Earnings Call: H2 2012

Mar 19, 2013

Good morning, everyone. Welcome to the 2012 final results announcement of Samsonite International S.A. Today, we have our CEO and Chairman, Tim Parker, CFO, Kyle Gendreau, as well as our Head of Asia Pacific, Mr. Ramesh Tainwala, here with us today to present our 2012 final results. Without further ado, I'll have Mr. Parker begin the presentation. Thank you. Thanks, William. Good morning, everybody. Welcome to our results announcement. I think we're very, very pleased with what is another set of record results. This is a fine result, but I think it's a great result when you take into account that last year was a pretty dull year actually from a macroeconomic perspective around the world. Also, of course, we report in dollars. Thank you. We did suffer quite a lot as a result of the lower rate to the EUR and the lower rate to the Indian rupee. Sales are up 16.8% in constant currency terms. Our EBITDA are up just over 15% to a record $287 million. Our adjusted net income up 22% to $167 million. All very pleasing. Actually achieved with the help of all regions. I think it underlines the strength of our business on the basis of diversification across different markets. We turn to the next slide. Net sales up, as I said, 16.8% to $1.77 billion. Currency actually cost us around $57 million. It's a very considerable impact last year. Of course, what we have seen subsequently is a rebound of the EUR. Although frankly speaking, as we look at those Cypriot bank accounts, it's not really clear exactly what direction the EUR is going to go in this year, but it is better than it was a year ago. We're quietly optimistic that this year will get a little help from currency as opposed to last year. Of course, High Sierra and Hartmann, whilst making a contribution, is only a part year contribution. If we strip those two acquisitions out, our turnover up 15.2%. Of course, if we play the game of excluding all the difficult markets, i.e., Spain, Italy, and Argentina, our sales were up by just under 20%. Those were the difficult markets. I must say, many other markets, as I'll report in a moment, have performed extremely strongly. We feel very confident that the momentum that's existed in the business over the last two or three years will continue into 2013. Looking at gross margins, our total gross margin contribution increased by around 11%. The actual percentage was slightly lower, and that's the result of mix. The margin on American Tourister is slightly lower than Samsonite. We also had an absolutely wonderful year in the U.S. Because the U.S. is predominantly a wholesale business, and that's where the growth was, that also had the effect of diminishing the margin percentage a little bit. Then, of course, we had the effects of currency and a tiny amount, the result of purchase accounting with the two acquisitions that we made. So gross margin slightly down in percentage terms. But the EBITDA are, of course, up by a very healthy 15.4%. That is partly the result of getting the leverage of a fixed cost base, which has remained pretty much fixed. And partly also, as a result of a slight fall in the dollar spend on advertising. The dollar spend on advertising was down $6 million. In constant currency terms, of course, the drop was only around a couple of million dollars. It still represents around 6.6% of our sales. But that obviously had an impact. Taking all those factors into account, despite the fact the margin percentage was slightly lower, of course, we had the substantial uplift in EBITDA and a slight improvement in the EBITDA margin to 16.2%. We've tried to sort of factor in the impact of currency. It's not easy to do because it has multiplicative effects in various parts of the P&L. But we estimate that had currencies not moved, then our EBITDA growth would have been in the region of 20%. Adjusted net income, of course, following on pretty much from the movements in EBITDA. We did have a one-off tax benefit, which is why the growth in net income is somewhat faster than EBITDA. And of course, a lot of adjustments to get from the brute reported profits to the more comparable adjusted net income. Reported profit up by, obviously, a huge amount, but we need to factor in the one-off costs. So all very pleasing. We like to look back on this slide with some satisfaction. I think you can see that post the credit crunch, we went into a period of adjustment in our business. Since then, the company has slowly but steadily begun to realize its true full potential. Modesty forbids me from pointing out the date at which I joined the company. I'll leave you to figure that out. That's a joke, by the way. Moving on to the next section. If I can somehow get at it. Business highlights. Well, of course, last year was really helped by excellent performances in North America and in Asia. Our North American business benefited from a huge uplift in listings. We felt the benefit across the business. Of course, Asia, despite, I think, slightly diminished expectations of the Chinese economy, Asia continues to be a very strong source of growth for this business, and we expect that to continue. I was quite pleased by the performance in Europe. Europe has been a very difficult market in which to operate. We, as a business, have always had very strong markets in Italy and Spain, which of course, were the two worst economies, the two biggest worst economies in Europe last year. So to achieve constant currency growth of just under 5%, we felt very happy with. If we look at growth across the business, we've done well in travel products, but also in accessories and business items. I think the reason the company has continued to make progress is partly as we've explained before, that we out-advertise and we outspend our competitors by a very wide margin. But also, I think it's testimony to the creativity of our design and marketing teams that we are constantly reinventing the products that we sell. It is innovation and making a utility product appealing to the consumer that really is the source of success in our marketplace. American Tourister has been very important to this business over the last couple of years. Samsonite has obviously got a very large share of its market segment. What American Tourister has done for our business is to allow us to develop a brand which meets the needs of a very high volume and high value market of newly wealthy and people who actually have the consumption power, the middle class, which is growing very strongly, especially in a lot of Asian markets. American Tourister is right in the position to take advantage of this. As I mentioned before, our advertising spend was slightly down on last year, but still forms a very substantial investment. Whilst having beautiful products is important to our business, to remind people and to underline the benefits of our brands is also a key differentiator of us with our competition and drives our business forward. We expanded the number of points of sale very considerably. 2,100 points of sale were added through the acquisition of High Sierra, and another 1,200 from new doors that we got into in the States, and another 700 in Asia and Latin America. So a very broad-based increase in our number of points of sale outside the mature market of Europe. I've been very happy with the progress of our two acquisitions. They have been very quickly integrated into our business. We have completely absorbed the Hartmann operation now into our HQ and our warehouse operation, and the same applies to High Sierra. We've left a small creative and marketing team in Chicago, but the rest of the business, the back of the business, has been fully integrated into Samsonite. So we're in a good spot to achieve the synergies that we envisaged and to really get going with those brands. In some respects, I think the most satisfying element of our performance last year was the operating cash flow. The year before, we had a number of one-off calls on our cash. This is the first year where we've had pretty much a frictionless impact of our EBITDA on our cash flow, and we've been aspiring as a business to increase the conversion of EBITDA in terms of cash, and it's come through. And $203 million, I think, underlines the fundamental cash generative abilities of this business. Moving on, we can see the rates of growth in each of our regions. In Asia, if we look to the bottom of the chart, I think constant currency is a more accurate and fairer measure of performance. Our sales in Asia are up 21%, in North America, 29%, in Europe, 5%, and in Latin America, 7.5%. I'll talk in a moment, or rather Ramesh will talk in a moment, in a little bit more detail on Asia. Key elements of Europe have been very much a strong performance in Germany and some of the newer markets that we have in Europe, Russia, Turkey. In North America, as I mentioned, we have had growth in virtually every major retail account, on which more in a moment. Latin America has been actually much better than it looks. Obviously, in Argentina, the regime there has imposed physical import control, so the only steps that we have been able to take, really, is to reduce the investments in retail doors that we have in the country, as we can't feed those doors with stock. The only bright element to this is that I think we took most of the pain last year, so I envisage a much less negative impact from Argentina this year. Our two key markets in South America, Chile and Mexico, grew very satisfactorily, and we are gearing up for a big push in Brazil this year. Ramesh, do you want to comment on our markets in Asia? Asia, as Tim already said, grew last year by 21%. American Tourister, which is really catering to the mid-market, grew at a faster clip, about 53%, and Samsonite about 6.7%. The wholesale business also grew well at about 22%, and retail about 13.5%. Travel, 23%, and casual bag, which grew at a faster clip at about 50%. You have seen Samsonite Red, which we spoke last year was launched in Korea. That starts to gain a big traction. We intend to expand that into China and Hong Kong this year. The gross margin has been slightly lower, primarily because of American Tourister sales being slightly bigger in proportion, and also the currency effect coming from India. Into more details, if you look at China, in the first half last year, we grew at about 30%, but definitely we have seen some amount of moderation in the second half, where the growth got moderated to around 12.6%. The total growth has been around 20.4%. Korea has grown very rapidly, over 33%, primarily driven by the success of American Tourister as well as Samsonite Red, which is getting into the casual bag market, where we are having a smaller market share, and we feel we have a big opportunity to grow there. India, on the other hand, at constant currency, the growth has been much lower, primarily because of the currency effects, and also we decided to go for a phase of consolidating our market share and not sacrificing our margins, which has resulted into a smaller growth. Japan, on the other hand, has continued to grow at 20% plus, about 27%, and so has Hong Kong. These are a few of the big markets. Overall, most of the markets have grown at a decent and a satisfactory rate. Good. Thanks very much, Ramesh. Moving on to America. As I said, the improvements in our American business last year absolutely took us by surprise. I think it's partly the impact of things that we have done over the last couple of years and also the success of getting into some new accounts, in particular Target and Best Buy. The strength of our American team, I think, is that not only do they have excellent customer relationships, and we are regularly voted Best Supplier of the Year by many of our customers in America, and these are the big box retailers like Macy's, Kohl's, JCPenney, very demanding people to deal with. I think also we have worked well to create the right products for our customers at the margins that we require. In the American market, the way we do business is very much to take a product and adapt it to individual customers. So we'll have a common product that is subtly different from customer to customer, and it's managing that process well that is the source of a lot of our success. We had a good year in retail as well, and we opened 14 new stores, and we intend to continue that expansion, mainly in factory outlet centers, but we also see one or two opportunities now for full price retail in the American market. We've just opened the first High Sierra store, which we have great hopes of. So things are moving there. A lot of the success has been in our core category, but we've also seen, obviously, off the back of the acquisitions, tremendous growth in casual products and also in the business category as well. So I think it's been a great year in America. This kind of growth, of course, is not sustainable in the medium term. But we do believe that we have built the foundation of a very, very strong business there. We have never done as well as this in America, and I think our brands are now close to achieving a lot of their full potential. Moving on to Europe, as I said, Europe is not an easy place to do business in at the moment. It's a no flat growth kind of area. Of course, the EUR last year depreciated very significantly. We were able, as the market leader, to react to the substantial increase in our EUR input prices by raising our own prices. I think that again reflects what we have been telling people, which is that we can maintain our margins, we can actually adapt to different conditions when currencies move. Our competitors tend to be followers as we are the market leader in every major geography in Europe. Spain and Italy, of course, are very tough. Business down in Spain by 9%, in Italy by 16%. This is going to bottom at some point. I'd like to tell you I can see it now. I can't. I can see it at some point this year, I think. If you look at all the current forecasts, Europe is in for another flat year. I mean, not us, but the market overall, with some prospects, I think, of recovery in 2014. We are doing extremely well in Germany. Germany is the really strong economy in Europe. Exports continue to increase. The German business for us was up by 15%. The Norwegian figure is a bit of an outlier. That was because one of our customers changed their stocking point for Scandinavia. It wasn't that the Norwegian suddenly had a big rush on Samsonite. It was simply a structural change. We have had another very good year in Scandinavia. Scandinavia is another region in Europe which has escaped much of the torment of the southern economies. It's also been a good year for American Tourister in Europe. We have been plugging away with American Tourister in Europe for some time, and this is the first year, I think, where we've broken through a threshold of $20 million or so. It will continue to grow very fast this year. American Tourister is doing its job in Europe as well. A good year for travel products, less so for business and casual. Every year has its disappointments, and for me, one disappointment is the progress that we've not made with business products in Europe. It's partly because we had a dearth of new products. That situation has been rectified for this year. I think it remains a great opportunity for our business, but it's taken us a little bit longer than I anticipated to get everything absolutely right in terms of product and channel marketing. Obviously, as a result of the challenges in the currencies, our EBITDA in dollar terms was down 5%. Actually, in euros, our profit was slightly up in Europe. So to have achieved some increase in profits in Europe, in local currency, with the kind of year that we've just had, I think was a very good achievement indeed. We anticipate being able to do that this year as well. Latin America, I mentioned earlier, I won't repeat the Argentinian story, but Mexico and Chile had extremely good year. That's partly the backpack business that we have in Chile under the Xtrem brand. I was down there a couple of months ago, and you would be amazed and impressed just how strong our business is in both of these markets. Chile is quite a small market, 16 million consumers, but we absolutely dominate the marketplace. Wouldn't use that word. We're very strong. In Mexico I think is one of the brightest economic hopes worldwide, actually. It's an economy of 100 million people. It's growing fast, and we are, again, very, very strong. The Samsonite brands in Mexico have an absolutely leading position. We have great hopes this year of building our Brazilian business. We have a new tax structure, which I think will enable us to bring our prices down in Brazil somewhat, and we believe that will help to really kick-start our business. We're busy repopulating South America with some investment in sales offices. We have an office in Brazil, and we're now looking at reopening offices in Colombia and Peru, which are two other Latin American economies with potential. Moving on to page 18. It just gives you a good picture again of the, I think, effective diversification of our business and how well the company does across a range of markets. Just look at the constant currency numbers along the bottom. 30% in America, 20% in China, 34% in South Korea, 7% in India, 27% in Japan, 15% in Germany, and even markets like France, which frankly are not tremendously dynamic at the moment, we were up 6% in constant currency terms. So much to be pleased about there. If you look at some of the smaller markets in Asia, again, we're seeing some quite exciting dynamism. The first market there is Russia. Russia, in a couple of years' time, could quite possibly be Samsonite's second biggest market in Europe. Thailand grew by 17%, but I expect this year Thailand is going to be a very strong opportunity for us. Things are coming together there. Taiwan, up 28%. Indonesia, again, is a very rapidly growing market, up 62%, with plenty more growth to come. Turkey, 14%, Brazil, 14%, Malaysia, 13%, South Africa, 33%, so another little very successful joint venture the company has. The Philippines, another market which I think is really coming together, up 33%. So again, our company is balanced. We are not dependent on any single market, and I think we have this wonderful exposure to growth markets of the future, whilst, I think, being able to consolidate our profitability in some of the more tricky mature markets. Moving on to the next slide. It's, of course, been a satisfactory year for Samsonite. Growth of 10% in constant currency terms. But the hero of last year was American Tourister. A growth rate of just under 50%. Of course, we will begin to see a more and more important contribution from Hartmann and High Sierra. Of course, we have a number of other brands, principally the Xtrem brand I mentioned in Chile. Of course, the impact of the acquisitions and the success, actually, of American Tourister, has been to slightly broaden the base of brand dependencies. So you can see that last year, 78% of our business actually came from Samsonite. This year, it's down to 71%. American Tourister has grown. Obviously, the acquisitions are making an impact as well. I do see this as a strategy that we will wish to implement over the next few years, is to diversify the number of brands that the company operates, partly to reduce the dependency on any single brand, but also to take effect of and to really gain benefit from the economies of scale that we have as a result of our worldwide distribution network, the worldwide sourcing operations that we have, and I believe a talented management team, which is ambitious to develop the company. Acquisitions, there will be more of. The next few pages, we just give you a picture of a few of the successful products. The good thing is you can actually touch and feel the stuff. Many of these items are in the room this morning. I won't pick anything out individually, but you can see the success in Asia isn't dependent on any particular product category. We've done well with Curv. The Aerial product is, I think, our biggest hard side product. Last year, B-Lite has been successful across the world. Just moving on to the American products. You've got some Hyperspace, which, again, is a derivative of a European product. It's done very well. Winfield, which is our biggest selling hard side product in the States. Lift, again, a derivative of B-Lite. Again, we've been successful at adapting products to these different markets. We've enjoyed a lot of success, actually, with not just cases, but also backpacks and with business products in the American market. In Europe, again, we've added to the Curv range this line of very colorful cases. Top right, that's Firelite. That's the latest Curv introduction. On the bottom here you have S'Cure, which is the latest polypropylene molded product, which has been an enormous success. We will be introducing a version of that in Asia at some point this year. It's taken us two years. These products are a challenge to engineer. Polypropylene is not always the easiest material to work with, but it is probably the toughest material, apart from Curv, that we have. It can be very light. It's very popular with a lot of customers. It performs in all temperature conditions, unlike polycarbonate, which is apt to crack under temperatures of 11 degrees centigrade or thereabout. This is a product which we believe is going to be very successful in Europe and soon in Asia too. On the bottom right, you see a product, Paradiver, which has been a very big winner in casual for our European business. The next page, just a whole range of stuff throughout the world under the American Tourister brand. I hope you can see from this particular slide that there's plenty of color and plenty of vibrancy. Again, one or two items hopefully are in the room. This has struck a chord with younger customers. It struck a chord with customers who are slightly more value conscious, and we've got a lot further to go with this brand over the next few years. The next page just gives you a flavor of what High Sierra is all about. High Sierra is in the backpack business, and of course, they do simple stuff back to school for kids. They do technical backpacks. They also have this quite interesting, what you would call kind of outdoorsy type cases. So backpacks with wheels, and this kind of soft luggage, which looks a bit more, as I said, outdoorsy than the normal, apt to be a little bit more sober Samsonite product. Finally, Hartmann. We've just completed re-engineering of most of the lines at Hartmann. We've had a huge positive response from the trade in America. We had a very successful annual luggage show in Las Vegas, and we expect to get significantly improved distribution for Hartmann products and also to see some sell-through. Plans are being made to launch this brand probably either later this year or sometime early next year in Asia. You may ask, "Well, why aren't you doing this now?" The answer is, actually, you have to make a lot of preparations to launch a new brand. You can't just stumble into the market and put a few cases here and there. So we want to get the products right. We want to get distribution right. But we are quietly optimistic about what we can achieve with this brand worldwide. The next slide just tells the story of the different categories and as I mentioned, much to be pleased about in our core travel category. Business category, well, as I said, there's always going to be something that's not quite what you'd hoped. We did well with our business products in North America, but there were some delays in our new leather products in Asia that meant we didn't quite reach our goals there. Also, as I said, we've got some work to do, I think, to revamp the product range in Europe. But this remains, I think, a source of exciting possibility. Part of this, of course, is the fact that the whole office products category is changing very fast. So the old laptops are going to be replaced by these new ultra thin notebooks with reversible screens. Tablets are going to explode, and obviously smartphones are getting more numerous and more complex and bigger. So there's a big shift there and there's a big opportunity, and we intend to take advantage of it, not only with our existing brands, but we'll also look for suitable acquisitions in some of these fast-growing areas as well. So, as I said, much to be pleased about. Entirely satisfactory year with casual and accessories and more to build on there. As I mentioned earlier, a lot of new points of sale in America. That's driven by the acquisition of High Sierra, which sells into sporting goods retailers, outdoor retailers, different channels from the channels that we're in. First time we got into Target in the States for a long time, and Best Buy, as I mentioned at the half year. We've actually built on our distribution in Asia I think very satisfactorily. Of course, at China, we are still building distribution. We're still moving into smaller cities. But again, we have to be careful there. Not every mall in China is successful. Of course, the economics get less and less attractive the smaller the towns that you move into. The money is still being made in the biggest cities in China, where we are very strong. We are still increasing our geographic distribution in China, but it isn't at the same rates that we have enjoyed over the last 2 or 3 years. I think that's fair to say. We even added a few points of sale in Europe, mainly in Russia, where we acquired a small retail chain, which will improve our retail presence there. Of course, plenty of new points of sale in Latin America. Our company, I think the one thing that surprises people about Samsonite when I explain the company is not always the products, it's the scale of our distribution. It's the extent to which the company understands how to trade in most of the key markets worldwide. I'm convinced that we do this better than much bigger businesses than us. I think it's partly the fact that we've been around in markets for a long time, and also our policy, really, of localizing our distribution. Broadly speaking, we have Japanese running Japan, Koreans running Korea. We don't have a policy of exporting lots of people from Europe and America. We are a company that tries to operate with centers of gravity that are very close to the relevant regions, and not with a sort of big HQ that attempts to colonize new countries. It's been a very successful approach. The next few pages, I think, just give you a flavor of, again, just how broad-based our distribution is. The new High Sierra store in appropriately Oregon, which is the outdoors capital of America. The new Black Label store in the very important GUM department store in Russia, which is next door to Red Square, worth a visit. A new store in Hong Kong. On the next page, one of the new stores in Ningbo, in China, Shenyang, and American Tourister store in Indonesia. There's a lot going on, a lot of new points of sale, as I said. This all helps the distribution and the preponderance of our brands. Advertising. Well, last year, as I said, advertising spend was slightly lower. This, in part, was our effort to maintain profitability of our business in Europe in the face of much trickier conditions. It also reflects, in fact, the greater exposure we had to America last year as a result of growth. That effectively because we advertise at a lower rate in the American market, that brought the overall percentage rate down. But as I said, if you adjust for currency, our spend was down a couple of million. This year, we plan to maintain our spend at the same rate. We've planned in a fairly substantial increase this year. Just give you a flavor of some of the support that we've given to our brands. There are a few videos that we'll play in a moment, and I hope it gives you, again, an idea of how we adapt our advertising to local markets. It just doesn't work to try to do the same thing worldwide. It may be fine if you've got an overpriced handbag, but for our products, it's not relevant. My first Red. Samsonite Red. This is actually a Korean ad. I have forgotten this young man's name now, but- Song Joong Ki. Song Joong Ki. Thank you, Ramesh. I knew it ended in G. He is really big news in Korea, and has a special liking for us. The Samsonite Red casual brand is growing very fast. It is already 25% of our Samsonite business in Korea, and we anticipate bringing it. Well, we have already brought it to China, and we will bring it to other Asian markets. Of course, the point of the ad was that he takes the water and saves his bag. We had another version of this ad which involved a bird dropping, and we thought that was probably a little too strong. I think we showed it. But that- It was all right in Korea, wasn'="2">It's been rated as the second-best advertising for the month. It has been rated as the second-best advertising for the month. So there you go. And just moving on, we've got a few other examples of our support. Now, we have a very famous Chinese actor here who's been supporting our business products. His name is- Cheng Da Ming. Cheng Da Ming. This, again, has been a big success. This is being put up in many of the stations, many of the billboards, and I think has achieved a very high level of awareness. Moving on to American Tourister, we have the very successful Take on the World campaign, and this is really advertising the merits for people, perhaps, who haven't traveled before of really liberating themselves, buying some luggage, and getting the hell out of wherever they are. So this has, again, I think, struck a very good chord. You can see on the next page, we have used many forms of communication: billboards, print, buses, POS, windows, and TV as well. Go, go, go. Come on, come on. Go, go, go. American Tourister, trusted all over the world. Just moving on to North America. Again, we invested very heavily to dominate every site on Penn Station. Penn Station is the busiest railway station in America, in New York. Again, invested considerable amount in this Tough Tours, where we take our backpacks and stuff around campuses. We got this armored vehicle, we do obstacle courses. It's proven to us, that if we get the environment right, you can get kids to buy lots of Samsonite, as well as older people, too. So that's been tremendously successful. Moving on to the next page. We've formed a partnership with Disney. American Tourister is the chosen luggage of Disney, and that affords us the opportunity to invest behind the brand in one or two key points on the various properties that they have. The buses that carry people to the properties, also lots and lots of mailings, and stuff like that. They wanted Samsonite, we weren't willing to do that. They were very happy to take American Tourister. I think, again, it will be a big fillip for the brand, bearing in mind that American Tourister in America is really a brand that we trade most heavily in Walmart. The Disney association, I think, will bring very good things to us. We'll move on to the European slide. Again, you can see a slightly different take in Europe. We've injected a little bit more emotional appeal into the advertising. We've actually developed a new campaign for 2013, which I think we can show you Yep as well. Where do I go? I'm reaching out for different goals. When will I be home? Don't really know. I don't mind losing control. I'm feeling like I'm on a roll. Ooh. Taking on a brighter hue everywhere I go. Latin America, again, we have a different target market there. These are generally much younger people, and a lot of social media that we use. You can see, again, a totally different take on Samsonite. It always, generally speaking, we are emphasizing lightness, mobility, and durability. I'm now going to hand over to Kyle Gendreau, who's going to comment on some of the financial highlights. Okay. Good morning, everyone. A bit of a repeat of some of what Tim has said, but I will just give you some of my own perspectives on it. EBITDA margin up to 16.4%, if I adjust for the acquisitions. Hartmann and High Sierra in the stub period of 2012 had a little bit of a negative effect on our EBITDA, really around purchase accounting, step-up in inventory values and such as you bring them on board. But even without that, our EBITDA margin is 16.2%, and I will show you a slide on that. We are quite happy with the cash generation of the business. If you think about generating $200 million of operating cash, we spent around $140 million to do these acquisitions. We still end the year in a net cash position of $116 million. We have a small amount of debt outstanding on our revolving facility, which, at the mid-year, I would have told you we enhanced that facility. By the end of first quarter, we will be again down to zero debt outstanding on that facility and continuing to generate cash. We are quite happy with the balance sheet. Working capital continues to run slightly better than even our own internal targets. We typically target around a 14% working capital efficiency, and we are running just about 13% for the year, and very consistent with last year. Very strong there. Earning per share rose, as you would expect with the net income growth. On an adjusted basis, 20% growth in our earnings per share. In connection with that and just our commitment to continue a growing dividend policy, the board yesterday approved a distribution of $37.5 million, which is up 25% from last year, and a slight improvement in the yields from the year before as well. For us, that is quite a comfortable position, and from a dividend perspective, continues to leave us capacity as we consider potential other opportunities for us during 2013. Just moving to the next page, just to give you a three-year look. Revenues continue to grow very nicely. Constant currency 24% last year, 16.8% this year. Continued EBITDA margin improvement over the last three years. Albeit subtle, going 15.8% to 15.9% the year before, to 16.2. If I adjust for acquisition, 16.4. This is in line with what we have talked about over the last few years, as far as steady improvements in EBITDA margins and really coming across all regions. If you look at the U.S. business, which we looked at, there has been a nice healthy improvement margin there. This year, our EBITDA margins, as Ramesh showed on his slides, grew nicely for Asia. Some of that was from extra advertising in the prior year, particularly around IPO timing. The margins improved there. We are quite happy, and our view for this year is we will continue to see some leverage in the cost structure of this business and EBITDA margins continuing to grow. From the balance sheet perspective, let us just give you a quick snapshot. I have talked about cash. We have talked about working capital. I will give you some details there. On the borrowing side, again, very little borrowings, and we've got a very terrific $300 million facility for other opportunities we might be thinking about on a smaller scale. But the business really has capacity from a balance sheet, actually, to do much more. The strength of this balance sheet we're very alive to as we think about acquisition opportunities for the business. On the working capital, again, maintaining 12.6%. Last year, 12.5%. Very strong. We've brought our inventory days down slightly, so we're 118 days versus 122. Trade receivables are up a few days on a days perspective, and that's largely because of the very high growth in the U.S. business, which again is largely a wholesale business, so a big chunk of that business is a receivables-based business. There are no issues within our receivables, even in a market like Europe where you would expect to have some strains there. Our days have stayed very steady. We maybe have shortened some credit terms in markets like Italy and Spain, but we've managed the receivable and the days very effectively. Payables continue to be maintained around this 110 AP days, and that's continuing to be very consistent for us. A little bit of timing at the end of the year this year, just as the calendar fell. Very happy with working capital, and it's across all regions. We don't give you a region slide, but in the actual annual results, you'll get a view by region. This is a consistent story across all the regions. CapEx, we've spent around $37.9 million, $38 million this year. Slightly lower than what we said. We said we'd spend around $42 million this past year when we were talking about 2012. It's been mainly around CapEx around retail expansion, which is what you'd expect, and weighted towards Asia. So we're opening true retail doors in Asia. When we see 700 points of sale in Asia, it's really around retail expansion. Some shop fit-outs in Europe, and you saw in North America we opened doors as well. So some CapEx around retail expansion there. We continue to invest around some product development. Actually, in Europe this past year, we bought a small piece of land next to our facility, and we're about to, in 2013, build a new warehouse in effectively an adjacent piece of property next to our facility. What that will allow us to do is pull out of some of these external warehouses that we have in Europe. We use some external warehouses for bulk storage of inventory. We had a very nice opportunity to bring that in-house, and so we're doing that. When we go to 2013, you'll actually see our CapEx plan. It'll be in our results, but around $72 million is what we've budgeted for CapEx, and it's largely around this facility in Europe that we're going to build out. We're also going to start at the end of the year to build out a new facility in China for office and warehouse. The team there is very excited, and that'll be at the very end of 2013, going into 2014. So have a little bit higher CapEx in this year. Underneath that, our core run rate still feels around $40 million for us, and we have a few one-offs that we're doing this year, 2013. You probably know the shareholder information equally as well as I do. No real changes in shares outstanding. We've had a 20% growth in the earnings per share. We've talked about the dividend here. You can see the payout ratio and the yield. Those are up slightly from last year. Again, 25% growth in the dividend payout in dollars against a 22% adjusted net income growth. So again, our strategy here will be to be growing dividends slightly ahead of the earnings growth, and that's exactly what we're doing. From a significant shareholder basis, CVC has, through the year, done a couple of very effective block trades, so their position is now down below 10%. RBS has followed along, down 5%. I think those have been well received by the market. It's actually helped the liquidity and the trading volumes in our shares. It's proven to us. We're very used to the Hong Kong block trade, but it's a very efficient way for a large holder to trade out. My sense is you'll see as the business continues to perform, these guys are not natural holders, so over a period of time, you'll see that continue. But we don't have any concerns about how that's absorbed into the market today. We've seen it well received as it's traded out. Then you would have all seen this, but in January, we actually issued our option program. So we were running without what I would call a long-term incentive program for this type of company. A lot of the managers hold shares, but this option program, I think, is the right thing for both the senior team, but actually getting deeper into the team to have many of the managers at the front end incentivized around long-term performance of the business. So this program went in January. The exercise price was 17.36, I think, something like that. So it was very relevant to where the recent trading was, and very well received by the managers. So what you'll see in the 2013 results is we'll start some accounting for this. When we get to the mid-year, we'll give you some education on what that's going to look like, but it's fairly standard option accounting that you'll see going through the results. Then the last slide. Our share prices over the last, I'll call it six months, have performed fairly well. We've been fairly pleased. We were slightly disappointed probably mid-year last year, but where we've traded, I think, has performed better than the Hang Seng. I think barring yesterday's slight dip because of the noise in Europe, we're pretty happy actually with where share trading has been. Again, liquidity, we've talked about the share trading volumes have really moved up from where they were six months ago even. So, we're pleased here, and I think that's all I have. Yeah. That is not quite true. Of course, we are not happy because the shares should be worth a lot more than they are. Yeah. We try. In relative terms. In relative terms. We are less unhappy than we were six months ago. Yeah. We are happy about everything about the company except the inability of people to appreciate just how valuable it is. Moving on, I think sometimes, when you look around the world, it is hard to find industries that I think have got not just short-term prospects for growth, but have got really solid medium-term prospects. I believe that we are fortunate enough to be in a segment that is derived from a category that will continue to grow robustly around the world. There are several reasons why the travel market, I think, will increase steadily. The first is that although oil costs are going up all the time, aircraft and airlines are becoming more efficient, and airfares are still very affordable to people. Travel remains at the top of everybody's list of things to do when they have got the disposable income to do it. Obviously, countries that are becoming more affluent are seeing a much faster growth in travel. It is not just aircraft, of course, it is trains and it is also by car as well. The expectation is that growth in Asia will be in double digits over the next few years. I think even in more developed markets, I can see evidence of sustained demand. Of course, we are helped by the fact that airline regulations are changing all the time. We are very close to the, just to give you an example, in Europe, we are very close to the biggest airlines in Europe, which are no longer the flag carriers, of course, but Ryanair and EasyJet. They are constantly reviewing their policies, because it is very important for their throughput to manage the time it takes to get everybody's luggage on board. We are also seeing a lot more attention of airlines to the cost of hold baggage and charging for that as well. All of these things are making people much more aware of what their case is. We are also seeing, interestingly, a very strong growth in hardside luggage throughout the world at the moment. Why are people buying more hard suitcases? First of all, ideally, people believe that a hard suitcase is stronger than a softer suitcase. There are a lot more competitively priced and more attractive hardside cases available. This is good news for our business because this is the traditional heartland of Samsonite and American Tourister, is hardside luggage. There are trends in the luggage market, there are trends in the travel market, which I think will help our business greatly in the coming years. The outlook for 2013 had been, we have had a couple of months of trading. We are into the third month, and we are happy actually with how things are going. For me, the point about a strategy is that it is consistent, and I shall simply intone to you the same things that I have intoned over the last couple of years, which are fundamentally, we will invest behind our brands to gain market share in what is already a growth market. Innovation, as I mentioned, is the core of our success, and we will continue to invest heavily there. Our business is becoming more efficient. As you probably noticed, our fixed costs remain within the normal range you would expect according to cost inflation, whilst our sales continue to move well ahead of inflation. We are getting the leverage effect, and our fixed costs per unit of sales are falling all the time. We intend to build more successfully the non-travel categories. As I mentioned, I cannot report 100% success on the scorecard there, but we will endeavor to continually improve. Acquisitions now are a big priority for our business. We think there is organic growth, but we think we have a really good opportunity now to achieve further consolidation in the segments that we operate, and we have the capital resources to do that. Just finally, because it is always good to talk, but you can see here on the last slide just a few of the actual new products that we are introducing. New version of B-Lite, a product called Motio in Europe, which is another hybrid product. The new Silhouette is our biggest selling line in America. We have a new version of that coming out, which has been incredibly well received. We have got great hopes of that in Asia. We have got a new softside range at the bottom there, Synconn, which is enjoying great success. The new Spin Trunk range, again, we are seeing a very good response to. As I said, another record year for the company. We are very pleased with that, and we feel 2013, we hope to do more of the same. Thank you very much indeed, and we would be very happy to answer any questions. Okay. Erwan from HSBC. Hi. Good morning. Erwan Rambourg from HSBC. Three questions, if I can. I think you have mentioned M&A opportunities quite a few times during your presentation. I am just wondering, what, in your view, is missing in the portfolio that your two core brands and your two recently added brands cannot actually address? In terms of the acquisition, will this be a U.S.-focused brand that you can initially develop in the U.S., like you will be doing with the two new ones, and then globally spread out, or do you have another focus? Should we consider that this will cap maybe the payout ratio that you have because you will be keeping cash on the side? Yeah for those opportunities? Okay. That is the first very lengthy question. Yeah. Sorry. Secondly, you said the U.S. is maybe getting closer to full potential, maybe a bit more mature. You have opened a lot of accounts. What, in your view, is the sort of sustainable growth rate for your business in the U.S., obviously excluding acquisitions? Then third and lastly, maybe a bit more for Kyle. If you can talk about gross margin outlook, a lot of moving parts, brand mix, channel mix, regional mix, FX. A headwind yesterday, maybe a tailwind today. How should we think about gross margin for the next few years? Thank you. Okay. I will take the first two questions, Erwan. I think the last part of the first question, whatever acquisitions we make, we do not think that is going to have any impact on the payout ratio. We are very mindful of continuing to implement a progressive dividend policy. On companies that we are looking at, I do not want to be too specific. What I can say, I think, is that we feel we have got a very solid brand portfolio in travel now. So, it is in the adjacent areas that we are looking for further expansion opportunities. I couldn't and wouldn't want to narrow down the target areas to either America or Europe, but I think it is safe to say that the strategy will continue to be buying brands which have been established in developed markets in order, at some point, to take advantage of our distribution in Asia. As I've stressed, it does take time to introduce new brands, but I do believe a well-thought-out strategy of paying sensible prices for good brands, which are adjacent to what we do, can further enhance the value of the business. So that's M&A. U.S., yes, indeed. We simply can't sustain growth rates of 20% in the U.S. I think without putting an exact number, given the travel industry is still quite strong in the States, I think we're probably talking something around 6%, 7%. Is that a fair assessment, Kyle? Yeah. I'd say good, strong single-digit growth. Yeah. That's the right way to think about it. Yeah. In general, our business is always going to be a mix of a pretty strong double-digit growth in Asia. Something in the region of what I've explained in America. Under normal conditions, I think we can achieve a similar performance in Europe. Even though things were quite difficult in Europe last year, our constant currency growth was still 5%. That, to me, bodes quite well for the future. Do you want to talk on gross margins a bit, Kyle? Just on North America, on the growth rates for next year, you're going to have a full year effect of these acquisitions, which will be quite strong for the U.S. business. On the margin side, I think the right way to describe it is a bit of tailwind for 2013. We've always said we'd maintain margins in this kind of 54% range. We were very close to that this year with a lot of actual headwinds. I think currency will be in our favor. We're seeing that now, though we run a fairly extensive hedge program, so you don't get a kind of direct correlation of the benefits if currencies move wildly, because we've locked in so that we can manage pricing. Commodity prices are in our favor as well, so we see that not causing us any headwind is the right way to think about it. We still have some capacity in the marketplace with suppliers. We feel quite good. Mix was a big piece of our story in 2012. North America business, the organic business will grow at a lesser clip, and Asia will grow at a faster clip, and you'll get a mix effect that'll actually help that gross margin as well. Even though within Asia, American Tourister is growing at a faster clip, and we'll continue to see that. Their overall margins are still up in the 64% range or so. As Asia grows at a faster clip, there'll be some natural upward pressure on the margin there. But I wouldn't write in to your thinking something much higher than 54%. We're fairly smart about how we're managing this thing, and you're not going to see big wild swings in our margin. But we'll do a bit better than what we did this year on a percentage basis. Okay? Okay, Erica? Hi. Erica, I've been working with UBS. Tim, you mentioned that so far this year, the trading update has been consistent. Yeah. Can you give a bit more details? Elaborate a bit by market. That's the first question. Second question is also a question on U.S. The kind of growth, can we talk about specifically what kind of accounts should we be expecting more doors to be open? That's for U.S. The next question is on China. So far we haven't seen significant recovery, perhaps for the Samsonite brand in China. If the situation continues, what kind of strategy do we have? Are we considering promotion? What are we considering? Thank you. To answer the first question, Erica, I'll deal with the American doors question first. I think there will be more doors in the States, but I have to say that our assessment would be that apart from opening up some of our own retail, we probably will see less expansion due to number of doors, and simply more effective trading with our existing customers. The percentages that I mentioned earlier are based on that kind of assumption. Trading in the first, and we should remember that we've only had really 2 and a half months of trading this year. Actually, traditionally, these are not particularly strong months for the business. I'm not too keen to infer a lot. All I can say is that we are ahead of our internal budget, I think is the best way I can describe it. Because we're such conservative people, you can well imagine that our budget might be slightly lower than, slightly ahead, I should say, of what people are expecting. But it's very early days. It's just very difficult, I think, for us to say anything with a degree of confidence there about the year as a whole. Ramesh, a bit of comments on China, yeah. In China, there are few things which we believe would help us to get a better growth beyond recovery of the retail in second half, which is expected. Everybody's expecting, so we're also expecting. One is the leather initiative. We've been talking about it for last year as well. Fortunately or unfortunately, we could not line up, we could not estimate the challenges which we maybe faced in getting enough quantity of right product at right quality sourced. So we did run into a challenge. As a result, this campaign of Cheng Da Ming, which was actually supposed to be released by us somewhere in August 2012. What we found was that whatever inventories that we were able to get, they were selling as it is, without need for any advertising campaign. It took us some time. I think we have now lined up enough capacity to feed the market, and the campaign will be now, it was launched last month in Hong Kong with a very positive and encouraging response to the extent that the sales for that category of business product category actually jumped 3 times in Hong Kong. Which is just a sign of what could happen possibly. So we would launch the same campaign now in China in the month of April, May. So we are all very hopeful about that. That should significantly have an upside on the business beyond the organic realities of the retail business. The second thing, which is also the concrete initiative that we are working on is e-commerce. Because we do find that e-commerce as a channel is suddenly finding a lot of traction in China, especially in the smaller markets. American Tourister as a brand is a very suitable brand to get into with e-commerce. It already starts to contribute around 7%, 8% of our revenue coming from e-commerce in China. With the growth which is in excess of, it's over 100% growth that we are seeing in that channel. So as we are trying to understand that channel better, design and develop product which will be probably more suitable for that channel. I think these two initiative other than, as Tim uses the phrase, I'm borrowing back from him, doing more of the same thing which we have been doing in the past. All put together, I think we believe that the second half of 2013 should see some very significant improvement in the growth run rate in China. Okay. Let's go to the question online. Bonita? There are three questions from David Smith of Smith Tan Asset Management. First is: can you give us an idea how big the market opportunity in Brazil is for you? Could it be bigger than Chile for you over the next several years? Secondly, did the performance of American Tourister accelerate in the second half of 2012? Thirdly, what are your expectations for Hartmann and High Sierra in 2013? I think the answer to the first question is that Brazil should be our biggest market in Latin America. The full potential in Brazil is certainly bigger than Chile or Mexico. We pencil in at least $50 million of sales and possibly more in Brazil over the next few years. On AT, I think it's fair to say that the growth rate has accelerated in the second half. Am I right? Yeah. It's been fairly stable throughout the year with a little bit of pickup in the second half. In the U.S., penetrating further Target has helped that growth rate. In Asia, I would say it's fairly consistent throughout the year. We had a very good fourth quarter. Obviously, you can see that in our numbers. AT growth has been fairly consistent. Hartmann and High Sierra, Kyle? Hartmann and High Sierra, we have in this presentation, but those are deals that we expect to do somewhere between $90 million to $100 million in sales in 2013. As we talked about this earlier in the year, we think Hartmann is probably neutral for 2013. As we get the product assortment right, we will actually possibly shrink that business a bit before we start to move it forward and just getting the products in the right place. High Sierra is off to a very good growth rate. It was growing when we bought it, and we expect it to do something consistent to that in 2013. So around $90 million to $100 million in sales. Again, we have a chart in here that says that as well for those two brands. Okay. Last question from Aaron. Thanks. It's Aaron from CLSA. I think it was a great set of results, and I think the biggest surprise for us, or for me at least anyway, was looking back and seeing how strong the U.S. performed. Particularly how you were able to get into some new accounts. If we fast forward one year, what do you think would be the biggest positive surprise? That's a very interesting question, and I've got two kind of hopes. One perhaps more realistic than the other. The first realistic hope I have is that there's inevitably been something of an adjustment in China as the leadership has changed, and the repercussions of that are felt over not just a couple of months, but several months. I guess we are hoping that as things begin to settle down, that will have some positive impact on the business in China ahead of what we're expecting. My second hope, perhaps less well-founded, is that despite all of the problems in Europe, things are going to start to turn around the second half. If you look at most of the macroeconomic forecasts for Europe, that's what most people are saying. If Europe bottoms out a little bit, we could get into a virtuous circle of improving economy, stronger EUR, more valuable dollar results for us, better trading in Europe. That could be quite interesting for the business. I don't see any concrete evidence at the moment, but that's what my sort of two biggest hopes are. Okay, great. Thank you very much. Thank you, Tim, Kyle, Ramesh, and thank you everyone for attending our results presentation. Thank you.