of our product Because our buyers also are the big box retailers, they are likes of Macy's and Walmart, they read the newspaper and watch the television even more than us. So we tend to navigate our gross margin at the same level whenever both ways, when the margin pressure is there or when we have the margin advantage by adding or deleting bells and whistles as we'll say. So in the U. S. Our product will certainly find that the new products are coming out with maybe a digital shoe bag or a toilet kit. We have thrown in a few belts in that to bring up the value of the product which we are delivering it. Same way in some countries where there have been a huge margin pressure because the currency have moved even more backward. Either we take a price increase or sometime we also strip out some of the bells and whistles. This is how we navigate it. So this is how you have to see our gross margin. Coming up on this translation effect. If we really take this $200,000,000 sales effect that we have it and we work on an average, different regions are working at different places, let's say Europe and Asia where the margin pressure was the most, their weighted average EBITDA would be around 18% or so, 17%, 18%. Now that multiplied by the sales effect that you have is what is EBITDA effect you have roughly. EBITDA of Europe and Asia, yes, and this currency effect which you have it, the margin is the EBITDA difference is currently exactly coming to that level. Okay, thank you. And in front. Hi. Ramesh, regarding the guidance in terms of outlook of midpoint, high single digit top line growth, how does it look like in terms of like buying markets? Like which one will be better? What other markets, in particular, like maybe China and U. S? How do you look at which of the market that will be very different from like last year in terms of a trend? So that's my first question. The second question is on the GP margin. GP margin actually in the second half improved to around 53%, possibly because of the ASP increase and all that. So this year, we will see a full year impact. And on top of that, I mean, from what you just answered, should we be expecting that will stay similar? Or like what is our outlook for that? And then the third one is on the A and P expenses. Could you give us some guidance? And last year, we had a cut down in terms of advertising dollar to sales in the second half? I mean, by which brands or which market that you have some adjustment? And then like will that be recovered a lot of tools? Okay. So the outlook for 20 16, as I said that, I'm far more confident about giving you an outlook for 5 year block rather than giving you an outlook for the year because a lot of pieces which are moving within 2016. But I can roughly guide you to say that we see a continuing strong growth in Europe. These are all on constant currency. As of now, my outlook is that Europe and Latin America, these are the 2 markets where we should be able to deliver mid teens kind of a growth on a constant currency basis, which is continuing from the on the momentum which we had gained in 2015 to continue into 2016 and Latin America now coming back because of our changed strategy which we have implemented in Latin America, more particularly in Brazil kicking in. So these are the 2 markets where we can say mid teens is a kind of a number we are looking at it today if there is no change in the macro situation. North America is a business which still continues to face, I would say, pressures on the retail comp. And I must say that if you really look at your retail comp of North America last year, the first half, it was negative minus 2, minus 3 kind of a number. But in the second half, it went up to almost minus 10, minus 12. So the first half, we still see that at least in the Q1, we still see negative comps. Of course, it has come down. And every next month, it is coming down a little bit and all that. Maybe the second half could become somewhat better. But today, I would look at it if I blend everything together and considering the macro situation remains where it is, Americans don't end up electing Trump or somebody like that. I don't know whom they're going to elect it. The numbers will be more like we will grow slightly faster than the market. Market is expected to grow around 2%, 3% kind of a number. So mid single digit is what we should expect, which again is a continuation of what we have done in 2015. Asia is a business where I would look at it. There are different parts of Asia which are delivering different kind of numbers. Some of them will continue to deliver numbers very similar to what they have done in last year, which is market like Australia, Japan, they still continue to see the momentum in the business. Last year, they grew by around 30%, 35%. I would say that they can definitely deliver mid to high teens kind of a number into 2016 because they still have the momentum both because of continual strong growth in the tourist arrival numbers in these markets. And also, we are able to expand our distribution in both these markets. Markets like Korea, India, I'm not only the bigger market because there are 4 big markets for us in Asia. They both of them should also be Korea will be a little bit like mid single digits because there's still always there are some weeks where the North Koreans are doing some crazy things and suddenly you start to see that there are less traffic in your store. I mean, sometimes I'm amazed why all South Koreans are so sensitive to what happens in North Korea. Maybe they reduce the sensitivity, probably the guy will stop behaving so crazily, yes, but that's the reality. So I think at this stage, mid single digit is what we can look at it in our Korean business. India, we should be able to get to high single digit and if everything helps, maybe slip into double digit kind of a growth. China and Hong Kong. Hong Kong, I'm asking everybody, tell me what's happening in Hong Kong. Because 2015, we saw a seeded deceleration in the growth. But we were still on positive versus 2014. But the Q1 in Hong Kong looks to be very challenged. And I'm still not able to understand that what's happening in Hong Kong. I mean, I personally started to visit Hong Kong store for I mean, I've not visited our store for last 1 year. And since last 2 weeks, I'm visiting all the store to try to find out that what's really happening. And I was asking Josh, tell me what's happening in Hong Kong to other brands. Hong Kong is a little bit of a challenge. It's very difficult to make an assessment which way Hong Kong will go, though it's not a huge part of our business, but it's a meaningful part of our business. And we combine Hong Kong generally with our Chinese business when we evaluate our own performance there. China, our business, the core business of China still remains strong, which is the business which is but the change in the channel dynamics still continues. That means e commerce continue to grow at the cost of departmental stores and at cost of now shopping malls as well. So in the past, only the departmental stores were losing customers to the e commerce, but now we start to see that even the shopping malls where we operate or our franchises are operating the stores, they start to lose the sales to e commerce. And as I tried to explain to you before, when e commerce sales grow for the same sales that we will lose in department store, even if I get exactly the same growth in e commerce in that dollar value, but it looked to be 30% less because we will book it that way, because we'll book wholesale in e commerce, whereas we will lose the sales on the retail value. But if I blend everything together, our outlook for China is there for 2016, which should be if everything is where it is today, we should be able to see high single digit kind of a growth in China. If there is some help from the at the macro level, maybe we'll be get to double digit. But today, economic conditions where they are and knowing that the gain of e commerce will come at will get factored by 30%, so our outlook for the business is high single digits. A and P spend. Last year, we do shuffle our A and P spend by brand and by regions. So we have been spending a slightly bigger part of our money, our A and P budget on Samsonite in the known travel segment. The Samsonite business have been pushed a little bit harder in 2015 and same we will intend to do it in 2016. Same way, we have also increased our spend on American Tourister, more particularly in Europe, and we will continue to invest more behind American Tourister in more particularly in Europe. We're also increasing our A and P spend in some of the new markets like Latin America, Brazil, Colombia, Mexico, where we are now restructuring our business. We're also investing slightly higher amount of money in our with new brands, more particularly Lipo because we do see that Lipo sits at that very sweet price point, sweet spot in the market in terms of the price segment, where it's a mid segment of the market, which still continues to be very buoyant. So we just do move the pieces here and there. But I say that at this stage, our outlook for A and P spend is that it will be more or less in the same zone as it was in the last year, yes, as a percentage. Percentage, yes. I mean, we have an expressed desire. If you ask me, the outlook for our business for next 5 years is that we would like our A and P spend to move up. But we are not able to that can only be done during a period when the market is generally more buoyant, and it has less noise at the on the macro level. So but assuming that the macro noise which is there will continue, so you can see our A and P spend to be at the same percentage levels as it was in 2015. And then our gross profit will be about the same as what we've done this year. So even though second half this year looks a bit higher, we're also coming off of very good currency hedges for 2015. And so as we've hedged forward into 2016, those hedges are at rates that are more in line with what we've seen. So we had some positive benefits there. So when we look at our gross profit, it will be about what we did for the full year this year for 2016, 52.5%, maybe a shade better as we get some of the commodity benefits carrying through. So I mean, you shouldn't see that gross margin moving much from that. As we've always said, we don't artificially move the margins up. It could be just a timing issue of some navigation which happens in some cases, but our margin by brand and by region more particularly remains more or less in same zone, sometime each region's contribution could be slightly different and that gets reflected in few percentage points here and there. Okay. Before we take more questions from the floor, anything any questions from online? Yes. There's a question from Kevin Kang, Water Island Capital. With regards to the Tumi acquisition, can you provide any thoughts on cost savings you expect to potentially realize? We cannot give you a guidance in terms of the numbers. What we can only say that as we have seen this business in the past and as I spoken last time also, we have been trying to see this business for last 15 years. But now we have a better visibility into the business. Our understanding of the business is becoming better and better and we see that the business is very much similar to our business. It's almost exactly same as our business. It's just that they operate at a different price point and it has a different margin to the extent that every single vendor which they have are the vendors that we deal with. So there are no new suppliers. And on the other end, if you look at it, that every single customer that they have, I mean, every single channel partner that they have, whether they are the department store like Macy's or Takashi Maya's or Hyundai's or Blumie's, we also deal with them. They deal with the same old developers. If you come to IFC store, there's Samsungite and next door, there is a Tumi store. So which gives us the confidence that over a period of time as we start to integrate the business, there should be some very serious cost synergies. But I would also like to warn that it's a very well run profitable business. So our first task would be to make sure that this business continues to deliver the numbers which it was delivering in the past. So integration benefits in terms of the cost synergies would be seen over a period of next 3 to 5 years. It may not start kicking in right away. Okay. In front, Mary Anne? I think this question is probably more for Tim. Just wondering on the Tumi acquisition, could you actually share a bit more color on your role? Because I know you definitely have a very strong background in restructuring. So if you can make some comments, it would be great. Thank you. All right. Well, I don't want to disappoint on that front, but because I've got a very effective team who will be handling the restructuring. And my role today is really to be more of the admiral than the captain of the ship. And the captain here, I think, has got a very, very good plan of how to improve efficiencies. And it's I think all we can say about Tumi over the next few years is that it's just to look at comparable acquisitions and look at the sort of savings as a percentage of turnover that are achieved. And I don't see why this particular transaction shouldn't be different from many others in the consumer goods space. Okay. Thank you. Rob, in the back. Can you share with us you mentioned you rightsized the U. S. Retail stores. Does it also include the store network? Are you planning to right size the total number of stores in the U. S? I would say that our retail stores in the U. S, they continue to be very profitable. We have very few stores, maybe 1, 2 or something like that, which are not profitable. It's just that the profitability has been a little bit challenged as compared to what it was the years before when you have positive comps. So we have no plans to close any stores. And rightsizing is more because this whole, let's say, dynamics of omnichannel will continue to get stronger. And I feel that the consumer is now clicking, picking, picking, clicking, it's happening both ways. So we can offer the consumer a wider choice without necessarily having to carry those inventory at our point of sale. So this rightsizing is more about following the trends in the market and also to help further improve the profitability of the stores. Great. Thank you, Ramesh. Let's see. We'll take a couple more questions. We'll start with Peter here in front and then moving on to Shen Yes. Hi. Thanks for taking my question. A couple of things. Firstly, on American Tourister, you mentioned decent result in the U. S. There. So I was wondering if you could give us some reasons for the background because in the past few years, American Tourister growth has been more of a European story. And secondly, on spec, you've done a good job in moving up the margins. Just wondering what you see in terms of top line growth, whether it's time whether you're thinking of accelerating that side in the coming few years? And then thirdly, on just China B2B, you saw a fall off in B2B in second half of twenty fifteen. Whether you think that's normalizing going forward, I. E. Worse is over or any kind of views on that in the coming quarters? Any thanks. Okay. The American Twist growth in U. S. Last year was around 18%, which was I wouldn't say that we are having a new strategy that we are implementing in U. S. That additional growth is also coming in from some of the channels that we deal with American Tourister, which is more particularly likes of Amazon, Walmart, TJ Maxx, some of these value retailers have performed better than in 2015 versus 2014. So you get partial benefit out of that. And the second is we also now have a very active licensing arrangement with Disney. So we have this whole range of Disney by American Drusilla, which also has helped to improve the performance of American Deweester brand in North America. Coming to spec, I would say that definitely our team there has done an incredible job in trying to improve the profitability of the business. So the profitability of spec is, as I said before, is exactly in line with our profitability of our North American business, which is mid teens kind of a number. On terms of the top line, I must say that the spec business on the top line is very directly related with the new introduction or the success of the new introduction by the mobile phone providers. So in 2015, it has not been a great year in terms of new phones, whether it was from Apple or from Samsung, these are the 2 big players in that segment. And as a result, the sales have been more or less range bound. So if you ask me for the outlook of 'sixteen, you know more about the outlook for the phones. So I think we will basically be in line with those things. So at this stage, our outlook for spec phone because I know that there are no big major launches until autumnwinter2016, which has been planned by Apple. So the result of that would be that our sales of spec would be more or less range bound. It will grow by 4%, 5% kind of a number, not anything material. Specs expansion into other markets outside of North America, spec still continues to be largely a North American business for us. We are still working on our strategy. We don't have we may end up doing some test marketing of spec in China in second half of this year, but it will not move the needle that much more because we still need more time to understand this market because the whole dynamics in terms of distribution and channels and things like that are very different. And I must also say that our teams have been also busy with so many other initiatives they are working on. And our decentralized model, we do not push down from the top, that everybody must get out and start launching the brand. And our North American team was also not able to provide much support to other regions to start launching spec in the other regions because they were also focused on improving first the profitability of the brand. And I said they've done a great job. So at 16 also would be a continuation of improving the profitability for North America for specs. What you will see that our sales of spec would be more or less range bound, maybe 4%, 5% kind of a growth, which is in line with what is going to happen in North America. But profitability will get further improved compared to 2015. And maybe on 'sixteen, 'seventeen, we will start exploring the possibility of bringing spec out of North America and other regions on a more serious basis. China, the B2B. I didn't say the B2B fell off in 20 15. What I was trying to say is, 2014 second half, the B2B already started to come back. So the first half, in 2014, there was no B2B. So in 'fifteen, 'fourteen second half, we already started to get it. So there was an anniversary year in 2015 for the second half. So if you see the growth number, we had a huge growth number in 2015 first half because there was no 14 B2B first half, where there was already a B2B in second half of 'fourteen. B2B business is a little bit of a lumpy business, I would say. It's very difficult to predict. Does it come uniformly across all the quarters? No. There's some quarter that will be big. I already know the Q1 because we have the visibility into the Q1. So there's practically very little B2B in the first quarter. But I also know that there's going to be a strong B2B in the second quarter. We only have the visibility up to a quarter because we get the order for maybe a couple of months in advance. So it is a little bit like that. But I think today also it has not fully recovered in China because as I said in the past also, there are 3 components of majorly the B2B. There's one is airlines, they are back, because that's more like a uniform. The second is the banks running loyalty program for their customers, their VIP customers. You accrue the points and you can encash the points with some travel products and there are other products also in that. Then there's a third with the state owned enterprises, we're buying for their employees. That hasn't come back. That used to be the biggest part of the B2B business until 2013. That hasn't still come back. The banks have started to come back slowly and the airlines have started to come back. The only thing I would add to spec that excites the team at spec is there's a large part of the market there that we don't currently service very well, which are these independent retailers for the likes of AT and T. There's a huge retail network within the U. S. That spec actually hasn't tapped into yet. And as Ramesh said, the team has been very focused on fixing the profitability. The team is now very focused on how do I crack into that. We'll see a little bit of that in '16, but as we look forward 'seventeen, 'eighteen, the ability to tap into the bigger market that are selling phone cases and tablet cases is a big opportunity for that brand going forward. There's still a number one player that does $1,000,000,000 in sales and they're better penetrated in that market versus spec and that's really the next frontier for that business. And so as we think about what the team is excited for and getting ready for and you'll start to really see in the next years is around further distribution of the brand in the U. S. Clearly, the opportunity of spec has to also look at a 3, 5 year kind of period. Yes, exactly. Because when we bought the brand, we're losing money. We wanted to make sure that will this brand become profitable because we don't want to just drive the top line not knowing that how the profitability will look like. And now the team has brought back the profitability and which gives us now confidence that some of the profits that we are getting it, we start to now invest back behind the brand because in U. S. It's also about buying the retail points. So you have to pay in some money to get yourself listed. So we didn't want to also invest those money until we were sure about the profitability. So as Kyle rightly said, our teams are now getting focused on expanding the distribution in North America itself. But the results you will start to see maybe in 3rd or Q4 of 2016 partially, but majorly probably in 'seventeen, 'eighteen going forward. Okay. Last two questions. First from Shen and then in front. Thank you. Just two questions for me. Firstly, that mid to high single digit constant currency sales growth, do you expect operating leverage to achieve operating leverage with that type of growth? And then I'll ask that question first. No, as I said that at this stage considering what is there, if you look at our business, normally we always say that you can find some operating leverage. But at this stage, I mean, it's better to look at our business that if we grow mid to single, say, let's say mid to high single digit growth on the top line, Our gross margin will remain more or less in the same zone as where it was in 2016. Maybe it will pick up a little bit here and there, but there's more on account of different pieces moving at different rate. I think there may not be a majorly an operating leverage. But as we had spoken in the last time that if I find that there is some possibility on that, we would like to invest something more behind some of the new brands that we have acquired. So in terms of the bottom lines, EBIT or EBITDA, whichever number you want to look at it, look at our EBITDA to remain more or less in the same zone as a percentage and grow it in line with our sales growth, not having an operating leverage. But when you really start looking at our business over a 5 year period, we're not changing the business model. We're just always talking about that the sales growth at the, let's say, a double digit sales growth, gross margin remaining more or less in the same zone, then you have an operating leverage of around 50, 60 basis points every year. Part of that we would like to invest back behind our brand, move up the A and P spend from 5.5%, 5.6%, getting up to around 8% every year increased by 20, 30 basis points and allow that 15, 20 basis points to drop down to our bottom line. But considering the macro noise that we have in the background, we are now guiding that take this year also as a year. But on a normalized year, 5 year horizon, there's no change in our thinking and strategy. Okay. And then secondly, in the U. S, what proportion of your sales is company owned retail, exclusive of e commerce? And what proportion of that company owned retail is gateway cities? Yes. 20% of our sales in U. S. Today is coming from retail. Of that, about onethree of our sales, it looks strange that even when they told me also, I said that, are you sure? But that's the number. A third of the sale comes from the gateway cities. So it can have a very material impact what happens in the gateway cities. But it's not also doom story, I would say, because what we start to find is and there's an experiment which our teams are doing that is to repopulate our stores and we're doing that in Florida right now with some encouraging results in order to start repopulating our store with a more entry price point products in Florida. We're seeing that the drop in sales is bigger than the number drop in the number of tourist arrivals. So maybe the Brazilians are coming, the drop is minus 10%, but we see our sales are minus 25% lower. Maybe they are finding our price points to be a little bit too much. So we're trying to repopulate our stores. And I was talking last 2 weeks back with our U. S. Retail team and they feel that the first it's just 2 weeks or 3 weeks that we have done these trials. The initial feedback has been somewhat positive because we were tabulating this number. The tourist is down by minus 10 and we are down by minus 25. So one of the things which we also looked at in our store that the conversion rate also had slightly come down, which is a direct reflection that consumer is not finding that our price value is attractive enough. By repopulating the store, maybe things can get better in the 3rd Q4 of this year. That 20% is exclusive of e commerce or inclusive? It's exclusive e commerce. Okay, thank you. Okay, final question. Hi, management. Just one quick question. So if possible, can you share some color on the funding source of the Tumi acquisition? So what would be the amount of are you going to raise any additional debt? And then what would be the cost of debt on that? Yes. So cost of debt is still a moving target. So we can't disclose that yet, but it will be all funded by debt. So we'll be taking about $1,900,000,000 of debt with a mix of term loan A, term loan B, and we disclosed that in kind of our initial announcements. So the cost of debt is a bit of when you get to the market to price it. So I think we'll have a good mix of Term A, Term B. Term A will be a bit cheaper. So on a blended basis, I think we'll be quite happy with the cost of debt. Great. Thank you very much for coming to our results presentation today. Thanks.

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