The Business Turnaround. The Business Turnaround Case Study

The Business Turnaround

The Business TurnaroundCase Study

Define Current Business State

Define Desired Business State

Be Realistic}

Key Considerations of Current & Future States

• Brand• Category• Competitive Situation• Consumer• Channel Dynamics• Company

-Key Strengths & Competencies To Be Exploited-Key Problems & Opportunities for Significant Improvement

Brand

• Global• Leading• Growing

Category Dynamics

• Growing – Worldwide – Mature and Emerging Markets• Category Will:

-Be Around for a Long Time-Continue to Grow

Competition

• No Truly Global Competitor• Weak Competition – None More Than 15% Samsonite’s Size• Very Fragmented; Susceptible to Global Consolidation

Consumer Needs

• Product Features:

• Styling:

- Best in Class -Ease of Mobility-Ease of Handling-Internal Organization

- Consumer-Preferred -Traditional-Casual-Fashion Forward

Channels of Distribution

• Luggage Specialty and Department Stores• National, Mid-priced Department Store Chains• Mass Merchandisers• Club Stores• Samsonite Owned Stores

Company

Already Has:-Proven Record of Innovation-Proven Ability to Expand Into New Geography-Proven Products, Marketing, Sales & Distribution

Needs: -Clearly Defined Programs to Reduce SG&A and Cost of Sales-Clearly Defined Programs to Globalize Best Practices, Including Product and Brand Marketing, as well as Manufacturing,

Sourcing, and & Operational Systems

Samsonite Situation Summary• Leading Global Brands• Growing Worldwide Category• Multiple Channel Strategy Opportunities• Winning Competitive Position• Broad Consumer Appeal• Proven Innovative Global & Successful Company

But… -Poor Cost Structure-Poor Global Competitor-Poor Global Best Practices-Poor Global Business Building Strategies

Define Desired Business State for Company/Brand• From the Standpoint of the Consumer• From the Standpoint of Wall Street

Consumer Vision of Samsonite

An innovative, state of the art, best quality, luggage and travel accessory global leader, Samsonite does the best job of making travel easy and stylish for everyone in the world, at each key price point within the category. The brand is readily accessible for purchase, conveniently, on a global basis.Wall Street Vision of Samsonite

A highly competent, trustworthy, innovative and successful, global company, possessing a healthy global leadership brand, capable of reliably generating sustained, double-digit earnings growth, at a strong return on equity, for the foreseeable future.

Net…A Healthy, Growing and Very Profitable Global Luggage

Brand/Company

Define Measurable Criteria Necessary to Achieve Consumer and Wall Street

Vision

Define Measurable Criteria Necessary to Achieve Consumer and Wall Street Vision

Consumer Criteria:-Brand Positioning

-Target Audience Definition-Advertising & Media Plan-Products

-Features-Styling-Price Points-Customer Service Requirements

>>>

ByTradeChannel

GLOBALLY BENCHMARKED VERSUS COMPETITION

-By Trade Channel


Wall Street Criteria:-P&L Double-Digit Growth-Double-Digit Top Line

Performance-Return on Equity-Free Cash Flow & Accretive

Plan for Use-Collaborative, Communicative

and Helpful-No Disappointments-Consistent Pleasant Surprises



Consumer Criteria:-Brand Positioning

-Target Audience Definition-Advertising & Media Plan-Products

-Features-Styling-Price Points-Customer Service Requirements

>>>

ByTradeChannel


-By Trade Channel

Wall Street Criteria:-P&L Double-Digit Growth-Double-Digit Top Line

Performance-Return on Equity-Free Cash Flow & Accretive

Plan for Use-Collaborative, Communicative

and Helpful-No Disappointments-Consistent Pleasant Surprises

Define the Plans and Strategies Necessary

to Achieve Vision

Top Management Priorities

Top Management Priorities – Define the Plans and Strategies Necessary to Achieve Vision

• Organizational Effectiveness• Financial Considerations• Business Growth Opportunities

Organizational Effectiveness

•Top Management Priorities – Define the Plans and Strategies Necessary to Achieve VisionLeadership Team

-Pick the Winning Team ASAP-Typically a Combination of the Best Inside the Company and Key Proven Executives Chosen from the Outside – Ideally People You Know and Trust-Senior Management Team

-Fill Core Competency Outages

>>

TopPriorities


•Top Management Priorities – Define the Plans and Strategies Necessary to Achieve VisionOrganizational Structure

-Simplify, Make Flexible, Nimble & Responsive-Design to be the Best Capable of Implementing Strategies Successfully and to Achieve Objectives-Eliminate Redundancies

“An organization is Perfectly Designed to Get the Results it Achieves.”

“Organizational Design Must Consistently Reflect Strategic Results to

be Achieved.”


•Top Management Priorities – Define the Plans and Strategies Necessary to Achieve VisionOrganizational Incentives

-Consistent with Shareholder Value-Consistent with Strategic Objectives

Organizational Effectiveness•Top Management Priorities – Define the Plans and Strategies Necessary

to Achieve VisionLeadership Team-Pick the Winning Team ASAP-Typically a Combination of the Best Inside the Company and Key Proven Executives Chosen from the Outside – Ideally People You Know and Trust-Senior Management Team

-Fill Core Competency Outages

>>

TopPriorities

Organizational Structure-Simplify, Make Flexible, Nimble & Responsive-Design to be the Best Capable of Implementing Strategies Successfully and toAchieve Objectives-Eliminate Redundancies“An organization is Perfectly Designed to Get the Results it Achieves.”

“Organizational Design Must Consistently Reflect Strategic Results to be Achieved.”

Organizational Incentives-Consistent with Shareholder Value-Consistent with Strategic Objectives


•Financial ConsiderationsCost Structure Improvements

-Cost of Sales-SG&A


•Cost of Sales-Raw Material Costs-Manufacturing Costs-Stocking or Warehousing Costs-Freight Costs


•Raw Materials-“Ask and You Shall Receive” – Put Pressure on Vendors for Lower Costs- Concentrate Your Business with Fewer Suppliers – Trade More Business for Lower Costs- Learn What Causes Supplier Costs to be High on Our Raw Materials – If Possible, Eliminate These Specifications


•Manufacturing-Benchmark Global Best Practices-Search and Reapply These-Insure all Processes Operated with Statistical Control and Measurement-Insist on Improving Reliability, Line Efficiencies, and Preventive Maintenance-Insist on a State-of-the-Art, High Commitment Work System – Skill Based, Team Based, and Outcome Based


Net: Examine: Every Way Money is Spent

Ask: How to Eliminate or Lower Cost

Consider: Outsourcing Anything That can be

Done Cheaper Yet at Right Quality and Reliability


•Balance Sheet-Increase Payables-Decrease Receivables-Monetize ALL Non-Strategic Assets-Manage Capital Spending Down to a Level Equal to Depreciation-Reduce “Work in Progress”

-Globally Standardize Component Products Whenever Possible

-Have Suppliers Carry Raw Material Inventories-Consider Outsourcing Components and/or Small Parts

-Manage Finished Product Inventories to 45 Days or Less-Consider Moving More Toward Just-in-Time Manufacturing,

Sourcing and Forecasting Systems-Reduce SKUs by 20-40%

-Analyze SKU Profitability & Realization Contribution-Manage Debt Down and Reduce Cost of Debt


•Business GrowthTop Line Growth Acceleration Plan

-Product Architecture-Pricing-Margin Mix

-Expansion into New but Related Category Segments-Marketing/Sales Initiatives

-Brand Positioning/Advertising/Target Audience

-Trade Channel Strategy-Vertical Integration Into Retail-Geographic Expansion


•PDCA – Plan, Do, Check, ActEstablish, Monitor, and Control Systems

-Insure Information Systems are Accurate and Credible

SamsoniteGame Plan

Samsonite Game Plan

•New Management Team•Structural Cost Improvements•Significantly Improved Product and Pricing Global Line-up•Accelerated Top-Line Growth•Improved Balance Sheet

•Strengthened Financial Position•Exceptional Earnings Potential

Structural Cost Improvements

•Streamlining Organization•Global Sourcing of Products/Raw Materials•Product/Component Standardization•Cost Control Measures


Streamlining Organization

Distrib ution

Sa les

M a rke ting

De sig n/ R&D

Sa m sonite

Distrib ution

Sa les

M a rke ting

De sig n/ R&D

La rk

Distrib ution

Sa les

M a rke ting

De sig n/ R&D

A m e ric a n Tourister

O ld Sa m sonite

De sig n/ R&D

Ha rd side

De sig n/ R&D

Softside

Ne w Sa m sonite

Sa les & Distribution

M a rke ting


USA WholesaleUSA RetailOther AmericasEuropeFar East

•12% Worldwide Reduction•33% Worldwide Core Corporate Reduction•Expected Savings of $10+ Million

Headcount

10/31/961,550

7293,4812,354

728,186

4/33/971,393

8132,5262,306

1417,179

1,007 Positions


Global Sourcing

High Cost Market Low Cost Markets

Fiscal ‘98

PhilippinesThailandDominican RepublicOther Lower Cost CountriesTaiwan

16%31%33%15%5%

Fiscal ‘97

Taiwan 34%


Softside Global Component StandardizationDescriptionUpright Handle SystemsEZ CartTM Handle SystemsWheelsCarry HandlesSewn HandlesFabrics (Exterior-Interior)VinylsHardwareFilmsMeshZippersLocksWebbingHang Tags/CollateralTotal Projected Fiscal Year Savings vs. FY ’97Hardside Projected Fiscal Year Savings vs. FY ‘97

Fiscal Year ‘96313

2352

1005635752010202030

100s

6/9772

1010

10025152510566

1250

1/98528

102015102052336

30$1.7

Million$2.0

Million

$4.0 Million$2.0

Million


•Streamlining of Organization•Global Sourcing of Products/Raw Materials•Product/Component Standardization•Cost Control Measures

}$30 - $35 +Million SavingsIn Year 1$50 - $55MillionIn Year II

Significantly Improved Product & Pricing Global Line-Up•Broaden Range of Product Features and Price Points•Move to Global Product Line•Drive Enhanced Margin Structure

Accelerated Top-Line Growth

•Accelerate Introductions – New Global Product & Features•Strengthen Marketing & Innovation•Expand Product Offerings

-Business Bags-Casual Bags

•Broaden Channels of Distribution•Continue Worldwide Expansion

















Broaden Channels of Distribution

•U.S. Luggage Sales/Market Share ($ MM)

$0

$50

$100

$150

$200

$250

$300

Traditional MassMerchant

NationalChains

Outlet Stores CatalogShowrooms

DirectMarketing

WarehouseClubs

Millions of Dollars$273

$241

$210

$120$84 $84

$31

52%

13%23%

61%

52%

43%





1997 Key Expansion Areas





Improved Balance Sheet

•Successful equity offering completed on February 6, 1997•Total debt reduced by $162 million to $163 million•Accounts payable has increased 32.1%•Accounts receivable and other receivables have decreased 3.6%•Inventories increased consistent with growth of business•Total equity to debt ratio has improved to (1.1 to 1) from (.05 to 1)

•Credit rating has been raised by S&P and Moody’s

Samsonite Game Plan Update

•New Management Team•Structural Cost Improvements•Significantly Improved Productand Pricing Global Line-Up

•Accelerated Top-Line Growth•Improved Balance Sheet

CompleteAhead of TargetAhead of Target

On TargetAhead of Target

Status

Samsonite Corporation First Half Net Revenue

$0

$50

$100

$150

$200

$250

$300

$350

$400

$450

'97 (Adjusted)* '98 '98 (Adjusted)**

Millions of Dollars

6%Growth

1%Growth

*First Half Fiscal ’97 Excludes $4 Million Non-Recurring Trademark Sale**First Half Fiscal ’98 Excludes $17 Million of Foreign Currency Translation Losses

$345 $349 $366

Fiscal

Samsonite Corporation Gross Profit Margin Trend

38.00%

39.00%

40.00%

41.00%

42.00%

43.00%

44.00%

First Six Months FY '97 'Second Six Month FY '97 First Quarter FY '98 Second Quarter FY '98

Percentage

*First Half Fiscal ’97 Excludes $4 Million Non-Recurring Trademark Sales

39.4%

41.4%

43.6%

38.6%

Samsonite Corporation SG&A as a % of Sales

20.00%

22.00%

24.00%

26.00%

28.00%

30.00%

32.00%

34.00%

First Half FY '98 Second Half FY '97 First Quarter FY '98 Second Quarter FY '98

Percentage

32.2% 31.9% 31.8%31.2%

Samsonite Corporation EBIT Margins

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

First Six Months FY '97 Second Six Month FY '97 First Quarter FY '98 Second Quarter FY '98

Percentage

*First Six Months FY ’97 Excludes $4 Million Non-Recurring Trademark Sale

7.1%

8.5%

10.7%

5.1%

Samsonite Corporation First Half Net Revenue

$0

$10

$20

$30

$40

$50

$60

$70

$80

$90

'92 '93 '94 '95 '96 '97 '97 '98

Millions of Dollars

6%Growth

*EBITDA, Excluding Non-Recurring Royalty Income, is Calculated as Operating Income PlusDepreciation, Amortization and Restructuring Costs

$65

$80

$47.90

Fiscal First Half

$32.70

$77$82

$66

$56

Trend of Earnings Per Share from Continuing Operations

-$0.40

-$0.20

$0.00

$0.20

$0.40

$0.60

$0.80

$1.00

Second Quarter Third Quarter Fourth Quarter First Quarter Second Quarter

Dollars

.96

FY ‘97 FY ‘98

.41

.14.22

<.39>

Samsonite Game Plan

•Organizational Effectiveness

-New Management Team-Streamlined Category-Based Organization Structure-Stock Option Program Broadened and Senior Executive Restricted Stock Program

Samsonite Game Plan

•Structural Cost Improvements

-Global Sourcing-Product and Component Standardization-Organization Streamlining-Cost Control Measures

Samsonite Game Plan

•Balance Sheet Improvements

-Sold Excess Assets-Extended Supplier Payment Terms – Higher Payables-Reduction in Receivables-SKU Reductions-Tightened Inventory Control

>>Lower Working Capital

Samsonite Game Plan

•Product Architecture/Pricing

-Moved to Global Product Line-Globalized Only Best-In-World Product Lines-Price Points Responsive to Consumer and Channel Strategy Needs

Samsonite Game Plan

•Top-Line Growth

-Accelerated Global Introductions of New Consumer- Preferred Features Across All Brands/Product Lines-Expanded Penetration in Casual Bag and Business Bag Segments

-New Global Advertising-Strengthened Point of Sale Support-Significantly More Reliable Customer Service-Broadened Retail Distribution Including Mass Merchandisers-Accelerated Company-Owned Retail Store Growth

Samsonite Game Plan•Organizational Effectiveness

-New Management Team-Streamlined Category-Based Organization Structure

-Management Stock and Option Incentives

•Structural Cost Improvements

-Global Sourcing-Product and Component Standardization-Organization Streamlining-Cost Control Measures

•Product Architecture/Pricing-Moved to Global Product Line

-Globalized Only Best-In-World Product Lines-Broadened Range of Products, Features, Styles & Price Points Responsive to Consumer and Channel Strategy

Needs

•Balance Sheet Improvements-Sold Excess Assets

-Extended Supplier Payment Terms – Higher Payables

-Reduction in Receivables-SKU Reductions-Tightened Inventory Control

>>Lower Working Capital

•Top-Line Growth

-Accelerated Global Introductions of New Consumer-Preferred Features Across All Brands/Product Lines-Expanded Penetration in Casual Bag and Business Bag Segments

-New Global Advertising-Strengthened Point of Sale Support-Significantly More Reliable Customer Service-Broadened Retail Distribution Including Mass Merchandisers

-Accelerated Company-Owned Retail Store Growth

Documents

The Business Turnaround. The Business Turnaround Case Study