Earnings Call: H1 2015

Aug 26, 2015

Good morning. Thank you everyone for coming to attend the 2015 interim results presentation of Samsonite International. Today, we have our Chairman, Mr. Tim Parker our CEO, Mr. Ramesh Kengwala as well as our CFO, Mr. Kyle Gendreau here to present the results. The plan is for Tim to give a few opening remarks and then Ramesh and Kyle to review Thank you very Thank you very much indeed, William, and good morning, everyone. It's very good to be back in Hong Kong and to be presenting indeed with these results. There can't be many companies either here or across the world actually actually who can report sustained growth in sales over 4 or 5 years of around 15%, some years a bit more and some years a bit less. So for us to reach the half year point and to be able to point to a record sales of almost 1,200,000,000 dollars is very satisfying. The fact that our business is so globally diverse, I is a great strength. And having just come from the Bloomberg Studios where everyone's in a flap about China and what's happening and great worries. I was able to point out that unlike many companies here, we are a very broadly based business around the world. And I think that is a great medium term strength. China is important to us, but we in no sense reliant upon China. At the same time, of course, being a business that reports in U. S. Dollars, any periods where the U. S. Dollar appreciates so significantly is bound to have an impact on our dollar reporting. And so what we are going to try to do in this presentation is to give you a good picture of how the company is performing in each market in constant currency and obviously to balance that too with the outturn in terms of U. S. Dollars. So our business as a whole, as I said, was up 16.6 percent. In dollar terms, obviously, that was somewhat less at 8%. Our gross margin contribution moved up by 14.5%. In dollar terms, that was somewhat less. But for me, it was very encouraging that despite a lot of pressures in terms of costs and dollars, we were able to a large extent to preserve our gross margin. And most of the changes there were due to structural things like slightly more American Tourister Business as a proportion of our total sales. Again, if we look at our EBITDA, which is key performance measure, that was up a very satisfactory 8.4% in constant currency terms, but of course, the headline number was 2%. To be honest, to get to this stage of the year and produce that sort of result indeed. And of course, the net income level excluding some of the one off FX effects and also the stock option costs, our adjusted net income was up 8 0.1% in constant currency terms. Of course, in dollar terms, it was slightly down. So it's important, as I said, I can't stress to you too much that the underlying results of our business if we take it market by market was exceedingly positive. We can normally adjust quite well for gross margin pressures. Obviously, from a translation perspective, the impact of the dollar has been pretty much inescapable. So it is important dollar appreciation repeated over the next few months and indeed years, maybe some but not nearly so much. And by way of some temporary relief, I suppose, the dollar reached $1.10 against the euro. I think it's now $1.14 So maybe some of that has already started to turn around. From our perspective, the most important thing is that our strategy of being a multi brand, multi country, multi segment company is really beginning to pay off. When I joined the business in 2,008, I think around 70% of what we sold broadly speaking was Samsonite Luggage. Today, we are a much more by around 17%, 17% in Asia, 17% in America, 17% in Europe. I'll talk about organic numbers in a moment. If you look at our brands, all of our brands posted really positive growth. Samsonite 7.5%, American Tourister 18%, High Sierra 5% and Hartman almost 10%. Very encouraged by that. And you can see too that our efforts and the efforts of Ramesh and the team here to move the business in a more broadly based way in terms of segments are also paying off. So our travel business business was up by almost 10%, 9.5%, but you'll see enormous growth in complementary segments. So that's our business category up 44%, our casual business up 22% and accessories 52.5% almost. So these are very encouraging a greater exposure to direct to consumer business. Our overall retail channel was up in constant currency terms by around 20% and e commerce by around 29%. A fundamental shift in our business a fundamental shift in our business. And Ramesh will be talking, I'm sure, about some of the benefits of having a company which is less reliant entirely upon wholesale business. And of course, we achieved this because we invest consistently behind our brands. And although this first half of the year has obviously been challenged from a currency translation perspective, we were still, in spite of all that, able to increase our advertising and constant currency terms by 12.5%, but in any event by around 2% to support the growth in sales. So this is a business which, as I said, despite some of the short term fluctuations, I think, has performed extremely well. And on the next slide, you can see the performance of the business in organic terms has been very strong. So overall growth of 11% in organic terms, Asia almost 15% and that was driven by an outstanding performance in China of nearly 30% growth. Again, it's often a surprise that despite some of the questioning about the future prospects in the market, our business and we'll explain in more detail why in a moment continues to perform extremely well. Well. Very encouraging growth in Europe of 15.5%. I don't know many consumer goods companies that can boast that kind of expansion. America, as we've signaled in the past, is settling down to a more mature business. And Latin America, we'll speak about in it's not the right word, is not the right word positive about the prospects for South America. Getting good growth out of the brands that we have acquired and feel very happy about how they are settling down in our portfolio. I could say that there are always some short term costs of settling down new acquisitions. And that makes again us very happy with the overall results because we are investing in some of the brands that we have acquired. And in the short term, there are costs attached to that. Currency translation, as I mentioned, has just had a massive impact. Without currency translation, our sales would have been almost $100,000,000 higher. And whatever view you take of the future as I said I don't think that kind of pressure is likely to be repeated in the short term. But we are signaling that in the second half of the year, we don't think some of the dollar pressures are likely to go away entirely. At the moment, currency parishes have been driven by monetary policy and the it seems to us quite likely that the U. S. Currency will probably have on balance more appreciation pressures than on the other side. So I mentioned the impact of currency. And on the next slide, you can see quite graph individual markets. In the 6 or 7 years that I've been associated with the business, I don't think I have seen such a major adjustment to currency parities. 19% against Eurozone countries. Of course, Russia has been pretty much a complete basket situation. But even there, as we'll tell you in a moment, our business has grown slightly. A lot of economies in South America, although it's half of the course down there to have depreciation against the dollar, but it's been another quite difficult year from that perspective. And even 1 or 2 markets in Asia have seen quite significant adjustments, Japan for 1 and Australia, of course, which is natural resource dominated for another. So if you look down the list here, we've tried to give you a breakdown of the €92,000,000 translation effect and we've also traced it through to EBITDA impacts as well. So that should give you some understanding of what the company achieved on a constant currency basis and the impact of recent adjustments. So from my perspective, the team are doing a fantastic job. It's a broadly business and some very strong foundations, I think, are being laid for future growth with the business. And there's no better person to tell you about all of that than Ramesh Tom Waller, our CEO. Ramesh, over to your Chairman. As Tim Reichel said, we are very, very happy with the performance so far in the first half. I'll take you through region by region. Asia, our business grew on constant currency basis by 17.2%. And one of the key growth drivers have been a strong sales growth in direct to consumer channel. Our retail stores grew by 12.7%, and part of it is also coming from a few doors of rolling luggage. Direct to consumer e commerce grew by 28.4 percent and the sales growth in the wholesale channel have been 70.5%. So it's very broadly based growth in terms of the channel that we have seen in our Asian business. Samsonite also had a very strong growth of 15.1%, and within that Samsonite Red have grown by 39.6%. And American Tourister have grown by 9.6%. The reason why American Tourister starts to somewhat moderate because the big pockets that we had in the past is more or less in terms of distribution is more or less done except for few countries like China I mean like Japan and Australia where American Tourister was a little bit late starter. So we still have some opportunities there in terms of distribution expansion. The travel category grew by 7.8 percent, casual, which is the backpacks and things like that, primarily driven by Samsung Red and the 2 other new acquisitions that we had done, Hycera, which has been around with us for 2 years now and Gregory, which was acquired last year, grew by 40 2.3% and business by 25.5%. So you see that in terms of when the categories, there have been a very broad based expansion. This whole vindicates our strategy of being a multi brand, multi category and multi channel company, which makes our business more resilient. The adjusted EBITDA increased by 130 basis points, partly it's also because of the timing of advertising and partly it's been offset by the drop in gross margin, which is primarily because of the channel mix. North American business also grew very nicely, 17.3%. In that, there has been a major contribution from Speck and Gregory. But if you look at our core business by itself, also grew very nicely. The wholesale channel grew by 4.6%, excluding the acquisitions. And the sale in Canada, which have been a very, very strong market for us this year, it performed very nicely for us. There, the business grew by 36.1%. Retail channel was down by 2.8% primarily because of the sales in the gateway cities. If you really offset the sales coming from these some of these gateway cities, There have been like for like growth other than Florida and Central Valley, New York. We have seen a positive like for like. Samsungite sales grew by 6%, American Tourister by 11.4%, High Sierra sales were down by 4.6%, but that's mainly because of the timing of some of the sales to big customers like Costco. There's nothing I mean, our view on High Sierra remains positive. We will see a positive growth for the whole year for High Sierra. Hartman is down by 27.9% primarily because we were cleaning up some of the inventory last year, which is not happening this year. Travel and casual category, travel grew by 5.7 percent, casual by 6.3%. The business has grown by 121 percent and SSE by 98.3 percent. That's primarily because of spec business. The adjusted EBITDA as a percentage have decreased by 20 basis points mainly because of the impact of the integration in the first half. Excluding the acquisition, the adjusted EBITDA as a percentage of sales have decreased by 120 basis points, driven mainly by decreased profitability in the retail chain because as we said that our retail doors had the negative LFL, primarily in the gateway cities. Europe had a very, very strong first half. The sales grew by 17.4 percent on constant currency 5%, even Russia, despite of 5%, even Russia, despite of macroeconomic and geopolitical challenges, have also grown by a small 2.4 percent. There have been a strong growth in direct to consumer. Retail has grown by 48.9%, but Europe, our like for like growth has also been very strong at 8.2%. Direct to consumer e commerce grew by 28.3 percent Samsonite 2.9 percent American Tourist Align 27%. As we have spoken last we are now starting to accelerate the rollout of American tourist region. So it started with a small base, but it is doing extremely well. And I see no value of the business that it would not be the same in Europe in 3 to 5 value of the business that it would not be the same in Europe in 3 to 5 years' time. This year, we expect American Twister already to be contributing to around 15% of the revenue of European business. The newly acquired brands are slowly gaining traction. You've seen that we are showcasing Lippo for you now. Lippo would also be introduced is getting introduced now in Asia, starting from Korea. It should be in Hong Kong before end of this year. These numbers are small, so the percentage very significant part of our future growth. The sales category grew by 12.8 percent, business category grew by 35.3 point 3 percent and the casual category by 39.9%. So again, Europe is also pushing through this strategy of trying to grow the contribution of non travel category, which have been earlier the part of the Asian strategy also. So the contribution of non travel in Europe is still much smaller. In Asia, it's about 37% of our revenue. But as I speak to you in Europe, it's only about 20% of the revenue. But as they catch up on that, that's why you see bigger numbers coming out there. The EBITDA margin has decreased by 400 basis points. 200 basis point is because of decrease in the gross margin and 120 basis point is because of the increase in advertising, which is mainly because of the timing. The gross margin decrease is mainly attributed to higher percentage of sales of American Tourister and also the customer mix and partly because of the currency pressures. We are taking a price increase on 1st September in Europe, and I believe the second half should see a better gross margin coming from Europe. Latin America. Our business on constant currency grew by 7.3%. But if you exclude Brazil, where I'll touch upon Brazil separately, 50 6% growth, Peru, 26.8 percent. Brazil is down by 41% due to challenging economic conditions. But also in the first half last year, there was a liquidation of some of the old unwanted inventory that we were we took back from our the the important markets. We feel committed to Brazil and I still see it to be one of the big opportunity market for us. The size of the luggage alone in Brazil is estimated to be $1,000,000,000 But we are now investing there in terms of the manpower, putting infrastructure in place. And I believe over next 3 to 5 years' time, we should see some very interesting numbers coming up from Brazil. The retail store sales grew by 12.8%. We also opened 23 new doors in that's primarily coming from the 23 new doors that were opened in 2014. The like for like growth has been 2.5%. Samsung sales have decreased by 1.5% mainly because of Brazil, but Mexico has seen a strong growth of 15.1 percent Colombia 69 percent Peru 12.2 percent. And a strong sales growth in every single other brand that we operate there. Secret, it is a handbag brand, which we operate primarily in Chile. Now we're extending it to other Latin American countries, more particularly Mexico, Peru and Colombia. Extreme by 9.2%, Saxo Line by 9%. These are more specific brands that we operate mainly in Latin America. American Tourister is getting launched now in Latin America, primarily in Mexico, is off to a very good start. And I do believe that American Druster, like it was in Asia before and now getting started in Europe also offers a very good opportunity over 3 to 5 year for horizon. EBITDA as a percentage is down by 4 30 basis points mainly because we have increased an advertising spend there and also part of it is because of the gross margin and we are investing in terms of infrastructure in Latin America. The next slide, you see that there are some of the markets which we have talked about in more detail. Practically, all our markets have done very well. On constant currency basis, U. S. Have grown by 16.3% China, 30% South Korea, 4 point 8%. This is slightly moderated mainly because of the MERS that did affect the tourist arrival in Korea and also both inbound and outbound. India, 13%. Japan had a strong year for us, 44.6%. It's both organic growth as well as there is a growth coming from new acquisition of Brakerel. Hong Kong, 8.1%. This is in spite of we all know what's going on in Hong Kong. So I feel it's a very, very satisfying number coming out of Hong Kong as well. Germany, 17.3 percent France, 13.6 percent Chile, 10% U. K, 52%. Part of it is coming from organic growth and part because of the rolling Rager acquisition. Australia, 33.5 percent mainly because of traction that we are getting now with American Tourister. If you look at some of the emerging countries also, we had some very nice growth. Mexico, 18.4 percent Thailand, 9.8% in spite of the challenging macro situation which exists in Thailand. Russia, 2.4 percent. And likewise, we have Turkey, Indonesia. So most markets have shown very, very nice growth except for Brazil, which I explained to you just now. Direct to consumer is a very important element of our strategy, both brick and mortar as well as online. It has grown by 20.9%. Part of it is the first half impact of 162 new stores that we added in 2014, which is getting annualized now in 'fifteen, and we've added 33 new stores through acquisition of Rolling Luggage. The same store comp are roughly flat compared to prior because of challenging retail environment, mainly in these 3 or 4 markets. I would say gateway cities of U. S, so which is Florida and Central Valley in New York, where we see we have negative LFL. But other than that, all our store in U. S. Also have positive LFL. In Asia, other than Hong Kong, Macau and South Africa for very obvious reasons, South Korea, all other regions in Asia also had positive LFL. Sales growth of 29% direct to consumer. E commerce is led by North America 29.9 percent Asia 28.4 4 percent Europe, 28.3 percent. So see there has been a very strong growth in our e commerce channel across all geographies. Acquisition of Roaring Luggage contributes to the growth in our retail channel strategy. We've talked about it that we want to improve and enhance our airport presence. Now we have very strong presence in the airport in Asian countries, but we had limited presence in Europe. So rolling luggage gives us a very, very interesting opportunity. Has about 33 doors. So it gets off to start in U. K. And also some other European countries. And besides having these doors, it also gives us the talent pool of how to operate these airport stores, how to negotiate the deal with airport operators. That was also kind of a missing link within our talent pool that existed. So I'm personally very excited with this opportunity of rolling luggage. Based upon rolling luggage, I believe that over next 3 to 5 years' time, we can very significantly enhance our presence in airport across the world. All brands are delivering strong sales growth. Samsung, as we said, very, very satisfying numbers, 7.5% constant currency growth, driven by Asia, 15.1% North America, 6% Europe, 2.9 percent Latin America, minus 1.5%, but that's mainly Brazil. If you peel off Brazil, there has been a positive growth in Samsonite in Latin America as well. American Tourister had a very strong first half, 18.4%, primarily driven by Europe. As I spoke to you before in Asia, other than in Japan and Australia, it starts to the growth starts to get moderated. And that's one reason I was cabin size luggage, that's how we talk about in the industry, was between 100 and size luggage, that's how we talk about in the industry, was between $80 to $120 But since we continue to invest behind the brand and the consumer continue to love the brand, we suddenly realize that we have consumer has pushed us up. So we are now operating American Tourister between $150 to $2.50 So we have practically almost completely vacated the price point where we started to operate American Tourister was a great value and they were comparing it with other brands which are higher than American Tourister. So now when we look back, we find that their opportunity of $80 to $120 is once again become vacant. We have just launched Kamiliant now. The intention when I time spoke to you, I was intending to launch it in India because that was a natural market, because it's a very value seeking market. We did want to do that, but then we had this deal with JD in China, who was willing to invest some marketing dollars behind this brand if we are willing to commit a quantity which they needed it and also an exclusivity for 6 months. So we decided that it was making sense for us. Right now, Kamalayan is only available on JD, but the exclusivity will get over before end of this year. So beginning of next year, Kamalayan will find its place in other markets. Our first feedback on Camelian is very, very, very positive. It's almost like what we did with American Tourist I'm almost talking to our people yesterday only because we were having a business review meeting. My own view is that I see no reason why Kamaland can not be as big as American Tourister because American Tourister started there, but it naturally the customers and the consumers and our channel partner pushed us up. I mean, it's not a bad place to get pushed up because we made more money out of that, but now we see there's no opportunity there. So that's the reason why you see some amount of moderated growth of American Tourister. As I said, Europe is off to a very, very strong start. By end of this year, American Tourister will start contributing 15% of the revenue of Europe. Hartman and High Sierra are extending us a very interesting opportunity. Others are very small brands, so I'm skipping. Yes. I mean, right now, they're small, but the intention is not to let them remain small. As you've seen that by presenting Lippo today, we're trying to give a message that we believe that Lippo is a very, very interesting opportunity for us. It's a youthful, vibrant, a very chic brand, a very feminine brand. And we have tried to really address and please the women customer for I have worked in this company for 19 years and every 5 years, we really go all out of our way to please the women. And somehow we never really product that you see it, we can always design this product under Samsung. We have done it in the past, but it could never really appeal to the women, because probably the challenge was the brand. Lipo is now mainly in France. We have just launched in Korea. I must say, I've never seen the positive response to brand Lippo anywhere, I mean, as much as for Lippo for any other previous brands that we have launched, you know, guys, very tough guys, the mall operators in Hong Kong, which are very, very difficult to deal with, you know. Every time when you go up with the brand, you know, they show you with a list of, you know, 100 other brands waiting to get there. You know, when I presented Lipo, which is only 2 weeks back, there was only thing that people said, Oh, yeah, this we can do for you. And the same thing we have seen in department stores. Lipo had a licensee in Korea. We just took back the license 2 months back. We have presented the brand to our customers, our channel partners, mainly department stores. In 1 month in Korea, we are opening 15 shop in shop in key departments in Korea. I'm talking about this month. We have already opened 12, 3 more would be opened within this month. And that kind of a response, that kind of a feedback or encouragement from our channel partner, we have not received anything. So I personally feel Lipoo can be a very, very interesting opportunity for us because it sits at a price point which is very interesting. So it is not very expensive because when you really go at a very high price point, the market become that much smaller. Your channel partners are choosy because that's in the luxury segment or the premium segment, there are every brand jostling for the space and now every brand is jostling to get out of the spaces. But in the medium segment, more people want to really buy you. So when you see those cabin side luggage or we see some of the pieces on display there, it is priced between about $80 going up to about dollars So it's sitting between the American Tourister and Samsung price point, very, very unique positioning and is off to a very good start. But it will take another 3, 5 years' time before you will see more and more traction. Right now, we are still limited to France, but I believe that every Spec, again, we are very pleased with our number with spec. We have delivered $50,000,000 in revenue. But more important, when we bought spec, it was losing money. We believe that end of this year, 2015, it should already be delivering around 9%, 10% EBITDA, which is a very, very satisfying number. And it's on its way to start delivering profitability similar to our core business. Our American core business profitability is around 15%, 16% kind of number. I have no reason to disbelieve that, that won't be possible next year. Gregory, which is a very interesting brand for us, we bought this brand primarily for its strong DNA. It's an American brand, but it had a very, very strong equity in the Japanese market, and it's off to a very, very good start. It has contributed to $18,000,000 in sales in first half. And somewhere in 2016, we will start business to that. But 2016, it's our intention to launch this brand mainly in Korea, also in some other Asian countries. Here are some of the pictures of the key product assortments. Then we have Hot Men, Hi Sierra. There's a strong sales growth in all the product categories. This was broadly touched by Tim already. You've seen that travel grew by 9.5% and across every single geography, casual by 21.7%, primarily again by because of Samsung Red, Gregory and also extension of Hy Sierra into Asia and Europe. The business category has grown by 44 point 4%. One reason has been spec, but also we had very, very strong growth in Asia and Europe, which is basically organic growth. Asia, 25.5 percent and Europe, 35.3%. Accessories also grew very nicely, 52.7%. A part of it is because of spec. But again, once you again peel down on that number, the organic growth in Europe because spec is not there, spec is still limited primarily to our North American business. So the growth in the accessory category in Europe and Latin America and Asia is still coming from the organic growth. The advertising spend have increased by 12.5% on constant currency basis. That's some moving pieces. We have allocated more money in Europe for the main reason that we are launching American Tourister there. We have also allocated slightly higher money in dollar terms in North America because we were putting some money behind Hartman. Here are some of the pictures of the targeted brand advertising. I'll pass it on to Kyle, my friend, to take you through some of the financial highlights. Okay. Thanks, everyone. A little bit of a recap just to drive some of the points home. Strong constant currency growth as we've all talked about, 16.6 percent, offset by $92,000,000 currency. I think the slide, the 3rd slide in the deck is helpful for you to kind of navigate through. And as Tim said, I think we'll see a similar currency impact in the back half barring kind of any sorts of additional movements, because we're still year over year dealing with the currency. And it's really when you roll into next year that we'll start to see kind of some stabilization assuming currencies don't do anything different. So you'll have a similar impact, pressure point for the back half of the business when you're thinking about our numbers from a translation perspective. Same thing for EBITDA, right? So we it's a little bit more challenging to carry it all the way through to EBITDA, but we carry the translation effects through EBITDA. So we have a $12,500,000 roughly 12.2 $1,000,000 number, a negative impact. If you take that out, our EBITDA would have been around $202,000,000 8.5 percent growth, which we're very pleased with. We had very strong operating cash flows. We haven't quite touched on this yet, but our operating cash flows were $79,000,000 for the half, up 50% from last year. A lot of that's off the back of slightly tighter working capital and just general cash management in the business, which we've always talked about. So we're quite happy with that, And you should see that kind of maintain that pace for us. So and as I said, the working capital efficiency, 13.7 percent, our target's been 14% since we've listed. We've generally been running under that. Of acquisitions and we've quickly cleaned all that up as we've integrated these acquisitions. So we're in a very good place there. Nice to get the balance sheet side, but very strong net cash position still in this business with $85,000,000 net cash position as of the end of June, a little over $200,000,000 of cash on our books and borrowing capacity of almost $400,000,000 against the facility we have. So our balance sheet, even with the deals we've been doing over the last handful years and the rolling luggage here we did this year and we also tucked in our Russia JV buyback in June this year, still in very, very solid cash and capacity position for the business. As far as CapEx, we spent 25,000,000 show you a sheet largely this year around retail expansion. So we've talked about retail expansion. We've added if I take rolling luggage out over the last 12 months, we've added 130 doors, and you'll see us continue to invest in CapEx on the retail side. And then excluding FX, if we go to adjusted net income, if we there are some FX impacts within our numbers that are really around unrealized and realized gains losses on translating balance sheet items, which aren't really translation. If you take those out and also this year in January, we had an additional stock option grant, which brought the stock option expense up. So if I take the noise of those one off types items or kind of explainable items, we're up around 8%. If I take those out, we're still up 7% constant currency. So they're not a huge impact, but we wanted to kind of point those out to you. And then as I think most of you, we paid a dividend $88,000,000 in July. That's up 10% and we're still kind of view our dividend policy as growing in line with earnings growth. So you can expect that from us as well. Next slide is really just the balance sheet. I've covered this. You can see our cash position and our net cash and debt position at the bottom. Strong working capital, which is really the next page. And if I just kind of bring you through that, so at the end of June, 13.7%, up a little bit from the end of December, but that's a seasonal piece of the business as July is a big piece of our business. So you'll see things like our receivable days come up from the year end and that's really just timing of the business. If I go back to a year ago, our receivable days are actually down. Some of that's around retail mix. So we've grown the retail portion, we'll naturally get that. Our inventory days have come down. This is the more important measure. So we've gone from 116 last year to 109. And we still think this business is probably between 100 and 105 days opportunity. So there's probably a bit more to go here on the inventory side for us. And then on payables, I think as most of you know, most of our vendors are at 105 day terms. We've continued to push that across the business. And particularly as we brought in new acquisitions, we moved those vendors up to something similar as well. So we've made good progress on our payable days as well. So all of that with the team very focused, we feel very comfortable with our working capital metrics and our ability to kind of maintain these levels going forward. If I go to CapEx, really last year to this year, we've dialed up the retail investment. So as part of the strategy with Ramesh coming in to the CEO role and really our general push to drive more direct to consumer, you'll see the mix of our investment in retail go up and that's a trend you'll see for the second half and also as we roll into next year. Our product development is down for the half. Last year, we were investing in some production capacity in warehouses in Europe. It's down for the first half, but we're going to be dialing up some investment in the back half. As we talked about last year, we're going to be investing in China facility that starts to come in, in the second half of the year. And our overall full year target for CapEx is around $80,000,000 I think we might be a shade better than that, but you should assume that not that far off from that number. And those are the balance sheet items. So I'll turn back to you, Amit. Yes. If you look at our future, our view on the future is still very positive in spite of the recent last week or few weeks of the turmoil is in the market. We believe that we can still continue to grow Samsonite into a well diversified, dis implementing multi brand, multi category, channel strategy. And we're trying to reshape our company from being just a luggage company to being a bag company, which continues to sell the luggage. And by deploying multiple brands, we all start to operate wider price points. Also to increase the direct to consumer proportion of our business, as I speak to you, it's inched up to around 30% or 31% of our business by end of this year. We will be close to around 33 percent, which includes both e commerce as well as brick and mortar channels and concessions that we operate. I do believe that over a period of time, this would inch up to around 40%, 50% of our revenue. And within that, there would be a bigger portion of portion of e commerce. Right now, e commerce is around 7.5% of our total revenue. I see no reason in 3 to 5 years' time, this number is not up to 15% or even 20% of our total revenue just because that channel seems to be far more buoyant and we are investing more and more behind those channels. We are continuing to invest behind our co brands, implement synergies, executing market opportunities for the newly acquired brands. As I said, most of the brands, our strategy remains the same. We acquire a brand, bring it home in the home country and spruce up at back end of the business, bring up the profitability of those brands to the same level of profitability we have operating the core business there and then brings the 2nd phase of starting roll out. The first brand that we acquired, just to remind you again, was Hy Sarah. Hy Sarah's profitability is exactly at the same place where our core business is, which are 15%, 16% profitability. And now it's getting extended to other markets, few other countries in Europe and few other countries in Asia. Spec, again, at this stage, we are still in the phase of sprucing up the brand in its home market. When we bought it, it was losing money. By now, it is delivering around 10% EBITDA numbers. We believe next year in North America, it should be back to 15%, 16% kind of a number. And then we will start the 2nd phase of starting to extend the spec into markets beyond North America. We may be doing a test marketing of spec already end of this year, more likely beginning of next year in China. But it will be a test market and we will learn through that how do we engage, how do we get into that category. That is a category which is slightly new to us. But we do believe that because of e commerce, it offers now a more easier opportunity to bring a new brand or get into a new category because previously, if you are only distributing through a mass distribution, it requires much more time and much more effort. So with the success of Kamiliant, we have some of our e commerce partners in China have expressed very, very keen desire to also try out spec in China. So Q1 of 2016, definitely one of the e commerce partner would be launching SPAC in China, and then we'll learn through that. We will continue to explore strategic merger and acquisition opportunities in adjacent spaces and also to gain distribution in less represented market to grow direct to consumer, which I spell about it. So our own view is that when I look at the second half of this year, I believe that in spite of whatever is happening at the macro level, our business is basically more travel related. And because now we're operating multiple price points and our experience have been in spite of what is happening now in China, I was speaking to our Chinese team and to our China partners, do we feel worried about the Chinese renminbi depreciating? Will it have an impact on our business? I'm not talking about the translation part of the business, but we feel that the Chinese tourism number will remain strong. And that means our business will be strong. It may so happen that there may be less number of Chinese tourists who are going to a more expensive destination and buying an expensive piece of luggage, they may be buying a more reasonable price luggage. But we are now in a very, very nice spot where we are occupying a price segment, right, going up from $60 going up to $1200 with Huffman. So we are really occupying the whole spectrum of price points, and we have the widest distribution which the consumer can imagine in terms of the sales, but we also offer the widest network of service after sales. I often repeat it, but that's a very, very important repeat it, but that's a very, very important competitive advantage. We are now extended in China 24 hour service of service after sales in more than 132 cities in China. That's a very, very credible thing which Chinese customers, I have seen that more and more Asian consumers, this 24 hour service is already available in India in around 18 cities. In China, we have extended 132 cities, which is for all our brands. That gives a consumer enormous credibility that why he must still buy a chameleon at $60 or nobody else. And if you can afford to buy something higher, it will be okay. So the view which I'm trying to guide you is there that I personally believe that even in second half, our business should continue to grow double digit on a constant currency basis in most Asian markets, primarily driven by the strong growth that we are anticipating in China, Japan, Australia, India and also double digit growth in Europe, again, primarily driven by what we have seen the key drivers in Europe are now 3, which is, 1 is the extension of distribution of American Doris expanding our business, getting a bigger part of our business from the non travel. In our retail store, if I give you some numbers, last year, only 10% of our revenue was coming from non travel category from our own stores because our stores, we were trained to be luggage retailers. So we never took our non luggage category travel, it's just that we expansion number. It's not that we have got some new doors for non travel, it's just that we start to repopulate our stores. That will also help our business. The third is that the focus on direct to consumer. The rolling luggage and like of it will continue to expand both retail as well as e commerce as well as omnichannel. So I believe Europe should also be able to deliver us still double digit growth in second half of this year. Coming to Latin America, leave apart Brazil, Brazil is still in the learning process. Other than Brazil, Latin America should also deliver us mid teens kind of a growth in the second half of twenty fifteen. North America, you've seen our number here is 17.2% or something like that for the first half, but part of that has been because of spec. Now spec number is getting annualized already in the second half. So you will find that our core business in North America, which grew around 3%, 4% in the first half, we do believe that the second half would be a little bit better than the first half. And because of the macro reason and because some other initiatives that we have taken it, it would be something like 5%, 6% kind of a growth. It will not be it will be mid single digit what you should expect from our North American business. When you blend everything together, I'm still willing to stick my neck out and say that we should be still be able to deliver a double digit growth, whether it will be 10% just about double digit or you'll get to 11%, 12% which will be depending upon how the macro picture shapes are. But these are all constant currency numbers that I talk about. In terms of the profitability of our business, generally our business is almost like 45, 55 kind of thing. 2nd half is always likely bigger than first half. And because of that reason, you'll find that our profitability will be slightly better than the first half. It's not that there's any dramatic change in our business modeling. I'm expecting any dramatic improvement in the gross margin. The gross margin will be more or less rain bound. We are seeing there are some positives coming our way in terms of renminbi depreciation, in terms of give us some cost advantages, but I believe there is more and enough things which are going which are working still against us. As Kyle very rightly said, we still believe second half the currency pressure may still be there. So we are buying in dollars. So what this weaker renminbi and weaker commodity prices would help us to mitigate some of the margin pressures that we have it. So we are still guiding that our margin should still remain in the same zone as we have seen in the first half. It may not materially get any better. Though beginning of last year when we are planning for 2015, we did anticipate and we did expect and we did plan that we will be able to move our margin up by 70, 80 basis points, but that's not a a broad guideline to how we see our business in 2015 and more particularly second half. Okay. Thank you very much Ramesh and Tim and Kyle. And we now open the floor to Q and A. Thank you. Erica Pemorkin with UBS. Thank you for the presentation. For China, you attribute your strong growth to both the direct sales, the e commerce and also the B2B. Can you just share with us what these each of these B2B and the e commerce contributes to your China sales? And also what kind of momentum are you seeing for these businesses now that we're seeing a little bit of weaker macro condition? Thank you. E commerce is have given us some very strong growth numbers. To give you a number, last year, e commerce was contributing in China to around 5% of revenue. In the first half, it's already up to 10%. And our outlook is there that by the in the second half, probably the e commerce contribution could move up to around 12%, 13%, just because the consumer is clearly loving to shop on e commerce. But I must also say that e commerce, I think our challenge was that it took us some time to overcome our fear of engaging this e commerce channel because it was like a new animal on the block and you almost have the first inclination is to think that it's going to eat you up. But we have realized that there's a way to engage with them and it could be a very profitable business. Both was profitable for us, profitable for our partners and also profitable for the customers. To the extent that I've seen some of the press releases coming from the CEO of JD. He claims to be Samsonite to be one of the key strategic partner and at least Samsonite is one of the 3 major partners for them. It's his view about that because we share a lot. We discuss a lot. And I think we are learning from them. And in some way, they're learning from us and which is also partly helping the business. I'm just quoting you the press statement which are in the press now. So that's about e commerce for our business in China. B2B contributes right now to around 7%, 8% of our revenue. 2013, B2B has been a strong comeback because as we have seen in 2014 2013, B2B completely fell off. And I said that part of the B2B which is coming back to us, part of it is gone, is gone forever for that matter, is the B2B which is coming back to us is basically the airlines which we are buying for their crew. So it was not really a gifting thing which was happening there or the banks which were buying it for redemption of their points because many of the credit card companies, we accrue the points and things like that. So that's come back. There's also small business of companies like Lenovo, which does this bundled product. The bulk of the product which they sell is their own OEM kind of thing. We don't do in that business. But for their very high end laptops and things like that or launch of new products, sometimes they buy Samsonite to give it away as a kind of a bundled product. These are three components of our B2 business. It's about 7%, 8% kind of a number. And I believe I don't see much buoyancy in that. I think these are the 3 segments which will stay in China like that. And more or less, these businesses have now become somewhat more, I would say, more normalized, okay? But they're not happening month on month. So though our first half growth in China have been 30%, but I'm not expecting I'm not guiding in any way that China, I'm expecting the second half of this year would be 30 percent growth. I would be happy, not because of the macro noise, that does not worry me so much, of the stock market turmoil and all that. But generally, I believe that 14%, 15% of mid teens kind of a growth is what I would expect China to continue to deliver in second half and very much into 2016 as well. A couple of questions maybe. On the e commerce, I think you said the sales growth was 29%. I'm much of an expert in e commerce. So I'm not really sure whether that's a good number or not. I guess that is a good number. But maybe you can explain whether you think you're taking market share in e commerce or not. I'm not really sure how fast the category is growing in luggage. So the question is whether you're taking market share. And then a little bit more information. I think you answered Erika's question well about JD. But can you talk about what's happening on e commerce in different regions, whether you're tying up with more partners in other markets or whether you're filling out your platform with more products or your own platform when you're expanding your own platform into different markets, so maybe a bit more information on e commerce? And then the second question, just about product innovation. Snyder or American Tourister? On e commerce, Night or American Tourister? Okay. On e commerce, we have we are on both sides. So we have our own platform. So I would say roughly the business you can think about it that is getting divided half an hour. So in China, the bigger part of the business is coming from our own platform. But in China, you can say it's almost like twothree, onethree, but when you look at company as a whole, it will be half and half. Half and half are like wholesale accounts, where we do a wholesale business with e commerce channels and half of it is coming from our own platforms. Coming up in terms of are we gaining market share? I would say yes. So in the beginning, the first round of e commerce, the e commerce channel has said that we are learning and they are educating us and we are re educating to them. In the beginning, I think most of the e commerce and still many of the e commerce channels, I would say in the beginning, it was most and I would say now many. We're thinking that consumer is only wanting to buy there because when they can get it very cheap. So I remember that in China, since we are in Asia and I have better understanding of the Asian markets, in China, we had the situation that most of the e commerce partners, they just poached our own people and they really could figure out so they can pick up our product and say, well, you buy this in that factory for $20 give it to me for $22 And what he's going to do, he wants to sell it for maybe $25 And he says, you can put the quantity, 14 first half, before we took the 1st break with JD, JD was more evolved according to me in terms of these kind of negotiations. And our business was stuck basically on 2 grounds. Number 1, their perception that brand and a commodity, there's not difference, specifically for category like ours. That was one biggest hindrance. The second biggest hindrance was that they were still allowing fakes to be sold. So they go into the denial mode to say there are no fakes, you know, and then they get into the same thing, but they know this is a fake, okay? They know very well and they cannot say, we cannot control it because the marketplace business cannot work like that. Because how will a consumer identify that this is a fake or consumer is not necessarily wanting to buy those cheap luggage, he's buying on e commerce, he's shopping on e commerce, maybe one thing is convenience. The second second possibly could be that it's a cool thing to do because the young people want to shop e commerce. And we have seen that today in China, if you leave apart the 8 coastal cities, the shipments that we are doing, most of the fulfillment we are doing it ourselves, and only 18% of the fulfillment is going to these 18 cities. So 72% of the fulfillment is happening in the B and C market, where generally, even if we have a retail presence in the market, we have a very good experience. So we have a very good experience. So we have a very good experience. So we have a very good how can you present all the colors? You cannot present all the range because it is from an inventory management point of view, it is not viable. Those are the people, certainly an example, today, the highest selling price point on JD an example, today the highest selling price point on JD for us is a product called Ngenero. It is retailed at 3 $80 for a cabin sized luggage. They had convinced themselves anything more than $50 you cannot sell on a cabin side. So I think that's a big change which is happening on that. And it's not only happening here, but it's also slowly start to happen in other places as well. Of course, there are some markets like U. S. Which to engage with a brand is very different. Brand and the commodity is not the same thing. So I think as the market matures, I think this is the reason why this channel is starting to grow. And it is fundamentally more efficient because the whole logistic cost and the warehousing cost and also retailing cost, if you look at when we run our own full price retail or we run a shop in shop or our channel partners run it, the 4 wall cost on an average is about 30% to 35%. Now for e commerce, that cost is not existing. You can part of that, you can pass it on. We can take advantage of that because we are large enough company to do product segmentations. We do not allow to create any price arbitrage. So on our e commerce side, there's no price arbitrage. And we took some time to convince some of these partners to say that you do not need to necessarily create a price arbitrage against because they want to then I don't want to quote their names, but you know what I'm talking about. They want to go to your store, find that product and then come and purchase the same thing from you and want to sell 40% cheaper than you. I mean, that's how the business model was based upon. So they don't want to buy if you say that, okay, this is what I'm selling in my store, but let's say $400 You don't want to make money, fine, that's your call. But you can buy this from us, which is have similar value, yes? You can buy from us at $2.50 and that's your call, you could sell it for $2.60 also if you want to sell it. But they want to buy this. That has taken time. But I think that more and more people start to understand it. That's long and short of the e commerce part of it. I would not say that we are gaining market from somebody. What we are doing is that some of those unbranded and market from somebody. What we are doing is that some of those unbranded and commodity products were there, the consumers are trading up. And definitely, the high end department stores and all that are losing some of the businesses. When I look at our own retail doors also, I of the digital transformation of the digital transformation of the digital transformation of the digital transformation of the digital transformation of the digital transformation of the digital transformation of the digital transformation of the digital transformation of the digital transformation of the digital transformation of the digital transformation of the digital transformation of the digital transformation of the digital transformation of the digital transformation of the digital transformation of the digital transformation of the digital transformation of the digital transformation of the digital transformation of the digital transformation of the digital transformation. So, and they can also shop on a larger range, which we also are physically not able to present in our own store. So that is about that. And on the product doing in the past. So our business is about product. As long as we can keep having the winning products, and our advantage is when we're offering these multiple brands and multiple price points and multiple channels is your ability to time to do that. And then, I think, we have a very good time to do that. And then, and reach out to the consumer. And that has been one of the strengths of our business because of our scale gives an advantage to invest more behind the product innovations and product designing and spend more behind marketing. So I think we're not going to let go that part of strength, not this year and not in any other year. Okay. Thank you, Ramesh. Just want to check any questions from online? Yes. There's a question from Katherine Chan of Nomura. She's saying, we are seeing global pricing harmonization for some global brands. Will Samsonite consider lowering prices for its products sold in China? Samsung has always been following a kind of a very regimented pricing metrics. We have been doing that since last 14 years. We've got this concept called pricing metrics, which had operated in our business for last 14 years. How does it work there? We do allow our individual markets to decide the retail price that, that will sell, but that must operate within a price band of plusminus10 percent because we're not resetting our price every month. So this plusminus10% was given the flexibility was given to individual countries to take care of the currency movements and some odd costs here and there. So I think we've never had that kind of a huge price arbitrage between one country to another country. So there's a necessity for any price correction in China is not there for us. Okay. Any more questions from the audience? Yeah. Hello. This is Peter from Mizuho. Just a couple of questions on the European EBITDA margin. You mentioned you're raising prices in second half and there were a lot of other factors impacting the first up on Europe. Could you give us an idea of where you see the EBITDA margins develop second half in Europe? And then secondly, just if you could comment on the profitability of the retail side both in terms of the physical stores as well as on the online side and how you see that developing going forward as you ramp up in scale, but what level of profitability you're seeing there versus the core business? Thanks. Europe, our profitability for the whole year, our view is that it will get back to the on an annualized basis. It will be same as last year. So we can talk about in our profitability range of around 17%, 18% kind of a number. That's the number which we were there for the whole thing. The first half is because we have invested more behind the on the advertising. Part of it is also because of the margin. Margin is not coming because of only the currency pressure. It was just that the proportion of the American brewster sale had been much higher. But as we correct our way going forward in 2,000 I mean, in the second half of twenty fifteen, you will see that the gross I mean, the profitability in terms of the EBITDA margin will significantly increase. And if you add both the first half and the second half, we will get back to the number of 17%, 18% which I paid last year. So part of it is coming because of the price correction, part of it is because of the timing of advertising and part of it is also coming because you have a higher value of business because you have 45%, 55% of the sales come in the first half and 55% comes in the second half. So there your SG and A percentage also comes down. So net, net, net, it will move up very significantly in Europe Coming to the retail profitability, generally our retail business, including e commerce business, tends to be more profitable than our wholesale business. And that is true for practically every single market except in countries where, let's say, the proportion of new doors are much bigger. Like for example, Brazil or Colombia or Peru, we are opening too many doors. In the beginning, they had one door and certainly when opened 4 doors because the door requires about a year's time to mature to come up to the required amount of profitability. But if we leave them, those kind of an outlying countries, look at our North American business, our EBITDA profitability on our retail business, which includes both e commerce as well as brick and mortar, is slightly higher than our wholesale business. Same is true in Europe and same is true in Asia. So I must admit it that in the first half, because the like for like growth in Asia on a blended basis, though other than Hong Kong, Macau and Korea, Korea, all other countries have posted a positive LFL. But when I put all the reasons put together, we had a minor LFL. And you know that how the retail business works. Moment you have even -2%, it immediately reflects on a profitability going down. That does not mean that the profitability become lower than wholesale, but it is lower than, let's say, last year in Asia in the first half. And same has been true in North America. So the retail profitability in the first half has been slightly lower. That is why we are saying that our EBITDA is slightly lower because retail in North America is about onethree of our business. And when profitably takes a step back, it is it does bite a little bit. We do hope that maybe the like for like growth in the second half in the gateway cities in North America. Though it may sound strange, I'm talking about only 2 cities, but those two cities contribute to around 30% of our retail business in North America. It's a very strange number, but that's what it is. The New York and Florida is 30% of our retail business because they're very tourist heavy kind of a thing, Florida by the Brazilians and New York by everybody. We do see less tourists and shopping there, which does affect our profitability. But I'm once again repeating it, that does not mean the profitability of retail has become lower than wholesale. It's just slightly lower in Asia and in North America as compared to last year. Europe is slightly better because they had 9% LFL, so that has helped them to do a little better. Just to clarify, the EBITDA for Europe second half will look like where we typically run combined, it will still be down for the full year just because of some of the investments in the first half and some of the pressures that we've seen. So I think you said it out. So it's really second half will start to look like where we've been. And just because of the effect of the first half, it won't quite get all the way there. We will have this currency impact going into next year, which is why we're increasing prices in September. So we've been in a very good hedge position. We're hedged into next year, but that hedge amount is less obviously than what we have for this year. And so we'll have some work to do to maintain margin in Europe. We think we can for next year, but there'll be more pressure actually as we get out of a good hedge year and into a period where we're hedging. And again, it's who knows what currencies going to do. So you should kind of think through that Europe will be more consistent with where we've been, not upsides because there will be currency year over year currency impact next year depending on what currency does. And I guess the only other thing I'd add on retail is there are some initiatives within our retail that is actually putting a little extra strain in retail, things like the Hartman rollout. You've seen us start to open Hartman stores. And those when they're starting are taking a little bit more investment. So small, you don't really see it in the numbers, but underneath the numbers, you should know that we're investing in that kind of retail front and spending a bit of money. We're talking kind of $5,000,000 $10,000,000 number. So it's not big overall, but it's an impact to us in the numbers itself. Great. I think we'll take one last question and then we'll be we'll end the presentation. Thank you, William. Arjuan Rondeau from HSBC. I have two questions actually, but I'll make them quick. I've been a bit slow Is it fair to assume that EBITDA margin year on year H2. Is it fair to assume that EBITDA margin year on year should be flattish? It will be flattish, just slightly down. Okay. The second question is on M and A appetite and timing. I mean, you repeated that if there were opportunities, you'd look at them, but I get the sense that you have so many opportunities with chameleons with the rollout of rolling luggage with American tourists during Europe with Samsonite Red with so many balls that you're juggling with. I'm just wondering if it's reasonable actually to look at any deal in the short term or if this is more of a sort of message for the longer term? I think it's difficult to time the deals. So when I really use the words, it's not first of all, I fully agree that there's enough and more for us to do in terms of first of all, I fully agree that there's enough and more for us to do in terms of organic growth, and we are very much focused on that and also getting to speed with the new acquisitions that we have done and things like that. But at the same time, we do like to be aware what's going around and what are the so do we have an attractive opportunity coming our way and does it make right sense in terms of valuation to us based upon the acquisition making economic sense to us and how does it fit within our portfolio of the brand is coming at the right price, we would not deny. I mean, you're not feeling stretched? We're not feeling we are not looking at delivering our numbers. We do need Do they look stretched? The good part is they tend to be regional, right? So until you get into Phase 2, other regions aren't distracted by integration. Corbus is spending a good amount of time on that, doesn't mean LEO in Asia is feeling stretched because I've got the spec deal being integrated. Now when we move to Phase 2 and we bring in like high Sierra into Asia, I wouldn't say they're stretched because not integrating, but they're quite excited about, okay, now I've got this and repo is a good example, so I was showing it. Now I've got this in my toolkit and actually people get excited about just taking it, rolling out, but we don't distract each region when we're integrating. So I think that's why we have capacity as we think about it. So Great. Thank you very much, everyone. We're coming to attend.