Good morning, everyone. Thank you very much for coming to Samsonite International's 2013 interim results announcement. With us today, we have Tim Parker, our Chairman and CEO, Mr. Kyle Gendreau, our CFO, as well as Ramesh Tainwala, the Head of Asia Pacific and the Middle East. Without further ado, we'll have Tim begin to go through the presentation for you. Thank you very much, Tim.
Okay. Thank you. Well, good morning, everybody. Welcome to our first half presentation. I think we have another set of very encouraging results to discuss this morning. I think they're a set of results which reflects the overall resilience of our business and the diversification of our business across markets, across products, and across brands. I think as we look in the future, there is a great opportunity for us to develop our business globally and to take advantage of the enormous spread of our business across world markets. I think I've said this before, maybe, but one of the things that surprised me when I joined the company was just how diversified we are in terms of market spread. Our company trades in over 100 markets across the globe, from unlikely places like Afghanistan, to Somalia, to Peru, to Mongolia. Samsonite is everywhere.
I think the results that we've achieved in the first half reflect the fact that we are dependent on no single market or geography. Sales up 16%. Our EBITDA up almost 20%, and our net income up by rather less, 5%, but that just simply reflects the deferred tax asset, a one-off benefit that we had this time a year ago. If we adjust for that one-off benefit, in fact, the net income moved very much in line with our operating profit and EBITDA. The sales were pretty much not affected by currency in the same way that they were last year. This has been a slightly quieter year. The key currency for us is the rate between the euro and the dollar. That isn't to say that we haven't had very weak currencies in India and Japan. In the main, it's had less of an impact on our sales.
Our sales were just under a billion in the first half. The gross margin, again, moving up pretty much in line, slightly below in percentage terms, where we were a year ago. But that simply reflects the fact that we had a very strong wholesale business in America, where the margin is slightly lower, and also a much more rapid growth of American Tourister, which also has a slightly lower gross margin. As we've said, we expect our gross margin to be in and around the sort of 53%, 52%, 54% arena in general terms. Moving on to the next slide. Of course, we got quite a lot of operating leverage benefit. Our sales were up 16%. Obviously, our EBITDA moved ahead by rather more. Pleasingly, I think we achieved our best result in terms of EBITDA margin, so the EBITDA margin at 16.6%.
Now I'd just like to discuss in a bit more detail the highlights of the first half of the year. Of course, first of all, we had a great year in America. That's partly because of the half-year benefit of the two acquisitions we made. But even stripping out those two acquisitions, growth in the American market was around 11%, which I think was excellent considering that the overall market is growing at somewhere between 2%-3%. We also had, I think, a very satisfactory year in Asia. Ramesh will talk about it in a moment, but I think the company is less dependent on China than many businesses that you'll come across here. Also, I think we have a much broader array of brands and products, and that will allow us to adapt very well to the new conditions in the Chinese economy.
Looking elsewhere in Asia, we have plenty of markets where growth rates were over 20%. We are very fortunately in a business that depends on travel and tourism, and travel and tourism is growing 3% or 4% a year. In fact, the very latest estimates of the World Tourism Organization, which came out a day or two ago, showed that first-half growth was over 5%, so very encouraged by the robust growth in this market. I think travel growth in Southeast Asia was up 12%. Interestingly, of the 1.1, it must be $1 trillion spent on tourism worldwide, about 10% of it comes from China now. China is the largest source of outgoing tourists worldwide. Very happy with our European results. I think to come in with a growth rate of around 7%, despite the travails of the Southern European markets, was very satisfactory.
Another key point is that American Tourister continues to work extremely well for our business g rowth of 26%, most of which was in Asia. The two acquisitions we made last year have been fully integrated and are making a significant contribution to our American business, and we expect to take those brands to Asia very shortly, and also to launch High Sierra in Europe over the next six months or so. We spent a lot on A&P. We spent $64 million, slightly down in percentage terms. That again reflects the fact that we have seen enormous sales growth. When that happens, the percentage begins to reduce somewhat. We added around 600 points of sale. We continue to add a lot of distribution to our business. In common with other trading periods, we've had very strong cash flow. We are a very cash generative business.
Our working capital ratios are stable and low. Our CapEx is pretty much at a fixed level, though we will spend a little bit more this year. A lot of our EBITDA drops through to the bottom line. Moving on to the next slide, just explain in a little bit more detail. Our Asian business in constant currency terms up 15.5%. Very good year in South Korea, we'll talk about in a minute. North America up 30%, and that's principally wholesale business. It's simply the fact that our products are right for the market. They sell out, and when they sell out, our customers increase their ranging of Samsonite products. We are in a very good virtuous circle there. I would sort of add one small note of caution that this sort of growth can't carry on forever.
We do see opportunities for us to further increase our share of the American market over the next couple of years. Pretty happy with what's going on in Europe. Again, my sense is that things aren't getting much worse in Italy and Spain. We could well be going around the bottom of that particular curve. In Latin America, again, I'm very happy with the outcome there. Very strong growth in Chile and Mexico, the two key markets. We had quite a significant fall in our Argentinian business, which I flagged up before, and also in Brazil, because we're in the throes of a change from an indirect distribution model to a direct distribution model. Talk a bit more about that in a moment, our expectations of Brazil in the second half are rather higher. Ramesh, if you'd just like to comment a little bit on the Asia business.
Asia, as Tim already said, have continued strong growth. At constant currency basis, we have grown the business at about 15.5%. The shining star of Asia has been South Korea, where business have grown by 33.7%. That's one of the main reason have been Samsonite Red, the product that you see there. We had launched it about two years back, and now starting to gain market share in that category of casual bags. China also grew by 8.1%, Japan 19.5%, and India also at 7.3%. Of course, the growth was primarily fueled by American Tourister growth, which was about 33.2% over last year. It almost starts to contribute to around 50% of our revenue pie, which also expresses the resilience of our business model in Asia, where we are operating multiple price points.
With the help of two brands, even when there are consumer sentiments are slightly weaker, consumer tends to trade down. We have American Tourister, which helps us to gain market share. Wholesale channel have grown by 15%, retail by 18.8%. Both the categories, travel as well as business, have grown very well. Travel have grown by 15.1%, business by 10%, and casual by 38.3%, which is again, primarily due to Samsonite Red. There's a strong increase in adjusted EBITDA due to strong sales growth and reduced advertising. The advertising in percentage terms have been lower, but still we have spent about 7.6% of our revenue in first half of 2013 on advertising. The margin has been slightly lower, from 62.4% to 62% in the first half, which is once again, primarily due to the mix that we have between Samsonite and American Tourister, which is a shade lower.
China has continued to grow despite the macroeconomic headwinds. Sales have grown by 8.1% on constant currency, in dollar terms by 10%. American Tourister is up from 29% to 38% of the total pie. We've opened 72 new points of sale. 52 wholesale and 20 retail. Our retail comp store sales have been 2.5%. Of course, it varies from region to region. The coastal belt haven't grown, whereas the Tier 2 and Tier 3 cities in retail, we have seen very strong comp sale growth as well. I think on the whole, in spite of the macroeconomic headwinds which are there, we believe that we are gaining market share in China as well.
Good. Thanks, Ramesh. Just turning over the page to North America. Again, just to reiterate, very strong performance. Not just in wholesale, where our business was up 34%, but also in retail. We opened 17 new stores, mainly in factory outlet centers. We're in the middle of opening a couple of Hartmann stores, in fact, as well. One of the consistent trends across our worldwide business is a huge development of e-commerce. In many markets, our e-commerce business has more than doubled. We see this, again, as a very interesting channel, very profitable channel, and a great opportunity for the future. We enjoyed, I think, a very good contribution from both the acquisitions that we made. We made some more progress with High Sierra placement in the American market. We presented our revamped Hartmann product ranges, which were also received very well by the trade.
Whatever happens outside of America, I'm very confident that we can achieve good progress with both of these brands in the American market. Most of our growth, of course, in dollar terms, is still coming out of the travel segment in America. Obviously, High Sierra has made a material difference to the company's casual business. Essentially, the EBITDA as a percentage of sales has come down just a little bit in the States, and that's purely due to the greater wholesale share of our business. Very solid performance. We have now, I think, got an extremely strong base on which to build our business in the States in the coming years. Moving on to Europe. Europe, of course, as I've said, I think before, is really three Europes. You have Northern Europe, which is the Scandinavian countries, and Germany, which is in okay shape.
Middle Europe, you've got the countries in Southern Europe. I think our performance has been solid across all markets, with the exception of Spain and Italy. Russia continues to make a major contribution to our business. We've got more stores in that market, and we are investing for the first time in advertising in Russia. I think that will become our second-largest market in time. Germany performing extremely well. We've also had a very good year in the U.K. too. We opened 15 new stores across Europe. Quite a few in Russia, but also quite a lot of factory outlet centers and a full-price store in Vienna. We are becoming increasingly interested in the prospects for full-price retail in Europe and one or two other markets in the future. The store in Vienna that we opened is doing extremely well.
Retail accounted for almost a quarter of our business in the first half. Very happy with growth. Of course, in Europe, Samsonite is the dominant brand and continues to increase its share of most markets. I'm pleased to report that the casual and business categories, and in particular business, where we've struggled, I wouldn't say struggled exactly, but we've made less progress, I suppose, with that category. We saw very healthy growth in Europe of around 10%. Also good growth in America, in fact. I think that's driven by the much greater strength in product array that we have now. A lot of new products which have really gone down well in the marketplace. I think we can improve there. Of course, because the euro has been somewhat stronger, our profitability in Europe in dollar terms has improved by a few million as a result.
Conditions in Europe, I think, have been rather better. I expect a steady improvement. We're not expecting any great change to the euro-dollar rate in the short run. I also think that Europe finally is coming out of the decline phase and is moving around the bottom of the curve. Things should get better. Latin America on page 14. Again, the profit is slightly down in that market. That's a combination of factors. Slightly one-off changes to the gross margin, slightly higher spend on advertising and promotion, and actually some slightly increased expenses associated with moving to a direct sales model in Brazil, but also out of Panama and into Peru. This should benefit the company in the future to be able to sell into these markets directly but had some short-term costs. Overall, we've seen a very strong growth in Chile, particularly.
There's a new handbag brand called Secret, which we introduced, not so secret anymore, that was a joke by the way, that we've introduced into the Chilean market. This is working for us extremely well. Chile has only 16 million people, but we have an incredibly strong position in that market, and this new brand has gone down very well. We've opened up quite a lot of stores. We see the handbag segment as a vehicle for growth in that market in the future, which we can probably take elsewhere. Moving on to page 15, just a look at some of our key markets. You can see in constant currency terms that we've been able to achieve double-digit growth and sometimes a hell of a lot more in most of our key markets. I think that speaks to the overall strength of the underlying market for travel and tourism.
I think it also reflects the strength of our brands. We continue to invest in our brands, and it reflects the overall appeal of our products. If we move over the page, you can see there are still plenty of markets in which Samsonite operates which have the potential for very rapid growth. You can see Russia, Thailand. Thailand's come back a lot this year. Indonesia, Taiwan, Turkey, Malaysia, South Africa, and I explained the position in Brazil and the Philippines. Lots and lots of exposure to growth markets. As I mentioned earlier, American Tourister has been the vehicle for a considerable amount of growth, primarily in Asia. We also have seen, and I'm quite optimistic about getting this brand going in Europe finally.
American Tourister has been a sort of bit of a sleeping brand in Europe, I think partly because the cash-strapped consumer is interested in more value propositions, we have finally started to get some traction with distribution for American Tourister in the European market. That was up 18% in Europe. Of course, most of the growth is coming out of Asia, and in particular China. There are obviously now significant contributions coming out of Hartmann and High Sierra. It's about 5% of our total business in the first half. Of course, adding brands to our portfolio and fast growth of American Tourister has started to diversify the reliance of the company away from the Samsonite brand and spread our sales around a bit. I think that has to be a good thing. We still see a lot of potential for our flagship brand.
Still a lot of categories for us to build on. I'm very heartened to see that we can actually get additional contribution out of a range of other brands, which we do well with in individual markets throughout the world. Hartmann and High Sierra is still primarily an American phenomenon, and of course, we have the Secret and Xtrem brands, which we do well with in Chile, in South America. The next few slides are our effort to bring to life our products, which in two dimensions has its limitations. But we still have, as you can see on page 19, a very strong lineup. The Curv product ranges do well for the company in Europe and Asia, and America too. You can see just the array of stuff that we are now doing for the market. In particular, you'll see these neat little red products down at the bottom.
A particular style of backpacks done very well for us in Korea. I think we're now able as a business to combine some very strong global products. This is our Curv product range, products like B-Lite, with a lot of local design and development, which is aimed at specific markets. I think that's one of the great strengths of our company, is that not only are we diversified internationally, but we're also able to operate in a manner that adapts to local consumer tastes. That's very important because what Chinese people like in terms of leather products is quite different from Korea and Japan. The cases that people like in Japan, as I think I probably said before, are quite different from what people like in Hong Kong. The ability of our company to tailor products is, I think, a great source of competitive advantage.
The next page, just a few of the American products, which again, tend to be more rugged. They have to be engineered to a cost. We do business with 12 or 13 big box retailers. They're in hot competition. They require a margin. We require a margin. We work together. I think we've been very successful at getting the products right. In particular, on the top right, you'll see this Silhouette Sphere. This is a product that has spherical wheels, which has been an immense success with consumers and really driven the business forward. In Europe, you'll see an array of different products. I pick out, I think the star certainly so far this year has been a polypropylene product called S'Cure, which you see in the middle there. This is the first sort of super light polypropylene product that we brought out. It's a lockable product, not zipped.
It's selling somewhere in the region of 40,000 units a month in Europe, which is an awful lot of suitcases if you actually stop and think about it. The Curv ranges continue to do extremely well, and we are investing heavily in developments to bring out more products in these ranges, which we think are unique advantage for our business. Latin America, you'll see again just how tastes are different from market to market. The same products, you do find some that sell across the world. But actually in each geography, we tend to adapt what we sell to what people want. You'll see in Latin America is quite different range of products, which are the best sellers. In Asia, you can see our American Tourister range is making a huge contribution.
I think it's because we've hit the right note in terms of fun, color, the same quality that you expect to get out of any Samsonite products, good value for money, and actually some very interesting innovations too. I pick out the B-Lite products in particular, which is a very lightweight material. This is a case which is excellent value for money, super light, lots of fun colors, will go down and is going down very well indeed. Next couple of pages that we put just to give you a flavor of some of the American Tourister products. On the left-hand side at the top there on page 24 is a product which goes extremely well in Walmart.
Again, to run a business which on the one hand is the key supplier to Walmart, and on the other hand, we're able to satisfy the needs of luxury department stores, I think is again reflects the enormous diversity of brand and customer that we're able to service. High Sierra, you can see, has brought the company into a completely new space with all these hiking packs and hydration packs and all this kind of stuff. The outdoor segment represents, I think, a very interesting opportunity for the company in the future. Having established a base with High Sierra, we are looking for additional brands to add on. It's a big trend. Whether people live in cities or actually in the country, particularly people live in cities, they want to imagine that they are escaping their little boxes, and so they put the kit on, and that's no bad thing.
We're here to help. Last page, just some of the Hartmann products. Again, we're very excited about this brand. The more we've looked at it, the more we've seen that it has a very strong DNA, and we think we can re-engineer the products, in fact we already have done, to make them lighter. We can make sure that they meet the right quality standards, they have attractive trims, appeal to the consumer, and we expect to launch this in Asia, Ramesh, in what, next?
Next year. Middle of next year.
Middle of next year. Watch out, the competition is all I can say. Moving on to page 27. Again, it's simply telling the story of the growth in travel, which is still the core of our business. But obviously, the acquisitions have increased the company's exposure to the casual market. We're seeing some. It's not simply High Sierra. We're getting some very good results out of Samsonite Red and the Xtrem brand in South America. As I mentioned before, I've been very pleased by our progress in the business category. 10% up, and we expect it to do increasingly well in this category and are looking at acquisitions. Our points of sale, a lot of further expansion, much of which has been in Asia. Our distribution, as I think I mentioned, is pretty mature in America and in Europe.
We are opening up more retail, and I think this is an ongoing source of opportunity in the future. You can see on page 29, just the spread of recently opened stores across Asia. Over the page, store in Poland, store in Vienna, very nice store, and a new Samsonite store in Moscow. There are plenty of locations where we have opportunities here. Our spending on advertising, next slide, slightly down on last year, but I think that reflects as much as anything else, the very rapid growth in one or two areas. Actually increased efficiency. I think we're able to do a better job with slightly less spend. It remains, of course, a n area that we can always trim if we need to in order to preserve profitability.
Our plans for the second half are definitely to ensure that we continue to spend at the same rate, if not higher than we spent last year. If you go around, you can see the benefits of the investment that we make just on the next few pages. Some of our investments in Asia, not just Samsonite, but Samsonite Red. The investment we make in American Tourister. This is year after year after year, and I think our brand awareness has never been stronger. You'll see it's a different take. Again, we adapt our marketing to each marketplace. Different take in America. In Europe, again, quite a different kind of campaign. We thought we'd show you a couple of videos, one from America, one from Europe.
Matt only has one laptop for personal use and a smaller one for work. Until he spilled coffee on it again. He's got a big presentation on Friday, but right now he's kind of busy procrastinating. Better get moving, Matt. Three different size laptops, one perfect fit. Samsonite Perfect Fit technology. Where do I go? I'll take my coat just get me through the rain. I'm reaching out for different goals. When will I be home? Don't really know. I don't mind losing control. Feeling like I'm on top. The changing of the tide is close enough to be my guide. The rhythm of my pace is driving me along the way. Now nothing like before. We're taking all the pride of war everywhere I go.
There you are, folks. Enjoy every second, including the analyst presentation. Onto the next bit, important bit, financial highlights. Kyle.
Yeah.
Yeah.
Awesome. The theme on my section is, as I think about it, is around consistency of balance sheet and cash flow management. Tim covers a lot of the front end of the business and operating results. What I want to do is just give you a rundown of balance sheet and give you some insight in consistent, steady EBITDA growth. Our adjusted EBITDA margin continues to improve up 50 basis points to 16.6%. That's a record for us and consistent with when we IPO'd the business about steady growth in adjusted EBITDA. Adjusted net income, as Tim said, on a reported basis, was around 5.5%. Last year, we had a deferred tax asset that we recognized, which lowered our effective tax rate last year. If you take that out of the mix, our adjusted net income growth is 17.5%. Our tax rate is fairly consistent at around 26%.
Last year was a little under that, 25.8% for the first half, on an adjusted basis. Quite happy with adjusted net income growth. We continue to generate very strong cash, our net cash position from December to now is $40 million. We generated $56 million of operating cash in that time period. Actually, I'll show you on the balance sheet, but since the acquisitions or since a year ago today or June, we generated $158 million in cash in that 12-month period. Quite happy with the cash generation of the business. We continue to manage working capital very efficiently. Working capital rate is up slightly from a year ago, but 13.5% is still below our targets of 14%, and I'll tell you why in a second.
Our earnings per share, again, on a reported basis, a little over 5% on an adjusted basis, as you'd expect, closer to 17.5% if you adjust for the tax adjustment. Delivering on what we had said, we've grown our distribution to shareholders. We grew that 25%, and in July, we paid out a $37.5 million dividend. On slide 37, this is the time period since we've IPO'd. This is the five presentations we've made just summarized. Here, I think, the message to take away is steady EBITDA dollar growth, but also steady margin improvement over that time period. I think this just pictures it, and it's what we had envisioned when we were talking to you two years ago on IPO. From a balance sheet perspective, again, very consistent messaging here. Cash position, $156 net cash position $156 million as of June.
We fully have repaid the small amount of money we borrowed to do the High Sierra and Hartmann deals, which was around $40 million this year. Again, compared to June 30th, we've generated close to $160 million if I take out our acquisition and distribution to shareholders and a small pension funding we did at the beginning of this year. Again, working capital, very strong, and we have full access to our line of credit. We've got a very effective, efficient line of credit, $300 million with $100 million extension capabilities. As we think about potential other acquisitions, we've got a facility and a balance sheet that allows us to move very quickly as we find opportunities. Working capital, very consistent message here. Again, our targets have always been around 14%. We continue to run under our targets and in line with our expectations at 13.5%.
We've made a bit of improvement on inventory days, around 105 days. We've always kind of targeted 110, we're doing a bit better. Trade receivables running right in line with where we'd expect them to be, up a bit from December, largely because of the mix of the U.S. business, a big piece of U.S. wholesale revenue with receivables to it. That in days is up slightly. Our trade payables in days are down, in line probably with the range that I think we should expect them to stay in 100-105 days. The decrease is really around some of the vendors we brought in for High Sierra and Hartmann that have shorter payable days. As those have mixed into the business, it's pulled the AP days down just slightly. Overall, very happy with working capital management consolidated and region by region.
From a CapEx perspective, we messaged you at the end of last year, we're going to spend a little bit more than normal. We spend typically $40 million a year on CapEx. This year, we started to spend on a warehouse in Belgium that we talked about, and we're also looking at expanding some of our manufacturing capacity, particularly around the hard side that Tim mentioned on both Curv and polypropylene. We're starting to spend a little bit more, and I expect that we'll spend something closer to $60 million for the year versus a typical spend of around $40 million a year. That's my kind of simple balance sheet overview, and I'll turn it over to Tim for outlook.
Thanks, Kyle. Our strategy remains essentially like all good strategies, unchanged. We believe there are very good organic growth prospects for our business. We can increase our market share, we believe we can continue to expand faster than the overall share of the market. I think the investment that we make in Europe, and it is very considerable. We have a substantial facility just outside Milan. We also invest heavily in plastics engineering in Belgium. These can be even more productive facilities, and we have a wide range, I think, of innovative and interesting products to bring to the market in the future. We believe that we can expand the range of product categories. It's quite interesting that the company is not involved at all at the moment in the handbag market, for example, which is a very large category.
We think there are some very interesting opportunities, not just at the high end and the middle end of the market, but also at the lower middle end of the market, too. We think we've got a very powerful distribution and logistics platform which we can more intensively utilize. In order to do that, we're looking at not just typical brands in America or in Europe, but I think increasingly there are some brands in Asia which can be made more Pan-Asian and represent very interesting opportunities for our business.
In addition to all of the good things that we've said in the past, using our R&D, using our continually high spend in marketing to increase our competitive advantage and take advantage of our relative scale I'm becoming increasingly confident that we have a business that can act as a very exciting vehicle for development across a range of brands and markets in the future. We are actively looking at things to add to our business. As you know, we're able to generate the cash to accommodate this, and we also have a balance sheet that can do that as well. I think that pretty much concludes what we want to say. William, I'd like to throw the floor open to questions.
Okay, let's begin with Erwan, upfront, of HSBC.
Hi. Three questions for you. I think you mentioned it a lot with Kyle, the term, thanks, the term acquisition. I'm just wondering if you can come back on what have been maybe positive but also negative surprises integrating High Sierra and Hartmann. You've talked about opportunities in outdoor and casual and potentially business. Have you already digested these two brands, and are you ready to take on more today? Secondly, if you can come back on the U.S. The U.S. is booming, partly thanks to those acquisitions, but also underlying growth is very hefty. Despite that, margin is slightly down. I'm just wondering, and you made it clear that it was partly linked to wholesale—
Yeah.
—and so probably M&A as well. I suspect there's underlying margin expansion if you exclude the acquisitions, but when do you think all in the U.S. margin can tick higher? Thirdly and lastly, on American Tourister, which is still a massive outperformer, can you just come back on the margin contribution? My understanding is gross margin is structurally lower, but is EBITDA margin structurally now higher than the group average for American Tourister? Thanks.
I'll take all of them. Yeah. On the acquisition front, so for High Sierra and Hartmann, I think we reported when we met at year-end that the integration had gone very well. The reality is by the time we moved into January of this year, those businesses were fully integrated. Hartmann was a bit easier because we didn't keep many of the people. This was a brand and heritage product range that we took on. But there weren't much for management left in the business. It was held in private equity and not really being managed the right way. So that very quickly folded in. What we've been working on since we've taken it in is addressing and refreshing that product line.
We're now, I would say, just about ready, or we are ready to launch the new lines in the U.S., Asia, and Europe are sitting in the wings ready to kind of take some of that on along with developing their own products. I think the takeaway there is, there is a bit of time when you take a range and you want to invest in that product range. That does take some time to invest. I would say it's in line with our expectations. The numbers are right where we want them. The business is performing right where we want it. High Sierra was a bit easier from an integration perspective. From the product perspective, they had very good designers, very good product.
There, we had a business where we were keeping those folks, so we have a small design and sales office in Chicago, which was new for us. The people piece of that took a bit of effort to get that all squared away. We identified a few very good people within our Samsonite team that actually relocated to Chicago to take the lead on that. That's probably one of the better learnings is just getting your arms around the people and running that business. Again, I would say that's gone seamlessly. The business is performing in line, if not slightly better than our expectations. In both of these businesses, the $50 million in sales for the first half is right in line with our views and generating good EBITDA, and good profits for us. We're quite happy. Again, state of integration done. We're very ready for more acquisition.
Both the U.S. team, and we are looking at things in the U.S. already. We also have a Europe and Asian team, and what's very interesting and nice about our business is, those interesting opportunities around the globe and the teams themselves in each region have capacity. It's not unforeseen that we can have a deal going in one, two, or three of these markets at the same time, because a real successful deal is around the operating team getting their arms around what you're actually looking at, and integrating the ops. The finance piece is a bit of engineering and it's in work, but it's done. It's really, once you close, it's the operators that need to take the deal forward. We're quite excited and the whole team's fairly engaged in thinking about this. That's how I would characterize how we're thinking about what we're looking at.
You had a question on U.S. margins. The U.S. margins, I think I've always said, this is a market that will run lower EBITDA margins because of the nature of the marketplace. Our overall EBITDA margins in the U.S. run around 43% or so. Our U.S. wholesale business has been stronger, so that has put a little bit, I wouldn't call it strain, because the margin's actually been very steady. To expect EBITDA margins to move much beyond kind of what they're running today is not what I would model in. I think I've consistently said that. It's a market that's highly competitive. You've got 13 customers that have lots of needs. You need to continually be investing in developing product and advertising to meet all of those customers. They're a bit unique. It's not like one piece of work fits all.
I think that margin that we're at today, this 18.4%-ish , is pretty good. I wouldn't be expecting these guys to move the needle up more. I'd rather see them continue investing growth and deliver a higher growth number while maintaining a margin, for a market that's got a very low gross margin, that's quite good. AT margins, what we've said in the past, and it's still very true, is that our gross margin's a little bit lower, but our contribution margin is a bit better. Actually, if you peel underneath our margins, our AT margins have actually creeped up in the first half of this year versus last year, which is what we said.
I think we were indicating at the year-end that that was going to happen, so we've seen, and don't quote me on the number, 50-75 basis point improvement in our gross margins in American Tourister, which is actually helping the contribution margin. Some of what you're seeing in Asia, where the gross margin's down from mix perspective, but EBITDA margin's up. Some of that's the advertising spend, but the other piece is, both American Tourister and Samsonite have very good, healthy EBITDA contribution margins. We're not seeing any deterioration there. If anything, probably slightly better on American Tourister.
Okay. Erica, in front, UBS.
Hi. Good morning. Also three questions, please. Can we just spend some time on India? Can you let us know how's the markets been evolving, considering the depreciation currency? We recall that you raised your prices twice last year. How has that affected your margins and also how has that affected volume? We're looking at, it looks like further depreciation in the currency. What's the strategy for India? That's my first question. Second question is American Tourister versus Samsonite brand. For markets like China, are you actually seeing that you're losing some market share on the high end? Are you losing market share, because we're seeing very low growth for the Samsonite brand. Just wanted to get the sense of the competitive landscape there again. Third question is on the advertising spend. Tim mentioned that you're looking to spend around the same or more than last year.
Are you talking about just the second half, or are you thinking that for the full- year of 2013 you'll be spending at a percentage of revenue more than last year? Thank you.
I'll answer the last question first, because there's an easy answer to that, which is, I was referring to the second half, not the full- year. I think, Ramesh, if you want to talk about India and China.
On Indian business. The currency. We started to, let's say, correct our course of Indian business sometime in middle of last year. In the first half of last year, we got embroiled into, I will call it, as a kind of a I don't know how to put it, maybe a reckless competitive war. Where we had a competition which was getting into a, I would call it, destructive promotional strategies. We decided to correct that course sometime in middle of last year. We said we're not going to go down that path because the lower you go down on the price points, that's the intrinsic value of the brand which the consumer starts to perceive it. Since then, we focus ourselves in trying to rebuild our profitability.
I must say that from that time onwards, second half of last year already was better than the first half in terms of the profitability. When we look at in the first half now, though the sales in constant currency has improved by only about 8%. More important that the profitability has improved very significantly. I think it's improved by over 50% over last year, same period. There has been, let us say, the price increase has been taken in by the market quite well, because when you have the currency depreciating so much, we took two price increases and it was okay. There has been a further currency depreciation which has happened in last few months. We do intend to take the next price increase sometime in end of September. I believe that the consumer does expect good brands to take the price increase.
It's not only us, we see many of the companies are doing that. There actually are clearly two school of thoughts which are prevailing right now in India. There are people who feel scared to take the price increase in the hope that somewhere, somehow, the business will be okay. I'm more of the view that there's no reason why we should not do it when everything's prices are increasing, as the government says, from onions to whatever. The consumer doesn't expect anything to be cheap. That's about India. Coming to China. No, we haven't lost any market share with Samsonite at the top end of the market also. Nonetheless, it's also true that if you peel down our total sales of China, there are two thing which is happening.
We can see in terms of channels, in terms of customers, when we look down, there are two channels or two types of customers where we see there has been a kind of a degrowth. One is what we call internally ourselves as B2B business, which are purchases made mostly by state-owned enterprises, which buy it to give it as gifts to their employees or some kind of promotions or things like that. That has been almost pulled back completely. There has been a serious impact which used to contribute around 15% of our revenue in the past. We start to see that that has really dropped, almost vanished, we can say now. That has a serious impact. They do not buy cheaper product. They mostly buy Samsonite. Then we also see there is a kind of a negative growth.
We see it in a few departmental stores, which are more frequented, again, by government employees or where there have been a system of coupons and things like that, which all of you are very well aware of it. There have been certain restrictions on that as well. Few departmental stores you start to see that kind of a degrowth. Degrowth of not only our sales, when we compare, let's say, the Friendship department store in, let's say, in Shanghai. We have degrown by -5% compared like for like period, but the category there has degrown by almost -22%. When we look at our market share in each of the departmental stores, we have gained share. We have definitely not lost share. Growth of American Tourister is also partly what Tim was trying to say that more and more Chinese are still traveling.
There has been a talk about some slowdown and people are looking in for better value. If you look at individual self-finance travel and holidays, haven't come down, and probably those are the customers who still predominantly want to buy American Tourister. American Tourister we see is still in China, a solid growth. We must not also ignore that American Tourister operates at the price point where our share is still very low. That's a segment which is, number one, most buoyant in terms of the growth. Second, we have still a smaller share in that segment, and that allows us to continue to grow our business in that segment much faster than the entire category growth.
Okay. Well, let's check if there are any questions online and then we will go back to the floor.
There's a question from Barbara Miller, Federated Kaufmann Fund. Please clarify marketing plans for the second half. Was some spend reallocated from the first half by brand and/or region? How does online growth affect the nature of future marketing strategy?
In essence, I think what I was saying in the presentation was that in the first half, we have underspent in Asia. We have spent more than we originally planned in Europe, and more or less on our original budget in the States. Our expectation in the second half is that the percentage of sales will be rather higher than it was in the first half because we'll be spending primarily more in Asia. This just reflects the mix from the back- end of the year and the front- end of the year. Also the fact that the very busy trading period for our business is the summer, and that straddles both the first and second half. If we shift some of our spend over that period, that can move the expenditure into the second half.
The growth of online, well, first of all, I think the company has moved to do most of its online business through its own operations, and that has added materially to the margin in that particular activity. It's growing very fast, but it is still only a very small part of our business. I think we have been quite successful in managing the relationships that we have with a lot of the key online marketing organizations and also preserving our bricks and mortar relationships too. It's a big subject and it encompasses a lot of different markets. Frankly, given the time we've got, I can't sort of give you a whole exposé. What I will say is that we think that this is a business which we can increase substantially in coming years without affecting the business that we do with our existing key wholesale customers.
Many of whom, of course, have got their own online operations anyway.
Okay. Hold on.
There's one more question.
One more?
Do you want t o take it from the webcast? David Smith, Smith Tan Asset Management. On page 39 of the announcement, Reconciliation of EBITDA by Region, the corporate expenses rose from $30.8 million to $49.7 million. What exactly is this? It seems a large proportion of this is in Asia.
Hang on a minute.
What page are we on again?
39. Reconciliation of EBITDA by Region.
What you're looking at, this is on the other adjustment line in there. The corporate's gone from $30 million to $49 million. I'm pretty sure that's what he's looking at.
Yes.
This is where we have royalty charges across regions. In 2013, at the end of 2012, we made some adjustments to the royalty rates that we were charging. Really, this is eliminating the intercompany royalty charges within the region. This is effectively an elimination line. We've made some adjustments to that. You'll see in North America, there's some change, and in Asia, there's some change. Those are the big drivers, and it's really just around how we're managing our intercompany charging down to the regions on the brand royalties.
Okay, great. We will come back to the floor. I'll take a question from Karim at the back, Credit Suisse.
Hi, good morning, gentlemen. Two questions. I guess the first one's on China. Since we already talked about that market, let's continue. More on the profitability perspective, like is profitability, so EBITDA or cash flow, growing faster than sales? We've seen a slowdown in sales, but what you're saying about American Tourister at the contribution margin, it's actually higher. Does that apply to China? Are we still seeing margins expand in China and your actual cash profitability improve in that market?
You're absolutely right. It's just marginal . When we say American Tourister is better, it's not significantly different. It is more or less the same between Samsonite and American Tourister. If you look at it, our first half profitability in China is better in terms of the profit growth in compared to the sales growth. Which is primarily because the advertising spend has moved from the first half to the second half. It's more about the timing of advertising, which is influencing higher profitability in the first half of China, and not really the gross margin or contribution margin.
What does that mean for the full- year? If it's largely due to a timing of the A&P, so that's going to come in the second half. For the full- year, would you expect profitability in China to be higher than a year ago?
It will be just a shade better. No, we are not really modeling our business to improve the profitability from one year to another year.
In margin terms.
In margin. Okay.
Yeah, and the profitability on a margin perspective will be consistent.
Right.
Full year-over-year. We're still growing that business roughly 8%, so you'll have dollar profit growth.
Right. Okay, I get it. Second, on the balance sheet, I'm still trying to figure out what you guys want to really do with the balance sheet. I get it that you, one, be flexible and look for acquisitions, and maybe do some acquisitions. You have a lot of cash on the balance sheet. You're going to generate more cash in the second half of the year. You have $300 million of undrawn credit facility. You could always go to the debt market, get more debt if you want. The dividend increased 25%, I appreciate that, why not pay out more to shareholders in the near term through higher dividends? Could we expect a two dividend a year type policy?
The answer to the last question is no.
Okay.
The answer to the second to last question is that we've indicated that we intend to have a progressive dividend payout so that the payouts will rise ahead of our increase in earnings per share, that should mean a further substantial rise, hopefully off the back of this year. As I've tried to emphasize, this is a very fragmented market, we believe that we have a very strong distribution platform and an effective management team. I don't think we should find any trouble in finding very good ways to invest shareholders' money in making acquisitions of brands which are complementary to those that we already have. If we were bereft of opportunity, I would be very happy to hand out cash to shareholders.
We feel that our job is to increase the long-term value of people's holdings in our business, that we have a very good range of opportunities to do that. Effectively, we don't have any plans to do anything other in terms of payouts and what we've already indicated.
Okay, last quick questions. I will start with Bobby in front with Morgan Stanley.
Morning, guys. I have four questions. First, just on China again. Can I confirm with you that Samsonite brand sales in the second quarter was negative? Should we expect we cycle this high comp in the B2B business in the second half and flip back into positive growth in 2014? Second question related to the U.S. If I look at organic sales growth, second quarter, according to my math, is about 6% versus first quarter, about 12%. Is that a more normalized range to think about future growth going forward in that high single-digit range? Related to that, just a minor one on American Tourister in the U.S. There was no growth in the first half. Seemed to be losing some steam out there, 2012 was a very high growth, although from a very low base.
I know the low-end consumers in the U.S. is impacted, but we did a full launch in Target this year and with all these Disney licensing deals. Can you give more color on that slowdown? Third question on Europe. Wholesale channel grew 2.5% in the first half, the growth mainly driven by the retail part, and we talked about opening up more retail stores in these mature markets. Can you comment a little bit more on the competitive relationship with your wholesale customers, as well as should we expect a structurally higher CapEx level going forward in investing in stores and logistics infrastructures? The fourth question is on the currency impact for the second half. With dollar getting stronger, how should we think about profitability of the company? Thank you.
Okay. Well, Ramesh will do China, Kyle will do America, I'll do Europe, and Kyle will do the last question.
Samsonite sales in China overall have remained flat in the first half, and I would believe that more or less similar trend would be continuing in the second half. Though people have been talking about it, that there is going to be a rebound in China in the fourth quarter. But at this stage, for me, it's very difficult to take a call to say that there will be a material change in where we are today. But if you leave behind the B2B business, which I spoke about it earlier, then the Samsonite brand sales also have grown in the first half by around 5 percentage points. 5%, I would say, not percentage point. At this stage, we believe that something similar would continue in the second half.
Okay. On the U.S. side, I think we've always said for the U.S. organic business that mid to upper single-digit growth is what you'd expect. I think it's hard to look at quarters because what I can tell you is our Q3 will look more like Q1 for the U.S. We're having a very good start to Q3, and I think Q4 will probably look more like what you saw in Q2. On balance, the U.S. is over-delivering on an organic basis. I think we have a very good chance at being close to double-digit organic growth for the full- year. We haven't changed our view. We're performing very well, but this kind of mid to upper single digit is the right way to think about the U.S. market on a go-forward basis. Again, to Tim's point, the market's growing 2% or 3%.
We're growing ahead of market with core travel, but also expanding in business and casual, which is helping that market. The AT growth has been low. It's kind of double 2%, 3%, I think, all-in growth, what we're seeing in AT. It's really two things. One, we're lapsing the Target business last year. When you look at last year to this year, you see real benefits from adding Target doors last year. We haven't added lots of new doors to that, so we're in a real kind of lapse. Also in the U.S., Walmart as a customer, and Walmart generally, their numbers haven't been as strong as they had in the prior years. It's one way to say lower America economic recovery isn't as good as maybe middle to upper America, and we're seeing that in American Tourister sales. We haven't lost any ground. We're still doing very well.
It's just that that consumer isn't spending the same as maybe middle to upper American consumer is spending. No worries there. We see it as well, and my sense is that'll have cycles. The right way to think about it is solid single digit. I would expect this is a business that should grow similar to Samsonite, 5%, 10% growth on a medium-term kind of view. The Disney ad has gone very well, actually. In the midst of all that advertising has been well-received, and you can see that across the U.S. from an advertising perspective. I think that handled all the U.S. questions.
On Europe. It is a fact that Spain and Italy, which are the two most difficult markets in Europe, have a much higher concentration of traditional dealers, which is the sort of bedrock of the wholesale business. Therefore, to the extent that those markets have been tougher, that's put more pressure on wholesale as a share of business in Europe. If I take out those two markets, our growth in wholesale is somewhere around 5%-6%, which is what we would expect. I think in terms of retail, what I was really saying was that we see more full-price opportunities potentially. I don't see that we're going to open up in total more stores, especially. I'm not anticipating any significant increase in capital investment. It could well be that we have a few more full-price stores in the mix as opposed to factory outlet centers.
As I mentioned before, I think trading in Europe actually is potentially going around the bottom, and the summer period has actually been quite encouraging so far. Lastly—
On currency. Currency is hard for me to predict what it's going to do. Currency was, on a consolidated basis, fairly neutral for the first half of the year. We see some currencies in Asia weakening, but we see the euro to dollar in a fairly good spot. My sense as I think about the back half of the year is it's probably blended fairly neutral to maybe slightly in our advantage. Who knows, right? Currency markets have been pretty volatile. I don't think we're looking at any negative pressure, I guess, is the way I would describe the back half of the year. You will see differences in markets, though. On a reported basis, I think Asia will have a bit more strain in the back half. Europe will be a bit better. Blended, I think it will be neutral, is how I'm thinking about it.
Okay. One last question from Josh, Goldman Sachs up front.
Yeah. Hi, everyone. Just actually two questions. The first one is a little bit more mundane, which is really the tax rate going forward. We saw a pretty high tax rate second half last year. This year, first half, a little bit down, half- on- half, but up a lot year-over-year. What should be the kind of—
Please.
— the forecasting second half and going forward?
I think when we do the first half tax calculation, we base it off of what our expectations are for full- year. I'm looking at roughly 26% full-year tax rate. Last year, very close to that, 25%. You get some mix effects. As the U.S. business has performed better, that's a bit of a higher tax jurisdiction. As you can see in our numbers, we did, in that question that was online, we've done some adjusting to royalty rates to kind of manage our positions there. But I would label it a very consistent tax position, 25%-26% full- year is what you should expect.
Going forward next couple of years, should it continue to trend up?
It's hard to predict multiple years out what the mix of the business is going to be, but we model consistent tax rate, roughly 26%. That's up a bit from where we were, but the U.S. business is up a bit because of the acquisitions we've done. As we look at acquisitions, and all of a sudden a region or a certain market can move, that could change the numbers a bit, but I don't think by a lot. I think if you model 26%, that's a good rate.
Thanks. The second question is going back to M&A. I think there are obviously really just two ways to get synergies from M&A revenue or costs. F or this year, it seems that it's being kind of restructuring some of the business, integrating the team, we haven't quite seen much of a synergy yet. Question is really on going forward into the next year, I guess Hartmann will grow from a very low base of revenue, but for High Sierra, what kind of revenue synergy should we envision on the cost side?
I think the way to think about these acquisitions is that, yes, there are usually some very attractive cost synergies that can be realized in the first year. That's really around condensing some of the HQ costs, consolidating the logistics and systems. The next sort of phase is to kind of apply some of our experience and some of the distribution relationships that we have to build those brands in revenue terms. I think we are seeing, actually, we're very happy with the progress we've made with High Sierra. I think Hartmann will take another season to come through. I see most acquisitions initially as a one-market play. Most brands that we look at tend to have a strong home market, either in America. If you look at Europe, often a brand is strong in France, Germany, or wherever. The same applies to Asia as well.
The first steps, really, with our acquisitions is to realize quickly the things that we can do in the home market. Over time, we can obviously build an international business with many of the brands that we acquire. I feel that the team so far has done an excellent job of taking these brands in the American market. I can see the same process being replicated in other geographies. We have the capability to do it. Having actually consolidated the cost synergies, we can go after revenue development. It depends. Each brand is different. I'm very confident that the acquisitions that we make, we can do quite a lot with actually, Josh.
It sounds like we're talking more about global opportunities for High Sierra, or do you also see revenue opportunities in the U.S. for Hartmann?
In the U.S., yeah. I think we'll see where we get to by the end of the year. But we will have achieved, I think, more than double-digit growth is our expectation at the moment. I think we have found some new channels which we can build upon, and I think we are pushing the brand in some new directions in terms of product range. With Hartmann, it's really a question of rebuilding the business from scratch almost. But in terms of contribution to our business, the growth rates of both the acquisitions will be higher than the average growth for the business.
Which is a first step. If we manage to get the brands off the ground in Europe and in Asia, that will be a material contribution. When I think of how to add value in our kind of business, brands are, I think, the principal source of value creation. The brands that we have, we're obviously working to try and achieve their full potential. I think, as I've stressed before, we're such a well-diversified business, and this model that we have of geographical structure gives us great opportunities to acquire not brands that are just international, but also local brands, and really develop them in the relevant region. A new interesting area that we're looking at at the moment is taking some brands in Asia and actually developing them from single-market brands to more Pan-Asian brands.
The model is, I think, robust across different geographies, and actually across different categories as well. These first two acquisitions, we've learned a certain amount. We share knowledge across the business. I think it's something that has really got some legs to it actually in the future.
Great. Thank you.
Okay. Paul, you have a question? Second row. Excuse me.
I have two questions, s orry, I have three questions. The first question relates to the performance in Korea, which has been remarkable yet again. I'm wondering in that context whether we're approaching the point of it's as good as it gets. I'm interested in your thoughts on that. Secondly, I'm also interested on a relative performance basis, is that I notice the dollar sales number in Korea is over double that was achieved both in Japan and Germany. Does that suggest that there is still material upside in Japan and Germany as far as you're concerned over the next couple of years?
I'd just like to know your thoughts about opportunity in those two. The second question relates to the notion of value proposition or customer proposition, more accurately put, in the casual brand space, particularly with High Sierra in North America, and how you think about the customer proposition that you're presenting there relative to the competition, both relative and absolute. And the third question, which is really directly for Tim. Tim, by January 2014, you'd have been at the helm for five years. Under your leadership, this company has experienced a remarkable turnaround as other companies have done under your leadership in the past. I'm just wondering how you're thinking about your own tenure beyond January 2014.
Right. Well, I better answer the last question. Why don't we leave that until the end? Because I think this will be the last question.
[inaudible]
William. Let's talk first about Korea, Japan, and Germany. Yeah.
Yeah. Korean growth, if you look at it, is coming from the we are able to deploy. We have one of the most extensive distribution in place in Korea. The big growth in Korea, which is now coming in for that number one, is that as for the American Tourister introduction is concerned, the first country where American Tourister, in its way, the Asian model I can say, was introduced in India. That was way back about five or six years back. The second country where we had launched American Tourister was Korea. Now Korea, American Tourister is also in terms of the distribution, it is a fairly well penetrated brand. I could say that the market share of American Tourister in its relevant price point is almost similar to the market share that we have with Samsonite in its relevant price point.
Whereas China and other markets, they launched American Tourister two years behind Korea. That's one reason. Second is this whole casual bag thing. We have been talking about it, we've been thinking about it, but Korea was the market which we chose to launch it, to test it and learn through it. This is now, it's almost like as we are speaking now, it's four seasons have gone by. It's almost like two years that we have been with the casual bag segment, and that's helping us to really grow the business in Korea so well. I'm sure all of us are aware of it, that the casual bag market in reality is estimated, especially in Asian countries, most of the Asian countries, to be bigger than the entire luggage market. We still have a very small share in the casual bag market.
Of course, it starts to become a very meaningful business because it took us, let's say four seasons to get the product assortment right, get the communication right. Now, as we speak, we have started a small experiment of testing these similar kind of products. Not exactly the same product, but similar category now in Hong Kong and in China, and I believe probably in next coming years it could become a significant contributor in these two countries also. As we speak, Japan definitely is a market where we have potential probably with Samsonite, with American Tourister, and of course with casual bags like Samsonite Red as well. Japan, as we have always talked about in the past also, is all about getting the distribution. The department store have their own pace, by which they give you the distribution.
We add close to around 30 point of sales every year in Japan, and there's very little way you can go faster than that. Whenever they come up for renovation, they offer you the space. The good thing about our brand today is that in most of the department store where we are operating in Japan today, either we are a number one brand or number two brand, and more likely number one brand in the category sales. That means department store are keen to continue to offer us more space and as our distribution will get more extensive in Japan, we will be able to grow faster. If you look at it in terms of a market share, our market share in Asia is lowest in Japan.
From that definition, we can look at it, theoretically speaking over a longer period, it definitely offers the biggest potential in whole of Asia, much bigger than even in China because you really operate a much smaller, your share is much smaller there.
In terms of Germany, I think there's enormous scope for growth in Germany. A few years ago, our business in Germany was somewhere around EUR 80 million-EUR 90 million in today's money. We're currently at EUR 55 million or EUR 60 million turnover. The market remains a substantial opportunity, and we spend a disproportionate amount of our marketing budget in Germany for that reason. I see double-digit opportunities in Germany in the future. The High Sierra question, well, a lot of the High Sierra business we do is back to school, backpack type business, and I think the company is focusing on achieving a higher share of the real outdoor segment. This is a market that has a lot of players in it, and we think we can increase our share of that market through a combination of enhanced products and also further investment in marketing.
I think the High Sierra business operates in quite an attractive growth segment in the U.S. market. As I mentioned before, we feel that we can possibly increase this brand at a rate of 15% and possibly more percent a year. The last question, well, all I'd say is that I'm very happy with this business. I believe it can go places, and literally it helps people go places, but it can go places. I have a real desire to make this into a business which is at least double its size at the moment. I won't really consider my work is fully done until we get some way beyond that.
Although my background is in turning companies around, my intention, because I have a very good team with this business, is really to make Samsonite a real force to be reckoned with in a market which is still very fragmented and has plenty of opportunities. I have no plans to make any changes to where we are at the moment. That isn't to say that as a business, we haven't thought about succession. Let me assure you that were I to fall mentally ill or under a bus or go somewhere else, there are plenty of people who, and I think very capable people, who can carry on this business.
Okay, great. Thank you, Tim. Thank you, Kyle. Thank you, Ramesh. Thank you everyone for attending our results briefing.
Thank you.
Thanks.