Good evening, everyone. Thank you for participating in this conference hosted by the management of Samsonite International SA. We have the Chairman, Mr. Tim Parker, CEO, Ramesh Tainwala, and CFO, Mr. Kyle Gendreau joining us today. I will now turn the call over to management, please.
I think I'll just open it, Tim Parker, the chairman here, by saying this has been a very big day for us. It's a seminal acquisition for our business. I think it's a very extremely neat fit, both from a product and from a geographical point of view. We feel as a business, we've delivered over the last four or five years since flotation, I think our share price has increased by 75%. The company has got a good record of sales growth, profits growth, and our delivery to shareholders, and we think this could be a major step forward for our group. I think also we have experience over the last few years of assimilating businesses. This is a larger company, the team stand ready and have got, I think, very well thought-through plans around how to take Tumi into our portfolio.
We're very pleased. It's been a long haul. It's a company we've wanted to acquire for a very long time, the team are standing ready, I think, to give you a good presentation of what our plans are. Ramesh, over to you. Hasn't slept for very long, he's still going.
Okay. As Tim said just now, we feel that Tumi is a very attractive proposition for Samsonite. It is truly a transformational deal for us, which can fundamentally strengthen our brand portfolio. If you look at it, today we have two key brands in our business. One is Samsonite, which is operating at a mid-segment of the market, covering price points starting from $100, going up to $300 price point. We have American Tourister, which is operating at the entry price point, which is $100 and below. There was always this attractive segment of the market which was sitting above $300, we always wanted to have a play in that segment, we have never been able to do it in a very credible way.
In the past, we have tried to have a play in this segment by creating our own brand called Black Label by Samsonite, but with limited success. Since those days, it is almost 15 years back, we always had this desire that we would like to acquire a brand like Tumi, which should be able to complement our existing two brands in the travel luggage and the business product segment and make our entire offering much more complete. When we look at once we acquire Tumi is a very well-run business. Just to give you a little bit perspective of their business, that today, Tumi is basically a very well-run business. The difference between their business and our business are that bulk of their business is sitting in North America.
Two-third of their sales and revenue is coming from North American market, and one-third is coming from rest of the world. For us, our revenue contribution is almost opposite of theirs, that more than two-third of our business is coming from other markets than North America, and less than a third of our sales is coming from North American markets. That is what gives us one of compelling opportunity that when we acquire this business, we believe that one of the biggest opportunity that we would have, and we can use our global distribution network, both in retail as well as in the wholesale channels to expand the reach of Tumi in Asia and Europe. It is not that we didn't know that that opportunity exists.
It is just that we have enough people on the ground in these markets who have local understanding of this market and the consumer preferences, so we can deploy the machine of Samsonite to make Tumi grow faster in markets other than North American markets. That does not mean that we are ignoring the potential of North American market. Our own belief is that North American business of Tumi is very well run. So it will continue to grow, but it will continue to grow more in line with the industry growth, which is estimated to be anything between 4%-6% as a growth number. That is what we can expect to come from Tumi out of the North American market.
Any attempt to grow faster than that only will come at the cost of somewhat diluting the brand equity over medium to long term, which we would not like to do it or by diluting the existing profitability that we have in North American business. The profitability in North America is much better, slightly higher than our own profitability, which is because that's a weaker business. So that is one of the biggest, let's say, the revenue synergy or revenue opportunity that we see in this acquisition. The other thing which Tumi can do to our business, we have been rolling out our own multi-brand strategy. We have recently acquired Rolling Luggage, and we also have this House of Samsonite concept which we've been rolling out globally.
We see when we are doing that rollout of our multi-brand stores with our carrying luggage and bags, we find that the presence of Tumi will make our offering once again much more credible, and thereby will also have direct influence on the profitability and viability of this multi-brand store concept. The second opportunity that we see in Tumi when we acquire the brand is, one of the weaknesses of Tumi has been that they do not have a credible hard side luggage. If you look at today's business, the check-in luggage component of their total revenue is less than 20%. Whereas in our case, check-in luggage component of our business is almost about 50% plus. They're losing out their opportunities mainly because they do not have credible hard side offerings.
The market globally, more particularly in Europe and Asia, in the premium price segment, has almost entirely moved to the hard side. U.S. is the only market where still the soft side has a market. That is the reason why their business in the U.S. is doing quite well. With Samsonite's own experience of developing lightweight hard side luggage, I think we should be able to bridge that knowledge gap that we have at this stage, which is another major definitive revenue opportunity that we see in the post-acquisition opportunity out of Tumi. The third thing which we look at is what makes this acquisition for us very compelling and very interesting is their business is very similar to our business. Right from design, development, sourcing, logistics, channel partners, everything is exactly our business.
To extend that, when we were doing due diligence, we were surprised that every single factory where they're sourcing their product, we have an existing relationship with them for our other brands, mainly Samsonite. Even all their customers, whether whichever department stores or the malls they're dealing with, we also have relationships going with them. Looking at all this, the closeness or similarity of our business to them, we believe that we will have some very compelling and very attractive opportunities available to us. Of course, all that will be becoming available to us over a period of next 1-2 years' time, once we start to implement the integration of the two businesses. In just a nutshell, I would say these are the three key factors which makes Tumi acquisition very compelling for us.
If I can add on one more thing, that today when you look at it, a lot of people ask us that since we have been looking at Tumi for a long time, why the deal happening now? I'm just proactively replying to that. We feel that one reason why the deal is becoming more viable both for us as well as for them is the cost of money. The cost of debt is also at a level where the deal can be engineered or structured in a manner which could be very attractive for our shareholders, but will also be making good sense for their shareholders.
Ramesh was covering on the financing, and that's all fairly well disclosed. We've got a fully committed facility which will be led by Morgan Stanley and has [inaudible] SunTrust and Bank of Tokyo in it. That's one of our next big steps, is to go get that done, I would say we have good momentum there and are feeling very positive about that. That we will get done, and I think he covered what makes us very excited about the business from those obviously synergies that come in here against a brand that is a perfect fit for our business. I guess from there, we can probably open up to Q&A if we want to go there.
Absolutely. Yeah. Whoever's moderating the meeting will throw the meeting open to questions.
Thank you, management. We now begin our question and answer sessions. If you have a question, please press zero one on your telephone keypad now and you'll enter a queue. After you are unanswered, please ask your question. If you find that your question has been answered before it's your turn to speak, please press zero two to cancel the questions. Once again, zero one on your telephone keypad now to ask a question. Our first question is Darren [Toh] from JP Morgan.
Hey, thanks. Just a very quick question. Post-acquisition, would Tumi be independently managed? And also, just a quick follow-up, would we see any management changes post-transaction?
Obviously the C-suite management change will happen with Tumi. It's an obvious change. One of the things we'll be focused on is keeping the DNA of that brand intact. The U.S. business sits conveniently fairly close to our business on the East Coast in the U.S. The back-office integration will happen on the obvious things like finance and IT over time. Those will naturally fit in. We'll be very focused on keeping a team plugged in here to manage the brand, which is really what we've done with our other acquisitions. We will have a central brand management. I think the real power, and Ramesh was talking about feet on the ground. The real power in what we'll be able to do in this thing is pit it against the teams we have in Europe and Asia.
When we get to the front end of the business, the local teams will be able to help drive those quite well while we keep the DNA and the product design development fairly centrally managed for this out of the gate.
Okay, thanks.
Our next question is Hussein from Mackenzie Investments. Please go ahead.
Hi, everyone. Just a couple of questions. The first question is on the balance sheet and the leverage. What level of leverage do you think you want to get back down to over time? Kyle, I know you said yesterday, or I guess for you guys earlier today, on your local call that you may not be able to do any deals for a year. That seems like a surprisingly short timeframe. Maybe if you could just clarify that. The next question is, to what extent does the recent performance of Tumi, particularly in North America, concern you?
Okay. On the leverage side, we're going to start at around 3.3 times EBITDA. You know, you guys have all looked at our business. We generate a good amount of cash. Tumi does the same thing. This will de-lever fairly quickly. I would say, a handful of years, not to be so specific. We will quickly de-lever down to just below two times, and I think that's a zone that my business is totally comfortable with. I'm totally comfortable at three times, which is where we'll start. The reality is, this should de-lever quickly. You'll run your own models. I'm sure all the analysts will run models, and you'll see that that's what's going to happen. I won't necessarily say we have a target leverage level. We'll continue to de-lever this thing.
On the one-year timeframe, it's more around just managing capacity, right? I actually do think we have capacity to do more, but we'll be very focused on managing this business and integrating it. When I say one year, the reality is, between the next one to two years, you won't see any large brands come in. But it doesn't mean we won't tuck in some things like we've done last year, like Rolling Luggage and other distribution opportunities across the globe that are easier to integrate because they're not really brands that we have to keep alive, but they help us fill in our distribution story in markets like Europe. You shouldn't be surprised if we do some of those, but they're small in nature. You won't even notice them, actually.
Coming to the North American business of Tumi. I would say that the North American performance have been not that bad, especially when you factor in the macro issues with the business have been faced with. When we really map their performance versus our own performance, you can really pin down and see that two markets, there have been some challenges, but that has been same as everybody else's face, which is Florida and New York market, where the tourist traffic, on account of strong U.S. dollar, has been materially low. When we look at our own like-for-like growth in these two markets has been like mid-20s negative, which is similar to what Macy's or any other guys have done in these markets.
Other than when you peel out these two markets, all other places, like-for-like growth for Tumi, we should call it Tumi from here referring to it like that, has been flat to positive, which is not so bad. The other thing we should also keep in mind is that since 2014, Tumi has been implementing a strategy, and we are very supportive of that, and we feel that's the right move for them to do it. They used to operate a second brand called T-Tech by Tumi, which was operating at a lower price point, and it was created basically to drive more volume out of the business. But they didn't realize that that was also damaging and diluting the brand equity of the core brand. Because T-Tech, nobody was buying T-Tech as an independent brand because it was called as T-Tech by Tumi.
People are mostly buying Tumi with T-Tech thinking that they were buying Tumi, which over a period of time was diluting their brand equity. Another thing was, they have changed their strategy since 2014, which is reflected on their numbers partly in second half of 2014 and then 2015 is they also took that call to cut down the promotional business. In the period of 2012, 2013 period, they were also very aggressive like many other brands which are category in this segment of bags and luggage, including likes of Coach and Michael Kors, they've become also very aggressive in running promotions and too many sales happening, too fast an outlet, very rapidly expanding the footprint of the factory outlet. All those they have started to correct it as of second half of 2014 and then continued through 2015.
When we look at business today, I think bulk of this cleaning up has been done. About 95% of that has been achieved. When we are going to be acquiring the business, we will get a cleaner business and a business which is strategically oriented, not only protect the profitability of the business, but also protect the brand equity of the business, which is very important for a category like this. I would say, [inaudible], our own view of that business what we've seen is they have done a reasonably good job there. What they've not done it right, this is our judgment, is probably they've not been guiding their market well enough. The guidance programs have been far in excess, and they have, in time, not corrected the guidance. Everybody knew that there were some headwinds which were there in the market.
It is not correct guidance. The market was always getting caught surprised with the numbers, the result of that has been that it seemed they have had a poorer performance.
Okay. Thank you.
As a reminder, please press 01 on your telephone keypad now to ask the questions. Our next question is Hussein from Mackenzie. Please go ahead.
Hi. Sorry, this is the last one from me, I promise. Just, Tumi's growth strategy over the last number of years, a big part of it has been centered around new store growth in North America and in Europe, and also expanding the wholesale part of it. The expansion of the retail footprint has occupied a lot of CapEx. I know you may not be able to give us all the details, but do you envision any change to that growth strategy, and would that have an impact to their CapEx whereby you could bring it down to a level that's closer to yours?
Yes. There is a small change in our strategy for the business. We believe that, they have kind of maxed out in the North American distribution footprint, both retail as well as the wholesale. Any attempt to now grow their business in North America faster than the industry growth, industry growth is expected to be in North America in the range of around 4%-5%. Any attempt to grow faster than that will come at the cost of either diluting the brand or diluting the profitability of the business. When we are modeling their next five years, let's say, outlook for the business, we are expecting a more moderate growth for North American business, more in line with industry growth. Whereas, we feel that their business is underrepresented, and undermanaged in Asia and Europe. I'm not even speaking of Latin America at this stage.
If you look at it in Asia, I mean, for us, Asia delivers 40% of our sales. China delivers 10% of our global sales. China delivers only 2% of their sales. I mean, it's grossly undermanaged or under-fed market for them in China. I think, we feel that in spite of whatever, let's say, a little bit of noise which is there in China, still it's a very compelling market. It offers great opportunity for us to really looking at the market. We would be more invested to get higher growth than what they were getting it out of Europe and Asia.
Our confidence is based upon our experience in these markets. We are structured naturally in a kind of a federal structure, wherein our business unit at the country level, are capable to take decisions to ensure that whether it's a product strategy or market strategy are guided towards what will serve the consumer interest the best. We have enough number of people, what we call is that we have enough foot soldiers in each of these markets who really go out and optimize the business and look for driving Tumi to its full potential in this market. The growth in this market for us, we believe could be much more.
I would not hesitate to see, rather, I would be personally disappointed if we cannot double the business or more than double the business in this market over the next three to four years' time, because there is an opportunity there. We know how to do it because we have done the same thing for our own business. To add on to that, look at the current business model, why the business is undermanaged, because they do not manage bulk of this market directly themselves. They have distributor arrangements there. When you have distributor looking at that he wants to make money today. Who's going to invest behind the business? Distributor doesn't want to have a business where you would make money after three or four or five years' time, because he wants to only take bets which have 100% stake, because he doesn't own the brand.
It is definitely our intention that over a period of time, through a process of negotiation, friendly negotiation, we will move this business to more directly operated business the way we do our business today for our own brands. This will also give us an opportunity to grow the business faster. Coming to the CapEx. In reality, the CapEx numbers that they have in the business today, so you're looking for modeling that business, the CapEx numbers will be more or less same as what they used to be spending it in the past, which is around [$15 and $14]. It's just that its allocation will happen differently. Less money spent in North American market. More money would be allocated to Europe and Asia. I must also add to that particularly in Asia, the bulk of the premium bag and luggage sales are happening from the department stores.
Department stores still plays a very important role in key markets like Japan, Korea, China. They're still the main channel where the premium products are sold. Maybe the retail footprint roll out may be somewhat moderate because we'll be pushing more the shop-in-shop kind of a thing in the department store. Overall, you can model your business to say that retail CapEx or the overall CapEx numbers would remain same as what they have now. The location would be different to what they were doing it in the past.
Okay, great. Thank you very much.
Our next question is Thomas from Westwood International.
Thomas from Westwood International. Hello?
Go ahead with your questions. Thank you.
Hi. Sorry. It is Thomas Pintarwasa from Westwood. Two questions, if I might, on, I guess, at the end of the day, what your product lineup is going to look like, and also what we can draw from the Hartmann experience. The Hartmann experience seems to have taken longer to integrate, and to roll out across. I am just curious as to, and I think you kind of answered the question earlier on, but how this integration is going to be easier than Hartmann. Secondly, how does Hartmann fit now in your product pyramid? They were the premium product. I know they are obviously different to Tumi, but can you just talk a bit about how your existing premium products now will fit with Tumi coming in?
Okay. Let me look at it from there, how do we see their product strategy evolving over the next three to five years' time? I would say, Tumi currently is doing a very good job in terms of their ability to design, develop business product more particularly, and more suited for the North American market. That has been their core strength so far, which has delivered them exceptionally good results. They have also done a very good job over the last three years in developing the women's business bag segment, where they also see one of That segment is today, and I am reading from the transcripts of Jerome when he was addressing after the quarterly annual result announcement a couple of weeks back. That women everyday use business bag segment is their fastest growing segment, which today makes up for around 15% of the revenue.
It is growing faster than any other category for them. These two categories, they are doing extremely well. Our intention is to basically continue what they are doing it. There are areas where we believe we would like to see changes in their product strategy, and one of the major areas I said before was the hardside category, because they do not have a compelling and a competitive hardside offering to really meet requirements, more particularly for Europe and Asia in the checked luggage segment. To give you an example, today, in the premium luggage segment, which is $300, $400 plus segment, in Europe and in Asia 100% of that market has now moved to hardside luggage. In Europe, 90% of the market has now moved to the hardside luggage market. Whereas in North America, still only 20% of the market is hardside.
Tumi can continue to do well for their collections for Alpha, well, very well. Tumi continues to do extremely well in North American markets, but that is not the kind of collection that is catching eyes with the consumer in Asia and Europe. That is where we intend to come in, and bring new hardside collection for them. I must admit it, what we are talking about is not that they do not know that weakness. They do not know other opportunities. They are 100% aware of the opportunity. They have not been able to develop a credible offering there. It is just that they have some knowledge gaps.
They do not have enough experience in this category, and they have some stumbling block in terms of knowledge and technology which is required, and that is what we can bring because Samsonite has deep understanding of how to design and develop lightweight hardside luggage. Asian and European consumer, apart from looking for a very compelling design for hardside, they're also looking for something that is very, very lightweight. That's one change we will bring about. It may take, let's say, today we are looking at a 1 to 2 years' time.
The second area where we feel we can make an improvement to their current offering is, even in the business category which they have it, their current offering is very, very compelling and very powerful, and I would say very good for the North American market and in other markets for the banking community or the investment bank community. They're all used to using Tumi, they all like the product. If you leave apart the people who are not associated with the banking and investment community, are not necessarily finding the business product that attractive. When you look at close to body products, we were recently in Japan and we were reviewing their offering there, and we were talking to some of the key channel partners like Takashimaya and Isetan, and they all believe that their current offerings are very good for the banking people.
For other consumers, they do not find them attractive. We as a company, we have that experience of how to design and develop products which are more suited for individual markets like Japan, like Korea, like China. Even for that example, what will work in Germany and what will work in Italy. For close to body products, there are local nuances which we have to address, which we know how to do that. That will be another thing which will bring about the change in their current product offering that they have it. All that will happen over a period of, let's say, next 1 to 3 years' time. Coming back to Hartmann. Hartmann experience, we look at it, I must admit it, that we are very satisfied with our current performance of Hartmann.
Hartmann and Tumi are not something, there's very little correlation between the two. When we bought Hartmann, a brand which was getting prostituted and was getting busted. When we really bought the brand, it took almost two years' time to clean the brand and to clean all the shit that was lying around, and then 2015, we relaunched the brand. At first, we did not have any management talent. There was no design talent. We had to create the design right from the scratch, starting from the consumer study to marketing brief, and then developing the product. It has taken much, much longer. When we look at today's performance, I would say we are very, very satisfied with Hartmann's performance. Hartmann, I covered off as to how we see Hartmann [inaudible] .
I can give you an example. We see Hartmann as more of a classic American heritage kind of brand, little bit like a Polo Ralph Lauren. Tumi is a little bit more like a Giorgio Armani kind of a thing. We feel that both these brands can coexist with each other. It is true that the size and scale of Hartmann is very different than Tumi, and the current franchise of Hartmann is basically limited to North American markets and in Japan. It is definitely our intention to continue to build on the goodwill of Hartmann, which exists in these two markets, and we'll continue to develop the products which continues to retain the Hartmann DNA, which is tan leather, vegetable leather, the vegetable tan and things like that. Those are the kind of signatures of Hartmann, which I still appreciate.
The scale will be very different. The case for Hartmann is that in the next five years' time, we want to grow Hartmann to be around a $100 million brand, and we know that definitely it will get there. Tumi is already a $550 million brand, and the vision over the next five years would be probably we should double Tumi from where it is now. They are at two different scales. Coming to the delay of Hartmann, as I said, Tumi is coming in with already a well-structured organization. We know they have that design funnel, which is today working on the themes are working on design which will be needed for the market in 2018. They work like how we work on it.
They know that if you have to work on something which is completely new, where some new technology is getting also incorporated, it needs almost two to three years' time before the product will be able to hit the market. At Hartmann, there was nothing there, start from the scratch, it takes two to three years' time to even get there. Tumi already have existing products which are winning in markets, but at the same time, they already have collections. We have been, and we have business intelligence, we have been presented. They have a collection which is going to get to the market in the fall/winter of 2016. They have the collections ready, which will be hitting the market in spring/summer 2017. They are doing at this stage, some more engineering work on the collection for autumn-winter 2017.
They're right now working on their design brief for 2018. It's like a very well-structured company where they have funnels large enough to take care of new design development. The build-up pattern is there that they will not have a kind of a It's not a fair comparison, as I said, between Hartmann and Tumi.
Thanks. Just to follow on, just to make sure I understood correctly. As far as the hard side category and introducing something from Tumi, you're saying, is that within the one to three-year timeline as well, or was that one to three-year timeline specifically for the non-business offering from Tumi?
No, I would say hard side, one to two years is what we used to look at it from the day when we basically take the business. Once we acquire the business, we can say another couple of months will go in integration of the business. From that period, we have a knowledge that they have, let us say, they have the design packages ready with that. We do not have the clue to that how far they are and how suitable they are, in terms of our understanding of what are the engineering complexities involved in that. The design packages are valid one. We can get to the market with new products for them, new hard side within a period of one year. If we find that there are more engineering challenges, then we should be talking about two years for hard side.
As far as the business products and other close-to-body products are concerned, it has to depend upon how we start to convert those markets from distributor markets to directly operating markets. There's no point in going out and doing the same thing with your distributors. One of the first markets where we will start implementing that will be Japan, because as of January, they have already converted themselves, that market, into a fully owned market. In that is a market where post-integration, we can move rather quickly to start developing products which are more suited for the Japanese market.
For example, one of the particularities of Japan, which is very easy for our people to understand is, if we want to sell any product which is business product which is above $500, one of the critical minimum must is that it must be able to sport Made in Japan. If it is not Made in Japan, we don't get a market there. We know that very well. If you want to sell a product which does not carry Made in Japan, you cannot sell ICE in the premium segment. You can of course sell the product at the mid market and the entry price point market which are not necessarily Made in Japan. Secondly, they do not like, you need to put a label on that if it's leather been used there, that's all vegetable-tanned hide.
If you have no other country specifies that, it's not that that's a legal requirement in Japan, but it's a consumer preference there, and the popular store insists on you to qualify that. If your products are not using vegetable dyes, they will just not place the product. Popular stores are the key channels where these products are then sold. In Japan, probably we can get started much quicker post-integration. I would say we will aim to develop some of the collections based upon our past experience in this market, maybe in a period of one year's time. The other markets will also go by as we will integrate those markets, convert them into more directly operated markets, and then we will start to tweak their post-merging product strategies.
Okay, thank you very much.
Our next question is Alex from Sarasin & Partners.
Hi. It's actually from Simon Steele from Sarasin & Partners. First of all, congratulations. Looks like a great deal. Well done.
Thank you. Welcome.
Yeah, sorry, can you hear me?
Yeah. Now we can hear you. Yes.
Okay, great. Well, I said firstly, congratulations. It looks like a great deal. Actually, some of the question has already been answered in the previous question, but just curious to know your thoughts on how many of the types of sales that you have in Europe and Asia do you think could be appropriate for Tumi, and to what sort of regions would you go for first, if at all? Also, to what extent do you think the existing supplier base can cope with the additional resources, particularly with new products not that far away on the horizon?
Yeah. Let's look at it in terms of the channels. I would say that today we have about 100 or more multi-brand stores in Europe and Asia and a few of them in the U.S. They are all the right platform to also be selling Tumi. Other than that, we have one chain store called Going Ahead, which are the airport stores in the U.K. and a few other European markets. We already sell at Tumi, and Tumi actually contributes to those stores almost about 60%-70% of their sales. They can continue to sell. There are other multi-brand stores that we have. As I said, we have got 100 points of presence like that, which can right away start to sell Tumi.
We have also, one of our visions, which we have been expressing over the last couple of years, is that we believe that not simply in Europe, but also increasingly now in Asia and the U.S. as well, the department stores are actually not making money. We feel that the department stores, which have to be the main channel for our distribution, their position is becoming more and more precarious. In Europe, the mom-and-pop stores, which are the second-biggest channel for our business, they are also closing down. As a result, it is becoming almost important for us, or maybe critical for us, to have our own multi-brand stores.
With our experience of Going Ahead, where we sell Tumi, and our other [hard concept stores] where we don't sell Tumi today, we see that Tumi can make a very significant contribution to bring, let's say, additional sales to our multi-brand store, and which can have a real impact on the profitability of these stores. I would say post acquisition of Tumi, we will have more conviction in order to expand our multi-brand store concept much more rapidly than we have been doing so far. That is an opportunity we can look at it from a distribution point of view. I must also warn you that in Asia, we run quite a few Samsonite-brand stores. Like Tumi has their own brand store in North America and a few of them in Europe, mostly really in the U.K.
We have no intention to sell Samsonite in Tumi-branded stores or Tumi in Samsonite brand stores, because the brand stores are not only serving the purpose of making a sale, but they're also an important tool to build the brand equity. We would not like to confuse the consumer between two different brands, it would be, or two different brand DNA of Samsonite and Tumi. I don't know. Was there any other question aside this also?
Yes. Sorry. The second part of the question was just about the suppliers and their ability to scale up to meet the additional resource.
Yeah. As we look at it, doing due diligence, what we found out, we always knew about that each one of their suppliers, without any exception, is a supplier where we have existing relationships. Probably our relationship is bigger than their relationship just because now we have the scale advantage. We definitely would be able to leverage this almost supply chain that we have. That would have some serious, let us say, opportunity in terms of the cost synergy for us. But at the same time, I believe that we as a company come with an engineering background because, in the past, we have complete manufacturing experience, and we still operate three of our own plants. Which gives us a better understanding of how to run the cost.
We start our costing of our product from a detailed bill of material, and we have seen during our due diligence, Tumi doesn't start that way. They start with a target cost. They're basically more fashion and design-oriented people. As a result, our supply group feels that there could be some very significant cost savings in terms of working with the same vendors to get better POs out of them than what Tumi is able to get it today. Part of it is also because we can take advantage of the scale. Like many of our basic raw material, like the polycarbonate and the nylon that we use, we tend to push all our vendors in order to combine our quantities with one or two suppliers, and then we insist on those suppliers to pass those savings to us.
We combine our requirements into volume, and then we are looking for economical volume with it. That is another thing which could possibly benefit Tumi and which would get reflected in some cost benefits that we could find in Tumi business, which could improve their profitability. I would not say that maybe we also feel that as we work to improve the profitability, part of the saving, it is very much our intention. We think they are also somewhat under-invested in terms of the marketing investment so far they're doing it. Part of the savings we may like to plow back into their marketing spend. If you look at our own reserve, our marketing spend is in the region of around 6.5%, whereas their marketing spend is much lower than that.
If we will find some additional savings, we would tend to invest some part of that savings into additional marketing spend.
Great. Yes, that makes sense. Thank you.
Our next question is Ian from Invesco.
I have some questions relating to the funding side and whether you can give some broad guidance on what you expect in terms of funding cost and also just on the denomination of the debt as well, given that, I suppose roughly 50% of your sales are in US dollars.
Yeah. We're not giving guidance on the cost of debt because it needs to play out. What we've been telling folks is, we're at historical low levels for debt, and I think we will optimize and end up in as good a position as we can. I think if you look around at deals that have been happening, you get a good sense for that. It's hard for us to give you a specific number. I'm feeling highly confident with the bank team that we have that we will have a good execution. I can't give you a number. As far as debt, it will largely be U.S. We've left ourselves the opportunity in the committed papers to fill in a EUR tranche, and we will watch and see how the syndication process plays out and decide if that's beneficial for us as well.
There's a chance we will have a EUR component to the debt. I would say that's not played out yet either.
Okay.
I'm sorry for the vagueness in part for us to give you the cost of debt number. We'll be working to get that squared away ourselves in the next few weeks.
Great. Okay, thanks. I had a question for Tim. I think you've been quoted, Tim, in the press as saying that historically, that Tumi was too expensive. I guess at that time, probably interest rates were quite low at that point. What's changed your mind since then?
I'm trying to think where this quote has branched up from. I have. It probably relates to a question that was put to me at the time of the IPO or roundabout the time of the IPO. At that point, their business was obviously less well-developed than it is today, and it was owned by. They had private equity owners who were indeed, I think, seeking a very ambitious realization for the business. It was really, I suspect, if I said that, it was to do with the situation at the time. My mind, however, hasn't changed around the attractiveness of the business. I think there are several factors that make this a very good transaction to do today.
The first is that I think we feel pretty confident about the capacity of our business to build brands in Asia particularly, and also in Europe. The second is that we ourselves, I think, are a more mature business with a highly efficient, well-developed model that works on a whole basis across the world. We have made a number of smaller acquisitions, and we've gained some very good experience there. I think our understanding of the capacity, the future opportunity with Tumi is also much more developed today than it would have been a few years back. If you couple that with what I think are very good conditions in terms of financing costs, I think this adds up to an extremely attractive deal.
I was saying to some people earlier on this evening that this is a deal we would have been happy to do at a slightly higher price had it happened. We feel that where we're at at the moment is, it's not a cheap deal, but I think it's good value for our business. Certainly after a couple of years, we'll be in very positive territory.
I suppose one other question that I had is, it seems like the big opportunity is to grow the brand outside the U.S. You've said that you need to evolve the product to do that. What gives you the confidence that the brand equity is strong enough to support the much higher price point that exists for Tumi? I guess otherwise, you don't want to end up competing with your existing brands by having to charge a lower price.
Let's say, Tumi is a brand which has a pocket of some very strong brand equity. Because it's not that whether China or Hong Kong or Japan or Korea, Germany, they have presence there in all these markets. It is just that, the share of their business in this market is much lower than what we could actually achieve it. What's really missing is, I would say, the team on the ground. I can give you the concrete example that in Madrid, I was there a couple of weeks back, we have two stores, and the guy who's supervising those stores is coming from Paris. It's also difficult for them to hire people in Spain just to manage two stores. Whereas in Spain, in our team, we have 32 people because we have a sizable business in Spain.
Our business in Spain is close to around EUR 15 million, whereas their business in Spain today is about EUR 2 million. How do you do that? For us, it has business integrated with our own current business. Now people can service those markets much better, and that's where we have advantage.
Okay. Thanks very much.
As a reminder, please press zero one on your telephone keypad now to ask a question. If there are no more questions, now I'll pass back to management for conclusion. Thank you.
Thank you very much. Thanks a lot.
Thank you.
Yeah. Good. Great. Bye.
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