Samsonite (1910)-Initiate with OW(V): Safe travels… for nowdocshare04.docshare.tips/files/6259/62599839.pdf · SWOT analysis: Scale is the key differenciator 24 Description of competition

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abcGlobal Research

Strong specifics: While the luggage market is probably not a great industry to be in (e.g. low

barriers to entry, limited pricing power in the West), Samsonite should benefit from much

“self-help” in the next 12-18 months with: 1) impressive sales growth with diversified projects

(business category), sustained A&P investments and a potential to surprise from mature

markets (Germany, Japan); 2) favourable growing contribution from Asia, supporting margin

enhancements; and 3) a potential role as sector consolidator.

Safe travels: Despite external risks (e.g. SARS, economic crises), we view the expansion of

domestic and international travel as a long-term sustainable trend. Cross-border treaties and the

easing of travel restrictions are likely to accelerate travel expansion, particularly in Asia. More

stringent rules from airlines might also boost light luggage sales. Samsonite appears to be well

positioned to capture growth in the travel market.

Margin enhancement in the next 24 months: As we believe Samsonite can command some

pricing power in Asia (less so in the West), a growing contribution from Asia (the group’s

most profitable region) to EBITDA should support margin expansion. We estimate EBITDA

margin will grow from 15.8% in 2010 to 18.8% in 2013 as leverage at the G&A level

materializes from 2011 onwards and adspend as a percentage of sales decreases in 2013e.

We value the stock at HKD19 using DCF: At this level, Samsonite would be trading at

18.2x 2012e earnings (20.6x on 12M forward basis). We use a peer group comparison and a

SOTP approach as reality checks. Downside risks include macro threats (terrorism, economic

meltdown), commoditization of the luggage market, adverse currency moves and pending

legal issues. We view M&A as a catalyst which could be earnings accretive for Samsonite.

Overweight (V) Target price (HKD) 19.00 Share price (HKD) 15.52 Potential return (%) 22.4

Dec 2010a 2011e 2012 e

HSBC EPS 0.16 0.11 0.13 HSBC PE 12.5 18.7 14.8

Performance 1M 3M 12M

Absolute (%) 6.3 Relative^ (%) 5.0

Note: (V) = volatile (please see disclosure appendix)

27 July 2011

Erwan Rambourg* Analyst The Hongkong and Shanghai Banking Corporation Limited +852 2996 6572 [email protected]

Florence Dohan*

View HSBC Global Research at: http://www.research.hsbc.com

*Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/qualified pursuant to FINRA regulations

Issuer of report: The Hongkong and Shanghai Banking Corporation Limited

Disclaimer & Disclosures This report must be read with the disclosures and the analyst certifications in the Disclosure appendix, and with the Disclaimer, which forms part of it

Consumer & Retail Textiles, Apparel & Luxury Goods Equity – Hong Kong

Company report

Samsonite (1910)

Initiate with OW(V): Safe travels… for now

In a tough industry, Samsonite should benefit from “self-help”. We see Asia booming and surprises from mature markets; regional mix and op gearing to support margins

Near term, we expect August trading statement (August 29) to confirm bullish sales outlook

Initiate with Overweight (V): DCF-based target price of HKD19 for 22% potential return implying 18.2x 2012e PE

Index^ HANG SENG INDEXIndex level 22,445RIC 1910.HKBloomberg 1910 HK

Source: HSBC

Enterprise value (USDm) 2,434Free float (%) 49Market cap (USDm) 2,803Market cap (HKDm) 21,839

Source: HSBC

http://www.research.hsbc.com/

2

Samsonite (1910) Textiles, Apparel & Luxury Goods 27 July 2011

abc

Financials & valuation Financial statements

Year to 12/2010a 12/2011e 12/2012e 12/2013e

Profit & loss summary (USDm)

Revenue 1,215 1,500 1,700 1,875EBITDA** 192 247 296 352Depreciation & amortisation -21 -31 -34 -37Operating profit/EBIT 544 216 262 315Net interest -29 -1 -1 -1PBT 515 215 261 314HSBC PBT 515 215 261 314Taxation -148 -60 -65 -79Net profit 355 150 189 228HSBC net profit** 106 150 189 228

Cash flow summary (USDm)

Cash flow from operations 34 271 251 293Capex -30 -41 -36 -36Cash flow from investment -13 -41 -36 -36Dividends -5 -49 -62 -75Change in net debt -3 -365 -153 -182FCF equity 280 213 198 240

Balance sheet summary (USDm)

Intangible fixed assets 802 794 785 777Tangible fixed assets 140 159 169 177Current assets 723 900 1,108 1,339Cash & others 286 412 564 746Total assets 1,665 1,852 2,063 2,292Operating liabilities 508 644 721 791Gross debt 259 20 20 20Net debt -27 -392 -544 -726Shareholders funds 740 1,030 1,163 1,323Invested capital 872 797 777 756

Ratio, growth and per share analysis

Year to 12/2010a 12/2011e 12/2012e 12/2013e

Y-o-y % change

Revenue 18.1 23.4 13.3 10.3EBITDA** 241.4 28.7 19.8 18.9Operating profit n.a. -60.3 21.2 20.3PBT -54.7 -58.2 21.3 20.4HSBC EPS** n.a. 46.6 26.4 20.4

Ratios (%)

Revenue/IC (x) 1.9 1.8 2.2 2.4ROIC 60.9 19.4 25.8 31.6ROE 62.7 16.9 17.3 18.3ROA 27.7 8.8 10.0 10.8EBITDA margin 46.4 16.5 17.4 18.8Operating profit margin 44.7 14.4 15.4 16.8EBITDA/net interest (x) 19.5 246.8 295.6 351.4Net debt/equity -3.5 -37.2 -45.9 -53.9Net debt/EBITDA (x) 0.0 -1.6 -1.8 -2.1**: based on restated figures (2010)

Per share data (USD)

EPS reported (fully diluted) 0.16 0.11 0.13 0.16HSBC EPS (fully diluted) 0.16 0.11 0.13 0.16DPS 0.00 0.04 0.04 0.05NAV 0.33 0.73 0.83 0.94

Key forecast drivers: sales growth at constant FX (%)

Year to 12/2010a 12/2011e 12/2012e 12/2013e

Asia 37.5 37.0 26.7 17.5Europe 8.7 14.7 5.0 4.0North America 21.3 22.0 5.0 4.0Latin America 15.9 17.0 15.0 13.5Global 21.4 24.1 12.9 10.3 DCF analysis

HSBC assumptions DCF, comprising

Risk-free rate (%) 3.5% EBIT growth 11-21e CAGR (%) 7.1%Equity premium (%) 5.0% EBIT growth 21-40e CAGR (%) 2.1%Sector beta 1.20 Fade period 2041-48e Specific beta 1.0 WACC (%) 9.50%

Sensitivity and valuation range (HKD)

Cost of capital vs fade period 4 years 8 years 12 years

8.5% 20.8 21.0 21.1

9.0% 19.8 20.0 20.1 9.5% 18.9 19.0 19.1 10.0% 18.0 18.1 18.3 10.5% 17.3 17.4 17.5

Valuation data

Year to 12/2010a 12/2011e 12/2012e 12/2013e

EV/sales 2.3 1.6 1.3 1.1EV/EBITDA 5.0 9.9 7.7 6.0EV/IC 3.2 3.1 2.9 2.8PE* 12.5 18.7 14.8 12.3P/NAV 6.0 2.7 2.4 2.1FCF yield (%) 9.9 7.5 7.0 8.5Dividend yield (%) 0.0 1.8 2.2 2.7

Note: * = Based on HSBC EPS (fully diluted)

Price relative

13

13.5

14

14.5

15

15.5

16

16.5

Jun-1113

13.5

14

14.5

15

15.5

16

16.5

Samsonite Intl SA Rel to HANG SENG INDEX

Source: HSBC Note: price at close of 25 Jul 2011

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Summary 4 Leader in a secular growth sector 4 How Samsonite works 5 Key issue: Fragmented and possibly commoditised

market 5 Strong sales outlook and margin improvement:

Our buy case explained 5 Valuation method 6 Risks 7

Samsonite business description 8 A dominant group 8 Revenues are mainly driven by the travel category 11 Sales breakdown by brand in 2010 13 Distribution structure 14 Production structure 18 Logistics 18 Reorganizing/restructuring 18 The 2011 IPO 19

A fragmented and possibly commoditized market 20 The global luggage market 20 A fragmented and possibly commoditized market 21 SWOT analysis: Scale is the key differenciator 24 Description of competition 25 Competitive landscape – Market share as of 2010 27

The drivers of global travel 30 Long-term secular growth; new drivers 30 Short-term hiccups 34 The Asian drive 37

Strong sales outlook and margin improvements: Our buy case explained 39 Top line: Asia growing, Samsonite’s comeback in

some mature markets 39 Income statement 46 Balance sheet 47 Cash flow statement 48

Valuation 49 HKD19 DCF-based target price 49 Peer group comparison 49 Sum-of-the-parts 50

Key risks 52 Macro-economic factors 52 Commoditization 52 Currency 52 Legal issues 52 The travel market 53

Appendices 53 The luggage market 55 Samsonite’s specifics 55 Price comparison 57 Distribution 57 Management structure 57 Board of directors 58 Corporate structure 59 Capital structure 60 Restated earnings 61 Samsonite – products, distribution and advertising 62

Disclosure appendix 65

Disclaimer 67

Contents

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Leader in a secular growth sector Samsonite is the leader of the global luggage

industry. It owns two well known brands, Samsonite

and American Tourister, and has as much as six

times the market share (by retail value) of the

sector’s No 2, Tumi. In 2010 it had sales of

USD1,215m and recorded 21% growth at constant

FX. Its geographic exposure is balanced, for now,

with one-third of revenues coming from Europe,

one-third from Asia, 25% from North America, and

7% from Latin America.

The group’s revenue growth (and more generally the

sector’s expansion) has been very much linked to the

evolution of domestic and international travel. In this

report, we show how luggage sales have

outperformed population growth and GDP rates, and

why we believe they will continue to do so. We

therefore believe visibility on revenue growth is very

good for the sector.

Travel expansion is a long-term trend. While travel

is increasing around the world, growth in the West is

lower than elsewhere. Within Asia, Chinese and

Korean travellers should soon be the dominant force

ahead of Japanese. But it’s not just about the number

of people travelling: travel is now increasingly easier

(restrictions are gradually lifted in China) and

motivations for travelling have changed.

The steady growth of global travel has encountered

short-term slowdowns due to sudden travel

restrictions or economic shocks (e.g. 9/11, SARS

epidemic in 2002-03, and, more recently, the

earthquake in Japan). There will undoubtedly be

others. However, if you leave aside external factors

that may temporarily affect travel, we view travel

expansion as a long-term trend. Beyond travel

growth, we believe Samsonite-specifics (e.g. scale,

new products, re-launch in major markets,

exposure to Asia) will be very constructive in the

next 12-18 months.

Summary

A tough industry (low barriers to entry, limited pricing power) but

strong specifics at Samsonite to help

Very strong business outlook: Beyond emerging markets (Asia

driving global travel), mature markets — once missed

opportunities — are set to surprise positively (Japan, Germany).

Gradual margin improvements to be enhanced by Asia and

operational gearing

DCF-based target price of HKD19, implying 18.2x 2012e

earnings. Cross-checked with a peer comparison and SOTP

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How Samsonite works The eponymous Samsonite brand represented 76%

of group sales in 2010, with the focus more on

travel luggage than business (briefcases) or casual

products (backpack or duffel bags). The American

Tourister brand, which caters to the more value

conscious consumer, accounted for 13% of group

sales in 2010.

In 2010, the group was 80% wholesale-driven. Asia

functions in a very different manner to the rest of the

world as 90% of sales in the region in 2010 were

made through “controlled space” (whether operated

by Samsonite itself or by partners). So this is the

region where brand attributes can be best expressed

and where the group has higher pricing power.

Finally, the group outsources approximately 94%

of production (84% in China).

Key issue: Fragmented and possibly commoditised market Barriers to entry within the luggage market seem

low, especially as brands tend to outsource the bulk

of production. Besides, the definition of the luggage

market is broad, generally falling into three

categories — casual, business and travel. The market

is therefore very fragmented among a wide number

of players, the majority of which have retail sales

under USD150m (source: Frost & Sullivan).

Samsonite stands out as the brand with the largest

global footprint. It held an estimated 9.6% market

share worldwide in 2010 (retail sales, Frost &

Sullivan), and was about six times bigger than its

nearest competitor in travel luggage, Tumi.

Being the reference brand within a fragmented

market implies that either your brand, being superior

in terms of size and awareness, can command decent

pricing power or that the possible commoditisation

of the market makes it a volume game and that

operational leverage is bound to be quite limited. We

believe Samsonite’s business is in between, as we

see pricing power in Asia but a more commoditized

market in the West.

We expect Samsonite’s percentage of sales in

Asia to increase sharply and this should help

sustain the group’s profitability, as we believe

running the business in Asia is structurally

more profitable. By 2012, we see Asia

accounting for 41% of sales (from 33% in

2010) and more than 50% of EBITDA (from

39% in 2010), according to management as

reported on Bloomberg.

Strong sales outlook and margin improvement: Our buy case explained Visibility on the top line is fairly good: Growth

in emerging markets is to be driven mainly by

increased expenditure on luggage, spurred by

store expansions and increased adspend by

Samsonite. Mature markets are to set to recover

from the 2008-09 trough. We also believe

Samsonite has potential to surprise and gain

market share in large mature markets where it has

been virtually absent (Germany, Japan). Finally,

light luggage sales (among the core categories of

Samsonite-branded luggage) could be fostered by

recent weight-limitations set by airlines. For 2011,

we estimate growth at constant currency will

reach 24% (including 37% in Asia, 22% in the US

and 14.7% in Europe). We believe 2012-13 are set

to suffer tougher comparison bases, but we

maintain a strong outlook on Asia (+26.7% and

+17.5% for 2012e and 2013e respectively) and

Latin America (+15.0% and 13.5%).

Gross margin to remain flat: Gross margin is

likely to be pressured by higher input costs, a

negative geographical mix (Europe and the US

will recover, but are less profitable regions than

Asia) and a negative product mix (American

Tourister is to grow faster than the Samsonite

brand). Overall, the higher contribution from Asia

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should lead to a flat gross margin over the next

three years, mitigating the negative impacts.

But optimism at the operating margin level:

Operational leverage is possible, especially from

SG&A and distribution costs. We believe 2011

will remain an investment year, however, and

forecast EBITDA margin improvement to

accelerate in 2012, reaching 18.8% in 2013, from

15.8% in 2010.

Use of cash: The IPO has put Samsonite in a

particularly strong cash position, with all long-term

debt likely to have been reimbursed by end 2011.

We believe this will leave Samsonite with an excess

of USD416m cash at year-end. Beyond the funding

of the retail operations, Samsonite will be well-

positioned to target small acquisitions, which we

believe if chosen in the more upscale segment of the

luggage market, will be earnings accretive given the

scale advantage of the group.

Valuation method DCF

While long term sales should grow at or above the

world GDP and margin expansion should be limited,

the short-term prospects of the company are solid.

We therefore value the company on a DCF

approach, to take into account this discrepancy

between short and long-term trends. Using DCF is

also a matter of consistency across our coverage of

consumer goods. We use a peer group comparison

and a SOTP approach as reality checks.

We derive a target price of HKD19, offering 22%

potential return. On our estimates, the stock would

be trading at 18.2x 2012e or a 12M forward PE of

20.6x.

Peer group comparison

We cross check our DCF approach with a peer

group comparison and a sum-of-the-parts. Given

the few listed peers that we find comparable to

Samsonite, we initially looked at a group of peers

which either share a similar business model (use

of outsourcing vs. in-house manufacturing), or

strong brand visibility or are also listed in Hong

Kong. We define a narrowed down list of peers

based on earnings CAGR. Our group of peers

currently trades at 22.8x 2011e earnings and 18.3x

2012e (compared to 23.0x and 18.2x for Samsonite

on our forecasts).

SOTP

We take the view that the business model Samsonite

has developed in Asia is distinctive within the group

(strong reliance on retail, pricing power, c20%

EBITDA margin) and would be difficult to replicate

elsewhere. In the West, while growth rates should be

impressive in 2011 and 2012 following the

repositioning of the brand, we very much doubt

these will be sustainable over the long term and we

remain convinced that margins will never catch up

with those in Asia. Therefore, it makes sense in our

view to value the company on a sum-of-the-parts

approach, separating the Asian side of the business

from the rest of the world. Using the 2010

contribution of Asia and other regions to EBITDA,

we derive an average PE of 18.0x CY12e earnings,

in line with what Samsonite would be trading at on

our forecasts.

Building our SOTP

Contribution to EBITDA Peer group 2012e PE (x)

Asia 39.1% Luxury peers 19.2 Rest of the world 60.9% Nike 17.3 0.39*19.2 + 0.61*17.3 = 18.0

Source: Bloomberg

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Risks Macro-economic conditions

Deteriorating macro-economics, epidemics,

terrorist attacks or wars have had dramatic impacts

on the travel market in the past. Sales of luggage

across the world are tightly correlated to these

factors, and so is Samsonite’s top line. Economic

downturns represent a major, but unpredictable

risk, to the group’s revenues.

Commoditization

If consumers started seeing luggage as a commodity

this would pose a major risk to the group’s pricing

power.

Currency

Around 77% of sales at Samsonite are generated in

currencies other than the US dollar. We broadly

estimate 27% stemmed from the Eurozone in 2010

and 8% from China (RMB). A weaker dollar would

therefore favour the group’s top line.

Pending legal issues

Samsonite is currently facing two lawsuits, one of

which could temporarily affect sales. From 2002 to

2004, Samsonite tested the use of a plastic material

called “Pure” developed by Lankhorst Pure

Composites BV. Lankhorst filed a lawsuit against

Samsonite in the Netherlands, claiming full or co-

ownership of the patents related to the Curv

production process (used in the manufacturing of

the top-selling Cosmolite model for instance). If

full ownership were to be granted to Lankhorst,

Samsonite would have to set up a licensing

agreement with Lankhorst for use of its

technology. It would have to hold the production

of Curv-based collections, and would likely see its

competitors starting to produce Curv-made

luggage. In 2010, the Cosmolite and Cubelite

lines (outer shells are both made from Curv),

generated together c8.5% of sales (or cUSD103.3m)

The second lawsuit Samsonite is currently facing

is related to the bankruptcy of its former affiliate,

Energyplast. It currently represents claims worth

cEUR13.1-13.95m.

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A dominant group The market leader

Samsonite designs, sources, manufactures and

distributes luggage across the world, primarily

under the Samsonite and American Tourister

brands. Its 2010 revenue reached USD1,215m,

three-quarters of which stemmed from the sales of

Samsonite-branded products.

1. Breakdown of sales by brand, 2010

American

Tourister

13%

Samsonite76%

Other11%

Source: Company data, HSBC

The group is active in three main luggage

categories: Travel (suitcases), Business

(briefcases, computer bags) and Casual

(backpacks, duffle bags). The Travel category

accounted for 73% of the group’s 2010 sales.

Overall in 2010, Samsonite held a 9.6% share of

world retail sales of luggage, which made it the

global leader in the industry, or six times bigger

(by retail value) than Tumi, its nearest competitor

(Source: Frost & Sullivan, 2010).

2. Breakdown of sales by product category, 2010

Trav el

73%

Bus iness

9%

Acc ess ories

4%

C asual

8%

Other

6%


Samsonite’s sales are fairly balanced: in 2010,

excluding corporate, one-third came from Europe,

one-third from Asia, 25% from North America

and 7% from Latin America. None of Samsonite’s

major competitors have such a big global footprint

(Table 3).

Its top-five markets are currently the US, China,

India, Italy and South Korea. Altogether, they

represented 48.5% of the group’s sales in 2010

(excluding corporate, so on the basis of sales of

Samsonite business description

A dominant group with two main brands…

… trying to tap into new territories by launching new products…

… and investing in its distribution network

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USD1,203m worth of revenues). The US alone

generated USD281.9m sales, or 23.4% of total

sales on the same basis.

Products are conceived and marketed regionally.

The group relies on five consumer centres which aim

to identify key trends and suitable products in each

region. Prior to 2008, products were centrally

designed. This caused discrepancies between

Samsonite’s offering and regional demand. For

instance, we believe part of the reason for the

collapse in sales in Germany (EUR60m in 2000,

only USD47m, i.e. half of that on current rates in

2010) was an inappropriate product mix. Chart 9 shows the recent evolution of the group’s

sales, and shows a decreasing proportion of sales

in Europe and North America being offset by

increasing sales in Asia. We estimate that in 2010,

33% of sales at Samsonite Group came from

emerging markets.

History and current positioning

Samsonite was founded in 1910 in Denver,

Colorado, US. It developed its first suitcases in the

1940s, and its development has been tightly linked to

the expansion of commercial airlines and tourism. It

introduced the first wheeled suitcase in 1974 and has

built on its reputation for quality and innovative

products ever since. It is now known for its lines of

extra-light hard (Cosmolite, Cubelite) and soft-side

suitcases (B-lite, Silhouette), and the design of its

products (Cosmolite line).

A portfolio of brands

Samsonite

Samsonite-branded products are traditionally

positioned on the attributes of quality, design and

strength. In the US retail prices range from USD200

to USD600 (see Appendix 10 for a view of average

luggage retail price in the US, and sources), which

corresponds to a mid-to-high end positioning. This

will vary a bit across the world as the Samsonite

brand tends to be perceived as a higher-end brand in

Asia. To this extent, Samsonite differs from its

competitors, most of which have adopted a much

more defined positioning (luxury at Rimowa and

Tumi, value at VIP).

3. Geographical origin of retail sales at main competitors and competitive position, 2010

North America Europe Latin America Asia India China

Samsonite Group Yes - 1 Yes - 1 Yes - 1 Yes - 1 Yes - 1 Yes - 1 VF Corp Yes - 2 Yes - 3 Targus Yes - 5 Tumi Yes - 4 Yes – n/a Delsey Yes - 7 Yes - 2 VIP Industries Yes - 2 Yes - 2 Antler Yes - 5 Rimowa Yes - 4 Crown Yes - 3 Yes - 2

Source: Frost & Sullivan, HSBC – “Yes” indicates that this player had retail sales above USD100m in 2010

4. Breakdown of sales by country, 2010

Emergingmarkets

33%

Dev eloped

markets

67%

Source: HSBC estimates

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5. Samsonite brand – 2010 sales (USD918m) globally, pro rata, ex licenses

Asia Europe North America

Latin America

Sales (USDm) 268.8 358.3 247.1 43.6 as a % of the region sales 72.3% 97.6% 85.8% 50.0%


In order to further build on its core Samsonite

franchise, the group has launched subsets of labels:

Samsonite Black Label, offering more upscale

products in Russia and in Asia (especially China and

Hong Kong), Samsonite Red Label targeting

younger consumers in Asia and Sammies for

children. The brand is developing in business items,

and is hardly present in the casual segment.

In 2010, the Samsonite brand represented 88.1%

of group sales in Europe (97.6% excluding the

licenses) and 81.6% of group sales in North

America, its home market. In Asia, it represented

66.3% of group sales in the region and is well-

developed in South Korea and in Japan (where

brand-conscious customers appreciate its lines of

hard-side suitcases, though as mentioned, the

brand suffered in the past).

It is building market share in India and China

(which the group entered in 1995). Aided brand

awareness is fairly strong in China (59% of

respondents are able to recognize Samsonite

among 20 brands of travel bags, followed by 40%

for Crown, its Chinese competitor), according to

Frost & Sullivan (February 2011). Samsonite was

also ranked No 1 for business and casual bags (see

Appendix 7-9). In Latin America, the Samsonite

brand generated 49% of the region’s sales. It is

targeting the young growing middle-class and

seasoned travellers.

American Tourister

American Tourister was acquired in 1993 by

Samsonite from Indiana-based Hillenbrand

Industries. Ever since its founding in the midst of the

Great Depression, it has been positioned as a value

brand, relying on a more accessible pricing. It retails

at prices ranging from below USD80 to USD300 in

the US. The majority of American Tourister

products are dedicated to the travel segment.

American Tourister is fairly active in North

America (13.5% of the region’s 2010 sales) and

even more in Asia (25.5%), where it targets the

growing middle class. In India, for instance,

55.6% of Samsonite’s sales are made through

American Tourister-branded luggage, which was

introduced in 1998. The group further developed a

product line called “AT” there, to serve even

lower price points.

In Europe, the brand only represented 2.2% of the

region’s sales in 2010, but has potential to further

develop in Spain and Italy, due to current macro-

economic conditions which should foster sales of

less expensive soft-side products. The group is

aimed at repositioning the brand on business and

casual segments in the region.

In Latam, the brand generated 8.8% of the

region’s revenue. Brand awareness is low there as

the group has not traditionally advertised

American Tourister. The brand has a similar

positioning as in the US and is currently being

pushed in second-tier cities in Brazil to serve

value-conscious customers.

6. American Tourister – 2010 sales (USD161.1m) globally - globally, pro rata, ex licenses

Asia Europe North America

Latin America

Sales (USDm) 103.2 9.1 41.0 7.8 as a % of the region sales 27.7% 2.4% 14.2% 8.9%


Xtrem, Saxoline and licenses

In Chile, Samsonite has acquired two brands

through majority-owned joint ventures: Xtrem,

and Saxoline. Xtrem, which is very strong in the

casual category, is gradually increasing its

operations in Latin America; the “Samsonite

Xtrem” brand has been launched in Mexico to

support brand awareness outside Chile. Xtrem and

Saxoline represented 40% of the region’s sales in

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2010, or USD35.8m (USD12.6m for Xtrem, and

USD23.3m for Saxoline).

Until December 2010, the group had two

licensing agreements with Lacoste and

Timberland which represented 4.4% of the

group’s sales in 2010 (USD42.5m for Lacoste,

USD11.5m for Timberland). The Lacoste license

expired and was not renewed, while the

Timberland license was terminated.

Charts 8-13 give the breakdown of sales by region

and brand.

Revenues are mainly driven by the travel category In 2010, 73% of sales came from the travel

segment. Business bags accounted for 9% of

sales, casual bags represented 8% of sales and a

fourth category, accessories accounted for 4% of

sales (these are mainly travel accessories, like

pillows, adaptors, straps). Samsonite reported a

fifth segment (6% of sales), “others” which

included the Lacoste and Timberland licenses

(and were mainly made up of casual products).

The casual and business categories: opportunities for growth

While casual and business items respectively

represented 41.1% and 19.3% of the global

luggage market in 2010, Samsonite seems to be

under-represented in these categories (see Table 7

for an overview of respective market shares in

each region).

Frost & Sullivan expects casual and business

categories to grow at a 4.6% and 4.7% CAGR over

2010-15, respectively, versus 5.6% for the travel

bags segment. Therefore, they represent a growth

opportunity that Samsonite is currently trying to

capture. In order to further develop these two

categories, Samsonite is aimed at leveraging its

brand and reputation on travel luggage, as well as its

adspend and its production and distribution facilities.

Asia has most potential in the business

category

The business and casual categories are extremely

fragmented, we believe. The two categories together

still accounted for c21% of sales for Asia in 2010,

and we believe Samsonite’s business products could

grow best in Asia. This is where its market share for

the category is the highest. It is also where it might

be able to best build brand awareness while pushing

its travel category. In China for instance, Samsonite

ranked No 1 on level of brand awareness in all three

categories, according to Frost & Sullivan (see

Appendix 7-9), and has a 9.1% market share in the

business category. In Europe and in North America,

however, the business category is far less developed:

the group had market shares of 3.9% and 2%

respectively in 2010. The recent advertising

campaign “Step out”, all over Hong Kong, also

provides a good example of how the group is likely

to leverage the existing brand awareness from its

travel category. It presents Samsonite’s three

products categories all together, under the same

catch phrase.

7. Samsonite - Market shares in its three segments

__________ % of total retail sales____________ _____________________% Market share _____________________Region Travel - % of

retail sales of luggage

Casual - % of retail sales of

luggage

Business (% of retail sales of

luggage)

Overall Market share

Market share in travel

Market share in casual

Market share in business

World 39.6% 41.1% 19.3% 9.6% n/a n/a n/a Asia (excl Japan) n/a n/a n/a 11.6% 17.4% 1.1% 7.5% China 45.1% 31.3% 23.5% 12.5% 20.7% 2.1% 9.1% India 45.0% 35.0% 20.0% 16.8% 22.9% 1.8% 5.7% Europe 49.0% 29.0% 22.0% 12.0% 16.8% 3.6% 3.9% North America 27.1% 57.4% 15.5% 12.3% 29.0% 1.0% 2.0% Latin America 43.8% 39.3% 16.9% 8.3% n/a n/a n/a


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Overall in Asia, we see evidence that Samsonite is

pushing the business category. In Japan,

Samsonite is now designing new lines of leather

products specifically for its business segment; it is

similarly pushing its Samsonite Red and Black

Label sub-brands to foster sales in the business

segment, on higher-end products. To this extent, it

has brought back in-house the production of lines

that were previously licensed. The business

category might also be more profitable in Asia

than in North America or in Europe, where

competition is stronger, we believe.

Despite the current low penetration of the brand

outside the travel category, the company also aims at

developing business and casual segments in Europe

and in North America. It has for instance developed

a new concept of stores focused on casual and

business products only in North America.

Casual category: South America for now

The casual category is extremely fragmented and

is very much fashion driven. Samsonite, through

its Xtrem brand in Chile, has succeeded in

entering the category. The group is to launch a

sub-brand name “Samsonite Xtrem” elsewhere in

Latin America, especially in Mexico, to push its

casual products in new territories, while

leveraging its name.

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Sales breakdown by brand in 2010 8. Breakdown of sales by region, 2010* 9. Evolution of sales by region, 2008-10 (USDm)

Asia

34%

Europe

34%

Latin A merica

7%

N orth America

25%

0

100

200

300

400

500

600

2008 2009 2010

As ia Europe North America Latin Am eric a

Source: Company data, HSBC - * excluding “corporate”, which accounted for USD11.5m worth of revenues in 2010


10. Breakdown of sales by brand, North America, 2010 11. Breakdown of sales by brand, Europe, 2010

Other5%

Samsonite

81%

AmericanTourister

14%

Other10%

Samsonite88%

American Tourister2%

Source: Company data, HSBC – “Other" include diverse licensing agreements, including Lacoste and Timberland, which were terminated in December 2010


12. Breakdown of sales by brand, Asia, 2010 13. Breakdown of sales by brand, Latin America, 2010

Samsonite

67%

American

Tourister

25%

Other8%

Samsonite49%

Saxoline26%

American Tourister9%

Other2%

Xtrem

14%

Source: Company data, HSBC Source: Company data, HSBC

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Distribution structure In 2010, c80% of sales were made through

wholesale channels. Appendix 11 gives a breakdown

of distribution channels across regions.

Wholesale includes department stores and shop-in-

shops, specialty stores, mass merchants and

discounters. Retail channels include Samsonite’s

own stores (full-price stores and outlets), preferred

dealers (i.e. Samsonite-branded stores owned and

operated by third party) and online shops.

14. Breakdown of sales by distribution channel, 2010

Wholesale80%

Other

1%

Retail19%

Source: Company data, HSBC – The “Other” category includes Internet retailers and other small channels, including television home shopping

Distribution channels are selected based on the

brands’ positioning. As such, Samsonite-branded

products are mainly sold through independent

retailers (especially in Europe), department stores

and Samsonite’s stores, while American Tourister is

distributed through large wholesalers and

hypermarkets.

The degree of concentration among wholesalers is

different in each region (Table 16).

North America

In this fairly mature market (93% of group’s sales

are generated in the US, 7% in Canada), wholesale

customers, whether department stores or mass-

merchants, tend to be more concentrated. The top-

ten wholesalers in the region represented 65.8% of

the region’s sales in 2010. This causes retail prices to

be lower and margins to be more pressured than

elsewhere. The retail channel in North America

included 89 outlets stores (selling Samsonite-

branded products) in 2010, after 104 were closed in

2009 (84 during the restructuring). We believe the

group is likely to open up to 40 new outlet stores

within three years, to support recovery.

Mass merchants include names like Walmart, K-

Mart and Target. Overall in North America, the

group relies on 11,098 mass merchant or

discounter points of sales. Only American

Tourister is distributed through them, limiting

image risk for the Samsonite brand or any sort of

cannibalisation among brands.

Conversely, Samsonite products are distributed at

department stores like Macy’s and retail anywhere

between USD99 and USD239, while American

Tourister products are sold mostly in the USD60-

80 price points. Discounted items from previous

collections are distributed through numerous

outlets in the US (89, versus 31 in Europe, for

instance). Outlets also distribute products

specifically designed for them although not

necessarily sold at a discount. While this could be

seen as a threat to the brand image, it can also be

perceived as a way of leveraging brand awareness

with the more value-conscious consumers. Coach,

the maker and distributor of accessible luxury

handbags and accessories, has proven in the US

that this can be an efficient strategy.

Europe

Wholesale distribution in Europe is still reliant on

a wide network of numerous independent retailers

(“traditional stores”, mostly family-owned). It

also includes preferred dealers, department stores

and hypermarkets. Department stores represented

16% of sales in Europe in 2010.

Retail-wise, Samsonite relies on 27 full-price

stores and 31 factory outlets.

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15. 2010 breakdown of sales by country - Europe

Italy16%

Belgium12%

France

11%

Spain

10%

Other Europe

29%

Germany

11%

Russia

5%UK

6%

Source: Company data, HSBC – excl. invoices, Belgium’s had a 9% contribution

The top-four markets for Samsonite in Europe are

Italy (17% of the region’s sales in 2010), France

(12%), Germany (11%) and Spain (10%).

Belgium recorded cUSD51m worth of sales,

USD33.7m of which are direct shipments to other

countries as opposed to in-country sales.

Samsonite is facing strong local competition in

Europe (Rimowa in Germany, Delsey in France).

It suffered in the past from an ill-suited product

mix, especially in Germany. Europe is a tiny

market for American Tourister and though the

company believes Spain and the UK may be

avenues for growth for this brand, we feel

Samsonite will remain the dominant vehicle for

growth in years to come.

Asia

In 2010, there were 5,239 points of sale distributing

Samsonite across Asia. 90% of sales in the region

were made through the 150 stores operated by

Samsonite itself, along with the 324 stores operated

by preferred dealers. Samsonite therefore controls,

directly or indirectly, the image of its products.

Asia’s distribution channels appear to be in different

stages of development. India features a high number

of specialty stores, China has a higher number of

large wholesalers, while South Korean sales were

boosted by teleshopping in 2010. Overall, Asia has a

low concentration of buyers, which tends to increase

the group’s bargaining power in the region and its

profitability.

For its wholesale channel, Samsonite originally

put in place the third-party distributors’ model in

Asia. Third-party operators have a better

understanding of local markets. They

contractually solely sell Samsonite and American

16. Distribution patterns across regions

Region % sales wholesale

% retail Degree of concentration

Wholesale Retail

North America 74.2% 25.8% HIGH Department stores (4,510 POS or doors) Factory outlets (89) Mass merchants (American Tourister

only; 11,098)

Specialty stores/travel stores (5,454) Europe 83.4% 16.6% LOW Department stores (697, 16% of sales) Own stores (58) Preferred dealers (27) Specialty stores (6,387) Mass merchants (15) Asia 85.5% 14.5% LOW Department stores - Shop-in-shops

(669) Own stores (150)

Specialty stores (2,931) Preferred dealers (324) Mass merchants (1,165)

China Numerous independent retailers

India Numerous wholesalers Latin America 69.2% 30.8% LOW in South America Department stores - Shop-in-shops

(680) Own stores (71)

Preferred dealers (15) Specialty stores (1,488) Mass merchants (1,290)


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Tourister products. Most preferred dealers in Asia

are located in India (for the Indian consumer, the

store looks like a regular Samsonite retail store).

The model has now been set-up in Latin America

and in Europe.

Samsonite also relies on shop-in-shops. These are

concessions in department stores or shopping

malls, staffed by Samsonite. In this scheme,

inventories are still deemed to belong to

Samsonite until the products are sold to the end-

consumer (traditionally, inventory is deemed sold

upon delivery to the department stores). As such,

shops-in-shops are closer to retail distribution,

hence featuring lower distribution margins, and

giving more insight on distribution patterns.

Country outlook

Samsonite’s top-five markets in Asia are currently

China, India, South Korea, Hong Kong and Japan.

Samsonite aims to further develop sales in Asia

through preferred dealers and opening new stores

of its own.

17. 2010 breakdown of sales by country - Asia

China

23%

Australia7%

South Korea

17%

India

21%

Japan

10%

Other Asia11%

Hong Kong11%


In China, we estimate that Samsonite has close to

1,140 points of sale. This compares to 2,500 in

India, or less than half of India’s number of stores.

Yet, India generated 20% less sales than China in

2010. This shows that China is a relatively

underserved market, still highly sales generative.

Samsonite relies on 73 partners there, operating

from 1 to 15 stores each, without any exclusive

distribution agreement. We estimate that two-

thirds of the Chinese market is made up of items

priced at USD140 and below, while Samsonite’s

products retail more or less at this level. This is

what pushed the group to launch American

Tourister in 2011 and to enter tier 3-4 cities. The

group is now competing in both the high-end

segment in tier 1-2 cities and more affordable

goods in smaller cities. However, this “B-market”,

as management puts it, is characterised by

increased costs of doing business in these more

remote cities; the group needs to rely on third-

party distributors and sells at lower price points.

At the same time, it is focusing on opening

business specific stores (“Samsonite Business”)

and higher-end stores (“Samsonite Black Label”)

in wealthier areas. Tier 1-2 cities remain, we

believe, more profitable.

Japan is the largest luggage market in Asia

(USD4.5bn worth of retail sales, or 46% of Asian

retail sales of luggage in 2010). This compared to

sales of USD36.5m at Samsonite. The group

therefore seems under-represented in the country

(see Appendix 6 for top-10 markets at Samsonite).

Until 2005, Samsonite’s products were sold

through a licensee. Its product offering was

mainly made up of soft-side luggage, and

therefore failed to meet the Japanese consumer’s

taste for strong hard-side products. Japan is now

operated through a wholly-owned subsidiary, and

the group is planning to open 50 more points of

sale (from the current 137). While the total size of

the luggage market in Japan is expected to

decrease (Frost & Sullivan forecast sales of

luggage to grow at a CAGR of -1.4% over 2010-

15e, reaching USD4.2bn worth of retail sales, or

31.2% of Asia’s sales of luggage), we believe the

group is likely to gain market share through its

renewed positioning and its distribution push.

54% of sales in 2010 were made with hard-side

products. Samsonite is also currently specifically

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designing products with Japanese designers, to offer

a new line of “Made in Japan” business products.

We believe that if other consumer stocks are

anything to go by, the March earthquake may have

caused only a short-term drop in sales.

In India and the Middle East the group operates

through joint ventures with the India-based

Tainwala Group, a manufacturer of PVC

products, household goods (insecticides, diapers)

and packaging. The Indian joint venture was

formed in 1995. Samsonite owns 60% and the

Tainwala Group the remaining 40%. It is open

ended (i.e., it does not have any clause relating to

forced purchase/disposal by Samsonite/Tainwala,

unlike other joint ventures elsewhere). In the

Middle East, the joint venture was formed in

2006. The Tainwala Group holds a put option,

enabling a forced buy-out of Tainwala’s share of

the business by Samsonite. The first exercise date

is in November 2016. Ramesh Tainwala, who

founded Tainwala Chemicals and Plastics (core

business of the group) is currently President of the

Asia-Pacific and Middle East regions at

Samsonite, and is an executive director of the

group. We believe this supports the strong

relationship between the two groups. The joint-

venture’s Nashik-based plant (120km from

Mumbai) is one of the three in-house production

sites for Samsonite (see “Production structure” on

next page). It specifically manufactures hard-side

polycarbonate products as well as some Curv

products, one of the group’s top selling lines.

India represented USD77.9m of sales in 2010, or

6.5% of the group’s revenues. India is therefore

Samsonite’s third biggest market. It is targeting

the growing young middle class, focusing on the

American Tourister brand, which was introduced

in 1998; 55% of Samsonite’s sales were made

through American Tourister-branded luggage in

2010. The group further developed a product line

called “AT” there, to serve even lower price

points and gain market share from its main

competitor VIP. We estimate that the AT sub-

brand represents close to 10% of the group’s

revenue in India (or close to USD8m). Chart 34

gives an overview of the competitive landscape in

India. 51% of retail sales were generated by non-

branded manufacturers in 2010. American

Tourister therefore has leeway to develop and

expand further in India. Considering the branded

market only, Frost & Sullivan estimates that

Samsonite had a 40% market share in 2010.

While the Samsonite brand’s positioning is

consistent across the world, pricing differs across

regions. An item priced 100 in Europe is on

average 30% more expensive in Asia (Chart 18).

Higher pricing, together with stronger bargaining

power and the proximity of production sites

(lowering freight costs), helps explain why Asia,

the fastest growing region for Samsonite, is also

the most profitable.

18. Relative pricing of Samsonite-branded items

83.3

90

100

110

117.5

130

0 50 100 150

Europe

India

HK

Asia

China

Japan

Source: HSBC

Latin America

There are different distribution patterns within the

region. Brazil and Mexico have a higher exposure

to wholesale (where 100% and 90% of sales made

through wholesalers, respectively), while

Argentina and Chile mostly rely on retail. As

Argentina and Chile made up 61% of sales of the

region in 2010, the region remains strongly retail-

oriented. The increasing contribution of Mexico

(31% of 2010 sales) and Brazil (6%) to the region

sales should increase exposure to wholesale.

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19. 2010 breakdown of sales by country, Latin America

Chile

45%

Other Latam

2%

Mex ico31%

Brazil

6%

Argentina

16%


Production structure Like many of its peers, Samsonite outsources the

manufacturing of most of its products in low-cost

regions, particularly in Asia. In 2010, 94% of its

products were outsourced to third parties (84% in

China, with most of the rest in Vietnam).

Sourcing is controlled regionally to ensure

outsourced products meet regional demand in

terms of quality and quantity.

The group uses a fairly diverse group of more

than 100 suppliers: in 2010, its top-five suppliers

accounted for 34% of the outsourced production

(versus 39% in 2008), with none supplying more

than 9%. This aims to prevent supply shortage and

decreasing dependency on its suppliers. Prices and

volumes are determined order by order. The group

has not entered any long-term agreements with its

suppliers.

Some 6% of the products are made in-house at the

group’s three production sites in Belgium, India

and Hungary.

Logistics To control the distribution of its products to

customers, Samsonite relies on regional

distribution centres based in Oudenaarde,

Belgium, for Europe, Jacksonville, US, for North

America and on numerous centres in Latin

America and in Asia. Quality control takes place

in these distribution centres before delivery.

The group aims to gain operational leverage

through this structure. For instance, warehouses

are managed regionally and can be company-

owned or outsourced when cost effective (as in

Shenzhen, for instance).

Inventory is kept at an average level of 155 days

worth of sales at group level. In 2010, inventory

rose significantly by USD109.5m to support

growth and recovery after the restructuring which

occurred in 2009 (when USD80m worth of

inventory was liquidated).

20. Working capital, 2008-10

(USDm) 2008 2009 2010

Working capital Inventories 198.2 113.2 222.7 Trade and other receivables 136.1 119.4 146.1 Trade payables 160.4 138.2 225.9 Net working capital 173.9 94.4 142.9

% of net sales 13.9% 9.2% 11.8%


Reorganizing/restructuring In 2007, the Samsonite Group underwent a LBO.

CVC Group purchased the company for USD1.7bn

from Ares Management LLC, Bain Capital Europe

LP and Ontario Teacher’s Pension Plan Board

(which together owned 85.5% of the group, with

public investors and management owning the

remaining 14.5%). USD1.34bn worth of debt was

added to the balance sheet, and the company

incurred cUSD1.77bn of goodwill (also refer to

Appendix: Corporate structure, for more details).

The Samsonite Group was significantly affected

by the global credit crisis in late 2008/early 2009

and has taken steps since to permanently improve

the business model. This included two big moves:

a financial restructuring and a change in

management strategy.

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Financial restructuring

In September 2009, approximately USD1.2bn of

existing third-party debt was written down to

approximately USD240m through a debt for

equity swap agreement with RBS and other

lenders. This was a non-interest baring facility.

USD347m worth of debt was forgiven.

The CVC fund, RBS and certain members of

management further invested USD110m worth of

cash in exchange for equity.

Management strategy

Under Tim Parker, Chairman and CEO since

January 2009, the company has focused on

developing more appropriate products to satisfy

consumer preferences in every region (its

previous model was based on a global product

approach, which had limitations). The

reorganization in sales, distribution and the entire

management has resulted in a reduced and

sustainable cost base.

This resulted in the closure of the group’s global

headquarters in London as well as headcount

reductions in North America (down to 535 from

650) and in Europe at both management and sales

levels. As far as distribution is concerned, 84

retail stores were shut down in the US (from a

total of 193) and 31 in Europe (from 92). In terms

of products, non-core products such as a luxury

handbag joint-venture and a shoes production

business were terminated. Finally, at the supply

level, certain supply terms and prices were

renegotiated. According to the company’s

prospectus, this resulted in USD100m in annual

savings. We believe the group is now in a position

to reach and sustain more normalized EBITDA

margins.

The 2011 IPO The June 2011 IPO allowed the group to raise

cUSD184m (net proceeds). The share issue was

16% primary and 84% secondary (post exercise of

the over-allotment option). Free float now

accounts for 49% of the share capital.

The proceeds were mainly used for the

reimbursement of the 2009 credit facilities

(USD240m), for investments in operations and for

working capital purposes.

The CVC fund has kept 30% (from 55%) of the

capital, and RBS 16% (from 30%) (see Appendix

for current shareholding structure). Both RBS and

the CVC fund are locked up for six months.

What is more important, we believe, is how long

management will be involved. Tim Parker, CEO

and Chairman, currently holds a 4% stake,

Ramesh Tainwala, President Asia and Middle

East, 0.6%, and Kyle Gendreau, CFO, 0.5%. All

three are locked up for 12 months, but 50% of

Tim Parker’s holding is locked up for an

additional 12 months.

Tim Parker is often called a “turnaround man”. So

while he might well be successful in getting

Samsonite back to profitability in the next couple

of years, his departure, or at least the divesture of

his interests in the company (or that of other top

managers), could affect Samsonite and its

performance. We believe the potential departure

of the Chairman and CEO, or other managers,

could constitute an overhang on the stock for

long-term investors.

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The global luggage market Larger markets

According to consulting firm Frost & Sullivan

(refer to Charts 22-26), retail sales of luggage

reached USD24.75bn in 2010, a 12.5% increase

versus 2006. The majority of sales came from

North America (29% or USD7.2bn), followed by

Europe (24%, USD5.9bn), Asia excluding Japan

(22%, USD5.4bn), Japan (18%, USD4.5bn) and

Latin America (7%, USD1.7bn).

Sales in emerging markets have risen significantly

from 2006: Asia excluding Japan recorded a 64%

rise, while sales in Latin America rose 15%.

Looking at the Japanese contribution and at sales

of Samsonite there, the brand remains

underpenetrated (3% of sales in this market or

USD36.5m worth of sales in 2010).

Frost & Sullivan expects the global luggage

market to grow at a 5% CAGR over 2010-15,

with discrepancies across regions: Asia excluding

Japan is to grow at an 11.5% CAGR (19.2% and

15.4% for China and India, respectively) while

Europe and North America should grow 4%. Asia

excluding Japan would thus represent 30% of

global retail sales of luggage by 2015.

This growth is to be driven by a catch-up in

expenditure per capita: India and China currently stand c10x lower than South Korea. According to Samsonite, customers’ tastes are very different

across regions; Americans appreciate tough and big suitcases, while Europeans and Asians look for style. Knowing your customer will therefore

be key to gaining market share.

A fragmented and possibly commoditized market

World luggage retail sales were nearly USD25bn in 2010, with

top-five players representing only 17% of the market

Samsonite’s scale is a major advantage in this very competitive

industry

One question remains: Commodity or real brand pricing power?

21. Global luggage market CAGR, 2010-15e

19.2%15.4%

11.5%6.2% 5.9% 4.0% 3.7%

0%5%

10%15%20%25%

Chi

na

Indi

a

Asia

ex

-Jap

an

Sout

h Ko

rea

Latin

Am

erica

Euro

pe

Nor

th A

mer

ica

19.2%15.4%

11.5%6.2% 5.9% 4.0% 3.7%

0%5%

10%15%20%25%

Chi

na

Indi

a

Asia

ex

-Jap

an

Sout

h Ko

rea

Latin

Am

erica

Euro

pe

Nor

th A

mer

ica

Source: Frost & Sullivan estimates, HSBC

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Travel and casual category dominate

The world luggage market can be split in three

categories: travel, casual, and business.

The casual category is the largest in terms of retail

sales. In 2010, casual bag sales reached

USD10.2bn (Frost & Sullivan), or 41% of total

retail sales. Casual bags include backpacks or

duffle bags for everyday use. The travel category

represented 40% of luggage global retail sales in

2010, or USD9.8bn. This included suitcases, with

hard or soft covers. Business bags, finally, include

briefcases and laptop cases. They represented

USD4.8bn worth of retail sales, or 19% of the

travel market in 2010.

Regulations to affect the market

There is hardly any seasonality in the luggage

market (slight rise in sales towards summer and

Christmas). We estimate luggage has a typical

renewal rate of 18-24 months. However, we

reckon that luggage replacement might also be

influenced by renewed airlines rules. Increased oil

price and ticket prices competition have indeed

pushed airlines to implement more stringent rules

on weight allowance in cabins. We believe this is

likely to push sales of extra-light luggage across

the world.

A fragmented and possibly commoditized market Porter’s Five Forces analysis

Porter’s framework (Chart 27) can help us assess

the attractiveness of the luggage industry. The

global luggage market is very fragmented and has

limited barriers to entry. There are numerous

OEMs in low cost countries which have the

capability of manufacturing luggage. Moulding a

hard-side piece of luggage is a pretty

straightforward process that many suppliers across

Asia master (moulding processes are used for the

manufacturing of electrical appliances,

telephones, toys). The manufacture of soft-side

products has similarities with the textile industry.

As such, it would be fairly easy for new entrants

to outsource their production. The most

widespread business model in the industry relies

on the outsourcing of production. This can be

replicated. Although some players may benefit

from a strong brand image, we believe barriers to

entry are limited, as the uniqueness and strength

of brands vary a lot among regions.

This means competition is strong, especially as

macro-economic conditions have recently

emphasized price competition in both developed

and emerging markets. This could likely weigh on

margins and on the overall profitability of the

industry.

Bargaining power over suppliers and customers is

therefore key as this drives higher gross margins

and higher operating margins. The presence of

numerous suppliers could increase bargaining

power over them but this is offset by the need to

find reliable, quality suppliers. Similarly,

bargaining power over customers is moderate, as

it depends greatly on their degree of

concentration.

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22. Breakdown of global luggage retail sales by region, 2010 23. Breakdown of global luggage retail sales by region, 2015e

North Amer ica

29%

Europe

24%

Japan

18%

Asia ex -Japan

22%

Latin America

7%

Nor th Am erica

27%

Europe

23%Latin Amer ica

7%

Asia ex -Japan

30%

Japan

13%

Source: Frost & Sullivan, HSBC Source: Frost & Sullivan estimates, HSBC

24. Breakdown of the global luggage market retail sales (2006-15e): The rise of Asia

7,016 7,191 8, 639

5,410 5,9277, 2061,498 1,7202, 2924,777 4,5294, 2123,287 5,378

9, 273

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

2006 2010 2015e

North America Europe Latin Americ a Japan Asia ex -Japan


25. Breakdown of global luggage retail sales by segment, 2010 26. Breakdown of global luggage retail sales by segment, 2015e

Casual bag

segment

41%

Travel bag

segment

40%

Business

bag

segment

19%

Cas ual bag

segment

40%

Business

bag

segment

19%

Travel bag

segment

41%


Sam

son

ite (1910) T

extiles, Ap

parel &

Lu

xury G

oo

ds

27 July 2011

23

ab

c

27. Porter's Five Forces analysis applied to the luggage industry

Threat of new entrants

HIGH, low barriers to entry. Low capital required; Numerous suppliers available; Brand

awareness has a different level of power across regions

MODERATE, multitude of suppliers exist vs. need for reliable ones: it makes it more difficult

to interchange suppliers

Bargaining power of suppliers

HIGH, very fragmented market, with a high number of manufacturers to be found in low-

cost regions

Bargaining power of customers

Threat of substitutes

LOW, difficult to see another product meeting similar needs to a piece of luggage

Competitive rivalry

MODERATE, very dependant on the structure and maturity of distribution channels (see the

high concentration of wholesale buyers in North America for instance)

Source: HSBC

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SWOT analysis: Scale is the key differentiator Scale, along with brand reputation and awareness,

are probably Samsonite’s greatest competitive

strengths. In 2010, the company sold products in

more than 37,000 points of sale in over 100

countries. The brand is No 1 in each major market,

even in India and Germany where there are very

strong national challengers. According to Frost &

Sullivan, the group is six times bigger in retail value

than its closest competitor, Tumi. This means it is an

essential partner for suppliers. It also means that

advertising and promotion spend (8.4% of sales)

should continue to dwarf competitors' capacity to

increase their own visibility and that Samsonite

dominates the field in R&D spend.

Samsonite relies on about 100 suppliers in Asia. In

2010, the top-five suppliers manufactured 34% of

the products sold, down from 39% in 2008 (34% in

2009). There are no long-term contracts between

Samsonite and its suppliers. Terms (prices and

volumes) are determined order by order, according

to each region’s needs. Therefore, while Samsonite

may represent a large part of a supplier’s revenue,

given volumes produced, the group may not be as

reliant on its suppliers (while not forgetting to need

to find quality suppliers).

This bargaining power over suppliers is likely to

translate into stable gross margins in times when

input prices are rising. It is indeed more difficult for

suppliers to pass on rising input costs to a large

customer with which they have had a long-term

relationship. The low fixed costs base at Samsonite

(94% of production being outsourced) is not per se a

competitive strength, as outsourcing is a common

practice in the industry. VF Corp and VIP had

similar operating margins to those of Samsonite in

2010, for instance. VIP gross margin was 58.4% in

2010 and its operating margin 14.7%. The Outdoor

and Action sports division at VF Corp (including

casual and travel bags) had an operating margin of

28. SWOT analysis: Samsonite and the travel goods industry

STRENGTHS WEAKNESSES

* Strong brand awareness * Major markets (Germany, Japan) still underpenetrated

* American Tourister is a good value complement to Samsonite

* Casual and business categories are underpenetrated. The casual * Good-better-best strategy: allowing consumers to switch category is as big as the travel one globally, in terms of retail sales categories within the same brand as disposable income grows * Strong exposure to wholesale * Diversified suppliers – Top-5 suppliers, 34% of outsourced production in 2010 – Higher bargaining power * Scale * Strong A&P expenses, growth of the retail network likely to enhance market penetration

OPPORTUNITIES THREATS

* Global travel driven by EM, especially China * Private labels / trading-down habits in DM * Total flows of tourists forecast to grow at 4.6% CAGR by 2013 (ETC) * Higher oil prices pushing raw material prices (oil-derivatives) and Flows from Latin America expected to grow 9.5%; Asia 6.9% freight and shipping costs up * EM consumption driven by both a growing middle class and increasing * Increased competition (fragmented industry with low barriers to entry)

discretionary spending ; trading-up is associated with social likely to push A&P spending up across the board recognition * A commoditized market where pricing power may not exist * Underdeveloped offer in business and accessories: opportunity to diversify in accessories / business / casual categories * Increased concentration of customers in North America. Latin America currently following a similar path

Source: HSBC

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20% in 2010. The nature of the relationship between

Samsonite and its suppliers, we believe, is a

competitive advantage for the group, allowing it to

keep tight control of COGS.

Similarly, operating margin is reliant on

distribution costs and on mark-ups agreed with

wholesale distributors. At the group level, 80% of

sales were generated through wholesalers in 2010,

and distribution costs, which amounted to

USD320m in 2010, represented 26.3% of sales

and 65% of operating costs at Samsonite.

Distribution patterns, as seen earlier, vary greatly

from one region to another and depend on the degree

of concentration of dealers. In the US, the top-10

wholesale customers represented 65.8% of 2010

sales but only 19.2% of sales in Europe. Margins in

the US are traditionally lower, due to a higher

concentration of customers, and the wholesale/mass-

merchants nature of the business there.

Description of competition With a 9.6% market share in 2010 (Frost &

Sullivan), Samsonite is the global leader in the very

fragmented luggage industry. The industry is

characterised by the presence of a large number of

local/regional brands of luggage and OEMs. The

second largest competitor, VF Corp, held a 3.1%

market share in 2010 (Frost and Sullivan). VF Corp

generates an important part of is sales through casual

category items. Focusing on travel items only, the

second player is Tumi (c1.6% of total luggage retail

sales). Samsonite was six times bigger than Tumi in

terms of retail sales generated in 2010.

Mature markets are more consolidated than

emerging ones, as shown by the proportion of brands

which represented less than 1% of retail sales each,

which is higher in Asia (80.5% market share) than in

North America (62.2%). Charts 29-34 give a hint of

the degree of consolidation across regions.

Key players

It is difficult to compare Samsonite to its peers

given the size gap between them. Here, we

describe the next six biggest competitors of

Samsonite in the luggage industry. This also

covers the casual and business categories, which

are not Samsonite’s main sources of revenues (the

travel category accounted for 73% of sales at

Samsonite in 2010).

VF Corp

VF Corp is a US-based company which

manufactures, outsources and distributes apparel,

luggage and outdoor accessories. It owns a portfolio

of 26 brands, which fall into five categories: outdoor

& action sports (The North Face, Eastpak, Jansport,

Napapijri), Jeanswear (Wrangler, Lee), Imagewear

(NFL, Harley-Davidson), Sportswear (Nautica) and

Contemporary brands (7 for All Mankind, Lucy).

The company is also about to finalize the acquisition

of Timberland (announced in June 2011). In 2010,

its net sales reached USD7.702bn, 70% of which

came from its US operations. Europe represented the

bulk of the remaining 30%. The Outdoor category

represented 42% of 2010 sales.

VF Corp’s products are mainly apparel but it does

sell luggage too (backpack and travel items),

which, we estimate, should account for a low

single digit percentage of sales. In retail sales

value, VF Corp held a 3.1% market share of the

global luggage market (source: Frost & Sullivan),

making it the number two player in the industry.

Its products retail in the USD60-270 range in the

US, depending on the brand and the type of luggage

(from an Eastpak backpack to a large piece of

Napapijri luggage, source: brands’ respective web

sites). In 2010, 34% of its products (volume terms)

were manufactured in-house. The group otherwise

relies on third-party manufacturers in Asia. As for

distribution, VF Corp mainly relies on wholesale

distribution. In 2010, 18% of sales came from direct-

to-consumers sales.

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The group has been listed on the NYSE since

1966.

Tumi Inc

Tumi is an American brand of luggage founded in

1975. With 779 employees, the company designs

and distributes luggage in three categories:

Everyday (including briefcases, tote bags,

sunglasses), Travel (suitcases) and Business

(laptop briefcases).

In 2010, it held a 1.6% share of the global luggage

market (Frost & Sullivan). 65% of its sales are

generated through the retail channel (i.e. own

stores and third-party operated stores). It

generated USD251m worth of sales in 2010

(USD396m in retail sales)

Tumi’s retail prices range from under USD75

(wallet) to above USD500 (the most elaborate

suitcases retail at USD1,095, according to their

US online shop, to be found at

http://www.tumi.com/home/index.jsp). Leather

briefcases retail up to USD595.

Since 2004, it has been owned by UK-based

private equity fund Doughty Hanson & Co.

Ace

Ace held a 1.5% market share in 2010 (Frost &

Sullivan). It is a Japan-based manufacturer of

luggage founded in 1940. It sells luggage under its

own Ace brand, and operates as an OEM which

operates 10 factories in China (Source:

http://en.ace.jp/company/outline.html)

Delsey

Delsey is a French company which outsources,

manufactures and distributes luggage, including

suitcases, business items and casual items such as

camera bags. In 2010, it held an estimated 1.2%

share of global luggage retail sales (Frost &

Sullivan) and had sales of EUR110m (Argan

Capital).

Its products are positioned in the high-end

segment, with an emphasis put on design, quality

and innovation. US retail prices of suitcases at

Delsey range from USD120 to USD620 (

luggage.com).

Delsey has been owned by UK-based Argan

Capital since 2007.

Rimowa

Rimowa is a German manufacturer and distributor

of luggage. It was founded in 1898 and it held an

estimated 0.6% share of the global luggage

market in 2010 (Frost & Sullivan). Its 2010 sales

reached EUR79m.

It is famous for its hard-side suitcases and briefcases

in aluminium and polycarbonate materials, which

retail in the US from USD540 to USD1,510

(luggage.com); 25% of production is done in-house

in Cologne, Germany (it also has factories in Czech

Republic and Canada). It relies on 43 stores around

the world and is otherwise distributed in department

stores and specialty stores.

Rimowa is privately-owned by the Morszeck

family and run by its founder’s grandson.

http://www.tumi.com/home/index.jsp

http://en.ace.jp/company/outline.html

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Competitive landscape – Market share as of 2010 29. Global luggage market, market shares in 2010 30. North American luggage market, market share in 2010

Tumi1.6%VF Corp

3.1%

Ace1.5%

Samsonite

9.6%

Other

84.2%

Samsonite

12.3%

VF Corp7.6%

Olivet5.8%

Tumi

5.3%

Others69.0%

Source: Frost & Sullivan, HSBC, share of retail sales at group level - Delsey, Rimowa and VIP have market share of 1.2%, 0.6% and 0.6%, respectively

Source: Frost & Sullivan, HSBC, share of retail sales at group level - Targus, Wenger Swiss, Delsey and Victorinox have market share of 2.1%, 1.7%, 1.7% and 1.3%, respectively

31. European luggage market, market share in 2010 32. Asian luggage market, market share in 2010

Others78.5% Rimow a

2.5%

Eastpak3.0%

Delsey

4.0%

Samsonite12.0%

Samsonite

11.6%VIP

2.7%

Other

84.0%

Crown

1.7%

Source: Frost & Sullivan, HSBC, share of retail sales at group level - Antler and Bric's have market share of 2% each

Source: Frost & Sullivan, HSBC, share of retail sales at group level - Dapai, Tumi Victorinox and Diplomat have market share of 1.4%, 1.1%, 1.0% and 0.8%, respectively

33. Chinese luggage market, market share in 2010 34. Indian luggage market, market share in 2010

Crow n

6.8%

Dapai

5. 5%

Samsonite12.5%

Others

75.2%

VIP industries15.8%

Others

58.0%

Samsonite

16.8%

Other, branded9.4%

Source: Frost & Sullivan, HSBC, share of retail sales at group level - Oiwas, Victorinox and Tumi have market share of 4.2, 4.1% and 3.4%, respectively

Source: Frost & Sullivan, HSBC, share of retail sales at group level

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VIP Industries

VIP is the only emerging-market based company

among the top-seven players in the industry. In

2010, it held a 0.6% market share globally (or

approximately USD145m worth of retail sales;

Frost and Sullivan). It had consolidated sales of

INR6.37m in 2010 (or USD134m at the average

USD/INR rate over April09/March10) and profits

of INR50m or USD10.5m.

Less than 10% of its consolidated sales came from

moulded furniture, the remaining 90% coming from

the sales of luggage for its own portfolio of brands or

for businesses (such as Delsey since 2007).

92% of its consolidated sales in 2010 stemmed

from India. The group owns the brand VIP and

Carlton (7% of 2010 sales, INR467m or

cUSD10m) and other local brands (Aristocrat

Luggage, Foot Loose, Alfa and Skybags). It is

also the distributor of Delsey in India. Delsey and

VIP make up its premium segment.

VIP Industries is listed on the BSE.

Positioning across the industry

The selling price of a piece of luggage can range

from USD30 for private label items to above

USD1,000 for luxury goods. The following

segmentation can be used as a global average

benchmark for the industry (Frost & Sullivan):

Below USD75: value segment

USD75-150: mid-range

USD150-500: high-end

Above USD500: luxury

Chart 35 offers a comparison of brands in terms of

positioning (X-values), degree of

internationalization (Y-values) and estimated

global market share (sizes of bubbles).

Sam

son

ite (1910) T

extiles, Ap

parel &

Lu

xury G

oo

ds

27 July 2011

29

ab

c

35.Luggage market competitive landscape, 2010

Global

Regional

Local

Value ( < USD75) Mid (USD75-150) High (USD150-500) Luxury (> USD500)

American Tourister

Ace Rimow a

VIP

Other / local brand

Samsonite

Eastpak, Jansport

Louis Vuitton

TumiDelsey

Kipling

Longchamp

Other / international

Victorinox

Global

Regional

Local

Value ( < USD75) Mid (USD75-150) High (USD150-500) Luxury (> USD500)

American Tourister

Ace Rimow a

VIP

Other / local brand

Samsonite

Eastpak, Jansport

Louis Vuitton

TumiDelsey

Kipling

Longchamp

Other / international

Victorinox

Note that the Other / local brands and Other / international brands are based on our estimates Source: Frost & Sullivan, HSBC – Bubbles’ sizes are proportionate to estimated market share (value of retail sales)

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Long-term secular growth; new drivers The growth of global travel is a secular trend.

Rising populations, increasing disposable income,

infrastructure improvement, growth in

international trade and the development of

domestic and international tourism have all

contributed to this growth.

Expanding population

Travel is logically correlated to population

growth. But global tourists arrivals have increased

at a much faster pace than the world population

over the past 15 years (see Chart 36). This

supports the idea that reasons to travel (economic,

cultural) have changed.

Expanding wealth

Populations are expanding much faster in emerging

markets. In The World in 2050: Quantifying the shift

in the global economy (4 January 2011), Karen

Ward, senior economist at HSBC, expects eight out

of the 10 most populated countries in the world to be

current emerging countries (Tables 1-2 in appendix).

Drivers of global travel

Long-term secular growth with short-term hiccups

Motivations for travel have changed: Leisure spending to outpace

GDP growth

Emerging markets to provide newly affluent travellers: Asia

(mainly Korea and China) to drive the changes

36. International tourists arrivals and the world population, 1995-2010

528

684

755795

839

913

561

877

695675675

626602586

894 935

5.7

6.0

6.5

6.9

500

550

600

650

700

750

800

850

900

950

1000

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

4.5

5.0

5.5

6.0

6.5

7.0

International tourists arrivals (m, left scale)

World population (bn, right scale)

Source: US Census Bureau, World Tourism Organization, HSBC

http://www.research.hsbc.com/midas/Res/RDV?p=pdf&key=obmmnf1l6k&n=282364.PDF

http://www.research.hsbc.com/midas/Res/RDV?p=pdf&key=obmmnf1l6k&n=282364.PDF

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But emerging markets will not only make up the

majority of the world population by then; they will

also represent an increasingly important share of the

world’s GDP: “19 of the top 30 economies by GDP

will be countries that we currently describe as

‘emerging’” (see Appendix 1).

Growth in the global travel market is therefore likely

to be uneven across the world: fast-growing

emerging economies are likely to change world

travel, both as sources of outgoing newly affluent

travellers and as destinations. However, ageing

populations in the western world do not hinder

global travel growth. Retirees tend to have more

time and greater available income to spend on trips.

Leisure spending to outpace GDP growth

Travel can be driven by business needs or by

leisure and tourism. Global travel is therefore

fairly dependent on the macro-economic

environment and, as such, the number of

international travellers and the amount they spend

show strong a correlation to GDP.

Interestingly, Chart 38, which is based on forecasts

by the World Travel and Tourism Council (WTTC)

and by HSBC’s economics team (3Q11) shows that

leisure spending will accelerate in 2011-12e

compared to volumes of international passengers.

This suggests that per-capita leisure spending is

likely to increase in the coming years as the world

slowly recovers from the past financial crisis and as

disposable income grows across the world.

New drivers: Changing politics, changing attitudes

There are several reasons why flows of international

tourists have risen faster than the world population

over the past 15 years (the world population rose at a

1.2% CAGR over 1995-2010, versus 3.9% for

tourist flows), and why this is sustainable. Travel

conditions have improved considerably over the

period and reasons for travelling have also changed.

37. Top-10 countries by size of the economy, 2010-50

Rank in 2050

Country Size of economy in 2050 (bn, constant 2000 USD)

Rank in 2010

1 China 24,617 3 2 US 22,270 1 3 India 8,165 8 4 Japan 6,429 2 5 Germany 3,714 4 6 UK 3,576 5 7 Brazil 2,960 9 8 Mexico 2,810 13 9 France 2,750 6 10 Canada 2,287 10

Source: HSBC calculations, from The World in 2050

38. International visitors arrivals, leisure spending and changes in the world GDP, 2008-12e

3.0%

-4.7%

5.3% 5.2% 5.0%

-1.8%

4.9%4.0%3.6%

1.2%

3.4%

3.0%

3.8%

-2.3%

1.3%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

2008 2009 2010 2011e 2012e

World tourists flow s (% change y oy) Leisure spending (% change yoy ) World GDP (% change yoy)

Source: WTTC, HSBC

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Restrictions on travel have tended to decrease.

The Schengen Accords in 1985, relatively softer

regulations in China and numerous bilateral

agreements on visas have all lifted some of the

barriers that weigh on travel. In the US, for

instance, as part of the Visa Waiver Programme,

the Electronic System for Travel Authorization

(ESTA) was implemented in January 2009. It

allows citizens of 36 countries to pre-apply for

entry, smoothing entrance to the US.

Similarly, China and Taiwan have lifted

restrictions on visits from mainland Chinese to

Taiwan over the past few months. Direct flights

have multiplied, supporting increasing tourism

and business relationships between the two. In

2010, according to the Taiwan Tourism Bureau,

there were 1.63m visitors from mainland China

(representing 29.3% of all visitors). Until the end

of June 2011, mainland Chinese were only

authorized to travel to Taiwan as part as organized

tour groups. Under the new scheme, up to 500

individual visitors per day are now authorized to

travel to Taiwan (vs. 4,000/5,000 in groups).

There are already more mainland Chinese visiting

Taiwan than Japanese (1.08m in 2010, or 19.4%

of visitors). This is a good example of how a

decrease in travel restrictions is changing the

global travel landscape.

Motivations for travel have also recently changed.

Mass tourism in the 1960s was driven by

increasing disposable income, a thirst for novelty

and the emergence of commercial airlines. Today,

as well as cultural/entertainment considerations,

tourists also take economics into account. Buying

an iPad in the US to benefit from a weaker USD,

or buying a Swiss-made watch in Hong Kong

rather than in mainland China to benefit from

lower VAT and to avoid consumption and import

tax, is more common than before. In 2010, an

estimated 50% of handbags and 75% of watches

sold in Hong Kong were purchased by mainland

Chinese (refer to our publication Luxury:

Understanding Chinese: Feedback from our Hong

Kong and China trip, 21 March 2011).

This can be explained by the fact that the price for

a return flight to HK is more than offset by more

favourable tax and duties on high-end watches. In

2010, 63% of overnight visitors in Hong Kong

came from mainland China (see Chart 39, source

CEIC), compared to 21% in 1997 at the time of

the Hong Kong handover to China. Similarly,

since 2007, per-capita spending in Hong Kong has

been higher for mainland Chinese than for the

average visitor (Chart 40).

Domestic versus international travel

While international travel has risen dramatically

in the last decades, the importance of domestic

travel should not be underestimated. In the US,

domestic trips still account for the majority of

travel (see Appendix 2). Similarly, in China,

given the limited number of public holidays, most

employees still focus on visiting their families

during major holidays such as May Day, Lunar

New Year and National Day (1 October).

Rail travel remains the main means of transport in

China as flights are more expensive than what the

average salary earner can afford. As an example,

6.54m Chinese took the train on 1 May 2009, a 10%

increase from 2008 (Chinese Ministry of Railway).

The ministry also indicated that it aims to expand the

railway network to 120,000km by 2015 from

91,000km (2011) to support economic development.

Domestic trips are not reflected in international data

but do support the travel luggage market.

Finally, even for international trips, long haul trips

are not the norm, as inter-regional travel still

makes up the bulk of trips taken across the world.

Chart 41 shows that close to 50% of international

trips are usually made within the same region.

http://www.research.hsbc.com/midas/Res/RDV?p=pdf&key=DkW9KEiNmB&n=293731.PDF



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39. Overnight visitors to Hong Kong 1996-2010, 63% of them came from mainland China in 2010

2.4 2.4 2.7 3.2 3.8 4.4 6.8 8.512.2 12.5 13.6 15.5 16.9 18.0

22.710.6 8.9 7.5 8.1 9.3 9.3

9.7 7.1

9.6 10.8 11.712.7 12.6 11.6

13.3

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Visi tor Arriv als from C hina (m) Visi tor Arriv a ls: from other countries (m )

Source: CEIC, HSBC

40. Overnight visitors, per capita spending in Hong Kong (2002-10): Mainland Chinese are spending more than other nationalities

0

2,000

4,000

6,000

8,000

2002 2003 2004 2005 2006 2007 2008 2009 2010

Total per capita spending fom ov ernight v isitor - Other (HKD)

Total per capita spending fom ov ernight v isitor - Main land Chinese (HKD)

Per c apita spending on shopping in HK - Mainland Chines e (HKD)

Source: CEIC, HSBC

41. International tourist arrivals - Where are they coming from? (m)

254. 2 308.1 395.5 450.9 472.3 499.5 507.2 481.0

352. 7428.4

539.2539.2 666.5

705.5 717.1 687.3

0

500

1,000

1,500

2,000

1990 1995 2000 2005 2006 2007 2008 2009

Europe As ia Pacific Americas Middle East Africa Other Sam e region

Source: UNWTO, August 2010

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Short-term hiccups The steady growth of global travel has

encountered short-term slowdowns due to sudden

travel restrictions or economic shocks. Recent

examples include the 1997-98 Asian financial

crisis, the 9/11 terrorist attacks, the SARS

epidemic (late 2002-March 2003), and the 2008-

09 financial crisis.

Passenger traffic data can help assess the impact of

such crises on international travel. Revenue

passenger kilometres (RPK) measure the volume of

passengers carried by an airline. A RPK is flown

when a revenue passenger is carried 1km (IATA).

42. Passenger traffic, measured in RPK, Dec06 - May 11

-10%

-5%

0%

5%

10%

Dec-06

Jun-07

Dec-07

Jun-08

Dec-08

Jun-09

Dec-09

Jun-10

Dec-10

Grow th in RPK, 12M mov ing average

Source: IATA, HSBC

43. Total travel spending (business and leisure) in crisis periods

0

1,000

2,000

3,000

4,000

1995 1997 1999 2001 2003 2005 2007 2009

-5.0%

0.0%

5.0%

10.0%

2011 US$ bn % change yoy

Source: WTTC, HSBC

Similarly, spending on leisure and business travel

has overall risen at a CAGR of 2.6% over 1995-

2010, despite hiccups following the Asian

financial crisis, the 9/11 attacks or the recent

financial crisis. Chart 43 shows that past crises

had different impacts on global travel. 9/11 was a

psychological and global crisis; the SARS

epidemic was health-related and specific to Asia

and the 2008-09 financial crisis was global but

impacted China less (refer to Table 48, ETC data).

The Japan earthquake

While the European Travel Commission (ETC)

expects global outbound flows of tourists to rise at

a CAGR of 6.4% over 2010-13, is global travel

likely to suffer from the recent events in Japan?

In 2010, 8.6m foreigners visited Japan and 16.6m

Japanese took trips abroad. Compared to the

1,073.2m outbound visitors the ETC recorded in

2010, Japan represented about 2% of world

traveller flows.

44. Top travellers to Japan, 2010

Rank Country Number of visitors (% of total)

1 South Korea 28.3% 2 China 16.4% 3 Taiwan 14.7% 4 USA 8.4% 5 Hong Kong 5.9% 6 UK 2.1% 7 Canada 1.8% 8 France 1.8% 9 Germany 1.4% 10 India 0.8%

Source: JNTO, HSBC

In 2010, 75.8% of travellers to Japan came from

Asia. South Korea and China/Hong Kong

respectively represented 28.3% and 22.3% of the

total number of visitors. The tragic events in Japan

and the fear of radiation have likely pushed these

inbound flows of travellers to other Asian countries.

According to the JNTO (Japan National Tourism

Organization), while the number of tourists from

South Korea to Japan decreased 66.4% and 58.3% in

April and May 2011, South Koreans still represented

24% of tourist arrivals to the country.

In 1995, the year of the Kobe earthquake,

outbound flows and inbound flows rose 12.7%

and 9.0% y-o-y, respectively (JNTO).

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The SARS epidemic, on the other hand, probably

encouraged Japanese travellers to stay at home as

outbound flows of travellers decreased 19.5% in

2003. Finally, as shown in Chart 46, travel

spending in Asia slowed down after the Kobe

earthquake but still recorded 5.9% growth. It is

worth remembering that at the time the

contribution of Japanese travellers to Asia’s travel

spending was probably higher than it is now (see

section “China to surpass Japan” page 37).

Therefore, the Japan earthquake in March may

prove to be a short-term hiccup in travel in Asia.

47. Effects of March earthquake on Japan - 2011

Foreign Visitors

% chg. Yoy Japanese departures

% chg. Yoy

Jan-11 714,400 11.6 1,282,000 1.4 Feb-11 679,500 2.2 1,387,000 7.9 Mar-11 352,800 -50.3 1,282,000 -9.1 Apr-11 295,800 -65.5 1,104,000 -9.0 May-11 358,000 -50.4 1,156,000 -8.4 June-11 433,100 -36.0 1,274,000 -2.9

Source: JNTO, HSBC

45. Total outbound travellers from Japan, 1990-2010 46. Impact of crisis periods on leisure travel spending in Asia

0

5

10

15

20

1990 1993 1996 1999 2002 2005 2008

-40%

-20%

0%

20%

40%

T otal Outbound trav ellers (m , lhs )

% change yoy (rhs )

0

100

200

300

400

500

600

1991

1994

1997

2000

2003

2006

2009

0%

5%

10%

15%

Leisure spending in cs t ('11) USDbn, lhs% grow th in s pending, rhs

Source: JNTO, HSBC Source: WTTC, HSBC

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48. Outbound flows of tourists, 2007-13e (% change y-o-y)

2008 2009 2010 CAGR 2007-10 2010 2011e 2012e 2013e CAGR 2010-13e

World 3.0% -4.7% 5.3% 1.1% 5.3% 5.2% 5.0% 3.5% 4.6% Americas 0.7% -2.4% 6.8% 1.6% 6.8% 3.9% 6.1% 4.5% 4.8%

North America 0.7% -3.4% 6.1% 1.1% 6.1% 1.7% 4.7% 3.7% 3.4% Caribbean -12.7% 3.5% 5.9% -1.5% 5.9% 8.2% 8.1% 5.2% 7.2%

Latin America 5.2% 0.0% 9.8% 4.9% 9.8% 11.2% 10.5% 6.9% 9.5% Europe 0.6% -6.3% 2.7% -1.1% 2.7% 3.4% 3.2% 2.8% 3.1%

EU15 1.4% -3.2% 1.6% -0.1% 1.6% 1.7% 2.1% 1.8% 1.9% Eastern Europe -0.5% -10.8% 3.7% -2.7% 3.7% 5.7% 4.2% 4.1% 4.7%

Asia 3.6% -0.1% 9.6% 4.3% 9.6% 8.9% 7.5% 4.4% 6.9% Oceania 4.5% 5.2% 11.7% 7.1% 11.7% 3.6% 1.2% -0.2% 1.5% Africa 6.9% -4.5% 5.3% 2.4% 5.3% 3.7% 5.0% 2.3% 3.7% Middle East 27.5% -11.1% 7.6% 6.8% 7.6% 7.5% 5.7% 3.4% 5.5%

Source: ETC, HSBC

49. International tourism expenditure, 2000-09 – No crisis in China in 2009

________ International tourism expenditure (USDbn) __________ __________ % change y-o-y ___________Rank Country 2000 2005 2006 2007 2008 2009 05/06 06/07 07/08 08/09

World 475.0 679.0 744.0 859.0 942.0 852.0 9.6 15.5 9.7 -9.6 1 Germany 53.0 74.4 73.9 83.1 91.0 80.8 -0.7 12.4 9.5 -11.2 2 United States 64.7 69.0 72.1 76.4 79.7 73.1 4.5 6.0 4.3 -8.3 3 UK 38.4 59.6 63.1 71.4 68.5 48.5 5.9 13.2 -4.1 -29.2 4 China 13.1 21.8 24.3 29.8 36.2 43.7 11.5 22.6 21.5 20.7 5 France 17.8 30.5 31.2 36.7 43.1 38.9 2.3 17.6 17.4 -9.7 6 Italy 15.7 22.4 23.1 27.3 30.8 27.8 3.1 18.2 12.8 -9.7 7 Japan 31.9 27.3 26.9 26.5 27.9 25.1 -1.5 -1.5 5.3 -10.0 8 Canada 12.4 18.0 20.6 24.7 26.9 24.3 14.4 19.9 8.9 -9.7 9 Russia 8.8 17.3 18.1 21.2 23.8 20.8 4.6 17.1 12.3 -12.6 10 Netherlands 12.2 16.2 17.0 19.1 21.7 20.7 4.9 12.4 13.6 -4.6

Source: UNWTO, August 2010

50. Forecast of international travellers to the US: Top origin countries 2009-15e (million visitors in 2009, % change y-o-y)

2009 2010e 2011e 2012e 2013e 2014e 2015e CAGR 2010e-15e

Rank ('09) Grand total 55.0 9.1% 5.7% 5.7% 5.3% 7.7% 9.1% 6.7% 1 Canada 18.0 9.9% 6.0% 5.0% 4.0% 7.0% 8.0% 6.0% 2 Mexico 13.2 9.5% 5.0% 6.0% 6.0% 7.0% 8.0% 6.4% 3 UK 3.9 -4.0% 1.0% 2.0% 3.0% 8.0% 10.0% 4.7% 4 Japan 2.9 13.0% 4.0% 5.0% 3.0% 6.0% 9.0% 5.4% 5 Germany 1.7 2.0% 3.0% 3.0% 2.0% 9.0% 12.0% 5.7% 6 France 1.2 3.1% 1.9% 3.0% 3.1% 8.0% 8.0% 4.8% 7 Brazil 0.9 34.9% 17.0% 14.0% 15.0% 20.0% 20.0% 17.2% 8 Italy 0.8 7.0% 3.0% 4.0% 3.0% 2.0% 2.0% 2.8% 9 South Korea 0.7 34.9% 18.0% 13.0% 10.0% 14.0% 20.0% 14.9% 10 Australia 0.7 18.9% 12.0% 9.0% 8.0% 7.0% 6.0% 8.4% 14 China 0.5 40.0% 23.9% 20.0% 22.0% 30.0% 35.0% 26.1%

Source: US Travel Association, HSBC

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The Asian drive Travel is increasing around the world but the West lags

Global travel is likely to reflect the rise of

emerging markets, both looking at the origin of

the travellers, and where spending takes place.

Looking at global outbound flows of tourists

(ETC data) over 2010-13e, global outflows of

tourists from emerging countries are expected to

grow at significantly higher rates than outflows

from developed countries. Latin America is

expected to grow at a 9.5% CAGR, the Middle

East at 5.5% and Asia at 6.9%, while Europe and

North America are expected to grow at a 3.1%

and 3.4% CAGR, respectively. Furthermore, the

UNWTO reported that in 2010, travellers’

expenditure abroad grew 17% in China, 26% in

Russia, 28% in Saudi Arabia and 52% in Brazil

(Table 49). These figures suggest that travel

market growth in emerging countries is supported

more by increased spending than increased

number of trips.

Within Asia, China and South Korea should surge

Tourism data from Japan and the US give an

insight into the recent evolution in tourism,

especially the emergence of Chinese and Korean

tourists. According to the US Travel Association’s

international tourists’ arrivals forecasts in the US

(Table 50), South Korean and Chinese arrivals are

expected to grow 15% and 26% pa over 2010-15e.

As their numbers grow, the contribution of Asian

tourists to global travel expenditure will grow. As

shown in Table 49, in 2009 Chinese tourists were

ranked as the No 4 spenders in the world, from No

5 in 2008 and No 7 in 2000. In 2009, they were

the only group to maintain their spending on

travel, despite a fairly depressed global

environment.

China to surpass Japan

In January 2011, the CNTA (China National

Tourism Administration) reported that outbound

departures from China amounted to 57.4m and

also estimated that Chinese travellers had spent up

to USD48bn abroad in 2010. This compared to the

16.6m outbound travellers from Japan (JNTO),

107.6m from North America and 296.6m from the

European Union (EU, 15 countries, source: ETC).

Outbound travel from China is therefore still low

relative to the country’s population, but this

underlines China’s potential in the outbound

travel market.

51. China outbound tourism

3 3 5 7 7 9 10 11 15 1722 28 31 35 41 46 50 55

61 65 6974 79

85 88 92 96 100

0

20

40

60

80

100

120

1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019

Source: China National Tourism Administration, WTO projected tourism figures, forecast start in 2009

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The Boston Consulting Group (BCG) recently

published research on the rise of travel in China.

By 2013, China is expected to surpass Japan as

the second largest travel and tourism market in the

world. It is expected to represent 8% of global

tourism revenue in 2013 (14% in 2020) versus 8%

and 6% for Japan in 2013 and 2020. The US is

expected to remain No 1, representing 27% of the

global travel market in 2013, and 25% in 2020.

The travel market in China (including outbound

travel and domestic leisure and business travel) is

forecasted to grow at a 14% CAGR over 2010-20.

It is currently worth RMB1,484bn.

Most trips taken by mainland Chinese are domestic

journeys. They represented 96% of the total number

of trips taken in China and 78% of the travel

market’s value in 2010. They are expected to grow

16% pa and to represent a market worth

RMB3,900bn by 2020. The BCG further estimates

that “fewer than 200m urban Chinese consumers

have taken an overnight leisure trip. With an

average of 25 million people taking their first-ever

such trip every year, however, that number will more

than double by 2020”.

52. China's travel and leisure market value (RMBbn) 2010-15e

3211,5441,163

3,911

0

1,000

2,000

3,000

4,000

5,000

6,000

2010 2020e

Outbound trips Domestic trips

Source: BCG, HSBC

53. China's travel and leisure market, number of trips (m), 2010-15e

37 101

2,380

1,021

0

500

1,000

1,500

2,000

2,500

3,000

2010 2020e

Outbound trips Domestic trips

Source: BCG, HSBC

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Top line: Asia growing, Samsonite’s comeback in some mature markets Drivers of the top line

As explained previously, we believe top line growth

is a function of demographics, wealth creation (a

multiplier of GDP growth) as well as a gradual

easing of travel regulations in certain countries.

Our preferred approach is to model growth by

region and then cross-check this with an approach

of growth by brand.

Global sales forecasts

For 2011, we are factoring in 24% constant FX sales

growth which reflects a rebound in the West (+22%

in North America, +14.7% in Europe) and a

continuation of booming trends in Latin America

(+17%) and in Asia (+37%) only slightly tempered

by the aftermath of the Japan earthquake.

Strong sales outlook and margin improvements: Our buy case explained

Stronger than expected mature markets, untapped territories, new

products and evolving regulations to drive revenues in near term

Higher contribution of Asia to benefit both revenues and margins

Use of IPO proceeds: Potential M&A activity a positive catalyst

54. Reasons for optimism on the top line

1- Samsonite's global scope makes it well positioned to benefit from the travel market secular growth Total number of travellers to grow at a 4.6% CAGR over 2010-2013e. +6.9% in Asia, +3.4% in North America and +3.1% in Europe (ETC) Asia to drive the change - Chinese travellers to outpace Japan as top travellers, Europe and the US to recover gradually More travellers, to be coupled with increased per capita spending on luggage (Frost & Sullivan) 2 - The expansion of sales at Samsonite can rely on 4 levers Entering new territories (e.g. tier-3-4 cities in China) Launch of new lines ("AT" line in India, business categories in Asia, sub Samsonite brands) Sustained high expenditures in A&P Constant push on retail expansion, especially in Asia (+500 POS in this region) 3- Sales to increase in both mature and emerging markets Potential for market shares gains (Germany, Japan…) as well as organic growth (through business and casual lines) Potential for outpacing the market’s growth rates (scale and heavy distribution network)

Source: HSBC

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We forecast sales to reach USD1,500m in 2011.

Currency shifts should have a positive impact on

reported sales in 2011, adding 3.8% to growth or

USD46m. We take into account the termination of

the Lacoste and Timberland licensing agreements,

which should represent a negative effect of 4.4%.

H1 results, reported on the 29th of August, should

support our bullish stance. We do not have

historical half year results, or any basis of

comparison for the period. Therefore we haven't

forecast H1-2011. We believe, however, that this

event will be a positive catalyst for the stock

which will likely rise investors' interest in

Samsonite.

In 2012 and 2013, we are still looking at strong,

though more “normalised” growth rates with

respective 12.9% and 10.3% constant FX growth,

leading to sales of USD1,700m and USD1,875m,

respectively.

In 2012, we believe the group will meet its target

of increasing sales in its strong growth markets

and we have factored in 26.7% and 15.0% for

Asia and Latin America, respectively, while

increasing sales in its more mature market by 5%

in Europe and in the US.

Asia

There are several reasons why we factor sales to

grow 37% at constant currency in 2011:

1 Lower travel restrictions are to boost

notably Chinese outbound travel (refer to

“Drivers of travel market”, Taiwan is the

latest example). Strong brand awareness

supported by extensive advertising should

help the group boost sales of both Samsonite

and American Tourister;

2 Pricing power is greater for the core

Samsonite brand in Asia (leading to high-end

diversification such as the Samsonite Black

initiative). Gradual price increases should

come into play over 2011;

3 Promising launch of American Tourister in

lower priced markets like India (since 1998)

or China tier 3-4 cities (since 2011);

4 New categories: The business category

with particular potential to grow in Asia

(cf. “The casual and business categories:

Opportunities for growth”, pg 11);

5 Comeback in mature markets: Japan is the

biggest luggage market in Asia. We believe

Samsonite has only a 1-2% share of retail

sales there. As explained earlier on

distribution, the group has leeway to strongly

55. Breakdown of sales by region and by brand, our estimates – 2010-13e

__________ 2010e____________ ____________2011e ____________ ___________ 2012e ____________ __________ 2013e ___________ USD %

change yoy

% change at constant

FX

USD % change yoy


FX

USD % change

yoy


FX

USD % change

yoy


FX

Region Asia 405.1 45% 38% 556.5 37% 37% 704.8 27% 27% 828.3 18% 18%Europe 406.7 6% 9% 460.2 13% 15% 489.2 6% 5% 508.8 4% 4%North America 303.0 8% 21% 365.2 21% 22% 383.5 5% 5% 398.8 4% 4%Latin America 89.0 22% 16% 106.6 20% 17% 122.6 15% 15% 139.1 14% 14%Total 1,215.3 18% 21% 1,500.0 23% 24% 1,700.0 13% 13% 1875.0 10% 10%Brand Samsonite 917.8 n.a. n.a. 1,192.5 29.9% 25.6% 1,322.6 11% 10% 1,445.6 9% 9%American Tourister 161.1 n.a. n.a. 226.5 40.6% 38.2% 277.1 22% 22% 315.0 14% 14%Other 136.4 n.a. n.a. 81.0 -40.6% 17.0% 100.3 24% 23% 114.4 14% 14%Total 1,215.3 n.a. n.a. 1,500.0 23% 24% 1,700.0 13% 13% 1,875.0 10% 10%

Source: Company data, HSBC estimates

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gain market share from competitors, with new

product lines (Made in Japan), stronger

adspend and new points of sales;

6 In China, we believe that store expansion (in

all categories of stores) coupled with the

currently low penetration of branded luggage

(vs. grey market and fake items) and with the

development of American Tourister, support

our growth assumptions.

All in all, we believe space could increase by

c15% (but accounting for 25% higher sales as

most of it would either be directly operated stores

or stores controlled by partners, hence bigger and

more productive). At the same time, we see same-

store sales growth up mid-teens y-o-y (on the

back of market share gains, product launches and

use of alternative distribution networks like

TV shopping).

Latin America

In addition to strong above-GDP growth rates, we

believe the efforts in the casual division could pay

off this year. Xtrem backpacks were launched in

Argentina and Mexico and should complement

luggage sales. The Xtrem brand alone represented

14% of the region’s sales in 2010.

Europe and North America

In 2011, these two regions should gradually suffer

from a tougher basis of comparison (as

improvements were seen in 2H10). We believe,

however, that the market is likely to underestimate

the effects of sustained advertising spending as

well as the effects of more stringent regulations on

cabin luggage weight, pushing the sales of light

luggage. We take the view that organic sales

should hence grow at a faster pace than a

“normalised” year in 2011, where we see

North America and Europe growing 22% and 15%

respectively. In 2012 and 2013, we forecast sales

to grow for both regions at 5% and 4%, at what we

reckon would be a normalized growth rate.

One exception to this is Germany, where an

inappropriate product assortment had led sales to

halve in 10 years. The renewal of Samsonite’s

product offering (towards hard sided luggage) in

one of the biggest luggage markets in Europe

should support market share gains, notably versus

competitor Rimowa.

Drivers of gross margin

COGS accounted for 43.3% of sales in 2010

(Table 56). Following the recent advertising push

in 2010, we believe the level of discounting will

have decreased in the early part of 2011 and that

inventories are at a healthy level. Following a

tough 2009, 2010 did not see a massive rebound

of sales outside Asia. We believe that volumes in

2011 will mean the group will benefit from

incremental leverage from its suppliers.

Stronger volume growth, positive currency

impacts and the strong growth forecast in Asia

(which has higher gross margin than other

regions) will not be enough, we believe, to drive

gross margin up. Three factors will mitigate

these effects:

56. Our regional sales forecasts vs. global retail sales of luggage and global travel

Region CAGR 2010-2013e* Global luggage retail sales growth CAGR 2010-2015e**

Global travel bag retail sales growth CAGR 2010-2015e **

Outbound flows of tourists CAGR 2010-2013e*** ETC

Asia 27% 6.4% n/a 6.9% Europe 8% 4.0% 4.3% 3.1% North America 10% 3.7% 4.7% 3.4% Latin America 16% 5.9% 7.1% 7.2% Total 16% 5.0% 5.6% 4.6%

Source: * HSBC estimates, ** Frost & Sullivan, *** ETC

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1. Growth is likely to be more costly, as wages

and input cost pressures have intensified.

Samsonite has leeway to increase prices, and

will do so in 2H (the gap with Tumi, its next

in line competitor is large) but we do not

believe this will be enough to mitigate cost

pressure from Asia.

2. Global sales will feature a slight negative

regional mix, with the US and Europe

recovering and recording higher organic

growth rates than in 2010.

3. A negative brand mix globally may weigh on

gross margin, as we forecast American

Tourister to grow faster (+40% at constant

FX) than Samsonite (+29%) or other brands

(+8%). Net net, we believe the group’s gross

margin is likely to be slightly lower by 25bp

at 56.5% of sales.

In 2012 and 2013, favourable currency impacts

disappear (we factor a 1.3% favourable impact in

Europe in 2012e) and cost pressures, at least from

a wages perspective, could well remain. We

believe the continuous outperformance of Asia

should contribute to steady margins in 2012-13.

Drivers of EBITDA margin

Elimination of licences

One non-recurring element will limit operating

leverage in the current year: the elimination of

Timberland and Lacoste licenses, which were

terminated in 2010. This activity was discontinued

as of December 2010 and thus will affect 2011

sales, gross profit and net income.

As this activity was quite profitable (though non-

core for the group), we estimate this will have a

negative impact of 4.4% on sales in 2011 (or

USD53.0m) and of 8.5% on net income (or

USD31.1m). While increasing EBITDA margin in

2011 by 60bp (our assumption) does not seem that

impressive on a comparable basis (i.e. excluding

the licence activity), this equates to a much more

convincing operating leverage as the company

would grow EBITDA margin by c200bp (from

14.4% to 16.4%).

Gradual EBITDA improvements: G&A leverage

from 2011 onwards, adspend ratio gradually

decreases from 2013e

Distribution costs constituted the highest

operating expenditure at Samsonite in 2010

(26.3% of sales, see Table 57). With focus on

advertising pressure to ensure further market

share gains and many costs having been taken out

at the general cost / admin level during the 2008

restructuring phase, one would think the capacity

to leverage SG&A costs is structurally rather

limited for the Samsonite Group.

Although the advertising to sales ratio should

remain stable at least for the next two years, we

still believe that G&A leverage exists and, more

importantly, that distribution costs can be

leveraged with top line growth. Short term, the

USD weakness against other currencies should

put pressure on these costs as spending of most

Samsonite subsidiaries will translate into higher

USD amounts.

57. Breakdown of costs at Samsonite, 2008-13e

2008 2009 2010 2011e 2012e 2013e

Cost of sales 50.0% 49.9% 43.3% 43.5% 43.5% 43.5% Distribution expenses 31.7% 30.9% 26.3% 25.9% 25.2% 24.5% Marketing expenses 5.4% 4.3% 8.4% 8.5% 8.5% 8.1% General and administrative expenses 9.3% 11.8% 8.0% 7.7% 7.4% 7.1%


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Following tough macro-economic conditions, and

the 2009 restructuring, it seems that EBITDA

margin reached a more normalized level in 2010.

Excluding corporate, which generated a

USD12.9m operational loss in 2010, Asia and

Europe had the largest contribution to EBITDA,

at 39.1% and 35.6%, respectively. North America

contributed 19.4% and Latin America 5.9%.

Appendices 16-17 show the adjustments to

EBITDA and net income in 2010.

58. Breakdown of adjusted EBITDA by region, 2010*

NorthAmerica

19%

LatinAmerica

6%

Europe

36%

Asia39%

Source: Company data, HSBC - * excluding “corporate” which had a negative contribution of c. –USD12m to the group’s EBITDA in 2010

We believe the group is committed to investing

significantly in advertising to ensure current

market share across the globe is supported and

enhanced. In 2010, the group spent USD102.5m

in A&P, or 8.4% of sales. This was 415bp higher

than in 2009 (when adspend represented 4.3% of

sales), or 300bp higher than in 2008 (5.4% of

sales). This was justified by the need to support

the expected recovery in luggage sales. Samsonite

therefore outspends its peers. As an example, VF

Corp’s advertising-to-sales ratio was 5.6% in

2010. So while management has indicated it had

leeway to decrease its adspend if need be, we do

not expect a massive shift, at least not in the next

two fiscal years.

EBITDA improvements are likely to come from

Asia, as the most profitable region might grow 2-3

times faster. As reported on Bloomberg,

management indicated that Asia’s contribution to

group EBITDA could well reach 50% by 2012,

from 39% in 2010.

We believe 2011 will prove to be another strong

investment year. Consequently, EBITDA margin

progression is likely to be stronger in 2012 and 2013

compared to 2011. We have factored improvements

of c70bp, 90bp and 135bp for 2011-13, respectively.

This means 2013 could see 18.8% EBITDA margin

vs. the 2010 level of 15.8%.

Non-operating earnings

In 2010, Samsonite was subject to an average tax

rate of 28.7%. We do not expect significant

change and factor in a 28% tax rate for next year,

and 25% for 2012-13.

Over 2008-10, a certain amount of non-cash items

from impairments (due to the 2008 downturn) or

the 2009 restructuring affected Samsonite’s P&L.

We do not factor in any such items in the future.

Reconciliation at the EBITDA and net income

levels for 2010 can be found in Appendices 16-17,

“Restated earnings”.

Balance sheet

As of December 2010, debt at Samsonite reached

USD259m. This was mainly comprised of the

USD240m term loan facility put in place in 2009

(with a carrying value of USD189.2m) after the

group’s debt restructuring.

With the net proceeds of its IPO (cUSD184m), we

expect Samsonite to have fully repaid the credit

facilities granted in 2009 (USD246.7m worth of

debt) in 2011.

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59. Net debt and net gearing at Samsonite, 2008-13e

-1,000

-500

0

500

1,000

1,500

2,000

2008 2009 2010 2011e 2012e 2013e

-50%

0%

50%

100%

150%

200%

Net Debt as a % of total asset


Cash flow

Under the terms of the USD240m term loan

facility Samsonite is subject to liquidity

covenants. As such, capital expenditure is capped

at USD40m for 2011 and USD26m for both 2012-

13, subject to the full or partial repayment of this

loan. We assume full repayment of the credit

facility by December 2011.

Investments at Samsonite are very much related to

the expansion of its retail network. As such, the

additional points of sale opened in Asia in 2010

drove investments up to cUSD30m. In 2009,

Samsonite had spent cUSD15m in investments,

down from cUSD34 in 2008. 2009 investments

also covered the expansion of warehouses in

Belgium as well as investments in IT.

For 2011 the company expects to spend up to

USD40m, on both production (expansion of the

Hungarian production site, addition of production

facilities), and on distribution through the addition

of stores (notably within the Asian retail network,

which we expect to increase by 10%) and through

the refurbishing of retail stores.

Similarly, in 2012-13 we expect the group to keep

up with this level of investment. We factor in

USD35m worth of investments for both years.

Finally, we believe working capital as a

percentage of sales will remain steady over 2011-

13. Inventories have been built up in 2010, but we

expect them to come back to a “normalized” level

of 16% of sales. We also assume steady terms of

supply/distribution with regards to payables and

receivables. 2010 increases were correlated to

sales increases. Use of cash: M&A activity?

Industry specifics (little production,

outsourcing, cash generation) point towards

future consolidation.

The IPO put Samsonite in a highly cash positive

position. With its healthy balance sheet and as

the outlook for sales becomes more reliable,

we believe Samsonite may be looking at

M&A opportunities.

Were Samsonite to acquire a complementary

target, M&A activity could be quickly earnings

accretive. Given its current positioning, we

believe a more upscale competitor, such as Tumi,

Rimowa or Delsey, could complement

Samsonite’s portfolio. All three companies are

above Samsonite’s price points, and are renown

60. Working capital – 2010-13e

(USDm), 31 Dec 2008 2009 2010 2011e 2012e 2013e

Inventories 198.2 113.2 222.7 240.0 272.0 300.0 as a % of sales 16% 11% 18% 16% 16% 16%

Trade and other receivables 136.1 119.4 146.1 180.0 204.0 225.0 as a % of sales 11% 12% 12% 12% 12% 12%

Trades payables 160.4 138.2 225.9 300.0 340.0 375.0 as a % of sales 13% 13% 19% 20% 20% 20%

Working Capital Requirement 173.9 94.4 142.9 120.0 136.0 150.0 as a % of sales 13.9% 9.2% 11.8% 8.0% 8.0% 8.0%


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beyond their respective home markets where they

are the main competitor to Samsonite (the US,

Germany and France).They are between six times

(Tumi) and 16 times (Rimowa) smaller than

Samsonite by retail sales and therefore lack the

scale and ability to advertise as much as

Samsonite. We would see a potential acquisition

as a positive catalyst for Samsonite.

Tumi currently belongs to a private equity fund

that could hope to exit an investment it has held

since 2004. Tumi generated sales of USD251m in

2010 and has 779 employees.

Rimowa is run by Dieter Morszeck, the grandson

of the founder Paul Morszeck, in Köln. It had

sales of cEUR85m and about 650 employees in

2008 (Handelsblatt).

Delsey was acquired by a private equity fund in

2007. It generated sales of EUR110m in 2007 and

has c300 employees.

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Income statement

61. Income statement

(USDm), 31 Dec 2005 2006 2007 2008 2009 2010 2011e 2012e 2013e

Net Sales 902.9 966.9 1070.4 1249.6 1029.4 1215.3 1500.0 1700.0 1875.0% change yoy 7.1% 10.7% 16.7% -17.6% 18.1% 23.4% 13.3% 10.3%

Cost of sales 485.9 496.5 524.5 625.4 513.8 525.6 652.5 739.5 815.6Gross profit 417.0 470.4 545.9 624.2 515.6 689.7 847.5 960.5 1059.4

Gross margin 46.2% 48.6% 51.0% 50.0% 50.1% 56.7% 56.5% 56.5% 56.5%bp change 246 235 -105 13 667 -25 0 0

Distribution expenses 341.5 381.2 459.5 396.1 318.2 319.6 388.5 428.4 459.4as a % of sales 27.3% 30.5% 36.8% 31.7% 30.9% 26.3% 25.9% 25.2% 24.5%

bp change 317 627 -507 -79 -462 -40 -70 -70Marketing expenses 67.6 44.0 102.5 127.5 144.5 151.9

as a % of sales 5.4% 4.3% 8.4% 8.5% 8.5% 8.1%bp change 541 -113 415 7 0 -40

General and administrative expenses 116.1 121.3 97.1 115.5 125.8 133.1as a % of sales 9% 12% 8.0% 7.7% 7.4% 7.1%

bp change 929 250 -380 -29 -30 -30Restructuring charges 5.9 9.8 3.8 12.4 65.1 4.3

Impairment / reversal of impairment of assets 0.7 5.5 1.6 459.0 -12.6 -379.8 Impairment of goodwill 3.2 0.9 1.2 969.8 0.0 0.0

Gain on debt and equity restructuring 1289.9 Other expenses 0.6 14.1 2.4

Already included in cost of sales Other adjustments 11.0 0.4 0.1

Other (inventory, share based comp) 20.6 1.3 0.6 Depreciation 37.4 18.1 16.3 22.5 25.5 28.1

as a % of sales 3.0% 1.8% 1.3% 1.5% 1.5% 1.5%Amortization 8.4 4.6 4.4 8.4 8.4 8.4

as a % of sales 0.7% 0.4% 0.4% 0.4% 0.4% 0.4%EBITDA 65.7 73.0 79.8 -1351.6 -1302.0 564.3 246.9 295.7 351.6EBITDA margin (%) 7% 8% 7% -108% -126% 46% 16.5% 17.4% 18.8%Adjusted EBITDA 75.5 89.2 86.4 121.8 56.2 191.9 246.9 295.7 351.6

Adjusted EBITDA margin (%) 8.4% 9.2% 8.1% 9.7% 5.5% 15.8% 16.5% 17.4% 18.8%bp change 87 -115 167 -429 1033 67 93 135

Operating profit 65.7 73.0 79.8 -1397.5 -34.7 543.6 216.0 261.8 315.0Operating margin 5.4% 6.0% 6.6% -115.0% -2.9% 44.7% 14.4% 15.4% 16.8%Financial income 0.5 2.1 2.6 3.7 0.9 1.6 Financial expenses 35.2 30.5 30.3 177.9 119.0 30.7 1.0 1.0 1.0Other -23.6 -9.92 -23.5 0 1289.9 Profit before Tax 7.5 34.7 28.6 -1571.7 1137.2 514.6 215.0 260.8 314.0Tax 13.7 16.5 27.2 -147.7 -72.2 147.8 60.2 65.2 78.5Tax % 182.6% 47.6% 95.0% 9.4% -6.3% 28.7% 28.0% 25.0% 25.0%Profit -6.2 18.2 1.4 -1424.0 1209.3 366.8 154.8 195.6 235.5

% change yoy 26.4% 20.4%Profit margin -0.7% 1.9% 0.1% -114.0% 117.5% 30.2% 10.3% 11.5% 12.6%Adjusted net income -9.7 13.3 -6.8 129.9 61.7 105.6 Adjusted net income margin -1.1% 1.4% -0.6% 10.4% 6.0% 8.7% Profit attributable to equity holders -9.7 13.3 -8.2 -1433.7 1202.4 355.0 149.8 189.3 227.9Profit attributable to non-controlling interests 3.5 4.9 9.7 9.7 6.9 11.8 17.3 21.9 26.3Number of shares (m) 2,220 2,221 1,407 1,407 1,407EPS (USD) 0.16 0.11 0.13 0.16EPS (HKD) 0.83 1.05 1.26Dividend payout 33% 33% 33%Dividend paid 49.4 62.5 75.2DPS 0.04 0.04 0.05

DPS (HKD) 0.27 0.34 0.42


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Balance sheet

62. Balance sheet

(USDm), 31 Dec 2005 2006 2007 2008 2009 2010 2011e 2012e 2013e

ASSET Property, plant and equipment 98.8 89.1 104.0 56.5 49.3 124.8 143.5 153.5 161.2Goodwill 153.2 153.2 153.2 153.2 153.2 153.2Other intangible assets 90.8 91.7 102.8 303.6 318.7 628.3 619.8 611.4 603.0Deferred tax 28.6 35.9 20.8 20.8 20.8 20.8Other assets and receivables 15.0 13.4 18.2 15.0 14.5 15.4 15.4 15.4 15.4Non-current asset 204.6 194.2 225.0 556.9 571.6 942.5 952.7 954.3 953.6 Inventories 136.1 133.7 165.8 198.2 113.2 222.7 240.0 272.0 300.0

as a % of sales 15% 14% 15% 16% 11% 18% 16% 16% 16%Trade and other receivables 115.1 115.6 135.1 136.1 119.4 146.1 180.0 204.0 225.0

as a % of sales 13% 12% 13% 11% 12% 12% 12% 12% 12%Prepaid expenses and other assets 53.5 38.4 46.7 53.4 44.6 67.9 67.9 67.9 67.9Cash and cash equivalents 56.4 85.4 78.5 86.9 290.5 285.8 411.8 564.4 745.9Current asset 361.2 373.1 426.1 474.6 567.8 722.5 899.7 1,108.2 1,338.8TOTAL ASSET 565.7 567.3 651.1 1,031.4 1,139.4 1,665.0 1,852.5 2,062.6 2,292.4 LIABILITIES Loans and borrowing 337.0 296.8 464.3 1.7 251.8 246.7 0.0 0.0 0.0Employee benefits 101.1 99.8 77.1 94.1 111.1 128.1Derivatives 8.4 8.7 18.7 18.7 18.7 18.7Deferred tax liabilities 21.4 22.9 23.4 110.8 27.5 135.8 135.8 135.8 135.8Other liabilities 72.7 87.0 85.2 33.7 7.6 7.1 7.1 7.1 7.1Non-current liabilities 431.2 406.6 572.9 255.6 395.3 485.4 255.7 272.7 289.7 Loans and borrowings 17.3 10.4 37.6 1425.3 14.2 12.0 20.0 20.0 20.0Shareholder loan 487.4 Employee benefits 25.7 25.5 27.9 29.9 33.0 38.8 38.8 38.8 38.8Trade and other payables 126.8 149.6 194.9 207.4 259.1 330.5 450.0 510.0 562.5Trades payables 73.1 101.9 135.3 160.4 138.2 225.9 300.0 340.0 375.0

as a % of sales 8% 11% 13% 13% 13% 19% 20% 20% 20%Other payables 53.6 47.7 59.6 47.1 120.9 104.6 150.0 170.0 187.5

as a % of sales 6% 5% 6% 4% 12% 9% 10% 10% 10%Derivative financial instrument 36.1 Current tax liabilities 10.2 17.1 21.6 29.2 35.4 35.4 35.4 35.4Current liabilities 169.7 195.8 277.5 2207.9 335.4 416.8 544.2 604.2 656.7 Shareholders’ equity -49.1 -51.2 -222.3 -1447.8 391.5 740.2 1,029.9 1,163.0 1,323.3Non-controlling interests 13.9 16.1 23.0 15.7 17.1 22.6 22.6 22.6 22.6Total liabilities and shareholders’ equity 565.7 567.3 651.1 1,031.4 1,139.4 1,665.0 1,852.5 2,062.6 2,292.4


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Cash flow statement

63. Cash flow statement

(USDm), 31 Dec 2005 2006 2007 2008 2009 2010 2011e 2012e 2013e

Profit/(Loss) for the year -9.7 13.3 -8.2 -1424.0 1209.3 366.8 154.8 195.6 235.5(Gain)/loss on sale and disposal of assets, net -0.8 0.1 -3.3 -0.1 -0.1 0.2 Depreciation 19.0 17.1 19.8 37.4 18.1 16.3 22.5 25.5 28.1Amortization of debt issue costs and premium on debt 6.5 3.1 7.5 7.3 3.3 0.0 Noncash portion of gain on modification of financial liabilities 0.0 -1334.3 0.0 Amortization on intangible assets 3.2 0.9 1.2 8.4 4.6 4.4 8.4 8.4 8.4Impairment of goodwill 969.8 0.0 0.0 0.0 0.0 0.0Impairment of other intangible assets and fixed assets 0.7 5.5 1.6 459.0 7.2 0.1 Reversal of impairment of intangible assets and fixed assets 0.0 -19.8 -379.9 Charge for inventory acquired in business combination 20.6 0.0 0.0 Provision for doubtful accounts 1.5 0.3 2.4 2.6 6.8 0.6 Provision for restructuring activities 5.9 9.8 3.8 1.4 37.8 4.3 Unrealized loss/(gain) on translation of euro denominated debt -22.4 13.4 0.0 Change in fair value of put options 0.7 -0.3 8.8 Net change in defined benefit pension plan 3.2 6.8 6.4 -14.9 0.6 -28.0 17.0 17.0 17.0Noncash interest expense 167.8 91.5 16.3 Noncash income tax (benefit)/expense -0.2 -1.5 -4.7 -168.1 -90.6 123.4 Noncash share-based compensation 4.0 5.5 6.2 0.0 1.3 0.6 Change in working capital 1.6 22.9 3.6 16.1 96.4 -47.9 68.3 4.0 3.5Trade and other receivables -19.9 -8.2 -8.7 12.4 5.3 -29.0 -33.9 -24.0 -21.0Inventories 2.0 -4.6 -19.8 -7.5 80.1 -112.5 -17.3 -32.0 -28.0Other current assets -1.0 -5.8 -4.7 -10.0 7.5 -23.4 0.0 0.0 0.0Trade and other payables 19.5 35.7 32.2 11.3 11.0 93.6 119.5 60.0 52.5Other assets and liabilities, net 0.9 -6.4 -0.5 -7.0 0.1 -6.9 0.0 0.0 0.0Cash from operations, excl debt or acquisition related items 34.7 71.6 31.1 44.7 52.7 55.7 271.1 250.5 292.6 Cash from operations 34.7 71.6 31.1 44.7 52.7 55.7 271.1 250.5 292.6 Interest paid -93.5 -1.7 -0.3 Income tax paid -27.2 -8.6 -21.0 Net cash from operations 34.7 71.6 31.1 -76.0 42.4 34.4 271.1 250.5 292.6 Purchase of asset -12.5 -23.1 -32.1 -44.8 -15.2 -29.6 -41.2 -35.5 -35.8Proceeds from sale of property and equipment and other assets 4.1 14.4 9.8 11.1 0.0 Other investments -0.44 -0.37 -13.64 -0.04 0.5 Cash from investments -8.8 -9.1 -36.0 -33.7 -14.7 -29.6 -41.2 -35.5 -35.8 Loans and borrowings proceeds 3.2 -35.7 173.5 97.9 65.6 17.0 Loans and borrowings payments -0.9 -1.3 -1.2 -24.7 -17.6 -38.3 -238.7 0.0 0.0Payment associated with the acquisition of non controlling interests -82.9 0.0 0.0 Proceeds from issuance of share capital 0.0 106.1 0.0 184 Dividends payment to non-controlling interests 1.0 3.2 -169.2 -8.5 -4.8 -4.7 Dividends payment -49.4 -62.5 -75.2Cash from financing 3.2 -33.8 3.0 -18.1 149.2 -26.0 -103.8 -62.5 -75.2 (Decrease)/Increase in cash 29.1 28.7 -1.8 -127.9 177.0 -21.1 126.0 152.5 181.6Cash beginning of period 29.5 56.4 85.4 223.7 86.9 290.5 285.8 411.8 564.4Effect of FX -2.2 0.4 -5.1 -8.9 26.7 16.4 - - -Cash end period 56.4 85.4 78.5 86.9 290.5 285.8 411.8 564.4 745.9


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HKD19 DCF-based target price We derive a HKD19 target price, offering 22%

potential return to Samsonite’s current price.

This is above the -1.50-18.5% Neutral band set by

HSBC on volatile stocks listed in Hong Kong.

Note that all stocks with less than 12 months of

trading history are considered volatile.

Three-step DCF approach

The first three-years of explicit (2011-13) and

semi-explicit (2014-21) assumptions with

above-world GDP growth rates and slight

margin expansion

Following 20 years of more sluggish growth

And eight years (2041-48) of fade.

Beta, WACC…

For Samsonite’s DCF, we use a 1.2 sector beta to

take into account the limited barriers to entry in

the sector, meaning current growth rates for the

company may not prove sustainable. This is the

sector beta we use for the sporting goods industry

in Europe and the US (Nike, adidas, Puma) and

we consider the sector Samsonite operates in

contains similar risks.

To calculate our WACC, we follow our equity

strategists’ analysis. We use a risk-free rate of

3.5% and a market risk premium of 5%, similar to

other Hong Kong listed stocks. This seems all the

more relevant as 39% of Samsonite’s adjusted

EBITDA was generated in Asia in 2010.

64. Our DCF approach summarized

HSBC assumptions DCF, comprising

Risk-free rate (%) 3.5 EBIT growth 11-21 7.1% Equity premium (%) 5.0 EBIT growth 22-40 2.1% Sector beta 1.2 Fading period 2040-48 Specific beta 1.0 WACC 9.50%

Source: HSBC estimates

Peer group comparison We found very few listed comparable companies.

VF Corp, one of Samsonite’s largest competitors,

is not a pure play on travel bags and accessories

but derives the majority of its sales and profit

from apparel and footwear with brands like

Wrangler, Van’s or The North Face. We have

however chosen to cross-check our DCF approach

with a peer group, made up of companies which:

Valuation

To remain consistent across our consumer coverage globally, we

use DCF to value Samsonite

We derive a target price of HKD19, offering 22% potential return;

we initiate coverage with Overweight (V)

We cross-check our DCF-derived TP using a sum-of-the-parts

and peer comparison

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1 have in common a strong brand visibility

2 have a similar business model to Samsonite

(share of wholesale vs. retail, use of

outsourcing vs. in-house manufacturing)

3 are listed in Hong Kong

Travel related companies

We have also looked at companies that rely on

travellers, such as airlines, hotels, tour operators

and duty free operators. However, as the business

models are very different, we have come to the

conclusion that these businesses are not correct

proxies for what Samsonite should be trading at.

Narrowed down list of peers

From there, we narrowed down the list of peers

based on earnings CAGR (2011-13e CAGR

reaches 23.3% at Samsonite on our forecasts):

Belle (1880 HK, HKD14.9, N(V)), China Lilang

(1234 HK, HKD12.3, N(V)), Hengdeli (3389 HK,

HKD5, OW(V)) and L’Occitane (973HK,

HKD24, OW).

The peer group is currently trading at 22.8x

CY11e earnings and 18.3x CY12e, in line with

Samsonite on our forecasts.

Sum-of-the-parts We have taken the view that the business model

the company has developed in Asia is distinct

within the group (strong reliance on retail, pricing

power, c20% EBITDA margins) and would be

quite difficult to replicate elsewhere. In the West,

while growth rates should be impressive in 2011-

12 following the repositioning of the brand

(moving from global products imposed on the

countries to better adapted regional initiatives),

we doubt these will be sustainable over the long

term and remain convinced that margins will not

catch up with those seen in Asia.

So we believe it makes sense to value the

company on a sum-of-the-parts approach, looking

at the Asian parts of the business separately from

what happens in the rest of the world.

In Asia, growth rates and EBITDA margin for

the group are in line with a sample of luxury

goods/premium consumer names we cover.

In the rest of the world, while for now we see

strong growth rates, we believe EBIT margin

should be lower and, to that extent, believe Nike

is a good proxy.

Using the 2010 contribution of Asia and other

regions to EBITDA, we derive an average PE of

18.0x 2012e, in line with Samsonite, on our target

price and estimates.

65. Sum-of-the-parts – calendarized PEs

Price Mcap Reporting _____________ P/E (x) ______________Luxury peers Ticker 25-Jul (USDm) currency 2011e 2012e 2013e

BURBERRY GROUP BRBY LN 1,598.0 11,340 GBP 27.6 23.4 20.6 CIE FINANCI-BR A (2) CFR VX 52.6 37,451 EUR 22.1 18.8 17.0 LVMH MOET HENNES MC FP 129.9 94,742 EUR 21.4 18.7 16.4 SWATCH GROUP-BR UHR VX 426.8 27,984 CHF 18.0 15.7 14.0 Mean 22.3 19.2 17.0 Sporting goods NIKE INC -CL B NKE US 91.7 43,482 USD 20.0 17.3 14.9 Breakdown of EBITDA at Samsonite* Asia 39% 0.39 x Mean + 0.61 x Nike 20.9 18.0 15.7 Rest of the World 61%

Source: Bloomberg

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66. Our peer universe

BLM Pricing Price Mcap Report Rating _____________EPS______________ _ CAGR (%) ___ ________ P/E __________ _____EV/ EBITDA ______ ______ ROE (%) _______ _______ EBIT margin (%)_________ _______ Net margin (%) ________ Companies Ticker ccy 25-Jul (USDm) ccy 2010 2011e 2012e 2013e 10-13e 11-13e 2011e 2012e 2013e 2011e 2012e 2013e 2011e 2012e 2013e 2010 2011e 2012e 2013e 2010 2011e 2012e 2013e

SAMSONITE INTL 1910 HK HKD 15.52 2,803 USD OW(V) 0.17 0.10 0.12 0.15 30.7* 23.3 23.7 18.8 15.6 8.7 6.7 5.1 15.5 15.8 16.7 n.a 14.40 15.40 16.80 8.7* 10.3 11.5 12.5 based on latest close 20.4 16.2 13.4 Hong Kong Listed Consumer goods companies ANTA SPORTS PROD 2020 HK HKD 12.2 3,892 CNY OW 0.62 0.72 0.83 0.96 15.4 15.0 13.9 12.1 10.5 9.3 7.6 6.1 29.4 29.4 29.5 23.5 23.4 23.2 23.8 20.9 20.1 19.3 18.7 BELLE INTERNATIO 1880 HK HKD 16.6 17,948 CNY N(V) 0.41 0.51 0.62 0.74 22.2 21.0 27.1 22.3 18.5 18.8 15.3 12.3 23.4 25.1 25.7 16.7 17.4 17.8 18.2 14.4 14.4 14.7 14.8 CHINA LILANG LTD 1234 HK HKD 10.2 1,575 CNY OW(V) 0.35 0.46 0.58 0.70 25.9 23.0 18.4 14.5 12.1 14.1 10.3 7.9 27.6 30.0 30.1 23.3 23.6 24.4 24.8 20.4 20.5 20.4 19.7 HENGDELI HOLDING 3389 HK HKD 4.2 2,360 CNY OW(V) 0.13 0.16 0.20 0.25 22.8 25.2 22.0 17.4 14.1 12.5 10.1 8.1 16.2 18.2 19.6 10.1 10.9 11.2 11.4 6.7 7.0 7.2 7.5 LI NING CO LTD 2331 HK HKD 9.2 1,252 CNY UW(V) 1.06 0.55 0.63 0.71 -12.4 13.4 13.8 12.1 10.8 6.7 5.5 4.7 16.4 15.8 16.1 16.4 8.9 9.5 10.1 11.7 6.6 6.9 7.2 L'OCCITANE INTL 973 HK HKD 20.8 3,933 EUR OW 0.07 0.08 0.10 0.12 20.7 22.5 23.6 19.1 15.7 12.9 10.2 8.1 22.1 20.7 21.0 17.2 17.7 18.3 18.9 12.9 13.2 13.7 14.2 PORTS DESIGN LTD 589 HK HKD 17.5 1,280 CNY OW(V) 0.84 0.94 1.16 1.36 17.4 20.0 15.4 12.6 10.7 10.8 8.5 6.9 30.4 31.8 32.1 29.0 32.0 33.1 33.4 27.5 26.3 26.4 25.6 TRINITY LTD 891 HK HKD 8.2 1,774 HKD OW(V) 0.22 0.29 0.38 0.49 31.5 31.3 28.6 21.5 16.6 20.1 14.9 11.2 18.5 20.7 24.4 20.3 23.2 25.3 26.5 16.9 18.7 20.1 21.0 Mean sub-group 20.4 16.4 13.6 13.1 10.3 8.2 23.0 24.0 24.8 19.5 19.6 20.3 20.9 16.4 15.8 16.1 16.1 Mean selected peers 22.8 18.3 15.1 14.6 11.5 9.1 22.3 23.5 24.1 16.8 17.4 17.9 18.4 13.6 13.8 14.0 14.0 Global consumer ADIDAS AG ADS GY EUR 55.3 16,622 EUR OW 2.71 3.22 3.81 4.44 17.9 17.4 17.2 14.5 12.5 8.9 7.6 6.4 13.8 14.8 15.9 7.5 7.9 8.5 9.1 4.7 5.2 5.7 6.3 COACH INC COH US USD 66.8 19,613 USD N 2.77 3.07 3.53 1.93 -11.4 -20.8 21.7 18.9 34.7 12.4 10.6 N.A. 57.5 53.3 N.A. 31.9 31.2 31.8 N.A. 20.4 21.1 21.5 N.A. HENNES & MAURI-B HMB SS SEK 217.9 56,847 SEK UW 10.82 9.97 11.74 13.31 7.2 15.5 21.9 18.6 16.4 13.4 11.4 10.0 37.8 42.7 44.6 22.7 19.6 20.4 20.7 17.2 14.9 15.7 15.8 INDITEX ITX SM EUR 65.0 58,239 EUR OW 2.74 3.02 3.39 3.84 11.9 12.8 21.5 19.2 16.9 11.3 9.8 8.4 27.6 27.6 29.7 18.3 18.1 18.2 18.4 13.8 13.7 13.8 14.2 LIMITED BRANDS LTD US USD 40.2 12,358 USD N.R. 1.97 2.42 2.76 3.12 16.5 13.4 16.6 14.5 12.9 7.5 6.8 N.A. 63.5 83.9 80.2 13.4 14.6 15.4 15.4 8.4 7.5 8.0 8.4 NIKE INC -CL B NKE US USD 91.7 43,482 USD OW 4.17 4.58 5.29 6.14 13.7 15.8 20.0 17.3 14.9 11.8 10.6 9.7 21.3 21.9 N.A. 13.5 13.1 13.5 13.8 10.2 9.8 10.0 10.3 VF CORP VFC US USD 120.5 13,183 USD N.R. 6.46 8 9 10 16 15 15.7 13.8 12.0 10.0 8.9 8.5 19.3 19.2 18.8 13.3 13.2 13.2 14.0 7.4 9.5 9.6 9.8 Mean 19.2 16.7 17.2 10.8 9.4 8.6 34.4 37.6 37.9 17.2 16.8 17.3 15.2 11.7 11.7 12.0 10.8 Luxury brands BURBERRY GROUP BRBY LN GBp 1,598.0 11,340 GBP N 0.46 0.58 0.68 0.78 18.8 15.8 27.6 23.4 20.6 15.4 12.9 11.2 32.2 31.6 30.1 20.1 19.9 21.0 21.6 13.9 14.7 15.4 16.1 CIE FINANCI-BR A CFR VX CHF 52.6 37,451 EUR OW 1.83 2.05 2.41 2.68 13.4 14.1 22.1 18.8 17.0 11.8 10.1 8.9 17.9 18.3 18.1 19.7 20.2 21.7 22.6 15.8 15.8 16.1 16.6 LUXOTTICA GROUP LUX IM EUR 22.4 15,021 EUR N 0.86 1.08 1.24 1.41 17.8 14.6 20.8 18.0 15.8 10.6 9.3 8.3 14.8 15.7 16.4 12.3 13.6 14.2 14.8 6.9 8.0 8.7 9.3 LVMH MOET HENNES MC FP EUR 129.9 94,742 EUR N 6.19 6.06 6.96 7.90 8.5 14.1 21.4 18.7 16.4 12.0 10.4 9.2 15.9 16.6 17.2 21.3 21.6 22.2 22.9 14.9 13.1 13.8 14.3 SWATCH GROUP-BR UHR VX CHF 426.8 27,984 CHF OW 20.28 24 27 31 15 14 18.0 15.7 14.0 10.6 9.0 7.8 16.7 16.7 16.5 23.5 23.9 24.7 25.0 17.6 19.0 19.8 20.1 Mean 22.0 18.9 16.8 12.1 10.3 9.1 19.5 19.8 19.7 19.4 19.8 20.8 21.4 13.8 14.1 14.7 15.3 Travel related - given for reference only ACCOR SA AC FP EUR 31.3 10,224 EUR N.R. 0.93 1.33 1.68 1.97 28.4 21.9 23.6 18.7 15.9 7.5 6.4 5.7 7.9 9.8 11.5 7.5 8.6 9.4 9.8 60.5 4.8 5.8 6.4 CARNIVAL CORP CCL US USD 36.6 30,180 USD OW 2.42 2.47 3.04 3.67 14.9 21.9 14.8 12.0 9.9 10.0 8.6 7.4 8.3 9.5 N.A. 16.2 15.4 17.3 18.2 13.7 12.4 14.4 15.7 DUFRY GROUP-REG DUFN SW CHF 98.6 3,300 CHF N.R. 6.59 6.09 7.39 8.60 9.3 18.8 16.2 13.3 11.5 9.0 7.5 6.1 18.3 19.4 19.3 7.6 9.1 9.9 10.2 4.5 6.2 7.0 7.5 INTERCONTINENTAL IHG LN GBp 1,264.0 5,973 USD N.R. 0.99 1.13 1.28 1.46 13.9 13.7 18.3 16.1 14.1 10.5 9.0 7.8 91.0 69.0 53.8 27.3 29.7 31.4 32.7 18.0 19.2 20.4 21.4 ROYAL CARIBBEAN RCL US USD 36.5 8,294 USD N(V) 2.51 3.16 3.77 4.30 19.6 16.6 11.5 9.7 8.5 9.8 8.6 7.4 8.3 9.1 9.2 11.9 13.0 14.3 14.9 8.1 9.1 10.2 10.8 STARWOOD HOTELS HOT US USD 57.9 11,289 USD N.R. 1.25 1.71 2.34 2.99 33.8 32.4 33.9 24.7 19.3 13.7 11.5 10.1 12.0 15.4 19.0 10.4 11.8 13.5 15.0 9.4 5.9 7.5 8.8 THOMAS COOK GROU TCG LN GBp 69.9 996 GBP N.R. 0.22 0.17 0.18 0.22 -0.1 13.0 4.1 3.8 3.2 3.0 2.7 2.2 8.9 9.9 N.A. 2.8 3.4 3.5 3.9 0.0 1.6 1.7 1.9 TUI TRAVEL PLC TT/ LN GBp 194.7 3,544 GBP N.R. -0.11 0.24 0.27 0.29 -240.0 10.7 8.2 7.3 6.7 3.4 3.0 2.6 13.3 15.4 16.1 3.2 3.5 3.7 3.8 -0.8 1.9 2.1 2.2 Mean 16.3 13.2 11.2 8.4 7.1 6.2 21.0 19.7 21.5 10.9 11.8 12.9 13.5 14.2 7.6 8.6 9.3

*: based on adjusted net income Source: Bloomberg for Not Rated stocks, HSBC estimates - All company data are calenderized

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Macro-economic factors Deteriorating macro-economics, epidemics, terrorist attacks or wars have had dramatic impacts on the travel market in the past. Sales of

luggage across the world are tightly correlated to these factors and so is Samsonite’s top line. Economic downturns represent a major but

unpredictable risk to the group’s revenues.

Commoditization We have taken the view in this note that the

luggage industry players can rely on differentiation to gain pricing power, particularly in Asia. If consumers start seeing luggage as a

commodity, they will not be not willing to pay for a brand, innovation or design. This would increase price competition among players in the industry,

which would possibly threaten gross margins.

Currency Around 77% of sales at Samsonite are generated in currencies other than the US dollar. We broadly estimate that 27% stemmed from the Eurozone in

2010, 8% from China (RMB), 4% from Hong Kong (HKD), 6% from India (INR) and 5% from South Korea (KRW). A weaker dollar will therefore favour

the group at the top line. Non-US subsidiaries hedge themselves by entering into forward inventory purchase contracts, up to 12 months forward.

At the operating level, products are sourced in USD from Asia, which provides a natural hedge against RMB rise. However, were the RMB to

appreciate, the group would eventually have to pay more its suppliers in USD terms. Hedging just postpones the impact in the longer term.

A strong USD is generally a risk for the earnings

of the company.

Legal issues Samsonite is currently facing two lawsuits, one of

which could negatively affect sales. From 2002 to 2004, Samsonite tested the use of a light plastic-derivatives material called «Pure », developed by

Lankhorst Pure Composites BV. This was to be potentially used in the manufacturing of suitcases but was unsuccessful. In May 2010, Lankhorst

filled a lawsuit against Samsonite in the Netherlands, as it claims full or least co-ownership of the patents related to the Curv production

process (used in the manufacturing of the top-selling Cosmolite model for instance). In 2010, the Cosmolite and Cubelite lines (outer shells are both

made from Curv) generated together about 8.5% of sales (or less than USD103.3m).

If full ownership were to be granted to Lankhorst,

Samsonite would have to set up a licensing agreement with Lankhorst for use of its technology. It would have to hold the production of Curv-based

collections, and would likely see its competitors starting to produce Curv-made luggage. It may also have to pay damages to Lankhorst for the lost

opportunity it may have faced. If half ownership were to be granted, the production of Curv-based suitcases would not be threatened, but may allow

Lankhorst to license the technology to competitors. No injunction against the current use of the technology has been raised, so production has not

been threatened so far.

The second lawsuit Samsonite is facing is related to the bankruptcy of its former affiliate

Energyplast. Samsonite is being sued by former employees and by the liquidators of the company on various claims, including the non-payment of

social charges and potential irregularities in the sale of the manufacturing facility. These together represent EUR13-14m worth of claims.

Key risks

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The travel market

Appendices

1. Top-30 countries by size of the economy in 2050

__ Income per capita (constant 2000 USD) ___ Population in 2050 (m)Rank Country Size of economy in 2050 (bn, constant 2000 USD)

Rank in 2010

Rank change between now and 2050 2050 2010

1 China 24,617 3 2 17,372 2,396 1,4172 US 22,270 1 -1 55,134 36,354 4043 India 8,165 8 5 5,060 790 1,6144 Japan 6,429 2 -2 63,244 39,435 1025 Germany 3,714 4 -1 52,683 25,083 716 UK 3,576 5 -1 49,412 27,646 727 Brazil 2,960 9 2 13,547 4,711 2198 Mexico 2,810 13 5 21,793 6,217 1299 France 2,750 6 -3 40,643 23,881 6810 Canada 2,287 10 0 51,485 26,335 4411 Italy 2,194 7 -4 38,445 18,703 5712 Turkey 2,149 18 6 22,063 5,088 9713 South Korea 2,056 11 -2 46,657 16,463 4414 Spain 1,954 12 -2 38,111 15,699 5115 Russia 1,878 17 2 16,174 2,934 11616 Indonesia 1,502 21 5 5,215 1,178 28817 Australia 1,480 14 -3 51,523 26,244 2918 Argentina 1,477 16 -2 29,001 10,517 5119 Egypt 1,165 35 16 8,996 3,002 13020 Malaysia 1,160 37 17 29,247 5,224 4021 Saudi Arabia 1,128 23 2 25,845 9,833 4422 Thailand 856 29 7 11,674 2,744 7323 Netherlands 798 15 -8 45,839 26,376 1724 Poland 786 24 0 24,547 6,563 3225 Iran 732 34 9 7,547 2,138 9726 Colombia 725 39 13 11,530 3,052 6327 Switzerland 711 20 -7 83,559 38,739 928 Hong Kong 657 25 -3 76,153 35,203 929 Venezuela 558 36 7 13,268 5,438 4230 South Africa 529 28 -2 9,308 3,710 57

Source: HSBC calculations, from The World in 2050

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2. Top-10 countries by population, 1950, 2010, 2050

_______________ 1950 ________________ _______________ 2010 _________________ _______________ 2050e________________ Rank Country Population (m) Rank Country Population (m) Rank Country Population (m)

1 China 562.6 1 China 1,330.1 1 India 1,656.6 2 India 369.9 2 India 1,173.1 2 China 1,303.7 3 USA 151.9 3 USA 310.2 3 USA 439.0 4 Russia 101.9 4 Indonesia 243.0 4 Indonesia 313.0 5 Japan 83.8 5 Brazil 201.1 5 Pakistan 290.8 6 Indonesia 83.0 6 Pakistan 184.4 6 Ethiopia 278.3 7 Germany 68.4 7 Bangladesh 156.1 7 Nigeria 264.3 8 Brazil 53.4 8 Nigeria 152.2 8 Brazil 260.7 9 United Kingdom 50.1 9 Russia 139.4 9 Bangladesh 250.2 10 Italy 47.1 10 Japan 126.8 10 Philippines 172.0

Source: US Census Bureau - International Database (1950-2050e)

3. Domestic trips versus international visitors, USA, 2006-13e

2006 2007 2008 2009 2010 2011 2012 2013

Total international visitors to the US (m) 51.0 56.0 57.9 54.9 59.3 61.5 64.4 66.9 % change yoy 10% 3% -5% 8% 4% 5% 4% Total domestic person-trips* (m) 2,000.5 2,004.5 1,964.9 1,898.8 1957.2 1,992.5 2,032.4 2,080.7 % change yoy 0% -2% -3% 3% 2% 2% 2% Business 508.7 494.3 461.1 431.1 449.0 460.8 469.0 476.5 Leisure 1,491.8 1,510.2 1,503.8 1,467.6 1,508.2 1,531.7 1,563.4 1,604.1

Source: US Travel Association, HSBC

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The luggage market

Samsonite’s specifics

4. Global luggage market, retail sales value (USDbn) and est. growth rate, 2010-15e

Region 2010 2015e CAGR

North America 7.2 8.6 3.7% Asia ex-Japan 5.4 9.3 11.5% Japan 4.5 4.2 -1.4% India 1.3 3.2 15.4% China 0.9 1.9 19.2% Europe 5.9 7.2 4.0% Latin America 1.7 2.3 5.9% World 24.7 31.6 5.0%


5. Asian luggage market, breakdown of retail sales, 2010 6. Asian luggage market, est. breakdown of retail sales, 2015e

Japan46%

Other Asia28%

China13%

South Korea

4%India

9%

Japan

31%

Other Asia27%

India14%

China24%

South Korea

4%


7. Top-10 countries by sales (USDm): No Japan to be seen

2008 % of total sales 2009 % of total sales 2010 % of total sales

USA 329.4 26.6% USA 265.3 26.1% USA 281.9 23.4% Italy 95.0 7.7% Italy 70.0 6.9% China 91.8 7.6% Other Europe 67.4 5.5% China 66.4 6.5% India 77.9 6.5% Belgium 64.9 5.2% India 50.8 5.0% Italy 69.2 5.7% China 60.5 4.9% Other Europe 50.4 5.0% South Korea 62.5 5.2% Spain 56.7 4.6% Belgium 43.6 4.3% Belgium 51.0 4.2% Germany 55.3 4.5% France 43.5 4.3% France 48.2 4.0% France 52.8 4.3% Spain 40.6 4.0% Other Europe 47.3 3.9% India 49.3 4.0% Germany 39.8 3.9% Germany 46.7 3.9% South Korea 40.7 3.3% South Korea 35.6 3.5% Hong Kong 42.5 3.5% Exposure to EM in Top 10 17.3% 21.6% 33.5%

Source: Company data, HSBC - Belgium recorded cUSD51m worth of sales, USD33.7m of which are in fact direct shipments to other countries, as opposed to in-country sales

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8. China aided brand awareness survey, 2010 - travel bags

59.0

40.0

20.9 20.615.4 14.8 13.8 13.1 12.2 11.0

0.0

10.020.0

30.0

40.0

50.0

60.0

70.0

Samsonite Crow n American

Tourister

Diplomat Tumi Winpard Apple Dapai Victorinox ACE

Source: Frost & Sullivan, HSBC

9. China aided brand awareness survey, 2010 - business bags

36.8

27.0

21.017.1 16.3 14.9 13.9 13.5 13.3 11.3

0.05.0

10.015.020.025.030.035.040.0

Samsonite Crow n Diplomat Victorinox Dapai American

Tourister

Delsey ACE Tumi Winpard


10. China aided brand awareness survey, 2010 – casual bags

33.2

24.5

17. 715.5 14.4 14.2 12.5 12.0 11.7

9.8

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

Samsonite Crow n Diplomat Victorinox American

Tourister

Dapai Delsey ACE Tumi Winpard


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Price comparison 11. Price comparison - standard wheeled luggage - US non-sale retail price (May 2010)

Brand Soft-side model Retail price

(USD)

Hard-side model Retail price

(USD)

Overall luggage price

range (USD)

Source

Samsonite xSpace 30" Spinner luggage

480 F'Lite GT 31 320 200-600 http://shop.samsonite.com/

American Tourister

AT iLite DLX 29" 260 none - 80-300 http://shop.samsonite.com/?brand=at

Delsey Helium Hyperlite 28" Expandable Trolley

340 Helium Hyperlite 28" Expandable Trolley Hard

340 120-620 luggage.com

Rimowa none - Salsa 29" 684 540-1510 luggage.com Tumi Alpha 950 Tumi Vapor 545 345-1595 http://www.tumi.com/home/index.jsp

Source: HSBC Distribution 12. Breakdown of distribution channels across regions (December 2010)

Asia Europe North America Latin America Total

Wholesale Specialty / travel stores 2,931 6,387 5,454 1,488 16,260 Department stores 669 697 4,510 680 6,556 Mass merchants / discounters 1,165 15 11,098 1,290 13,568 Subtotal 4,765 7,099 21,062 3,458 36,384 Retail Own stores 150 58 89 71 368 Preferred dealers 324 27 0 15 366 Subtotal 474 85 89 86 734


Management structure Senior management

13. Senior management

Name Function Age At Samsonite since

Timothy Charles Parker Executive Director, Chairman and Chief Executive Officer 56 2009 Kyle Francis Gendreau Executive Director and Chief Financial Officer 42 2007 Ramesh Dungarmal Tainwala Executive Director and President, Asia-Pacific and Middle East 51 1995 Tom Korbas President, Americas 60 1994 Fabio Rugarli President, Europe 47 1989 John Henry Sullivan President, Latin America 59 1992 Robert Thomas Zielinski Chief Supply Officer 54 1985 (left in 90/94) Paola Tiziana Brunazzi Vice President, global design and development 48 2006 Andrew David Wells Chief Information Officer 51 2009 John Bayard Livingston Vice President, General Counsel and Joint Company Secretary -

responsible for legal matters worldwide 43 2006


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Board of directors

14. The board of directors (9)

Name Function Past experiences

Executive directors Tim Parker Chairman and Chief Executive Officer

Joined the group in 2008, as a non-executive Chairman. CEO of several companies, including Kwik-Fit (02-04), Clarks (97-02), Kenwood (89-95). Graduated from Oxford in 1977 and with a Masters in business studies from the London Business School (1981).

Kyle Gendreau Chief Financial Officer Joined in 2007 as vice president of corporate finance and treasury matters. Prior to joining, he was notably vice president of finance and CFO at Woots Corporation, a venture capital-backed start up company. He holds a BS in Business Administration from Stonehill College (1991).

3

Ramesh Tainwala President Asia-Pacific and Middle East

Founder of the Tainwala group (consumer goods and plastic processing), which has formed a JV with Samsonite in India since 1995. He holds a Masters degree in Management Studies from the Birla Institute of Technology and Science.

Non-executive directors Nicholas Clarry Senior managing director of private equity house CVC Capital Partners

Joined CVC in 2003. Currently a director of the Formula One Group (promoting Formula 1), and of The Autobar Group (vending machines). Previous experience includes mergers and acquisitions division at several investment banks. He holds a BA in Economics from the University of Cambridge (1993).

Bruce McLain Managing partner and co-founder of CVC Capital Partners

Currently a director of Fomula One, the Colomer Group and the Lecta Group. Former director of Punch Taverns, Spirit Group Holdings Ltd and Kappa Holding. He graduated from Duke University (1976) and holds a MBA in Finance and Marketing from UCLA (1981)

3

Keith Hamill Chairman of Tullett Prebon plc, and Alterian plc

Was appointed by RBS in 2009. He currently is a director of easyJet, Endell Group Holding, Max Property Group and Heath Lambert Ltd. Previous experiences include CFO of Forte plc, WH Smith and United Distillers. He holds a BA in politics from the University of Nottingham (1974).

Independent non-executive directors

Paul Etchells - Former deputy president of Coca-Cola Pacific (1997-2010), president of Coca Cola China (2002-07). Currently an independent non-executive director of Swire Properties Limited, in Hong Kong. He holds a BA in political studies from the University of Leeds (1971).

Miguel Ko Kai Kwun - Chairman and president of Starwood Hotels & Resorts in Asia Pacific. Currently holds two non-executive directorships in Changi Airport Group, Singapore and Royal Orchid Hotel (Thailand) plc. He graduated from the University of Massachusetts (1975) and holds a MBA from the University of Suffolk, US (1979)

3

Ying Yeh - Chairwoman of Nalco Greater China Region. Currently holds non-executive directorships at AB Volvo and InterContinental Hotels Group plc. Holds a BA in Literature and International Relations from National Taiwan University, Taiwan (1966)


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Corporate structure

15. Corporate structure as of May 2011

4.084% 6.473%

29.877% 33.490%

20.800%

5.276%

100%

40%60%

Delilah US Investments S.a.r.l

Delilah Europe Holdings S.a.r.l - Luxco VI

Local Subsidiaries / JV

Delilah Holdings S.a.r.l - Luxco I

Delilah Holdings S.a.r.l - Luxco III

Delilah Holdings S.a.r.l - Luxco IV

Delilah Holdings S.a.r.l - Luxco II

Tim Parker / Corelli LP

CVC Funds IV

CVC Tandem

Corelli Nominees Ltd

RBS

Other Lenders*

Management and employment benefit

trust


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Capital structure From 1994 to 2002, Samsonite was listed on

Nasdaq. As its market capitalization no longer

fitted the Nasdaq’s minimum requirements, it was

delisted in 2002. In July 2003, a consortium of

funds composed by Ares Management LLC, Bain

Capital Europe LP and Ontario Teacher’s Pension

Plan Board invested and recapitalized Samsonite

up to USD106m. In return, they gained more than

70% ownership of the group.

In 2007, as these funds held 85.5% of the group,

CVC Funds merged with and acquired Samsonite

through a subsidiary. Public investors and

management (through exercised previously

granted stock options) owned the remaining

14.5%. In June 2008, a “shareholder loan” was

granted to Samsonite by CVC Funds and part of

management.

The 2009 restructuring

In 2009, the group underwent a restructuring of its

debt. USD1.5bn worth of debt was written down

to cUSD240m in exchange for equity stake (class

A, B and C shares). CVC Funds, RBS and certain

member of the Samsonite’s management also took

part in a further USD110m cash equity investment

used to fund the restructuring.

Post this restructuring, CVC Funds held a 54%

stake in Samsonite. 30% belonged to RBS, and

10% was held by management, including 6.5% by

CEO Tim Parker.

The restructuring came with covenants, which

conditioned capex and the level of liquidity to

debt repayment. Capex is capped at USD40m in

2011 and USD26m for CY12-13, unless debt is

repaid. Also, if CVC were to own less than 50%

of the company, full repayment of the Senior

Facilities Agreement will be required.

The 2011 IPO

The June 2011 IPO was 16% primary and 84%

secondary shares (post exercise of the over-

allotment option). Free float now accounts for

49% of the share capital.

16. Shareholding structure as of July 2011

Free float49%

RBS

16%

CVC30%

Management5%


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Restated earnings 17. EBITDA adjustments – 2008-10 (USDm)

2008 2009 2010

Reported EBITDA -1,351.6 1,277.8 564.3 Gain on debt and equity restructuring

- 1,289.9 -

Restructuring charges -12.4 -65.1 -4.3 Impairment/(reversal of impairment) of intangible and fixed assets

-459.0 12.6 379.8

Impairment of goodwill -969.8 - - Share-based compensation - -1.3 -0.6 Charge for inventory acquired in business combination

-20.6 - -

Other adjustments -11.6 -14.5 -2.5 Adjusted EBITDA 121.8 56.2 191.9 Adjusted EBITDA margin 9.7% 5.5% 15.8%


18. Net income normalization adjustments – 2008-10 (USDm)

2008 2009 2010

Reported Net Profit/(Loss) -1,424.0 1,209.3 366.8 Profit/(Loss) Attributable to non-controlling interests 9.7 6.9 11.792 Profit/(Loss) Attributable to Equity Holders -1,433.7 1,202.4 355.0 Gain on debt and equity restructuring - 1,289.9 - Impairment of goodwill -969.8 - - (Impairment)/reversal of impairment of intangible assets and fixed assets -459.0 12.6 379.8 Restructuring charges -12.4 -65.1 -4.3 Change in fair value of put options -0.7 0.3 -8.8 Depreciation not recognized on impaired assets - 18.5 13.1 Amortization not recognized on impaired assets - 4.1 4.1 Amortization of intangible assets -8.4 -8.7 -8.5 Expenses related to current debt structure -157.6 -107.9 -22.3 Tax adjustments 44.4 -2.9 -103.6 Adjusted net income 129.9 61.7 105.6 Adjusted net income margin 10.4% 6.0% 8.7%


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Samsonite – products, distribution and advertising 19. Samsonite’s Cosmolite

Source: Company data

20. Samsonite’s B-Lite – extra light soft-side suitcases


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21. American Tourister - Soft-side luggage


22. Retail channel – Samsonite own-store in Shanghai


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23. Advertising spending - American Tourister in Hong Kong


24. Advertising spending - Samsonite business products in New York


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Disclosure appendix Analyst Certification The following analyst(s), economist(s), and/or strategist(s) who is(are) primarily responsible for this report, certifies(y) that the opinion(s) on the subject security(ies) or issuer(s) and/or any other views or forecasts expressed herein accurately reflect their personal view(s) and that no part of their compensation was, is or will be directly or indirectly related to the specific recommendation(s) or views contained in this research report: Erwan Rambourg

Important disclosures

Stock ratings and basis for financial analysis HSBC believes that investors utilise various disciplines and investment horizons when making investment decisions, which depend largely on individual circumstances such as the investor's existing holdings, risk tolerance and other considerations. Given these differences, HSBC has two principal aims in its equity research: 1) to identify long-term investment opportunities based on particular themes or ideas that may affect the future earnings or cash flows of companies on a 12 month time horizon; and 2) from time to time to identify short-term investment opportunities that are derived from fundamental, quantitative, technical or event-driven techniques on a 0-3 month time horizon and which may differ from our long-term investment rating. HSBC has assigned ratings for its long-term investment opportunities as described below.

This report addresses only the long-term investment opportunities of the companies referred to in the report. As and when HSBC publishes a short-term trading idea the stocks to which these relate are identified on the website at www.hsbcnet.com/research. Details of these short-term investment opportunities can be found under the Reports section of this website.

HSBC believes an investor's decision to buy or sell a stock should depend on individual circumstances such as the investor's existing holdings and other considerations. Different securities firms use a variety of ratings terms as well as different rating systems to describe their recommendations. Investors should carefully read the definitions of the ratings used in each research report. In addition, because research reports contain more complete information concerning the analysts' views, investors should carefully read the entire research report and should not infer its contents from the rating. In any case, ratings should not be used or relied on in isolation as investment advice.

Rating definitions for long-term investment opportunities

Stock ratings HSBC assigns ratings to its stocks in this sector on the following basis:

For each stock we set a required rate of return calculated from the cost of equity for that stock’s domestic or, as appropriate, regional market established by our strategy team. The price target for a stock represents the value the analyst expects the stock to reach over our performance horizon. The performance horizon is 12 months. For a stock to be classified as Overweight, the implied return must exceed the required return by at least 5 percentage points over the next 12 months (or 10 percentage points for a stock classified as Volatile*). For a stock to be classified as Underweight, the stock must be expected to underperform its required return by at least 5 percentage points over the next 12 months (or 10 percentage points for a stock classified as Volatile*). Stocks between these bands are classified as Neutral.

Our ratings are re-calibrated against these bands at the time of any 'material change' (initiation of coverage, change of volatility status or change in price target). Notwithstanding this, and although ratings are subject to ongoing management review, expected returns will be permitted to move outside the bands as a result of normal share price fluctuations without necessarily triggering a rating change.

*A stock will be classified as volatile if its historical volatility has exceeded 40%, if the stock has been listed for less than 12 months (unless it is in an industry or sector where volatility is low) or if the analyst expects significant volatility. However,

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stocks which we do not consider volatile may in fact also behave in such a way. Historical volatility is defined as the past month's average of the daily 365-day moving average volatilities. In order to avoid misleadingly frequent changes in rating, however, volatility has to move 2.5 percentage points past the 40% benchmark in either direction for a stock's status to change.

Rating distribution for long-term investment opportunities

As of 25 July 2011, the distribution of all ratings published is as follows: Overweight (Buy) 52% (24% of these provided with Investment Banking Services)

Neutral (Hold) 36% (18% of these provided with Investment Banking Services)

Underweight (Sell) 12% (18% of these provided with Investment Banking Services)

HSBC & Analyst disclosures Disclosure checklist

Company Ticker Recent price Price Date Disclosure

Samsonite 1910.HK 15.52 25-Jul-2011 1, 5Source: HSBC

1 HSBC* has managed or co-managed a public offering of securities for this company within the past 12 months. 2 HSBC expects to receive or intends to seek compensation for investment banking services from this company in the next

3 months. 3 At the time of publication of this report, HSBC Securities (USA) Inc. is a Market Maker in securities issued by this

company. 4 As of 30 June 2011 HSBC beneficially owned 1% or more of a class of common equity securities of this company. 5 As of 31 May 2011, this company was a client of HSBC or had during the preceding 12 month period been a client of

and/or paid compensation to HSBC in respect of investment banking services. 6 As of 31 May 2011, this company was a client of HSBC or had during the preceding 12 month period been a client of

and/or paid compensation to HSBC in respect of non-investment banking-securities related services. 7 As of 31 May 2011, this company was a client of HSBC or had during the preceding 12 month period been a client of

and/or paid compensation to HSBC in respect of non-securities services. 8 A covering analyst/s has received compensation from this company in the past 12 months. 9 A covering analyst/s or a member of his/her household has a financial interest in the securities of this company, as

detailed below. 10 A covering analyst/s or a member of his/her household is an officer, director or supervisory board member of this

company, as detailed below. 11 At the time of publication of this report, HSBC is a non-US Market Maker in securities issued by this company and/or in

securities in respect of this company Analysts, economists, and strategists are paid in part by reference to the profitability of HSBC which includes investment banking revenues.

For disclosures in respect of any company mentioned in this report, please see the most recently published report on that company available at www.hsbcnet.com/research.

* HSBC Legal Entities are listed in the Disclaimer below.

Additional disclosures 1 This report is dated as at 27 July 2011. 2 All market data included in this report are dated as at close 25 July 2011, unless otherwise indicated in the report. 3 HSBC has procedures in place to identify and manage any potential conflicts of interest that arise in connection with its

Research business. HSBC's analysts and its other staff who are involved in the preparation and dissemination of Research operate and have a management reporting line independent of HSBC's Investment Banking business. Information Barrier procedures are in place between the Investment Banking and Research businesses to ensure that any confidential and/or price sensitive information is handled in an appropriate manner.

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Disclaimer * Legal entities as at 04 March 2011 ‘UAE’ HSBC Bank Middle East Limited, Dubai; ‘HK’ The Hongkong and Shanghai Banking Corporation Limited, Hong Kong; ‘TW’ HSBC Securities (Taiwan) Corporation Limited; ‘CA’ HSBC Securities (Canada) Inc, Toronto; HSBC Bank, Paris Branch; HSBC France; ‘DE’ HSBC Trinkaus & Burkhardt AG, Düsseldorf; 000 HSBC Bank (RR), Moscow; ‘IN’ HSBC Securities and Capital Markets (India) Private Limited, Mumbai; ‘JP’ HSBC Securities (Japan) Limited, Tokyo; ‘EG’ HSBC Securities Egypt SAE, Cairo; ‘CN’ HSBC Investment Bank Asia Limited, Beijing Representative Office; The Hongkong and Shanghai Banking Corporation Limited, Singapore Branch; The Hongkong and Shanghai Banking Corporation Limited, Seoul Securities Branch; The Hongkong and Shanghai Banking Corporation Limited, Seoul Branch; HSBC Securities (South Africa) (Pty) Ltd, Johannesburg; ‘GR’ HSBC Securities SA, Athens; HSBC Bank plc, London, Madrid, Milan, Stockholm, Tel Aviv; ‘US’ HSBC Securities (USA) Inc, New York; HSBC Yatirim Menkul Degerler AS, Istanbul; HSBC México, SA, Institución de Banca Múltiple, Grupo Financiero HSBC; HSBC Bank Brasil SA – Banco Múltiplo; HSBC Bank Australia Limited; HSBC Bank Argentina SA; HSBC Saudi Arabia Limited; The Hongkong and Shanghai Banking Corporation Limited, New Zealand Branch

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Europe

Consumer Brands & Retail Antoine Belge Head of Consumer Brands and Retail Equity Research +33 1 56 52 43 47 [email protected]

Sophie Dargnies Analyst +33 1 56 52 43 48 [email protected]

Cedric Besnard Analyst +33 1 56 52 43 66 [email protected]

Jérôme Samuel Analyst +33 1 56 52 44 23 [email protected]

Tobias Britsch Analyst +49 211 910 1743 [email protected]

Paul Rossington Analyst +44 20 7991 6734 [email protected]

Food & Staples Retailing Suman Guliani Analyst +91 80 30013747 [email protected]

Anil Kumar T Analyst +91 80 3001 3749 [email protected]

Leisure Paris Mantzavras Analyst +30 210 696 5210 [email protected]

Specialist Sales

Lynn Raphael +44 20 7991 1331 [email protected]

David Harrington +44 20 7991 5389 [email protected]

Asia

Consumer Brands & Retail Erwan Rambourg Head of Consumer Brands and Retail Equity Research +852 2996 6572 [email protected]

Christopher Leung Analyst +852 2996 6531 [email protected]

Lina Yan Analyst +852 2822 4344 [email protected]

Walden Shing Analyst +852 2996 6751 [email protected]

Karen Choi Analyst +822 3706 8781 [email protected]

Sean Monaghan Analyst +65 6239 0655 [email protected]

Thilan Wickramasinghe Analyst +65 6239 0653 [email protected]

North & Latin America

Consumer & Retail Francisco J Chevez Analyst, Latin America & US +1 212 525 5350 [email protected]

Manisha A Chaudhry Associate, Latin America & US +1 212 525 3035 [email protected]

Beverages Lauren Torres Analyst, Global Beverages +1 212 525 6972 [email protected]

James Watson Analyst, Global Beverages +1 212 525 4905 [email protected]

Food & Agricultural Products Pedro Herrera Analyst, Global Food & Agricultural Products +1 212 525 5126 [email protected]

Ravi Jain Analyst, Global Food & Agricultural Products +1 212 525 3442 [email protected]

Diego T Maia Analyst, Food & Agricultural Products, Brazil +55 11 33718192 [email protected]

Household Durables Francisco Suarez Analyst, Household Durables, Mexico +52 55 5721 2173 [email protected]

Ramon Obeso Associate +52 55 2721 5623 [email protected]

Global Consumer Brands & Retail Research Team

mailto:[email protected]

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