Quotidien Corporate Finance News

Mercredi 9 Mai 2012

The case for listing: Kyle Gendreau CFO Samsonite

Samsonite CFO Kyle Gendreau tells Capital Insights how the luggage giant has overcome a series of industry shocks and explains why the company chose to be listed on the Hong Kong Stock Exchange

Kyle Gendreau
Kyle Gendreau
In recent years, Hong Kong has soared to the top of global IPO markets. More than half of the US$36.1b raised there in 2011 came from overseas IPOs, according to data provider Dealogic. This figure puts the New York Stock Exchange’s US$31.4b and London’s US$18.3b in the shade.

Tapping into this market, Samsonite completed its IPO on the Hong Kong Stock Exchange in June 2011, raising US$1.25b in the process. CFO Kyle Gendreau believes that Hong Kong was the “logical” listing venue for the luggage giant for both fundraising and strategic reasons.

“Asia is Samsonite’s biggest, fastest growing and most profitable region,” says Gendreau. “It’s also the region with the best long-term growth prospects for us.”

Raising the stakes

The background to the IPO comes from Samsonite’s close links to the travel industry. Shocks such as the 9/11 attacks in 2001, the SARS epidemic in 2003 and the global financial crisis in 2008 and 2009 put pressure on the travel industry, leaving the company under significant financial stress. The need to raise capital was of paramount importance.

“The effects of those events typically lasted up to six months before the business recovered and returned to a growth trend. Before Samsonite’s restructuring of both its operating model and debt in 2009, these unforeseen crises put the company under pressure because of the high leverage,” says Gendreau. “We utilized a portion of our IPO proceeds and cash-in-hand to repay our debt so the company now has a strong capital structure in place. As such, we are today much better placed to weather any economic downturn.”

The funds also allowed a partial exit for its backers, enabling UK private equity firm CVC Capital Partners — which bought the company in 2007 — and Royal Bank of Scotland, to sell down their stakes from 54.3% to 29.8%, and from 29.9% to 15.8% respectively.

“The IPO was really the best refinancing option in that it enabled the shareholders to achieve liquidity while allowing them to retain significant exposure to Samsonite’s future growth,” says Gendreau. “A listing also opens an additional avenue for fundraising for future expansion if we were to deem this appropriate.”

However, he underlines Samsonite’s asset-light and low fixed-cost business model, whereby most of its production is now outsourced to Asia and only some manufacturing has been retained in-house, minimizing capital needs.

“The business itself is highly cash-generative, so we currently do not envisage any need to access the capital markets post-IPO to fund our operations.”

IPO ups and downs

The IPO has not been a completely smooth ride. The fundraising, although substantial, was short of the company’s US$1.5b target. What’s more, Samsonite shares suffered some turbulence, falling sharply on their first day of trading and in subsequent weeks — drifting from their HK$14.5 (US$1.9) initial price down to HK$9.25 (US$1.19) by November as a result of challenging market conditions, although the business itself continued to perform in line with expectations.

However, with the shares having made a spirited charge back toward their IPO level, in February they reached HK$14 (US$1.8) again.

Expansion in Asia

Raising capital was not the only motivation for the flotation. According to the CFO, the move was strategically advantageous.

“Listing on the Hong Kong Exchange helped to significantly raise our profile and that of our brands — especially in Asia, which has yielded excellent operational benefits,” says Gendreau. “The expansion of our business in the region is a key focus for Samsonite, given our belief in the significant growth potential in this market over the next five years plus.”

Prior to the IPO, Asia was already the group’s largest and most profitable market, representing 33% of the group’s net sales. But Gendreau maintains that the continent will become an even larger part of the business in the future, as it drives the company’s growth. So a listing in the region was important.

“We wanted our valuation to fully reflect Samsonite’s superior growth prospects because of our exposure to Asia, and, in particular, China,” says Gendreau. “Hong Kong is at the doorstep of China. The listing in Hong Kong helps to increase Samsonite’s brand profile in China and Asia overall.”

Key demographic

One of the specific attractions of the Asian market is its growing middle class. The region is now home to 40% of the global luggage market. Growth in this sector stems from increased spending on travel and tourism, which arises from the general upsurge in disposable income in Asia.

Gendreau notes that, based on the number of travelers, China currently has the largest tourism industry in the world. Retail sales of the Chinese luggage market are forecast to reach US$3.2b in 2015, according to the World Travel & Tourism Council.

“China is our largest market in Asia and is characterized by its preference for premium or aspirational products. Brand is very important to Chinese consumers,” says Gendreau.

“But we are not only focusing on China. In terms of other emerging markets, we see many opportunities, including Indonesia as one of our largest potential growth areas.”

Organic growth or acquisition?

As for the future, Samsonite’s CFO is very focused on delivering organic growth but doesn’t discount acquisitions entirely.

“Following the IPO, Samsonite is debt-free and cash-generative, giving us significant capacity to look at opportunities as they arise and if they make sense for us,” says Gendreau.

Consequently, the company is continuing to invest in new technology, brands and its distribution network. And Gendreau seems confident in this approach. “We believe that this strategy leaves us well positioned to take the lion’s share of the growth in the luggage market in the next few years.”

Interview from Capital Insights by Ernst & Young - March 28, 2012

About capital insights
Capital Insights is a quarterly magazine produced by Ernst & Young. The publication seeks to help businesses manage their capital agenda by examining the latest developments around raising, investing, preserving and optimizing capital.
Each edition features analysis, trends and commentary around managing capital in the current economic and regulatory environment, and provides first-hand insights from business leaders on how they are steering their organizations through volatility towards success.
Capital Insights magazine is distributed through the Financial Times newspaper and by Ernst & Young’s network of member firms to over 180,000 readers across Europe, the Middle East, India and Africa (EMEIA).

Samsonite: key facts and figures
Founded: 1910
Employees: 6,150 (as of 30 June 2011)
Countries: 100
Market capitalization: HK$19.7b (US$2.5b)

The CFO: Kyle Gendreu
Born: USA, 1969
Appointed at Samsonite: June 2007
Educated: Stonehill College, Easton, Massacheusetts
Previous positions:
1999-2007: CFO, Zoots Corporation
1996-2001: Director, Financial Reporting, Speciality Catalog Corp
1991-1996: Manager, Coopers & Lybrand

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