Samsonite International S.A.

William Yue – Director-Investor Relations Ramesh Tainwala – Chief Executive Officer Kyle Gendreau – Chief Financial Officer

Mariana Kou – CLSA Chen Luo – Bank of America Merrill Lynch Raymond Ching – Optimas Capital Edward Lui – Morgan Stanley

Thank you, operator. Hello, everyone.

Thank you for taking the time to join our Third Quarter 2017 Results Presentation. With us today are our CEO, Ramesh Tainwala; and our CFO, Kyle Gendreau.

We will begin with Ramesh and Kyle going through the results presentation deck. And when we're done, there will be a Q&A section.

Without further ado, we'll have Mr. Tainwala begin the presentation.

Thank you.

Good evening, everybody, good morning wherever you are. Third quarter results from us is another quarter of very satisfactory results.

The growth of net sales, I am on Page no 4, William. The net sales on constant currency basis grew by 18.7%.

And excluding Tumi, it grew by 11%. The gross margin also saw an improvement compared to last year for the same quarter by 220 basis points largely due to increase in Tumi's operations, but also there was an increase of 90 basis points in our core brand business, mainly on account of bigger proportion of direct-to-consumer sales.

EBITDA also have shown an increase of 18.7%. Adjusted EBITDA margin decreased by 20 basis points largely due to increased advertising spend, also around 120 basis points.

Excluding the 120 basis points, the increase in advertising as a percentage of net sales, EBITDA margin increased by 100 basis points. Net income also accordingly increased by 11.1%.

This is despite of an extra month of interest expense relating to Tumi acquisition last year as well as increase in marketing expense. By region, North America constant currency growth was around 21.7%.

Excluding Tumi, and excluding eBags, I would call it, was around – excluding Tumi and excluding High Sierra, High Sierra is one-off, which I'll cover up later on, we're going through a restructuring strategy there. Excluding both of them, the constant currency growth of the core business in North America was 6%.

Asia grew by around 3.3%, but excluding Hong Kong, South Korea and India, which had some challenges as we have mentioned during the first half as well, it grew by 8.3%. Europe, 6.8%.

Again there has been through markets where there were one-off things, which I'll cover up later on in one of the slides. Latin America grew by 22.4%.

So the key markets, I'm on Page 6, you see here that most of the markets have done well. There are a few markets, which have been circle here one, two, three, four, five markets, which I can cover in the later slides, which is in Page 7.

We're trying to give you more visibility into this. U.K.

as compared to the first half, first half of the business grew by around 13.4% and the third quarter has been a de-growth of 8.3%, which is mainly on account of negatives consumer sentiment relating to Brexit. Germany, the first half grew by around 15.2%, whereas there is more moderation on account of one B2B business, which we had last year.

If you exclude both of them, then the third quarter growth in Germany was still very strong, 17.5%. Similarly India, still we have the GST issue going on.

I believe that GST has been further reduced from 28% to 18%, which will have some consequences, once again, in the quarter four. Hong Kong retail environment continues to be challenging due to lower Chinese tourists.

We were expecting that we will start to find a bottom in Hong Kong, but it seems like that's not really the case. And South Korea retail environment also continues to be challenging mainly on account of lower arrival of Chinese tourists.

Look at the sales, I'm on Page 8, by brand. All our brands have posted very strong growth.

Samsonite core grew by 3.3%, Tumi has, let's say, Tumi had a effect also. We'll cover Tumi later on in more detail.

American Tourister starts to show very strong growth mainly on account of the penetration in Europe and North America and Latin America market, 9.3%, Speck is 2.9%where there was – the fourth quarter is anticipated to be stronger on account of iPhone X launch has been delayed into quarter four. Gregory, 19.7%.

High Sierra, as I said, it is one of the brand where we decided to pull back the brand out of all market other than U.S. and focus the brand mainly in the U.S.

market, so minus EBIT of 9% is on account of that. And we are also re-strategizing our entire High Sierra business even in the U.S.

market, expecting that by the time we get into the next year, High Sierra should be back to mid-single digit growth in North American market. Kamiliant, which is a small piece of business, 61.5%.

Lipault. Hartmann, most of other brands also have posted decent growth.

Excluding Tumi, which is Page 9, the constant currency growth was 11%, which is driven by North America business of 21.7%, Europe 6.8%, Asia 3.3%, Latin America 22.4%. Of course, it has been also helped by eBags growth in North America.

If you exclude the eBags of other growth in North America was around 3.1%. If I exclude High Sierra also from this number, North America growth was around 7%.

Gross margin has shown an improvement of 90 basis points, which is excluding Tumi, as advertising as we have spoken in the past, we dialed up the advertising spend from 4.4% to 5.5%, which is the kind of level where the core business advertising spend will be maintained going forward. As a result, EBITDA has been more or less in the same zone as were last year 17.3% to 17.2%.

Considering that we also dialed up our A&P spend, we believe this has been a good result. Tumi, I'm on Page 10, the constant currency growth has been 13.3% on net sales.

Gross margin showed a very strong improvement from 62.9 to 68.9, which is almost 600 basis points improvement. As we have been guiding, we believe that by the time we get into next year, the margin is going to be more like 70%, which is what we have been guiding right from the beginning when we acquired this business.

The advertising spend has been increased, dialed up from 5.5% to 7.1%. Yet the gross EBITDA, adjusted EBITDA increased from 18.2% to 19.1% of the sales and a growth of around 19.3% in terms of growth versus last year.

Year-to-date September results was more or less in line with what we have been talking about, constant currency growth of 26.7%. Gross margin improvement of 270 basis points, largely on account of larger contribution of Tumi, but also the core business, also the gross margin increased by 100 basis points.

And EBITDA has been more or less in the same zone, which is mainly on account of 100 basis point increase in the advertising spend. Net income, as we have told in the past also that net income last year, we had one-off advantage in terms of some tax adjustments.

So the net income has increased by 4.1% over last year. By region, which is Slide 13, if we look at constant currency growth of North America, all regions have grown very nicely except for Asia, where I've spoken earlier, there are few markets, mainly in the Korea and Hong Kong, which continues to see some challenge.

Other markets like China has had a constant currency growth of 10.9%. Excluding Tumi also, 7.7%.

Japan, 12.7%. So barring this four markets, rest of the markets have been delivering good results.

We're also continuing to make strong progress in driving our drive to consumer sale. If you remember since our IPO we’ve been talking about 50:50 strategy that we wanted to increase our direct-to-consumer proportion of our sales to get closer to around 50% mark in – as of now, year-to-date September, 32.1% of our sales are now coming from direct-to-consumer channel, very strong growth.

And within that, direct-to-consumer e-commerce online sales increased from 3.6% to close to around 7%. Total e-commerce, including our sales to e-retailers also had been growing very nicely.

It represented around 12.1% of our revenue now as compared to 8.6% for the same period last year. The second leg of our strategy has been to drive the non-travel business to make the business more resilient, and become less dependent upon travel alone.

So non-travel category growth was around 44.5%, and the non-travel contributes – makes up for around 38.8% of our year-to-date September sales compared to 34% year-to-date September 2016. Page 17, gives you a visibility on our A&P spend.

We have dialed up our North American advertising from 4.9% to 6.2%, Asia also by 70 basis points, Europe by 70 basis points and Latin America by 100 basis points. As a Company, as a whole, we have dialed up A&P to around 6.1%.

Going forward you can look at our A&P to remain in the similar zone as we have arrived at now, which is around 6% to 6.5%. Year-to-date September results excluding Tumi's operations, which is on Page 18, constant currency growth of 8.8%, a strong gross margin growth of 10.9%, and an EBITDA growth of – adjusted EBITDA growth of 4.4%, mainly on account for higher spend on A&P by 100 basis points as compared to last year.

Tumi, an extremely satisfactory result, constant currency growth of 12%, a big improvement in the gross margin. We have dialed up the A&P spend.

And as a result, EBITDA has remained more or less in the same zone as last year. I'll ask Kyle now to cover some of the balance sheet items, which is on Page 20.

Kyle?

Hi, everyone. Just quickly on the balance sheet.

Balance sheet continues to be very strong. We saw an increase in our net debt of around $111 million.

This has weighed larger in the back of us acquiring eBags in the first half of the year and also bringing in the distributors within Asia for Tumi, spending around $65 million there. Our pro forma net leverage is still below three times 2.94:1 and we expect that to improve as we get into the end of Q4.

If we look at working capital, we've seen a strong improvement in working capital from Q3 last year to Q3 this year. This is largely on account of us bringing Tumi in line with our working capital structure, largely on n APs.

So you'll see a very strong improvement in payable days, and that's really bringing Tumi vendors on to our payment term. Our inventory days are up a bit.

Tumi's runs a little bit higher inventory, that’s just because of the mix of business, but we're quite happy with where our overall inventory levels are at the end of the quarter. So 12.5%, our target continues to be around 14%.

We're consistently running, better than target on working capital. And so with that, William, we can maybe open up to questions?

Hi management, this is Mariana. Thanks for taking my question.

I have three small questions. Actually, number one is on Samsonite sales number by brand.

I noticed I think the Samsonite brand actually softened quite a bit into Q3. Just wondering if there's any weakness in terms of regional breakdown and I guess I’m not going to choose on the other side, we found it quite nicely.

Would that be mostly coming from Europe, I guess? If you have any follow-up update on American Tourister geographic breakdown at a moment.

And again I guess lastly is just on the kind of full year or like – more like FY2018 to 2019 margin expectations, are we still looking for a 50 to 100 bps of adjusted EBITDA margin expansion and what kind of Q3 margin we should expect from Tumi? Thank you.

Okay. On Samsonite, there's no big change into first year to second – I mean, first half into second half and going into 2018.

We've been always guiding that Samsonite brand business would continue to grow at about mid single-digit. The 3.3% is mainly on account of, as I said, there were some B2B business in Europe, which has not been repeated.

When you look at our Q4 numbers, it's – and we have some visibility into month-to-date November numbers and October numbers. The Samsonite will be looking more like a mid single-digit on a full year basis and also in quarter four and going forward in 2018.

Coming into American Tourister. American Tourister, I would say, there are two things which is happening in American Tourister.

We are now starting to get more distribution penetration in Europe, North America and Latin America. And we're also starting to anniversary the – I would say, the – in the first half and more particularly in 2016, the American Tourister numbers were softer on account of some of the challenges that we were facing in our Asian business.

Those days, American Tourister was largely an Asian business and the online business was having a deflationary effect on American Tourister. So if you look at the first half, if the number we're looking like minus 2%, minus 3% kind of a number, the unit growth was still about 8%.

I think now the business tends to get to a level where the further erosion of AUR or average selling price has kind of stopped. There is a reason why you see the American Tourister number looking to be stronger in third quarter.

Going forward, American Tourister should still be seen as a number like high single-digits getting into double-digits, mainly on account of again the distribution penetration as we will keep expanding in Europe, North America and Latin America. So American Tourister still has some more legs to go to deliver high single-digit kind of a number into fourth quarter and also into 2018.

Coming to the EBITDA. For the full year, it will be more likely the same zone as where we are.

Tumi, definitely – the gross margin will slightly move up further, which is more an account of – Tumi definitely if you look at it the third quarter, the gross margin was more like 68%, 69% getting closer to the 70% march where we wanted to be. So I think you will see some margin expansion on the gross margin level for the business as a whole, where Tumi's contribution slightly increases.

And also as a proportional guide, the consumer sales continues to increase so there would be some gross margin expansion happening in. Our A&P trend is more or less getting to the zone where we want to be.

It's about 6.1%. I would say going forward, we would like to see it more closer to around 6.5%.

So the EBITDA margin expansion, I would say, let's say we are looking at 100 basis point expansion on the gross margin into 2018, maybe part of it will still go in for dialing up the A&P from 6.1% to closer to around 6.5% and the other 40, 50 basis points will drop down to the bottom line, which is EBIT or EBITDA, as you would like to see.

Hi management. I've got three more questions.

First of all, given – based on the year – the quarter-to-date trend, can you give us some color on the organic sales growth projection for Q4? And secondly, with our growth outlook for Samsonite original business, as well as Tumi business into 2018 and lastly, given the current discussion on the U.S.

tax cut, what's our assessed potential impact on our sales? Thank you.

Okay. The Q4 and 2018, it’s been more or less similar to the core business.

We're expecting, other than Tumi, to grow at mid single-digits, other than the Tumi business, and the outlook for 2018 also is very similar to Q4 numbers. And Tumi is expected to continue to deliver kind of a double-digit growth in Q4 and similar – we have a similar outlook for Tumi also going into 2016.

Coming back to the tax cut, it's very difficult to judge. At this stage, there are a lot of moving pieces.

I would not like to speculate on what would be the impact, probably you guys should know more. I can only say that a big part of our business, today, almost 39% of our revenue sits in North America and U.S.

more particularly. So if there are an almost about a third of our profits are coming from North America.

So if there is going to be some tax cuts in North America, as and when it happens, we definitely would have some benefit.

Okay, thank you.

Hi, Ramesh and hi management. I've got two more questions.

If I look into 4Q by country, Ramesh, you mentioned [indiscernible] in this quarter was affected by the German before the B2B. So based on the order trend, what do you see the momentum into Q4?

And also for USA, what's your expectation again, given the Speck seems to be a deferred into Q4 for the iPhone? This is my first question.

And my second question is, can you elaborate more on the High Sierra in terms of the impact on the backpack things and how long is it going to last?

Yes. Europe as I said, other than like Germany, that B2B business, even Germany grew by around 17%.

So there's nothing wrong with the European business. And outlook for Europe is there that in Q4 Europe should be able to deliver high single-digit, maybe slip into double-digit growth.

And outlook for 2018 would also be – let’s say high single-digit kind of a number. What has been the case for the full year for this year?

So Europe is still – the business seems to be in a very strong shape. There is a little bit of an element of Brexit, but one UK doesn't really appreciate our entire number for Europe.

We still have a lot of legs to grow with the distribution expansion of American Tourister, the push-up more travel in Europe and also comes in our core business, travel business also had been growing nicely in Europe. So I have no any worry on Europe.

U.S., you're absolutely right. The Speck number will come in very strong in Q4, whereas Speck for the same reason will – had a weaker number in Q3 because the shipments of iPhone 8 got delayed into Q4.

But overall Speck number, when you start looking at it, we look at Speck to be delivering high single-digit, double-digit kind of number which is very similar to our core business. There is a shift from third quarter to fourth quarter on a full year basis, Speck will deliver high single-digit kind of a number.

Coming back on the High Sierra, High Sierra, to give you a little bit color on that, when we acquired this business, I think it was – one of the first acquisitions that we had done. Actually, it was the first acquisition that we have done.

So our teams were, including myself, we’re all very excited with the acquisition when we started to push out High Sierra on a global basis without adequate preparation. As a result, I must say that we did not find enough traction in High Sierra in markets outside of U.S.

And what we decided somewhere in second half of 2016 that we will like to withdraw High Sierra from all other markets and just focus the brand in the U.S. market itself.

So if you look at the – and also there were some one-off activities that we were doing with High Sierra, like the High Sierra – our team was also testing out to get into outdoor apparel segment by licensing arrangements or some shoes and things like that. We very quickly realized that, that was not really our core competency area.

So when you look at our High Sierra backpack business, core backpack business in North America, it is still solid. There's nothing wrong about that business.

What has looked, the negative number is actually coming in from – so we have decided to temporarily withdraw High Sierra from Europe, Asia and also withdraw expansion of High Sierra into, let's say, new categories more particularly like apparel and some outdoor shoes and things like that. So a licensing arrangements that we working on it.

And we want to focus High Sierra on firstly, in North America and in the backpack segment. I must admit that acquisition of eBags will greatly help High Sierra.

Another thing which was affecting High Sierra business even in North America was that traditional channels where in the past who were selling mainly High Sierra, where like the outdoor channel like REIs and things like that. And you must have read in the newspaper, many of those channels have been having pressures and the business – in the meanwhile move the backpack business, largely moved from traditional channel into online platforms.

Now we are trying – we are now starting to post the acquisition of eBags, we are launching High Sierra now on the eBag platform. So I'm very confident that in 2018, High Sierra should be back to growth very similar to our other core business in North America.

Okay, thank you. Thank you, Ramesh.

Hi, Ramesh, this is [indiscernible] here. Could you please comment on your market share in different markets in the U.S.

and Europe and in Asia? The reason I ask is because India is probably the only market where you have a listed peer, where we can see some numbers from a competitor.

And it seems like in the third quarter, despite all the GST issues, VIP was able to grow their sales by about 20%, excluding the effect of GST and excise duty, whereas you saw sales decline. So just commenting on India specifically and also your market share in other markets would be very helpful.

Yes. Okay.

Let’s say our market share in U.S., Europe and Asia, that's – I'll talk separately about two markets like India and China. You're absolutely right, we have been under pressure in terms of the market share.

That’s all the countries I would say, U.S., Europe, Asia, barring India and China. We have gained some market share mainly on account of the push of American Tourister into Europe, U.S.

and America, has allowed us to become a more active player in the mid-segment of the market, which we were not previously operating in. Coming to Asia, the two markets where – you're absolutely right, we have lost some market share, one is India, the other one is China.

In India, we lost market share mainly on account of – it is not a phenomenon which is only to do with GST now, but it is starting from 2016, where the competing company that you just mentioned, which is a listed company, have been more aggressive in trying to operate the lower end of the market and also the market has been kind of trading downward. And we decided not to engage the lower price point by bringing down or dragging down the American Tourister brand into the lower end of the segment as the market was trading down.

As a result, we did not trade down, but the market still traded down. And we lost some market share.

Our thinking was that we will launch another brand called Kamiliant because my own personal thinking was that once you bring down the brand, it's very difficult to bring up the brand you know. The company that's just mentioned about India, at one point of time, let’s say, 10 years to 15 years back, their brands were engaged in Samsonite, now there is no Samsonite engagement for them.

And also if you look at the price point that they operate largely, are not even addressing the price point where American Tourister there. So we will launch the brand Kamiliant primarily in – to gain back market share in the countries where we have seen downward pressure on the price because of aggressive moves by the competency in one such country.

And as a result, I think – but when you launch a new brand, it takes some time before you'll be able to gain back the market share that you have lost. We were very jealous in protecting our profitability.

So if you really look at – we do not have that much visibility into our profitability for India specifically. But I can tell you that profitability for our Indian business at the operating margin level is almost 3 times of VIP because we did not bring down our prices, we did not wanted to get into a bloodbath.

As a result, we did lose some market share. Coming back to China, it's another market where we have definitely lost some market share.

There the reason has been slightly different. That's the digitalization, let’s say, the movement of business.

So online channels gaining market share at the cost of more traditional channels like department stores and the retail, where we used to have – at some point of time in China, we used to have a market share of close to around 50%, 55%. When the market has moved to the online channel, the competitive landscape has changed.

In the past, when there were small guys where there, it was difficult for them to sell on more traditional channels like department stores. You need to have manpower, you need to have infrastructure to really deal with them on more credible way, whereas when you are an online channel, you can launch your brand or your product very easily.

And if you look at the online also in China has like more deflationary pressures. If you look at our business in China, in year-to-date 2017, when our business have grown by around 7%, the unit growth in China has been 15%.

So 8% has been the AUR erosion in China and there was a similar erosion in China last year. In China also, when we are trying to protect our profitability, China, again, we are launching Kamiliant now, but it takes time for us to gain back some of the shares which we may have lost or we have lost.

We've recently done some market study, and we know that we have lost some market share at the lower end of the market because we did not follow the way the market was going down or there were deflationary pressure on the pricing. As a result, I believe that we lost some market share in China and we also lost market share in India.

Okay. Thank you.

Hello, Ramesh, and Kyle, and management. Just two questions here.

So I'm just trying to better understand the impact on the financials from taking direct control over some of these Tumi – some of these other markets for Tumi. So I probably – I think it probably helps to some certain extent on the GP margin improvement of 600 bps from last year to this year as well as some of these sales growth as you convert some of these wholesale ASP to kind of a retail ASP as you take back some of these markets.

So can you just help us better understand how much of that kind of GP margin improvement was coming from these kind of – changing the mix from wholesale and retail? And if you can maybe share some color on what that mix is and how that mix will look three years down the road in terms of wholesale versus retail?

Well, let me put it like that, the margin expansion that you see in Tumi is only a part of it, and a smaller part of that is coming because of this conversion from distribution to direct market because the market that they we have to now bring direct, they were not that big, there were not much of sales, which are sitting there. So if you have a 600 basis point improvement in the gross margin, I would say it is partly to do with less promotional in North American market, so we have been doing less promotional in North America than was done in the previous year, pre-acquisition.

About 100 basis points to 150 basis points expansion to be seen there because of going direct. But I must also say that every time when you buy the distributor, that immediate effect of the distributor buyback is margin erosion because you're buying back the inventory at the price which you have sold the inventory to them, and most of the distributors were carrying about, let's say, five months to six months of inventory.

So the immediate impact is there that you buy the inventory at the margin, where the margin was booked in the year before that. So the current margin expansion that you've seen is largely because of less promotional base, outsourcing efficiencies.

Also Tumi's now able to ride on, let’s say, half rate contract of Samsonite and things like that. Definitely, when you look at 2018, our Tumi gross margin would look like more like 70% plus kind of a level, which will be where we will start to see the full impact of going direct in Asia.

We'll also – the negative effect of buying the inventory at the price that we have sold the inventory in the previous year will also be, let’s say, mitigated. And the third is that we are also now trying to, let's say, make their entire supply chain primarily on the logistics side, also make it more efficient, but all that will start to have an effect more into 2018.

For example, even today, largely the product – Europe is starting to get their goods from the Orient into Europe and shipping it out. But in Asia, unfortunately, because of one of the virus effects on one of our service provider, Damco, we could not make that change.

So still the goods were going to U.S. and coming back to Thailand and getting shipped to Asia.

I think our target is that first quarter of 2018, all these things will be behind us. So we'll see our gross margin getting more closer to 70% plus basis, and that's a time where you will have the last leg of improvement in the gross margin being reflected on – in our numbers.

Coming on the EBITDA margin, definitely, Tumi, as the gross margin moves up, we did dial up the A&P spend. On a longer period basis, the Tumi A&P spend will gain more closer to around 6%, 6.5%, which is very similar to our core business.

Then the Tumi EBITDA improvement you will see will be more rapidly growing on a positive side of 20% already in 2018 and going forward.

Understood. Thanks for the color on the margin side.

So in terms of the sales growth, I think you just guided double-digit growth, if I'm correct, if I hear it correctly. Is that talking about kind of low- to mid-teens kind of growth for Tumi for the next few years?

And I’m just wondering…

Go ahead.

Can you break that down to new store opening? How much would that contribute to the top line for Tumi?

Let me put it like that, the Tumi North America business would be more like mid single-digit to high single-digit kind of a number because there is no major door expansion which is happening yet. We do open four, five doors and there are one or two we close.

So it is not on account of any door expansion, which is anticipated in North America. Whereas in Asia and Europe, where we are – 2017 has gone by in trying to strengthen the, let's say, the supply chain and getting the fundamentals right.

So 2018 onwards we will start to see a door expansion kicking in Asia and in Europe, more particularly. Our target today that we may add about 25 odd doors – new doors in Europe and Asia over a period of 2018.

Now Europe and Asia definitely will be able to deliver more like high-teens getting into the 20 kind of number because we're starting with a small base and we're adding new doors there. But if you blend everything together, Tumi is more like low-teens kind of a number when you blend all the regions put together is what you have to look in 2018.

Understood. Great.

Thank you so much, Ramesh.

Hello, operator, can you just check and call us again to see if there are any more questions before we go into closing remarks?

Thank you very much, operator. And thank you, everyone, for taking the time to join the conference call tonight.

Thanks again to Ramesh and Kyle for the presentation. As always, if you have any questions, do feel free to contact me and thank you very much, everyone.

Goodbye.