Samsonite International S.A.

William Yue - Investor Relations Tim Parker - Chairman Ramesh Tainwala - Chief Executive Officer Kyle Gendreau - Chief Financial Officer

Chen Luo - Bank of America Merrill Lynch Yu Cheong Leung - UBS

Good morning, everyone. Thank you for coming to Samsonite's 2017 interim results presentation.

Today we have our Chairman, Tim Parker; CEO, Ramesh Tainwala; and CFO, Kyle Gendreau, with us. And without further ado, Chairman, Mr.

Tim Parker, will give a few opening remarks. Thank you.

Okay. Thank you very much, indeed, William, and good morning to everybody once again.

And I would like to report another very fine set of results. Of course, a record for the company again.

The key issue, I suppose, is that with the addition of Tumi for a full six months, our results, of course, are heavily influenced by that. And so all the numbers that you look at look fantastic, up 32% net sales, our EBITDA up 27%.

But of course, the underlying growth, and I'll focus on that for a moment, the underlying constant currency growth for the company was 7.5%, which we were extremely pleased with. The gross margins of the business are steadily improving, which again gives us some cause for optimism.

And the EBITDA in constant currency terms up 27%. And underneath that, I think a very good performance, indeed, by the organic business.

The adjusted net income, of course, is a little less robust in terms of growth. It's flat but that really reflects the fact that the balance of our business in Tumi is very heavily skewed towards the second half.

So the fact that we pretty much covered our interest costs in the first half gives me great cause for optimism that we'll see a very good performance in terms of earnings accretion from that acquisition when we come to the full year points. Another couple of key points to give you is that we have chosen to substantially increase the investment in A&P in our Tumi business.

So we spent very substantially another $15 million in that business. So again, the performance of the company has been very satisfactory because that was achieved in spite of an increased investment.

And we've also decided the time has come off the back of generally much improved trading conditions generally around the world, and again, optimism for the future to slightly increase the percentage investment in advertising for Samsonite as well. So we spent another $17 million in our core business as well.

So that was extremely pleasing. And if we move on to the next slide.

Again, what I would like to emphasize is the consistency of the strategy of our business. And essentially what we seek to achieve as a business is a virtuous circle of investing behind our brands, investing in product development, making good acquisitions, increasing our sales, improving our gross contribution and then seeing operating leverage turn our sales growth into increasing profits.

So if we look at the first driver of our business, which is sales, you can see that in all the regions of the world, we had a very satisfactory performance, excluding the Tumi business. Asia, slightly less than we've been used to.

And I would say that the key market for us of China actually has been very satisfactory from a performance perspective, up almost 9%. But we're still feeling the effects of generally lower levels of inbound tourism in South Korea, particularly from China.

Again, the depressed scene in Hong Kong is continuing, although I've got some hope that we may be reaching the bottom there. So those two territories that had an impact.

The GST introduction in India had an effect on our business there. But again, I should say that we're pretty confident about business as usual being robust once we get going over the remainder of the year.

Very, very pleased by our performance in Europe. That's going great guns.

Very pleased by our performance in the States. Again, seeing a recovery from the difficult trading conditions in retail that we experienced last year in the gateway cities.

And Latin America now, really we're feeling the effects of the investment that we've made in the prior two or three years and very robust growth there in terms of our sales. All of our brands have performed well.

Again, the Samsonite core business up 7%, Tumi had, as Ramesh will report in a moment, a record first half, and we are super confident about the future performance of that business. American Tourister, again, because Korea, India are a couple of the important markets, that's held back growth of American Tourister, but again, we feel that we should be on track over the remainder of the year.

And all of our other brands performing very satisfactorily. In all categories, we're seeing very strong growth, strong growth in our core travel category; business category, up; and of course, casual going extremely well.

The impact of the eBags acquisition, which again is another fine and a significant development for our business, is fairly muted. So we only actually completed that transaction at the beginning of May, but it has had some impact on certainly the casual category; and accessories growing particularly well, too.

We have said, and we continue to invest more behind our direct to consumer channel, and in particular, ecommerce. This is, for us, I think and for Ramesh, an obsession.

We believe that not only will we be doing more business online in the future, but the whole manner in which business is conducted from a communications perspective, the relationship with the consumer and the way people actually make purchasing decisions, this will become the cornerstone of our development in the future. eBags is one very important development there.

But we are opening more stores, and we are investing more and more behind our ecommerce platform. And so slowly, over the next few years, the business, which is still substantially a wholesale business, will move much more in the direction of direct to consumer.

And this first half, I think, has been a particularly important milestone in that development. And finally, of course, we make great products.

We have the strongest brands in our category around the world. But we do believe very strongly in laying down the foundations for future growth by investing in our business.

Over the last year or two, we did hold down advertising because, as I mentioned earlier, trading conditions, particularly last year, were fairly difficult in some markets around the world. We're now moving our advertising investment back up to 6%, 6.5% of our sales, and that's meant an investment in the first half and a growth of almost 50%.

For me, that's a very good news story. And I think we still remain very confident about the outturn overall for the business this year and maintaining the gradual improvement in our EBITDA margin that we have indicated previously.

And behind all of this, of course, the business remains strongly cash generative. Our operating cash flow up very substantially from $81 million in the first half last year to $152 million this year.

And for me, that is a very important component to our business. Gradually, the gearing that we've assumed at present will reduce over time, and I can only say that the work that's being done by the team here in terms of absorbing Tumi and creating, I think, really strong conditions for the development of that business are very commendable.

So structurally, we remain in a good place. Our strategy, as I've said, has been consistent, and we're a business which is essentially, I think, in a very attractive sector.

As Ramesh will mention shortly and I won't steal all of his lines, we do think that tourism and the growth in tourism looks pretty robust in the first few months of this year and that should continue over the remainder of this year and the prognosis for the future is indeed optimistic. So very pleased generally with what's been achieved in the first half, and Ramesh, you can now take us into a bit more of the detail.

Yes. Going to Slide 6, which -- we're trying to give you a bridge between how the net sales has behaved.

Net sales have grown to $1.58 billion. And 7.5% has been the growth of the organic business, and $293 million is coming from Tumi acquisition because the first half did not have Tumi in last year's numbers.

As Tim rightly said, I mean, if you look at our business, Europe grew by 11.5%, this is without Tumi; North America, 7.4%; Asia, I will take you in more detail, grew by 3.8%; Latin America, 19.4%. There is a small effect, a reducing effect, of the translation effect, which is $7.5 million.

But it's much less than what we had reported in previous years. The adjusted net income bridge, when you look at it, our net income last year during the same period was $100 million.

Tumi delivered additional $23 million. This is on top of additional investment in advertising of $16 million, and core business delivered an additional $2 million after factoring in an additional $17.5 million on advertising.

The interest outflow has been around $25 million. As Tim said before, Tumi's business is not evenly balanced between the first half and second half.

So you will find that in the second half, Tumi would be far more incremental and would be able to accretive to our core business, which you are not finding it in the first half. And also, the advertising catching up is part of our long-term strategy.

We feel that we need to invest behind some of the previous acquisitions that we have done other than the core business itself, which will allow us to deliver stronger growth in coming years. I'm now taking out the Tumi business, talking more in detail about the core business.

If you look at our sales, grew by 7.5%. I just described you there.

It's a little bit of repetition. The gross margin increased by 110 basis point on the core business, which grew by 9.5%, a little bit faster than the sales growth, which is more on account of the bigger portion of direct-to-consumer sales and lower freight cost and also somewhat lower promotional activity in first half as compared to last year.

The advertising expenses, we dialed up a little bit by 100 basis point. It is now around 6.5%, and our objective is now to maintain the advertising to be more or less in the zone where we feel comfortable both investing behind existing flagship brands like Samsonite, American Tourister, but also allocating additional resources behind some of the new brands and the new businesses which were previously acquired by us.

As a result, EBITDA has been more or less in the same range as last year, but as Tim said before, we believe that in the second half, you will find that this number would be better. eBags acquisition.

As Tim said, definitely, online is one business which we are most excited about. It's not only about the online business itself but it's also about online communication.

Very often, we find that a journey of the consumer is starting online before he's really showing up in our retail stores itself. And we have been feeling the need of -- that we're having a knowledge gap in our understanding of the digital world.

eBags will give us that much-needed boost to get ahead of the curve in terms of our understanding of this world of the more digitalized world. eBags is a leading online retailer of bags and luggage, today its franchise is largely limited to North America, but it is our intention over a period of time that we will extend the franchise of eBags on a more global basis.

Also, we are using some of the experience that eBags has to the benefit of our other platforms that we have for Samsonite. I must say that eBags business, their technology and their experience is tailor-made to the category of bag and luggage, whereas we can go out and shop for technology outside, which is more tailor-made for generic business, retail business.

To that extent, I personally feel very excited about what eBags can do to our business over next handful of years and will definitely help us to get to what we have been talking about, achieving about 1/4 of our revenue from online business in next handful of years. Already this year, the number is touching very close to around 10%.

And I have no hesitation to see that -- say that this should be more like 1/4 of our revenue in next handful of years. Tumi acquisition integration has gone about very, very satisfactorily.

We are very happy where we see ourself. It's almost a year from now that we -- the acquisition happened.

So we almost completed one year. 1st of August was when we had signed and we have taken over the business.

Integration has gone about extremely well. SAP conversion also has been completed with minimum disruption to the business in May 2017.

There are a few odd things here and there but they are all getting attended to. And we believe that in the next couple of months, we would be up to speed on SAP.

We have increased the advertising spend. This is basically to grow the business in the markets and reach out to the consumers which were not previously reached out.

We have increased an additional -- we have put an additional spend of around $18 million in -- behind Tumi. We have also assumed direct control of distributors in key markets, key Asian markets: South Korea with effective from January 2017; China and Hong Kong, including Macau, from 1st of April; Indonesia, Thailand from 1st of May.

So largely, all those markets where we wanted to be directly represented has been taken back. This is happening much ahead of what we were originally planning and we were modeling in our acquisition when we were acquiring Tumi's business.

Sourcing initiatives are going very well. Additional gross margin improvements are anticipated in 2017.

The first half definitely had some effect on the gross margin. Those have shown strong improvement because when we buy back the distributor, you buy back the inventory at the prices which we have sold inventory to them.

So the sales and the profits probably have been booked in the previous years. So you will find that as we get into the second half of this year and more particularly in 2018, we hold our view that you will see the gross margin of Tumi to be more in the zone of around 70% plus kind of a zone, which is the place where Samsonite core business sits today.

Estimated synergies to date is about $13.5 million, a run rate of around $21.2 million, which is very much in line with our original plans. The first half Tumi results in 2017.

Here, we are trying to compare their like-for-like, as the numbers which were reported by Tumi. The sales grew by 11.4%.

The gross margin have seen an improvement from 60.1% to around 60.5% -- 60.3% to 64.1%, an increase of 380 basis points. This is in spite of the buyback of the distributor business because, as I said, that some of the margins of their distributor sales made to them, which came to back -- came back to us in inventory, we have booked in the year 2016.

As a result, this number of gross margin, we have high level of conviction that when we come to 2018, we will see this number getting more closer to around 70%. The advertising has been dialed up to around 5.5%.

I think their advertising would remain in the zone of around 6%, 6.5%. So blended basis, our advertising would remain more or less in the zone of around 6%, 6.5%, where we are standing today.

The EBITDA has been more or less flat for the reason as I said. Part of it is because we dialed up the advertising.

And also, the gross margin improvements will catch up in the second half of this year. And also, their business is structured in a manner that the second half is always the bigger half than the first half.

Tumi net sales by region. The North American business grew by 7.7%.

And within that, the direct to consumer ecommerce grew by 33.1%. Asia business grew by 21%, which is largely on account of the buyback of the distributor business over a period of different timings, which I just reported.

Some of them were happening in the beginning of January, and some of them happened in May 2017. The Europe business, the constant currency growth have been around 12.2%.

And we have a high level of conviction to say that Tumi should be able to deliver double digit sales growth in next handful of years due to various initiatives which have been launched by us and which will start to deliver results. The North America business, including Tumi, grew by 53%.

But excluding Tumi, the business growth has been around 7.4%. The like for like growth also has been around 1%.

We still see some pressure on our brick and mortar stores on the gateway cities. But barring the gateway cities, the like for like growth, the comp sales in all other markets are in mid single digit kind of a number.

The core brands Samsonite, American Tourister. Samsonite grew by 4.9%; American Tourister, 1.9%.

I must say that in American Tourister, we are resetting the business model in North America, moving the business from hypermarkets to more like department stores, making it less promotional. All the strategy is working extremely well.

So if you really leave out our business of American Tourister in the hypermarkets, when you look at the core channels, which is more like department stores, the business of American Tourister growth in North America also has been double digit. Travel has grew by 7.9%.

The casual category has grown by 15.9%. The business had been a little bit -- let's say, the small de-growth of 0.5%.

I must say also here that I think the line between what is business and casual is getting more and more blurred. There is a casualization of the business category.

I see in this room itself how many people are carrying backpacks and the traditional bags are not carried less and less. And in our way of defining our category, we put the backpacks or the business backpacks also into the casual bags.

As a result, you'll find that the business category seems to be growing, let's say, more moderately. Or even in North America, it is not growing at all.

It is basically because of the shift from being the business category to a more casual category.

I think we're the only guys wearing ties actually in the room.

Yes, maybe next time we should get away with our ties, yes. Adjusted EBITDA as a percentage of net sales was down by 20 basis point from prior year inclusive of Tumi.

Excluding Tumi, adjusted EBITDA margin decreased by 60 basis points, which is on -- which is driven by 130 basis point improvement in advertising spend and 100 basis point higher on non-advertising operating expenses because of addition of eBags. But over a period of time, we feel that we should be able to get back the business to deliver operating leverage as we grow the top line and our advertising spend now is in the zone where we want to really see the business to be.

So we should be able to back to -- sales growing bags as a percentage, creating some command of operating leverage of around 100, 120 basis point. Part of it will allow it to start dropping down to now our operating margins.

Asia was a market, or the region, I would say, which had some satisfying results. And some performances have been -- some of the markets have been challenging.

China delivered satisfactory results, 8.8% growth; Japan, 12.8% growth. Hong Kong, China and India, I would say, these were the three markets which were challenged for different reasons.

Korea more particularly on account of less Chinese tourists showing up in the Korean market. Hong Kong is still searching for its bottom.

India was a market which delivered 1.8% or 2% kind of a growth number. But if you look at it, in the first quarter, the numbers were much stronger.

It was into double digit, but it did get affected, partly because of demonetization in the beginning of the year and now because of the implementation of the GST. But we have a high level of conviction to say that the Indian business should be more naturally be able to deliver us more like mid-teens kind of a number.

So overall, on a blended basis, over next couple of quarters, we should be able to see Asia getting back up to high single digit, even getting into double digit. I'm talking about only the core business.

Samsonite grew by 4.4%. If you look at American Tourister, had a de-growth of 3.4%, mainly because the two market which are the big markets for American Tourister, India and Korea, these are two markets where the growth were moderated.

Korea more particularly because of the TV home shopping business. Whereas the new brand, Kamiliant, which was launched to occupy the price point below American Tourister, has get off to a very encouraging start.

And I believe over a period of the next couple of years, it should start to play an important role, more particularly in emerging part of Asia like India, Malaysia, Indonesia and some of these markets. Lipault, which is a small business, grew by around 41%.

Gregory continues to do well but is still largely limited to Japan and Korea. We are slowly extending the franchise of Gregory to other parts of Asia.

The travel category grew by only 1%, largely because of the effect of American Tourister; casual category grew by 22.9%; the business category, as I said, only by 0.3%, which is mainly on account of casualization of the business category; whereas accessory grew by 3.8%. Adjusted EBITDA margin was 21.2%, was up by 40 basis points, mainly on account of Tumi.

When you exclude Tumi, the adjusted EBITDA was down by 40 basis points, mainly on account of 70 basis point improvement in advertising spend. I think Asian advertising also is now in the zone where we would like it to see over next handful of years.

Europe had a very, very strong performance. The core business grew by 11.5% on constant currency basis and had an overall very strong growth.

Germany grew by 15.2%; Russia had a strong growth of 34.4%; UK, 13.4%; Italy, 9.8%, which was basically coming from a very strong growth of 15.8% in direct-to-consumer; retail up by 13.6% and same sales growth of around 10.7%. Direct-to-consumer e-commerce grew by 37.7%.

I must tell you that Europe is now implementing exactly the same strategy which we rolled out in Asia about seven years back. So they're getting benefit of that, that's more direct-to-consumer, more non-travel and also multi-brand strategy.

So all these three were the pillars of growth for Asia, which is now getting implemented in Europe, and you'll start to see the effect of that being reflected on the numbers of Europe. We are starting to roll out a similar strategy now in North America, but it takes about one or two years before the number starts to move with that.

So I would like to be hopeful that the North American business, also for the same reason, should be able to creep up to a double-digit growth because what we have witnessed now in Europe and also when we come to Latin America, the reason for Latin America growth is also very similar. It's only the three pillars that we say, that non-travel push, multi-brand strategy, which is more American Tourister push.

We were occupying more price points than we were occupying in the past and more direct-to-consumer, including e-commerce. The wholesale also grew by around 9.4%, including 36.8% growth in net sales to e-retailers.

Samsonite grew by 10.9%, as I said, largely fueled by growth in the non-travel category but also in the travel category. American Tourister grew by 22.2%.

American Tourister now starts to contribute to around 15.8% of the revenue of Europe. Lipault is still a very small piece of the business but Lipault is going through a reset strategy.

We want to make Lipault less promotional, and I will talk about it later during the presentation of our new initiative which we call the "Women First" initiative. So it will be our flagship brand to go after the women category business where today, our contribution of women business is in very low single digit.

It's about 2%, 3% of our revenue comes from women business, and it's part of our strategy that we see no reason why 1/4 of our revenue in next handful of years should not come from "Women First." But I'll talk about it at the end of this presentation in more detail.

Travel category grew by 11.6%. Business and casual grew by 11% and 47.5%.

I just spoke to you the casualization of the business category. There's the same impact here.

The EBITDA margin de-grew by 190 basis points but it's mainly on account of Tumi. When you exclude that, it decreased by 150 basis point, partly because of 90 basis point improvement in gross margin and 70 basis point increase in non-advertising expenses, which basically we are preparing a more direct-to-consumer push strategy.

But when you open new stores and we go for that, you invest the money first and the revenue follows after a gap of a couple of quarters. But over a period of time, I see no reason why our European business should not deliver operating margin very similar to our Asian business today, which is closer to around 20%.

Latin America. As Tim said rightly, the investment that we started to make in our business about three years back has start to deliver results.

The net sales grew by around 19.4%, which includes a strong performance in Chile, which had been a mature market, by 15.5%; Brazil, 67%; Mexico, 6.3%. This is in the background of not the most conducive business environment.

The general trading conditions are still very tough there. So delivering these kind of numbers in the background of not very conducive economic environment is very, very satisfying performance.

There is stronger growth of 36.6% in direct-to-consumer and retail up by 35.5 basis -- 35.5%. And the most satisfying number out of all Latin America number for me is the same-store comp growth of 16.8%, which shows that our retail strategy or direct-to-consumer strategy is right on track.

The wholesale channel also grew by 10.1%, which is largely in Chile and Mexico. Samsonite grew by 22.4%.

American Tourister grew by 3.5%, which is less than what we were planning for, basically because we wanted to make our business somewhat less promotional for American Tourister because we wanted the team get focused a little bit more on building the profitability of the business. Our other brands, which are the backpack brand, Xtrem, which is largely limited to North America, grew by 17.6%; Secret, which is our women category brand, 19.9%; Saxoline is our entry price point luggage brand, by 11.6%.

So overall, there has been a very, very strong performance, travel growing by 21.2% and casual by 44%. EBITDA as a percentage of net sales also grew by 160 basis point, mainly on account of improvement in gross margin by 400 basis points, as I said, on account of becoming less promotional.

And this is against the background that the currencies are still under very tough zone there. So I think an improvement in the gross margin of 400 basis points, an extremely satisfying performance.

And we see Latin America also a business which is very much on track in terms of the strategy to follow Asia and the business should also be able to deliver around 20% operating margins in next handful of years. Giving you some color on key markets.

U.S. core business -- I'm talking more about the core business because the Tumi numbers were not there so it doesn't give you the picture.

If you look at the bottom row, U.S. growing by 7.2%; China, 8.8%; South Korea, one market which had a de-growth of 1.6% for the reason I just explained to you.

Japan grew by 12.8%. India had a moderation of only 1.9%, but we have a conviction that next year should be back to double-digit growth.

Hong Kong at least starts to get to the bottom, 1.7%. We are hoping that probably next year, it should be back to deliver some amount of growth; Germany, 15.2%; Chile, 15.5% and likewise.

If you look at the next slide, some of the emerging markets also had strong performance. Russia, 14.4%.

Mexico should have done better if there was not the Trump phenomenon, which was affecting our business in Mexico. Thailand has been undergoing the post demise of the previous king.

They are into that non-spending zone. Hopefully, by -- I'm told that October 2017 or something like that, it comes to an end and then the Thais should be back to shopping again.

The business is fundamentally robust. It should be able to deliver us double-digit growth, as was the case in the past.

Brazil, I just explained to you, 67%; Turkey, 24%. So I think most of the emerging markets should be able to deliver us double digit growth.

Direct to consumer channel. Sales also accelerated further with the acquisition of Tumi and eBags.

And if you remember, when we came to you for -- during the IPO days, as I call it, we had expressed that we had the desire to remodel our business and increase the proportion of our direct to consumer business to become more like 50% of our revenue. And those days and the IPO days -- or pre-IPO days, when Tim took over as the Chairman of the company, it was his strategy.

And those days, our direct to consumer portion of our business was in mid single digit. I'm very glad to say that, that portion now goes up closer to around -- for combined group, comes to around 31% direct to consumer.

But if I look at the run rate that we are running on now, it is more like 40%. And when we really come to next year, the number will look like -- more like 40%, 45% kind of a number.

So it vindicates our strategic initiative to grow more direct to consumer business. And within that, the portion of digital commerce or ecommerce would become bigger and bigger.

Right now, it's about 9%, 10%, and I believe that should continue to grow at a faster clip than brick and mortar business. But at the same time, I think these numbers starts to tell only part of a story because the line between online and offline gets more and more blurred, and we report here the number as we capture the numbers.

We debated internally very often that how will you report the numbers when you will book a sale where somebody walks into the store and he places the order on the screen on the store because our stores are generally smaller in size. We may not carry then all the size and all the color assortments.

Will we call that as a brick and mortar sales or will you call that as an online sale? Similarly, when we do the wholesale business, like Lotte is a very good example, almost 1/4 of sales which we do to Lotte, and formally the shared number to us is that Lotte.com today contributes to around 20%, 22% of the revenue of what we sell to Lotte.

But we call that sale in our books as a wholesale and as brick and mortar sales. So I think we will continue to report the way we are seeing the numbers, but you should keep that in mind, that the digital business is also getting captured partly into so called brick and mortar business.

And same way when we talk about D2C business, in our business model, the franchise business and also the shop in shop that we run in Asia, we book that as a wholesale. If I peel that out, you look at our D2C, it will look like it's 500 basis point higher than what we report.

So don't get into too much semantics of what the numbers actually look like because it's very difficult. It's better to compare only like-for-like because we have not changed the way we have been reporting in the past to what we report now.

Diversified brand portfolio, which was also a part of our core strategy, from multi-channel to multi-brand, from largely being a single brand company. I am always reminding you, take you back to the pre-IPO days.

In the pre-IPO days also, Samsonite made up almost 90% plus of our business. When we really look at our business now, which you'll able to see it into a subsequent slide -- or maybe we have the slide here or not, I do not have the slide but I know the number.

Today, Samsonite business, our run rate today is our business is already 50:50. That is what we spoke about it.

Our flagship brand Samsonite makes up around 50% of our business. Around 17%, 18% of our revenue comes from Tumi, and another 17%, 18% comes from American Tourister, and the rest of the pie comes from some other smaller brands that we have within our portfolio.

So we are getting back to implementing. What I want to say is that we have been successfully implementing the 50:50 strategy that we had presented to the investors during our IPO roadshows, that we are making excellent progress in terms of the multi-brand.

And similarly, when we really -- when we talk about our category also, that our non-travel category run rate is now closer to around 40%, which we believe naturally will get in next handful of years to 50% or even higher than that. So if we look at the brand performance, Samsonite grew by 7%.

American Tourister, I already explained to you. Because of the challenges that the business American Tourister will face in Asia.

Otherwise, Europe, it is growing 22.2%. U.S., where, as I said, we are adjust -- we are resetting the business from being less promotional, but American Tourister definitely next year should deliver double digit in the U.S.

as well. Speck grew by 9.2%.

High Sierra is also another brand where we're going through a reset strategy. We want to make the brand less promotional than what it was in the past.

As a result, you see that the business is de-growing by 16.2%. Also, we have decided to exit the unrelated category of apparel and things like that, which we were trying to do it in High Sierra.

So that whole reset is what is getting reflected on that. Rest of the brand.

Gregory is continuing to do well, 21.9% growth; Lipault, 22.3%; 98.8% growth in Kamiliant. Hartmann, again, we are going through a reset there in terms of our strategy post acquisition of Tumi.

But Hartmann also should be back to double-digit growth in 2018 and going forward. Next slide to present some of the pictures of some of the key products that are in different regions: Samsonite, American Tourister, Tumi, Lipault, Gregory and Kamiliant.

I just spoke to you about the category. As I said, this also had been an extremely satisfying performance.

The non-travel contribution has increased from 32.4% to around 38.4%. And I said that run rate of that is more like 45%.

And definitely, when we come to next year, probably it will be more like 50% and next handful of years. And now I have a conviction to say that probably it will make up around 60% plus of our revenue.

And definitely, non-travel gives our business that much needed resilience to any kind of accidental shocks which sometimes business can be faced with when we were previously operating largely into the travel category. Travel grew by 6.5%; business, 2.5% because of the effect of casualization; casual category grew by 19.3%; accessories, 8.5%.

So overall, there has been a strong performance across all categories. Coming to the advertising spend.

As we spoke about it before in North America, we dialed up from 4.3% to 5.7%. It will stay within the same zone.

Asia from 5.6% to 6.1%. Europe is 7% to 7.5%.

Probably, it will get dialed down more like around 6%, 6.5%. So overall number, which has moved up from 5.5% to 6.3%, you can look at our advertising run rate to remain in the zone of around 6.5% kind of a number over the next handful of years.

Next slides are showing you some of the brand advertising, targeted brand advertising that we have been doing in different parts of the world. I will now pass it on to Kyle, my friend, who will take you through the financial highlights.

Okay. Good morning, everyone.

So just some highlights; a lot of this we've said, but I'll kind of point it out again; first half, record growth in sales, 1.6 billion; the core business, 7.5% and Tumi growth of 11.4%. If I adjust out for the distributor buybacks, our core Tumi business grew actually 8.2%.

And if you remember pre us acquiring Tumi, they had started to settle in to lower single-digit growth. So we're quite happy with that underlying growth that we're fueling in Tumi within the first year of owning Tumi.

Adjusted net income was flat year-over-year with the addition of Tumi's profits offset largely by the interest expense associated with acquiring that, as we expected. As Ramesh said earlier, Tumi has a bigger second half than the first half.

And so we have a lot of conviction that the Tumi business first full year will be accretive, which is what we were guiding last year when we talked about Tumi. So that looks like we're heading that direction.

And our core business profits in Samsonite, as Ramesh mentioned, were up slightly. But that's with this additional investment in advertising.

So in that core business, we spent an extra 17.5 million, bringing that advertising spend up, which really led to a moderate growth in EBITDA as planned. And we're really bringing advertising back to historical levels from the lows that we had over the last couple of years, which were largely offsetting currency pressures.

Operating cash flow, very, very strong. This is an important measure for all of us, and that operating cash was 153 million for the first half compared to 81 million last year.

So we're quite happy with that. And that's an increase of $71 million notwithstanding $32 million of interest expense.

So when you really look at that underlying operating cash flow, even with the increase in interest expense, it's quite positive. Some of that's coming from working capital; I'll show you that in a second, and also us continuing to manage CapEx very closely.

Our debt position. We're at a net debt position of $1.6 billion.

We have $378 million in cash, and we have $414 million available on our revolver. So we're in a very good position from a debt and cash position.

We had a small amount outstanding on our revolver, largely around timing. I'll show you the balance sheet in a second.

But in this first half, we acquired eBags for $105 million. We also bought back the distributors for Tumi in Asia, around $65 million.

So to see cash and debt position remaining in a very strong place with acquisitions coming in with strong operating cash flows, we feel quite happy with where we are from a net debt position. From a net debt leverage perspective, we're obviously in compliance with all of our covenants.

And our leverage ratio, as we thought it would, is below 3 times, we're at 2.88 times. And that should improve as we continue through the rest of the year.

Net working capital efficiency running, again, better than targets; we probably should adjust our targets because every year we're running better than targets, 11.7%; maybe a shade lower than where we probably want to be. We were slightly lower in inventory in certain markets; some of that to do with some sourcing noise; and so from a working capital perspective, superefficient.

You'll probably see it creep up just a bit but still be well below our targets for the full year. As I said, CapEx has been very tightly managed.

So we had $32 million of CapEx. I have a slide that I'll walk you through that.

But it's largely around retail expansion and some investment in kind of R&D and manufacturing capacity. Our effective tax rate came in at 24.3% compared to 27.3% last year, a little lower than what we were guiding for the whole year.

I have a chart on that so you can see that. But there were a few one-offs within the tax rate that makes the rate a little bit lower in the first half.

I still think our target range from a tax rate perspective is somewhere around 26% to 29%. If you asked me 6 months ago I was saying kind of 28% to 29%.

I think there is some opportunity, as we finish the integration of Tumi, to have the rate a little bit lower than what we originally modeled on the back of the Tumi transaction. So we're quite happy with that.

And then we had a distribution to shareholders in July, $97 million, up a little over 4% from the $93 million last year. And that was, again, just paid out in July.

The next slide is really to give you a sense for the tax rate. So last year, 27%; this year, 24%.

What we're seeing is the net impact of Tumi, if you look at the Tumi first 2 bracketed lines here of interest expense and the impact of Tumi, it was actually coming in a little bit better with than what we anticipated. So we are seeing a net benefit from that.

Some of that is around the completion of pushing the Tumi asset out from the U.S., which was largely all held in the U.S. and we've pushed that out to Europe and we pushed that out to Asia in the first half of 2017 and we're seeing some tax benefits there.

We had a one-off tax expense in doing that. So if you look at the one-off line, there was a 2% impact of -- or initial charge of pushing those assets out.

So that will go away. And there was also -- as our share price went up in the first half, we get a tax benefit for movements in share price against stock options.

And that caused a reduction in the tax rate. So we're seeing 24%.

I would guide everybody, as you think about this business, that we're somewhere in the 26% to 29% range. I think 27%, 28% is probably we're we'll end up as I think about the full year and go-forward rate to use from a tax rate perspective.

From the balance sheet side, again, I think a well-positioned balance sheet is a way I'd describe it. We've seen cash remain fairly consistent, and that is with $200 million of outflow in the first half.

So when I look at -- as I mentioned earlier, we had eBags for $105 million. We had $65 million for the distributor buybacks and $32 million of CapEx in the first half.

That's offset by $152 million in operating cash inflow, which is hence -- why we're up slightly on the net debt side at $46 million. And this is ahead of a July dividend that we're paying, too.

So at the end of June, we were lining up cash to pay the dividend which happened in the second week of July. So we're quite happy there.

Pro forma leverage, as I said, 2.88 times, and revolver capacity of $414 million, $370-plus million of cash; so we're in a very, very solid balance sheet position from both a net debt perspective and a cash perspective. And working capital, very strong, which is the next slide.

And if you look last year to this year, some of the reason why our operating cash flow is higher this year than last year was really some timing within working capital. So if you look at our net working capital last year, it was 13.8%.

This year, it's 11.7%. That's with Tumi in there.

So if I adjust for Tumi, we're even better; 11.3% would be compared to 13.8%. And some of that is around inventory levels, which were down just a bit.

So we're down around five days on inventory -- or six days on inventory, I'm sorry. And we had some timing in AP that caused some differences in the timing of working capital.

But generally, we've been running -- when I go to a full year -- because typically, the first half working capital is a little higher than the full year, we've been running around 12% net working capital efficiency, and that's where I think we'll be for the full year as well; so well managed working capital. And then from a CapEx perspective, very consistent; it's up from last year, obviously, but that's Tumi.

So most of the increase, when you look at our increase in CapEx, is just the impact of Tumi for six months where we spent around $7 million, equals roughly the increase that we see here. Most of that is in retail.

So that's where we're spending not only in our core business but also Tumi retail openings. We continue to invest in product development and manufacturing capacity.

This is largely expanding our manufacturing capacity in Hungary where we spent another $6.4 million completing that expansion. And there will be small amount in the back half of the year but substantially complete by the time we get to the first half; and then the rest of the CapEx fairly consistent from a maintenance perspective.

And with that, I'll turn it back to Ramesh.

Okay. As Tim spoke in the beginning, he said that our company strategy doesn't change from what we had presented at the time of IPO.

We aim to continue to increase the shareholders' value through sustainable revenue and earnings growth and free cash flow generation. In order to achieve this objective, we have adopted the following strategy.

Primarily, it is about multi-brand, multi-category, multi-channel strategy to convert our business, which used to be largely wholesale, largely luggage business, to be more like a luggage and bag business. More about multiple channels that we are trying to engage and also trying to occupy multiple price points.

Leverage the regional management structure, sourcing, distribution, marketing engine to extend the strong franchise of Tumi brand in new markets and penetrate deeper in existing channels. As we had spoken after we met, post the acquisition of Tumi, one of the reasons we were looking at Tumi was Tumi's franchise was still largely limited to people working in the financial industry and people working in the consulting business.

We have been trying to extend that, and that's the reason we start to see that the North American business also starts to deliver strong performance. And we have high level of conviction that even in North America, we should be able to dial up Tumi's sales growth to get more closer to double-digit number than what it used to be in the past without having to open too many stores because the past business model was based upon opening more stores every year.

That is not what we're doing here. We are focused more on trying to bring more customer, more diversified portfolio of customers.

And I would like to add here that the women category, which used to be, a couple of years back for Tumi, an insignificant category for the business in mid single digit. Today, as I speak to you, the run rate for that category for them is close to around 20%.

And that is what then brings me to the last topic, which I'll cover later on, is if I look at our own Samsonite business also, we always convince ourselves that if you are a strong brand which has a masculine profile, you probably cannot reach out to women in a credible fashion. But there are enough women who want to present themselves in their place of work or where they are meeting their colleagues and friends in a very serious manner.

They would rather like to have a brand which presents them as a very serious person and a very -- a person who is -- really wants to be treated at par with her male colleagues, a brand can resonate very well. And Tumi is a very good example.

Tumi's contribution of the women category in only a couple of years, two or three years, is now up to 20% of the revenue. And it is the fastest-growing category for them.

We are now working on our own initiative, which we call as the "Women First" initiative. We have done some test marketing of this initiative in few markets.

We have done that in Italy. We have done in Latin America, in Brazil, in Mexico, with very, very encouraging feedback.

We're bringing the right product, merchandising it correctly at the point-of-sale because you cannot just throw in a few products and tell the women that buy me or look for me as a part of your consideration. You need to present yourselves in a credible fashion.

With Samsonite, the test cases that I'm talking to you, which is Italy, a few doors in Italy and a few doors in Brazil and in Mexico, we could see within a couple of months, we can increase that category's contribution from practically zero to around 13%, 14%. So these three countries which I've quoted, the contribution of the women category has moved up around 13%, which brings me the conviction to say that not only Tumi should be able to, on its own, deliver double-digit growth mainly in North America, but of course, there are a lot of white spaces for us, for Tumi in Europe and Asia.

We believe that we should be able to deliver double-digit growth. And we will also continue to deploy our multi-brand strategy.

As I said, the strategy of American Tourister push strategy, as we call it, which is to occupy price point, wider price segments in Europe, which we started to deploy three years back, start to deliver us some very significant results to us to the extent that American Tourister now makes up around 15% of revenue for Europe from a very insignificant number three or four years back. We are doing this.

We are now starting to work to implement a similar strategy for our North American business, and I believe that, that should help us in next couple of years. You don't start to see the numbers right away.

In the beginning, what you see is dial-up of the advertising. You see the dial-up of SG&A, yes.

But because we have succeeded implementing the same strategy in Asia and then we implemented the same thing in Europe and Latin America, I have conviction that a similar number we will be able to see out of our U.S. business as well.

We also will continue to push our direct-to-consumer strategy, more particularly direct-to-consumer e-channel, which is going to get further -- let's say a further -- get a further boost because of our acquisition of eBags. That part of our business, as I said, current run rate for our direct-to-consumer business is close to around 40%.

And within that, the online business is around 9%, 10%. I feel that there's no reason why that number should not get to more like 50%.

Within that, probably the online business will make up for around 20% of the business. We will continue to invest in company's core brand with sustained R&D spending to produce higher and lighter and stronger new materials as well as new technologies, which delivers consumer a significant value, additional value.

We have recently launched our global tracker. Everybody has, in the past, talked about smart luggage.

I believe that what we have launched in the market, it's a product which is universal in terms of application because it works in any kind of ecosystem, whether it's WiFi or the GPS or GSM. Unlike some of the other products, it is the product which have been approved as 100% safe.

It has a built-in device, what we call as that as soon as the plane takes off, a speedometer kind of thing, that it will automatically go to sleep. I'm personally using that.

William can share more information about that. And I must say that I'm extremely pleased about that.

It's not the device which other companies have launched before us where it will tell you 10 meters before that your luggage will come up in two seconds. It's not based upon only Bluetooth, which is working on, let's say, the proximity technology.

Ours is working on universal technology. I can make out, if I put my device, which is today I've done it deliberately to show it to some of the investors, which I'll meet personally.

I've left my device in India. I can open my phone and show that my device, assuming that's my luggage, is lying in India and I am here.

And I can put it on to that, that every 15 minutes it will be able to send me the message that how is it moving. And it's almost like a play thing.

I can track how I'm traveling it and how is my luggage traveling it. So I did once that I came here and I put that luggage into my daughter's luggage.

So wherever my daughter is traveling with her luggage, I can track that. So it shows you that you are going like this and your luggage is going like that.

Anyway, what I'm trying to say is that we took a long time. The product is off to a very encouraging start.

We did not expect there to be so encouraging. So as a result, there has been some amount of delay in its launch on a global basis.

Right now, the product is only available in our North American market, only in our Tumi stores, online and offline stores. It is our intention by end of 2018, as we get up our production of that, that we should be able to roll it out on a more global basis.

As Tim said, I mean, in spite of an act of terrorism or there are macro issues in the marketplace, what gives our business a fundamental resilience is that the travel numbers globally is still expected to be very robust. It is expected that over the next handful of years, the travel numbers would still be more like 5%, 6% kind of growth number.

So the underlying growth to our business will still be determined by the 5%, 6% organic growth, which will happen in the industry itself. There's few tweaks that we're doing to our core strategy, which is the last bullet point we're talking about it.

We are aggressively investing in advertising and promotion to fuel brand excitement for significant growth in the future. Well, we know American Tourister can do much more in U.S., but the market segment is exactly the same as the market segments in other parts of the world.

We are still a big boy but in a small pond. So we are with Samsonite and with Tumi together, we actually address for the North American market credibly only 1/3 of that market in terms of the price segment.

There's a humongous market which is another 70% of the market where we have American Tourister but we have not been operating the brand in a credible fashion. We have just launched that brand in -- a couple of months back in some of the major department stores like Macy's.

We started with 50 doors and they have already opened now 500 doors for us for the holiday season. So they agreed to test market the brand only in 50 doors.

The sell-through numbers far, far exceed their own sell-through numbers. They buy the inventory in a very lumpy fashion.

So they buy for a season and they sell-through and then they buy it over the next season. But what was the inventory which was bought for three months, the sell-through has been in three weeks.

Practically all of it has been sold out. Of course, we cannot backfill them immediately.

So the numbers, the impact of what we're doing with American Tourister would be more reflected so in 2018 and more particularly in the second half because, even the first half of 2018 also, they already decide how many doors you will be in. So there would be an increase in that number.

So I believe that this whole strategy of dialing up of 100 basis points on A&P looks like that it took away a part of the money which should have otherwise automatically dropped down to our bottom line. But I feel that it was much needed.

We will see the benefit of that will come through our business in the next handful of years. We have very high level of conviction.

What we spoke during our IPO days, we see no reason why this business will not continue to deliver double-digit revenue growth. Our gross margin will have a natural -- let's say, a natural path to increase by 50, 100 basis point year-on-year basically because different parts of the business works at different margins.

Our direct-to-consumer portion that increases, you will find that the gross margin will improve as has been the case even in this year itself. We had told that we have an operating leverage in our business of around 50 to 100, 120 basis points which means that we have very high level of conviction to move this business back to the path which we had chosen for ourselves to deliver something like 20% operating margin in next handful of years.

There's no change in our core strategy. Except we are bringing in a new element there because we talked about further emphasize "Women First" strategy.

I just spoke to you about that. The -- we want to be more credibly operating in this segment.

We may have believed in the past that you cannot reach women credibly with a masculine brand like Samsonite, and that myth has been busted by Tumi's success and our early test that we have done in three markets in Italy, Mexico and Brazil. There's no particular reason for choosing them like that because we were told that the women are more fashionable in this market.

So we said okay, we're going to try in this market, and we're now going to roll out that strategy on a more global basis. We will continue to invest and grow our online business, not only in terms of growing the sales, because we start to see, as I spoke before, the line between what you will classify as online and offline is getting more and more blurred.

Very often, the consumer is starting its journey of buying a luggage or choosing a luggage or choosing a brand online where the actual purchase may happen offline. Whereas, the reverse can also happen.

The consumer is walking into your store to make a choice, but then he wants the convenience of home delivery, which is then happening online. So some of the sales are going here and there, but definitely, we are very much aware that, that is the way the world is shaping up.

And eBags will definitely give us the much-needed boost, their experience, their technology that have the pool of talent that they have, which gives me the conviction to say that you will find that the online business will continue to become more and more significant part of our business in next handful of years. Thank you very much.

Great. Thank you, Ramesh, for your remarks, and we now open the floor to questions.

Starting in the front, Chen from Merrill Lynch, please.

I'm Chen Luo from Bank of America Merrill Lynch. I've got two questions.

First of all, over the past few quarters, we have achieved very satisfactory organic sales growth. But while we are heading to second half, we are going to see a higher base, especially on the U.S.

side, partly distorted by the Speck performance in third quarter last year. So what's our outlook for the second half organic sales growth excluding Tumi and eBag acquisition?

And at the same time, what's our current run rate for organic sales growth in Q3? Is there any color to be shared with us?

And the second question is on the operating margin. Just now, Ramesh mentioned the target to achieve around 20% OP margin in the next couple of years.

But now, we are only seeing something like low to mid-teens of operating margin. So how many years would it take for us to reach that kind of level?

And in the near term -- because in first half, the OP margin is under some pressure. We are talking about increasing our GP margin, but at same time, continuing to invest in A&P.

So what is our OP margin outlook in second half? Are we going to see continued pressure or things will start to stabilize from here?

The organic growth in the second half and including Q3, we can look at it, we have some visibility. For us, July and August are very important months because our business have this big camel hump which we have to always cross because these two are our biggest months.

We have just completed July, and we have visibility into what's happening in August. We see that our second half numbers will be somewhat better than the first half numbers, it will not be lower than the first half numbers.

Because if you navigate the July and August plus, you must also understand that I'm talking about organic numbers. Tumi numbers will also see a further boost, mainly because some of the initiatives that we launched is between the newer markets like Europe and Asia will start to deliver some better numbers in second half.

So overall numbers for Q3 as well as Q4 will not be any way behind what it was then, which is including North America. Europe, you may find that we're around 12%, could be around 10%, 11% well definitely is in double digit.

Latin America is in the similar zone where we were there into 20%. Asia, I'm looking at it, that the Asian business would -- India would take a little bit longer.

When we'll report the number, you'll suddenly find that now because of the GST implementation, your VAT, which was earlier -- or the component of VAT, which was called excise duty in India were captured into your sales. Now you have to peel that out, and it'll become net of that.

So you may find that if we remove those optics, the Indian numbers will also be back to double digit growth. So the numbers for Q3 and our outlook for second half is more or less in similar zone as that you have seen in H1.

Coming to the operating margins. The operating margin, as I said, look at how does our business works.

We grow the sales around double digit. And then we feel that we have a possibility of improving our gross margin year-on-year by 50, 100 basis point.

I'm taking out the effect of Tumi. So we look at our organic business also even the first half has been more or less like that.

So there's no change in the strategy. And we had an operating leverage where we dialed up the A&P spend by around 100 basis point, which was the case in 2015, but '16 and '17 were the years because of the currency pressures, we dialed down our A&P spend from around 6%, 6.5% to around 5%.

So we're just catching up to that number. So if you really remove the A&P part of it, the operating leverage of around 50 to 100 basis point would have reflected in our operating margin on a normalized period.

Now what I'm trying to guide you is that look at our A&P spend to be where it -- we feel it needs to be, which is more like 6%, 6.5% kind of number. So we will back again to start delivering year-on-year about 100 basis point improvement.

So let's say on a blended basis for the full year, if our operating margin will be more like 15%, 15.5%, 16%, which are similar as last year's numbers, come to next year, it will start moving up by 50, 100 basis point year-on-year. In next handful of years, we have very, very high level of conviction that you're looking for our number operating margin to be more like 20% kind of number.

This is how we are modeling our business in our head. Now coming to the second half numbers, as I said, Tumi's numbers are always bigger in the second half.

For us, also, the second half is bigger but not as big as Tumi's number is. So as a result, naturally, you will find that there will be some amount of operating leverage.

Also, some of the gross margin improvement which we have started to work for Tumi, as I said, some of the gross margin of Tumi is slightly depressed because when we bought back the distributor business in many of the markets, we bought the inventory at the price at which the distributors were sold, and distributors roughly carry around 4 to 5 months of inventory because they are retail also. So that 5 months of inventory will be bought back.

It came to us for which the profits were already booked in 2016. So that effect of that will also start to become less in the second half.

So overall operating margin may seem to be basically because of the higher second half. So you have a slight higher operating leverage.

Also, gross margin will continue to be slightly high. So as a result, you will find that our operating margin will be higher than the first half.

But when you blend both of them together, it may still look like that is more like the second half number. Also, the Tumi's contribution will increase because the interest cost of around $25 million is more or less going to remain the same, whereas the contribution of Tumi was also around the same.

But there could be -- as I said, these are the positives. But you have to also factor in that this time, we had one-off positives in terms of the tax rate, which in the second half could be slightly high.

So blended all together, definitely, our operating margin will be higher than the first half, but when you blend both first half and second half, I think it's better for you to look at it -- operating margin in terms of percentage to be similar to the 2017 number, get back to '18, '19, '20. We will get back to the same model as we were following in the past of delivering 50 to 100 basis point of additional operating margin year-on-year.

Okay, next question. In the back?

Okay, go.

Management, I have three questions. The first one is for the distribution cost.

In the first half, I found out the distribution cost up from 28% the first half last year to 31% this year. So I just want to know that has this something to do with the retail business model because we have more direct-to-customers?

And in the future, because we are now going into the more direct retail business. So I just want to know that what should be the guidance for this number.

And the second, for eBags, I know that we started to contribute for the two months in the first half. So I just want to know that whether the management can help us to walk through the eBags by gross margin, operating profit margin and net profit margin.

And how do you see the outlook for the next two years for eBag? The third one is about the -- Ramesh just mentioned that you want to have the U.S.

market less promotional. I just want to know that how you will do that and to carry out this by strategy.

And meanwhile, when I was in the United States, I found that even though, for Samsonite, you still want to keep your price steadily, but your competitors keep having a very heavy promotion. Do you worry about that this will sacrifice at your volume for this new strategy?

Let me answer from the reverse, from less promotion. So what we're trying to do.

We're not unilaterally moving up our price and vacating any important price segment. What we're trying to do is, like American Tourister was largely relying on doing business with the hypermarkets, like Walmart and things like that.

Now when you deal with them, their own business is already under pressure from the likes of Amazon. So as a result, they are further downgrading.

So if you join hands with them, they want you to further damage the brand equity and keep dropping down the AUR and also destroy your profitability. But as we have launched American Tourister in department stores and, let's say, the likes of Costcos and things like that because those are more buoyant, or Amazons, it's not that we are becoming completely nonpromotional, but we are trying to become less promotional than we were in the past.

Even for Tumi's case, when we were -- I must tell you that in the first half of the numbers that we have reported right now, Tumi was on the same boat. It's very natural for any previous promoter to really maintain their numbers.

So their business was much more promotional in the first half of 2016 because we were still in the negotiating mode. So for us, now Tumi being part of Samsonite, there's no reason for us to be that promotional.

We have a clear price paradigm, we're looking at price metrics. We have Tumi on the top, which we want to be less promotional.

So we have cut down the number of promotional days to almost 1/3. In stop doing direct promotions, we're looking in for collaborating, which is working extremely well for us, on some kind of, a social cause.

We launched a campaign called a clean water campaign, which is like bringing clean water to Nepal, to Patagonia and so these kind of countries, which worked very well for us. We say that you will not get a price off, but we will contribute a part of the money for a cause for you.

And that has worked equally well. If you look at our numbers in North America, by being less promotional, it has not been any dilutive in terms of revenue growth.

American Tourister model are there, similarly Samsonite also we are slightly making less promotional. We want to engage and occupy that more promotional part of the business with American Tourister.

So that is our thinking. So we don't want to unilaterally move up but rather push American Tourister in, and over a period of time, slowly we'll find that Tumi will become less promotional.

American Tourister will become -- Samsonite will become a little bit less promotional, and probably American Tourister will become more aggressive, which is very similar to what we do in Asia and very similar to what we have launched a couple of years back in Europe and Latin America with some very good results. Coming to the distribution cost.

Distribution cost 28% to 31%. There are two parts of it.

One is it's the effect of Tumi because when you really acquire Tumi, Tumi's business was already they worked with higher gross margin, but they have a higher retail component, so you have a higher distribution cost which is coming in there. I think on a longer-term basis, I think you look at our business because now, you start to see in the more direct-to-consumer part of the business the component of online is growing far more than the component of brick-and-mortar.

So the percentage of the distribution cost around 30%, 31% kind of a number will remain more or less like that because when you grown online direct-to-consumer, you do not have that higher distribution cost. You do not have the brick-and-mortar cost, but you will have it on -- when you have a brick-and-mortar retail store.

So the number will remain more or less like 30%, 31% kind of number. Some of it also could be an impact of different regions have a different component of our business.

They work with slightly higher gross margin, but they may have a slightly higher distribution margin. For example, department stores will work in Asia.

They work with slightly higher margin, which also gets booked by us in the distribution cost. So I think on a longer term, it will remain more or less like that.

And if it increases, it'll be more than adequately set off by increasing the gross margin. So what we track internally ourself, what we call as a contribution margin, which is gross margin net of the [forward] cost -- the distribution cost.

The contribution margin of our business have been more or less flat and more particularly, actually, it has been increasing by around 50 to 100 basis points. So this is how we look at our business, and this is how you can model your business.

eBags is still a very small business. It is profit dilutive.

When we acquired the business, it was not making profits, and it is not making profits because it's a kind of business where it is. But we have very high level of conviction that within next handful of years, we should be able to navigate this business to deliver a similar level of profitability as our core business in North America.

Why I say that? Because eBags was largely working with the third-party brands.

They work with a margin -- gross margin [with a] single margin. Whereas now, eBags, our intention is that over a period of time, eBags will sell more of our own brand.

I don't say that we'll stop selling all other third-party brands, but definitely, today, the contribution of Samsonite brand on eBags, our own brand business is about mid-single digit. That contribution, we will move it up over next handful of years, and a good case is Rolling Luggage.

When we acquired Rolling Luggage, it was exactly a similar business to eBags, making no money, working on low gross margin, actually may losing some money. Today, when I speak to you, Rolling Luggage delivers similar gross margin as our core business and delivers similar operating margins as our core business in just about two years.

So we know what we can do with eBags, first bring our own business, own brands there. Also, we can spruce up their back end of the business.

We already start to -- it will take us a couple of quarters before we get there, bring them the back end of the business to ride on Samsonite platform, which will also bring some cost synergies to them. But definitely in next handful of years, eBags should deliver very much similar profitability as our core business.

Okay. Any questions from online?

Yes, we have two questions. So the first one is from [Indiscernible] from India Capital.

He would like to know the growth rate you foresee for the legacy business, excluding Tumi, in North America for the second half of 2017.

We're more like mid-single digit is what we should be expecting it. Excluding Tumi, it could move up from mid-single digit.

If I have the visibility into, let's say, next couple of months, like July, we have the numbers, it's more like high single digit. So that's the kind of number which I guided before, but if we look at it on a longer-term basis we look at it the core business have the potential to deliver mid to high single digit, and as we start to get more traction out of our two brand strategy or American Tourister push strategy that we're starting rollout now in the U.S, which will be reflected more in the second half of 2018, U.S.

like Europe, has every possibility to start delivering low double digit like 10%, 11%, 9% kind of growth.

If you look at the North America Q1 numbers, it was fairly flat, slightly down, actually, in the core business. Q2 is 5.3% growth, which we had guided in Q1 that we had some customers that shifted orders, particularly American Tourister, from the first quarter into the second quarter and largely into the second half.

So when we talk about mid to upper single digit, we start to see that already playing out in North America where we had a slow start in Q1 in North America.

Any more questions from online?

Second question is from Mavis from DBS. She would like to have more color on the digital marketing expenses for the first half and how you see this growing for the next two to three years.

As I said before, digital marketing becomes more and more important, not just to market your sites, websites, but we start to realize that the consumer very often is starting his journey of searching or deciding on the brand or a style or even a color online even though the final purchase may happen offline. We are increasingly spending money on online and our outlook is that probably in next handful of years, even majority of our A&P spend would get committed to the digital world.

We just follow wherever the consumer is going, and consumer is interacting more often online. If I get Tumi as a good example because Tumi's customer is interacting in its larger North American business.

If I look at Tumi's North American business, already 50% plus of our A&P of our spend in North America on Tumi is online. There are other regions where we are slightly behind because Asia is one reason where we're not even ready with our online platform of our own.

It will take us next couple of quarters before we get ready there. Our aim right now is that we will, by mid to end of 2018, we should get to speed in Asia with the online commerce.

Once you are ready with the online commerce, I think that is a more appropriate time for you to start dialing up your online A&P as well. Europe is somewhere in the middle, but definitely, I would not hesitate to say that my current outlook is that in the next handful of years, our spend -- marketing dollar spend on digital world could be 50% plus.

Okay. A couple more questions from the floor.

Spencer in front.

I want to ask, as a consumer and a Tumi user, when are you going to launch better Tumi luggage? We heard a lot about the plans.

Can you share with us your pipeline? What do you see in the second half?

What do you see in 2018?

I may not agree to you about the better. I can agree to the lighter.

In Asia, we are obsessed with lightness. I think Tumi's current luggage, I start to be a user myself now.

They are exceptionally well built. They're truly the road warriors.

So people who are not obsessed with a lightweight, even the current assortment of Tumi are great piece of products. And I met people, friends, family who were previously hiding their luggage every time when I'm showing up.

Or waiting for everybody else to pick up the luggage before they pick up the luggage, unless I like get into fights with them. Even my own brother, bloody hell, I didn't know that he was doing that he was sitting on me.

But this is what the case was. But now they are more vocal about it.

So I would not agree to what you said. Coming to the lightweight luggage, we never guided it's going to be a very easy and a very quick one because there is a process by which you come to the market with a lightweight luggage, and when we acquired that this brand and the business, we always guided by somewhere by 2018 will be the first generation of the luggage designed by Tumi's team because we cannot start the process before the acquisition is done.

We cannot make the Tumi engineers -- Tumi designers work with Samsonite engineers. They started to work and in the first week of August, the Tumi designers were in our factories in Belgium with our technical center there working with them.

The first collections should be in the market before the holidays this year. That's what we're aiming for.

I've seen the first collections. They look nice.

I'm very hopeful of them. But I've also guided that our experience tells us that the first collection that you bring to the market, you should not believe that it will always succeed.

So we give ourselves always a three chance. If we're very, very lucky, your first shot, you'll get the bull's eye.

Maybe you're a little bit lucky, you get it in the second attempt. But every first attempt to second attempt, there's a gap of six months because you cannot start the second attempt without getting the consumer feedback on the first attempt.

We have done some focus group studies, on everything we do that. But you know that theoretical study cannot tell you what the consumer experienced when they start using the bags.

So I think we will we -- we're already starting to think about it what could be the possible second generation of the Tumi bag, but personally, I feel it will be a collection which we'll call Latitude which should be in the market for -- aim for holiday season. We start from North America, but slowly it'll get rolled out on a global basis.

Okay, lady in front.

I have a question on your cost of goods sold in terms of raw material price increase for your suppliers as well as renminbi appreciation. How is that impacting your business last half and going forward?

You look at the gross margin. It had been moving up.

So I wouldn't really say much about the cost of goods moving up and the renminbi, anything like that. Also we have started to diversify our sourcing portfolio so Europe is a very good example.

What we sell in Europe today -- more than 50% of what we sell in Europe is made in Europe, which also creates that kind of advantage for us in terms of the currency pressures and you can be faster to the market in terms of response time. So we do feel that, that strategy apart from -- made in Europe definitely creates an amount of tactical or the consumer advantage in the eyes of the consumer, especially in more emerging part of the world like Asia, Latin America, people value made in Europe more.

So I think that our diversification of our sourcing is insulating us from so-called renminbi appreciation, and we haven't really seen much of the cost pressure on business. But I must remind you that 2015 and '16, when we have seen big pressure on our costs, mainly on account of currency depreciation.

We're the market leaders and we have the pricing power to pass on the pricing cost pressure if we feel will come to our business with a gap of around three, five months back to the consumer. And we have a rolling hedging policy, which allows us to make an orderly transition to new currency rate.

So I don't feel worried about what's happening to renminbi or commodity prices, and quite honestly, they haven't really moved that significantly moved one day, after a few weeks, and the next two weeks, it comes back. Because in the past, a lot of what was happening was linked with the oil prices.

I think we have seen many of our commodities have got de-linked with the oil prices. It's more about demand and supply.

Also, the products are becoming lighter, more efficient. So if we look at it, we used to consume around 4 kilos of polymer on an average on each of our bags.

It's down to now 2.8 kilos. So down by 40% in the commodities.

We're consuming less metal, less polymers. We're consuming less of everything.

Even we are starting to work on a new packaging material where the corrugated boxes can be made in a different manner, wherein you will use less paper. One of the thinking that we have in our mind is somewhere to start reducing as a part of our years out project.

We want to reduce our carbon footprint. So we have been working on a lot of fronts.

One of them is also to start reducing the consumption of energy, consumption of raw material, which in reality ends up delivering you some cost advantage also.

Okay, final question. Peter in the back, please.

This is Peter from Mizuho. Just a couple of questions on Tumi.

It seems to be a little bit of a slowdown in 2Q, either on organic as -- well certainly in North America. Just wondering if there is anything behind that and what is your expectation for second half Tumi growth?

And the second question is really you mentioned on the GP margin that you expect to get to 70% 2018. Just give it -- would you give us an idea of what you would expect in terms of EBITDA margins for Tumi next year as well as OP margins as well on that basis?

Tumi North America would be mid- to high single digit in North America. So Q2 numbers, a part of it is getting affected for two reasons, I would say.

One was SAP migration. We have navigated it with minimum disruption, but there's nothing called no disruption.

That has affected our business. There was also one other issue that we had, which we are still -- we are also migrating many of our logistic warehouses.

As I told you before that Asia, our business model was based upon Europe, that goods are sourced [in the Orient]. It moves all the way to North America then comes back to Thailand and get distributed rest of Asia.

Now we are also restructuring all that. And I must admit that our Asian business was also partially affected because of this change we were doing it and unfortunately, one of that -- I don't know what that -- the bug which affected Maersk operation did affect our operation in Thailand, and we are still recovering out of that.

The software bug, what was that called? There was some name given to that.

Maersk are still recovering out of that. So there were partial disruption in some of the supplies, but we are recovering that, and I think Q3 and Q4, we will be back to normal.

The second was, as I told you before, that we are also trying to reduce the number of promotional days. Second half Q2 for Tumi was a hectic negotiation weak quarter.

Because that was the time when the price negotiation was at its peak. And we were looking at the numbers because we were doing due diligence more than we had the visibility into the number month after month, quarter after quarter, we had full visibility with the number.

And if the sales were going down we would have had some questions, what the [expletive] is happening here. Maybe we use that for price negotiation once again.

So they were heavily doing promotions, which we see no reason for us to be doing that. So the Q2 impact of North America has that.

But I thank you can very safely assume that in the second half of this year, Tumi would definitely be able to deliver in North America a high single digit, even maybe if the holiday season works well for us, it could be more like 10% kind of a growth number, it could come up from Tumi in North America. Coming on the cost of goods, as I said, the cost of goods was -- is moving in the right direction.

The 70% is our intended target is coming from different reason: some sourcing efficiencies; less promotional days; also direct-to-the consumer instead of having the distributor model which was there in the past. But all that will start -- right now, when you buy back the distributor, there's a negative influence on the gross margin.

But come into quarter four and more particularly in 2018, it will have a positive impact on the gross margin. So overall, gross margin moving into more like 70%.

We have a very, very high level of conviction, definitely when we come to the second half of 2018. We may not be able to see that 70% already in the first half because there's always a time lag by which you really start capturing those numbers.

But we can -- we have the visibility into that, how the journey will get completed. It will be definitely in the second half of 2018.

Great. Thank you very much from everyone for coming to this presentation.

Thanks.