Keep calm and care about your consumer - The luxury and cosmetics financial factbook 2016 edition
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Keep calm and care about your consumer The luxury and cosmetics financial factbook 2016 edition
Contents 2 Executive summary Statistics and key facts Index evolution 8 DCF and valuation parameters A. Financial parameters B. Operating aggregates C. Advertising expenses D. SOTP and segment analyses E. Trading multiples F. Transaction multiples 36 Industry overview G. Global luxury goods market H Global cosmetic goods market I. Points of view from EY global sector and other industry professionals 80 Methodology Approach and SOTP analyses Sample selection Focus on YOOX Net–A–Porter 83 Glossary 84 Contact us
Page 2 Executive summary Executive summary Welcome to the sixth edition of EY annual financial factbook for the luxury and cosmetics industries. The report combines publicly available data with input from leaders who work with the world’s leading companies in the sector. It looks at current trends, the evolution of operating aggregates and key financial parameters. In 2015, the luxury goods industry experienced 13% growth at current exchange rates, reaching €253b; however, currency fluctuations were the main contributor of this growth, with “real” growth reported to be 1%, lower than in 2014. The global cosmetics industry experienced a higher rate of growth (3.9%), reaching a total market value of €203b in 2015. Many factors contribute to the state of the market. Given the significant impact that the socioeconomic and political climate can have on a global scale, it would be remiss not Roberto Bonacina Marco Pier Mazzucchelli to acknowledge this instability early on in our report. While this study aims to provide Partner, Lead Advisory M&A, Fashion & Luxury Partner, Head of TAS, MED a situational analysis, our conclusion is that the current climate and general instability Milan, EY S.p.A. Milan, EY S.p.A. across the global financial markets, as well as other intangible elements, are contributing roberto.bonacina@it.ey.com marco.mazzucchelli@it.ey.com to the decline noted across the luxury sector. Recent global political disorder, terrorist threats and attacks as well as slowdown in economic growth rate in China are relevant factors that can impact any given industry. In short, uncertainty can have an impact on the mood of any consumer, none more so than when a significant spend is required, such as within the luxury sector. On a brighter note, the luxury consumer has never been so sophisticated and is now seeking “the complete retail experience,“ ready for a trip to an exotic destination rather than limiting his or her purchase to the latest “it‑bag.“ How should luxury players act to avoid losing their consumers? Would a quick reaction suffice, or do brands need to review their entire business model? In any case, companies must take time to get to know their consumers better, understand their desires in order to better engage them, and secure their attention and spend. The luxury and cosmetics financial factbook 2016
Executive summary Page 3 Executive summary The competitive landscape is changing. To keep pace, luxury brands must: In retail stores, which offer the opportunity to physically interact with consumers, companies must aim to offer dedicated services by employing knowledgeable and • Increase the digital effort — Luxury companies are behind in an increasingly digital highly qualified shop assistants who can provide an exceptional consumer experience. world. New technology has changed the way companies do business, providing new This goes beyond new openings; companies should focus on improving the quality communication channels, with buying behaviors evolving and the emergence of a new offered in their existing network across every single customer touch point. segment, the “millennials.” Immediacy is key, so there is a constant need to innovate within the digital world, which seems to contrast with the exclusivity known for its The 2016 factbook, based on industry leaders’ feedback, offers both operational and poleposition at the core of the luxury market. Luxury brands have to manage dual financial aggregates on the luxury and cosmetics industries as well as key valuation aspects; namely to (i) maintain their heritage and create long‑term value while (ii) parameters and multiples. It looks at the industries’ future trends and includes input from responding to consumers’ expectations and trying to offer unique products that offer our sector leaders. We hope you find this report to be insightful and thought‑provoking instant gratification. It is the latter where luxury companies are risking losing ground to for wider discussion within your organization. more dynamic, digitally savvy players. Do not hesitate to contact us with any comments or suggestions. • Hold the positioning — Another category of players is threatening the balance of luxury Thank you, fashion houses: the affordable luxury segment is gaining market share, continuously offering new products that are both fashionable and competitively priced. Price positioning is crucial, never more so than today when consumers appreciate and respond well to transparency given that digital channels provide them with a constant flow of information regarding products’ characteristics worldwide. Top‑end luxury companies should therefore emphasize the quality and rarity of their offerings to encourage their clients to spend more and reduce the risk of cannibalization by more Roberto Bonacina Marco Pier Mazzucchelli nimble competitors. roberto.bonacina@it.ey.com marco.mazzucchelli@it.ey.com • Defend the luxury experience — During the luxury journey, a consumer is surrounded by opportunities that may not always be characterized by material, long‑term purchases; instead, they may have intangible or more ephemeral benefits, such as travel, art, epicurean gastronomy. In such an environment, personal luxury goods companies must demonstrate that they can offer the same level of experience and customer satisfaction. The luxury and cosmetics financial factbook 2016
Page 4 Executive summary Statistics and key facts Global personal Chinese consumers remain Today, beauty is synonymous with personalized products luxury market the top consumers by and services that enrich consumer experience and its grew by 1% in country with one-third of relationship with the brands, in all distribution sectors. 2015 at constant the global exchange market. The global The accessories segment accounted 1/3 rate. cosmetics market for about 30% of the 1% grew by 3.9% global personal in 2015. luxury goods ~30% market 3.9% The online luxury market in 2015. has grown tenfold since The company– 2005 and accounted for owned retail about 7% of total sales Luxury cosmetics remains the most channels are in 2015. dynamic sector with 5.7% growth, ~7% growing twice due mostly to as fast as the e-commerce sales. 5.7% wholesale channel at current exchange rates Current fluctuations, a and continue to strong US dollar and the gain market share depreciated Euro helped the New markets, such as India, South Africa and Turkey, generated more than >2/3 due to network market to show double‑digit expansion. positive impact on the two–thirds of the beauty overall market value. market growth in 2015. 2X Social media has made an online platform a critical part of every brand’s strategy. The luxury and cosmetics financial factbook 2016
Executive summary Page 5 Executive summary Index evolution The analysis reported in the graph below shows that the EY luxury and cosmetics index (represented by the companies included in the EY factbook) has outperformed the market over the last eight years with a total return of 83%, corresponding to an average yearly significant return of 8%. This relative performance actually illustrates the appetite of investors for an industry that is characterized by solid financial fundamentals in terms of sales growth, major profitability, resilient international client base and exposure to growing markets, attributing higher valuations to companies–related securities, despite the economic instable environment. Financial markets this year have been characterized by a high level of instability generated by a series of events: geopolitical events, commodities pricing volatility and the China stock market volatility have all hampered growth. The EY index is a representation of the luxury and cosmetics companies analyzed within the factbook. A specific weight has been attributed to each company included in the EY index based on its market capitalization and revenues (each of these two parameters weighing for a half). The relative weights have been revised for each company’s inclusion after its initial public offering (IPO). Finally, the evolution of the EY index has been compared to those of the S&P 500 and STOXX Europe 600 indexes, using 1 January 2008 as a starting date (rebased to 100). EY luxury and cosmetics index evolution compared to major indices (base 100 as of 1 January 2008) As of CAGR 1 250 31 March 2016 08–16 200 183 8% 150 142 4% 100 94 -1% (base 100 as of 1 January 2015) 50 125 As of 120 1 January 115 2016 0 110 16 8 9 0 1 2 3 4 5 8 9 0 1 2 3 4 5 08 8 09 9 10 0 11 1 12 2 13 3 14 4 15 5 16 l0 l0 l1 l1 l1 l1 l1 l1 r0 r0 r1 r1 r1 r1 r1 r1 t0 t0 t1 t1 t1 t1 t1 t1 107 ar n n n n n n n n n Ju Ju Ju Ju Ju Ju Ju Ju Oc Oc Oc Oc Oc Oc Oc Oc Ap Ap Ap Ap Ap Ap Ap Ap Ja Ja Ja Ja Ja Ja Ja Ja Ja M 105 102 EY Index S&P 500 Europe 600 100 99 95 90 85 15 15 15 15 15 15 15 16 15 5 15 5 5 r1 t1 l1 ay g v ar n n c p n b Ju Ap Oc No De Au Ju Se Ja Fe Ja M M Source: Capital IQ. EY Index S&P 500 STOXX Europe 600 1. Compound annual growth. The luxury and cosmetics financial factbook 2016
PAGE 6 OPENING DCF and valuation parameters LUXURY AND COSMETICS THE EY FINANCIAL FACTBOOK 2014
Opening Page 7 A Financial parameters B Operating aggregates C DCF and valuation Advertising expenses parameters D SOTP and segment analyses E Trading multiples F Transaction multiples The luxury and cosmetics financial factbook 2016
Page 8 DCF and valuation parameters A Financial parameters Luxury companies reflect moderate but steady growth, with a limited risk profile •• WACC* ranges from 7% (Safilo) to 10% (Coach), depending on the company’s risk profile perception with an overall limited variance. •• LTGR presents a larger range (1% to 4.3%) mainly depending on size, maturity stage of the retail network and product diversification. The estimated average LTGR is slightly lower overall than last year’s figure, reflecting a prevailing conservative view among financial markets operators about future growth. WACC and LTGR by company Companies are sorted in decreasing order based on the Luxury Market capitalization WACC Gearing Beta LTGR market capitalization in euros companies (in €m) observed as of 31 March 2016 LVMH 77,081 8.0% 5.9% 0.97 2.8% 10.5% (one‑month average). Coach Michael Kors, Tumi and Hengdeli Richemont 33,460 8.3% (14.3%) 1.22 2.4% 10.0% are not represented in the graphic Hermès 33,321 8.2% (4.5%) 0.77 3.2% 9.5% Chow Tai Fook at left because LTGR data for them Luxottica 23,890 7.3% 4.3% 0.94 2.6% Hugo Tiffany was not available. Kering 20,341 8.1% 18.7% 0.95 2.5% 9.0% Boss Swatch 17,185 8.6% (9.1%) 1.16 2.5% Ralph Lauren Prada Burberry Brunello Swatch Cucinelli WACC Tod's Coach 9,774 10.0% (4.3%) 0.86 2.5% 8.5% Salvatore Richemont Ferragamo YOOX Net-A-Porter Moncler 8.0% Jimmy Choo Kering Hermès Michael Kors 9,179 9.7% ( 7.3%) 0.77 n/a LVMH Tiffany 8,128 9.0% 6.0% 1.03 2.5% 7.5% Luxottica Prada 7,675 8.8% 1.9% 0.68 2.5% Safilo 7.0% Burberry 7,668 8.8% (8.2%) 1.12 2.7% 6.5% Ralph Lauren 7,310 8.6% (8.0%) 1.10 1.0% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% Chow Tai Fook 5,657 9.3% 8.8% 0.70 3.0% LTGR Hugo Boss 3,842 8.6% 3.4% 0.83 2.6% Note: bubble size reflects market capitalization. Dotted lines represent average values. Salvatore Ferragamo 3,726 8.6% 0.6% 0.93 2.6% Moncler 3,723 8.2% 1.4% 0.74 2.7% Sources: YOOX Net–A–Porter 3,424 8.3% (0.3%) 0.99 3.6% •• WACC* and LTGR: based on consensus of several brokers reports for each company. Tod’s 2,263 8.5% (5.8%) 0.86 2.7% •• Market capitalization and beta: EY elaboration based on S&P Capital IQ. Tumi 1,584 7.0% (5.7%) 1.00 n/a •• Gearing: companies’ financial statements. Brunello Cucinelli 1,092 8.6% 5.1% 0.68 4.3% Jimmy Choo 642 8.1% 19.5% 0.96 1.8% Notes: Safilo 525 7.0% 18.7% 0.94 2.0% •• Market capitalization is based on a one–month average as of 31 March 2016. Hengdeli 387 9.1% 29.3% 0.94 n/a •• Gearing is defined as net financial debt/EV. Average 8.5% 2.4% 0.92 2.6% •• Beta corresponds to levered beta measured on a weekly basis over a two–year period. •• Beta figures for YOOX Net-A-Porter is based on the share of YOOX S.p.A., which after Median 8.6% 1.4% 0.94 2.6% the merger with Net-A-Porter changed his name in YOOX Net-A-Porter Group. Maximum 10.0% 29.3% 1.22 4.3% •• Data point denoted as n/a represents information not available. Minimum 7.0% (14.3%) 0.68 1.0% * WACC and other terms are defined in the glossary. The luxury and cosmetics financial factbook 2016
DCF and valuation parameters Page 9 A Financial parameters The cosmetics sample is characterized by stable growth and low risk, with the exception of Natura •• Natura’s (Brazil) LTGR continues to be significantly higher the the sample’s average, driven by its geographical coverage. DCF and valuation •• Average WACC is influenced by the significantly high level of Natura. parameters WACC and LTGR by company Companies are sorted in decreasing order based on the Cosmetics Market capitalization WACC Gearing Beta LTGR 16.0% market capitalization in euros companies (in €m) 15.0% Natura observed as of 31 March 2016 (one‑month average). L'Oréal 87,542 7.8% 0.2% 0.86 2.3% 14.0% Estée Lauder 30,843 7.8% 2.4% 0.91 2.2% Shiseido is not represented in the 13.0% graphic at left because LTGR data Beiersdorf 18,230 7.8% (6.4%) 0.84 2.6% 12.0% was not available. Coty 8,318 7.0% 27.2% 0.78 2.1% Shiseido 7,984 4.9% 4.3% 0.98 n/a 11.0% Natura 2,936 15.4% 18.5% 0.94 6.6% WACC 10.0% L'Occitane 2,472 8.9% (12.6%) 0.74 1.8% 9.0% L'Occitane Average 9.1% 4.8% 0.86 2.9% L'Oréal LVMH Median 7.8% 2.4% 0.86 2.3% 8.0% Estée Lauder Beiersdorf Maximum 15.4% 27.2% 0.98 6.6% 7.0% Minimum 7.0% (12.6%) 0.74 1.8% Coty 6.0% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% LTGR Note: bubble size reflects market capitalization. Dotted lines represent average values. Sources: •• WACC and LTGR: based on consensus of several broker reports for each company. •• Market capitalization and beta: EY elaboration based on S&P Capital IQ. •• Gearing: companies’ financial statements. Notes: •• Market capitalization is based on a one–month average as of 31 March 2016. •• Gearing is defined as net financial debt/EV. •• Beta corresponds to levered beta measured on a weekly basis over a two‑year period. The luxury and cosmetics financial factbook 2016
Page 10 DCF and valuation parameters A Financial parameters EY luxury and cosmetics sample: summary of financial parameters WACC Gearing Beta LTGR Safilo 7.0% Richemont (14.3%) Prada 0.68 Ralph Lauren 1.0% Coty 7.0% L'Occitane (12.6%) Brunello Cucinelli 0.68 L'Occitane 1.8% Luxottica 7.3% Swatch (9.1%) Chow Tai Fook 0.70 Jimmy Choo 1.8% Burberry (8.2%) L'Occitane 0.74 L'Oréal 7.8% Safilo 2.0% Ralph Lauren (8.0%) Moncler 0.74 Beiersdorf 7.8% Coty 2.1% Michael Kors (7.3%) Hermès 0.77 Estée Lauder 7.8% Michael Kors 0.77 Estée Lauder 2.2% Beiersdorf (6.4%) LVMH 8.0% Tod's (5.8%) Coty 0.78 L'Oréal 2.3% Kering 8.1% Tumi (5.7%) Hugo Boss 0.83 Richemont 2.4% Jimmy Choo 8.1% Hermès (4.5%) Beiersdorf 0.84 Swatch 2.5% Moncler 8.2% Coach (4.3%) L'Oréal 0.86 Prada 2.5% Hermès 8.2% YOOX Net-A-Porter (0.3%) Tod's 0.86 Coach 2.5% Richemont 8.3% L'Oréal 0.2% Coach 0.86 YOOX Net-A-Porter 8.3% Kering 2.5% Salvatore Ferragamo 0.6% Average 0.91 Tod's 8.5% Moncler 1.4% Estée Lauder 0.91 Tiffany 2.5% Salvatore Ferragamo Salvatore Hugo Boss 8.6% Prada 1.9% 0.93 2.6% Ferragamo Salvatore Ferragamo 8.6% Estée Lauder 2.4% Hengdeli 0.94 Hugo Boss 2.6% Average 3.0% Natura 0.94 Ralph Lauren 8.6% Beiersdorf 2.6% Hugo Boss 3.4% Luxottica 0.94 Brunello Cucinelli 8.6% Luxottica 2.6% Shiseido 4.3% Safilo 0.94 Swatch 8.6% Moncler 2.7% Luxottica 4.3% Kering 0.95 Average 8.7% Jimmy Choo Average 2.7% Brunello Cucinelli 5.1% 0.96 Prada 8.8% LVMH 5.9% LVMH 0.97 Tod's 2.7% Burberry 8.8% Tiffany 6.0% Shiseido 0.98 Burberry 2.7% L'Occitane 8.9% Chow Tai Fook 8.8% YOOX Net-A-Porter 0.99 LVMH 2.8% Tiffany 9.0% Natura 18.5% Tumi 1.00 Chow Tai Fook 3.0% Hengdeli 9.1% Safilo 18.7% Tiffany 1.03 Hermès 3.2% Chow Tai Fook 9.3% Kering 18.7% Ralph Lauren 1.10 YOOX Net-A-Porter 3.6% Michael Kors 9.7% Jimmy Choo 19.5% Burberry 1.12 Coach 10.0% Coty 27.2% Swatch 1.16 Brunello Cucinelli 4.3% Natura 15.4% Hengdeli 29.3% Richemont 1.22 Natura 6.6% WACC 8.7% Gearing Beta 0.91 LTGR 2.7% 3.0% Low High Low High Low High Low High Industry benchmark Industry benchmark Industry benchmark Industry benchmark Source: Data based on consensus of several brokers reports for each company. Note: LTGR data was not available for Tumi, Shiseido, Michael Kors and Hengdeli. The luxury and cosmetics financial factbook 2016
DCF and valuation parameters Page 11 B Operating aggregates The sales outlook of luxury companies points to limited growth opportunities due to underperformance of key markets and a shift to global pricing Pricing growth has become a challenge for the luxury peers that have historically achieved ~25% growth YOOX Net–A–Porter notably outperformed the through price increases. The popularity of the digital channel has made maintaining price divergence in average growth levels. DCF and valuation different markets difficult. Future growth is expected through: parameters •• Introduction of new products at lower price points to drive volumes, addressing the lower end segment •• Improved volumes due to robust tourist–related demand Sales CAGR, *Kering sales for FY14A–FY18E exclude numbers for Redcats, Sales CAGR FY15A/E–FY18E — luxury companies (in €m) FY14A FY15A/E FY16E FY17E FY18E Sergio Rossi and Groupe Fnac. (FY15A/E–FY18E) YOOX Net-A-Porter 20.4% LVMH 30,638 35,664 37,318 39,377 41,614 5.3% Notes: Moncler 11.3% Kering* 10,038 11,584 12,103 12,875 13,577 5.4% •• 2015 figures are estimated Jimmy Choo 10.3% (“E“) or actual (“A“) , depending Richemont 10,410 11,427 11,933 12,195 12,927 4.2% Brunello Cucinelli 10.1% on their availability as of the Luxottica 7,652 8,837 9,618 10,267 11,165 8.1% date of this study. Swatch 7,978 7,742 8,250 8,678 8,884 4.7% Luxottica 8.1% •• Figures are converted into Chow Tai Fook 7,276 6,882 7,044 7,619 8,482 7.2% Michael Kors 8.0% euros, using exchange rates Ralph Lauren 6,691 6,658 6,900 7,276 7,654 4.8% Hermès 7.5% as of 31 March 2016 (Source: Capital IQ). Hermès 4,119 4,841 5,245 5,652 6,018 7.5% Chow Tai Fook 7.2% •• Figures for YOOX Net–A– Michael Kors 3,838 4,089 4,288 4,511 5,156 8.0% Average 6.6% Porter for FY14 and FY15 are Coach 4,220 3,680 3,900 4,054 4,252 4.9% Tumi 6.1% presented on a pro forma basis, Tiffany 3,732 3,604 3,759 3,965 4,169 5.0% i.e., assuming the merger was Prada 3,552 3,548 3,553 3,664 3,877 3.0% Kering 5.4% effective at the start of FY14. •• Hengdeli is not represented Burberry 3,191 3,194 3,314 3,490 3,722 5.2% LVMH 5.3% in the graphic at left because Hugo Boss 2,572 2,809 2,870 2,974 2,986 2.1% Burberry 5.2% FY18E data was not available. Hengdeli 2,009 1,810 1,963 2,060 n/a n/a Tiffany 5.0% YOOX Net–A–Porter 1,272 1,665 1,962 2,357 2,908 20.4% Coach 4.9% Salvatore Ferragamo 1,321 1,417 1,502 1,582 1,619 4.5% Ralph Lauren 4.8% Safilo 1,179 1,279 1,385 1,295 1,422 3.6% Swatch 4.7% Tod's 966 1,037 1,086 1,139 1,181 4.4% Salvatore Ferragamo 4.5% Moncler 694 880 1,003 1,119 1,213 11.3% Tumi 463 481 511 531 575 6.1% Tod's 4.4% Brunello Cucinelli 356 414 454 501 552 10.1% Richemont 4.2% Jimmy Choo 379 402 443 481 539 10.3% Safilo 3.6% Average 6.6% Prada 3.0% Median 5.3% Hugo Boss 2.1% Maximum 20.4% Minimum 2.1% Source: Data based on consensus of several brokers reports for each company. Estimated data have not been derived from internal insights. The luxury and cosmetics financial factbook 2016
Page 12 DCF and valuation parameters B Operating aggregates Sales growth expectations for cosmetics players are lower than Hermès Moncler 35.5% 33.6% for the luxury segment but the gap is narrowing Michael Kors 29.0% Richemont 26.7% Tiffany 25.1% L’Occitane and NaturaPrada are expected to post strong24.7% growth in the next few years, driven by e‑commerce sales L’Occitane and Natura significantly and emerging brand expansion Coach for L’Occitane, and channel diversification and international growth for 24.0% outperformed the cosmetics sample Natura. TheSalvatore cosmetics market is likely to be driven Ferragamo by: 23.5% expectations. LVMH 23.2% •• Penetration by existing players with innovative products into new markets Swatch 23.1% •• Increase of consumer purchasing power Luxottica 22.9% •• Rise of millennial consumers Tod's 21.3% Hugo Boss 21.1% Average 21.0% Sales CAGR, Notes: Burberry Sales 20.9% CAGR FY15A/E–FY18E — cosmetics companies •• 2015 figures are estimated (in €m) FY14A FY15A/E FY16E FY17E FY18E (“E“) or actual (“A“), dependingTumi 20.5% (FY15A/E–FY18E) L'Occitane 9.7% on their availability as of the Kering L'Oréal 19.1% 22,532 25,257 25,786 27,047 28,607 4.2% Natura date of this study. 9.3% Brunello Cucinelli Estée Lauder 17.3% 9,631 9,466 9,865 10,460 11,119 5.5% •• Figures are converted into Shiseido 6.4% euros, using exchange Ralph Lauren rates Beiersdorf 17.1% 6,285 6,686 6,853 7,166 7,523 4.0% Average 5.9% as of 31 March 2016 (Source: Jimmy Choo Shiseido 16.8% 6,074 6,240 6,899 7,119 7,521 6.4% Estée Lauder 5.5% Capital IQ). Coty 3,997 3,859 3,762 3,817 4,097 2.0% Chow Tai Fook 10.9% Natura 1,833 1,954 2,126 2,337 2,549 9.3% L'Oréal 4.2% Safilo 9.8% L'Occitane 1,178 1,308 1,411 1,534 1,727 9.7% Beiersdorf 4.0% YOOX Net-A-Porter Average9.5% 5.9% Coty 2.0% Hengdeli Median7.5% 5.5% Maximum 9.7% Minimum 2.0% Source: Data based on consensus of several brokers reports for each company Estimated data have not been derived from internal insights. The luxury and cosmetics financial factbook 2016
DCF and valuation parameters Page 13 B Operating aggregates The luxury sample EBITDA margin indicates margin pressure in the near term The slightly lower EBITDA margin presented this year is mainly due to: EBITDA remains largely below 30%, with few notable exceptions •• Market volatility driven by currency swings and fluctuating tourist flows DCF and valuation •• Lower growth experienced in some of the key markets, such as mainland China and Hong Kong parameters Average EBITDA margin, *Kering margin for FY14A–FY16E excludes numbers for Redcats, EBITDA Average ratio FY16E–FY18E — luxury companies margin FY14A FY15A/E FY16E FY17E FY18E (FY16E–FY18E) Sergio Rossi and Groupe Fnac. Hermès 35.5% LVMH 23.0% 23.0% 23.0% 23.3% 23.4% 23.2% Notes: Moncler 33.6% Kering* 19.8% 17.7% 18.5% 19.0% 19.7% 19.1% •• Figures for YOOX Net–A– Michael Kors 29.0% Porter for FY14 and FY15 Richemont 30.5% 26.1% 26.6% 26.5% 27.0% 26.7% Richemont 26.7% are presented on a pro–forma Luxottica 20.1% 21.0% 22.1% 22.5% 24.0% 22.9% basis, i.e., assuming the merger Swatch 21.6% 20.7% 23.0% 23.4% 23.0% 23.1% Tiffany 25.1% was effective at the start of Chow Tai Fook 11.5% 9.9% 10.5% 11.0% 11.1% 10.9% Prada 24.7% FY14. Ralph Lauren 17.7% 15.5% 16.2% 17.3% 17.7% 17.1% Coach 24.0% •• The 2015 EBITDA margin Hermès 35.1% 35.4% 35.6% 35.7% 35.2% 35.5% Salvatore Ferragamo 23.5% is computed on the basis of either actual (“A“) or estimated Michael Kors 31.9% 29.6% 28.4% 29.6% 29.0% 29.0% LVMH 23.2% (“E“) figures for 2015 sales, Coach 27.2% 19.3% 22.0% 23.5% 26.7% 24.0% Swatch 23.1% depending on their availability. Tiffany 25.5% 23.5% 24.7% 25.1% 25.4% 25.1% Luxottica 22.9% As some groups are listed Prada 26.9% 22.6% 24.6% 25.2% 24.3% 24.7% under different jurisdictions Tod's 21.3% Burberry 22.9% 21.7% 20.9% 21.1% 20.9% 20.9% around the world, they may use Hugo Boss 21.1% different GAAP, and therefore Hugo Boss 23.0% 21.2% 21.0% 21.2% 21.2% 21.1% Average 21.0% a direct comparison of EBITDA Hengdeli 7.2% 5.7% 7.1% 7.5% 7.9% 7.5% Burberry 20.9% may be less meaningful than YOOX Net–A–Porter 6.7% 7.6% 8.3% 9.3% 10.8% 9.5% if their results were presented Salvatore Ferragamo 22.2% 22.9% 23.4% 23.7% 23.5% 23.5% Tumi 20.5% under the International Safilo 9.9% 7.8% 9.9% 8.5% 11.0% 9.8% Kering 19.1% Accounting Standards. Tod's 20.0% 19.5% 20.8% 21.5% 21.5% 21.3% Brunello Cucinelli 17.3% Moncler 33.5% 34.1% 33.8% 33.8% 33.4% 33.6% Ralph Lauren 17.1% Tumi 21.2% 21.6% 20.9% 20.1% 20.6% 20.5% Jimmy Choo 16.8% Brunello Cucinelli 17.7% 16.7% 17.1% 17.3% 17.4% 17.3% Chow Tai Fook 10.9% Jimmy Choo 16.8% 16.0% 16.9% 17.7% 15.9% 16.8% Safilo 9.8% Average 21.4% 20.0% 20.7% 21.0% 21.3% 21.0% YOOX Net-A-Porter 9.5% Median 21.6% 21.0% 21.0% 21.5% 21.5% 21.3% Hengdeli 7.5% Maximum 35.1% 35.4% 35.6% 35.7% 35.2% 35.5% Minimum 6.7% 5.7% 7.1% 7.5% 7.9% 7.5% Source: Data based on consensus of several brokers reports for each company. Estimated data have not been derived from internal insights. The luxury and cosmetics financial factbook 2016
Page 14 DCF and valuation parameters B Operating aggregates Cosmetics companies maintain last year’s average EBITDA of Jimmy Choo 8.5% 18% for the FY16E–FY18E period Prada 8.3% Coach 7.2% Hugo Boss 6.7% Swatch Cosmetics companies are expected6.7% to report expansion in operating margins in the coming years. L’Oréal and Estée Lauder are showing Tumi 6.5% outperforming profitability. The key YOOX drivers of margin growth 6.4% Net-A-Porter are: •• Increasing disposable income and Hermès 6.3%improving lifestyle of individuals Burberry •• Demand for high‑end products 6.3% (presenting higher margins) Michael Kors 6.3% Richemont 5.8% Tiffany 5.6% Average 5.6% Average EBITDA margin, Note: the 2015 Salvatore EBITDA margin is Ferragamo 5.5% computed onLuxottica the basis of either EBITDA Average ratio FY16E–FY18E — cosmetics companies 5.5% FY14A FY15A/E FY16E FY17E FY18E actual (“A“) or estimated (“E“) margin (FY16E–FY18E) Brunello Cucinelli 5.5% L'Oréal 21.9% figures for 2015 sales, depending Tod's L'Oréal 21.1% 21.1% 21.5% 21.8% 22.2% 21.9% Estée Lauder on their availability. As some 5.3% 20.2% Estée Lauder 20.1% 18.7% 19.5% 20.2% 20.8% 20.2% groups are listed under different LVMH 5.1% Natura 19.4% jurisdictions around the world, Beiersdorf 15.5% 16.3% 17.1% 17.6% 18.2% 17.6% Moncler 5.0% Coty 19.0% they may use different GAAP, and Shiseido 11.7% 8.8% 9.4% 10.2% 11.2% 10.3% Kering therefore a direct comparison of 4.9% Average Coty 13.9% 16.6% 18.3% 19.1% 19.5% 19.0% 18.0% EBITDA may beLauren less meaningful Ralph 4.7% Natura 20.7% 18.1% 18.9% 19.3% 20.0% 19.4% L'Occitane 18.0% than if their results were presented Safilo 3.3%L'Occitane 19.0% 17.1% 17.4% 18.0% 18.6% 18.0% under International Accounting Beiersdorf 17.6% Chow Tai Fook 2.0% Average 17.4% 16.7% 17.5% 18.0% 18.6% 18.0% Standards. Shiseido 10.3% Hengdeli 0.8% Median 19.0% 17.1% 18.3% 19.1% 19.5% 19.0% Maximum 21.1% 21.1% 21.5% 21.8% 22.2% 21.9% Minimum 11.7% 8.8% 9.4% 10.2% 11.2% 10.3% Source: Data based on consensus of several brokers reports for each company. Estimated data have not been derived from internal insights. The luxury and cosmetics financial factbook 2016
DCF and valuation parameters Page 15 B Operating aggregates Stable CAPEX sales ratio reflects that high investments are required to support long–term growth The stable average level of a 5% to 6% CAPEX sales ratio is mainly explained by the requirements of the retail Jimmy Choo outperforms on the CAPEX ratio. network (openings, renovations, etc.) for continued growth. Its CAPEX has been characterized by higher DCF and valuation parameters logistics costs and store renovations, and is expected to increase heavily as the company makes additional investments in its retail network. Average CAPEX ratio, Note: the 2015 CAPEX ratio is computed on the basis of either CAPEX Average ratio FY16E–FY18E — luxury companies FY14A FY15A/E FY16E FY17E FY18E actual (“A“) or estimated (“E“) ratio (FY16E–FY18E) Jimmy Choo 8.5% figures for 2015 sales, depending LVMH 5.0% 4.9% 5.1% 5.1% 5.1% 5.1% on their availability. Prada 8.3% Kering 1.8% 5.5% 5.0% 4.8% 4.9% 4.9% Coach 7.2% Richemont 6.6% 6.4% 5.8% 5.7% 5.8% 5.8% Hugo Boss 6.7% Luxottica 3.7% 3.6% 5.8% 5.4% 5.3% 5.5% Swatch 6.7% Swatch 12.4% 7.5% 7.1% 7.0% 6.0% 6.7% Tumi 6.5% Chow Tai Fook 3.2% 2.2% 2.1% 1.9% 2.0% 2.0% YOOX Net-A-Porter 6.4% Ralph Lauren 5.1% 5.9% 5.1% 4.8% 4.4% 4.7% Hermès Hermès 6.8% 6.2% 6.2% 6.0% 6.6% 6.3% 6.3% Michael Kors 8.1% 8.3% 7.3% 6.0% 5.5% 6.3% Burberry 6.3% Coach 4.6% 4.8% 9.3% 6.9% 5.5% 7.2% Michael Kors 6.3% Tiffany 5.8% 6.1% 6.0% 5.8% 5.1% 5.6% Richemont 5.8% Prada 10.2% 8.6% 9.2% 8.7% 7.0% 8.3% Tiffany 5.6% Burberry 6.1% 7.1% 6.3% 6.2% 6.3% 6.3% Average 5.6% Hugo Boss 5.0% 6.9% 6.9% 6.7% 6.5% 6.7% Salvatore Ferragamo 5.5% Hengdeli (1.6%) 1.1% 0.8% 0.8% 0.9% 0.8% Luxottica 5.5% YOOX Net–A–Porter 4.3% 5.0% 7.7% 7.1% 4.5% 6.4% Brunello Cucinelli 5.5% Salvatore Ferragamo 6.3% 5.6% 5.5% 4.9% 6.1% 5.5% Tod's 5.3% Safilo 3.2% 3.6% 3.2% 3.5% 3.3% 3.3% LVMH 5.1% Tod's 6.5% 4.5% 5.3% 5.5% 5.0% 5.3% Moncler 7.1% 7.5% 5.3% 4.8% 5.0% 5.0% Moncler 5.0% Tumi 6.9% 5.6% 7.1% 6.3% 6.1% 6.5% Kering 4.9% Brunello Cucinelli 8.8% 9.6% 7.2% 5.1% 4.2% 5.5% Ralph Lauren 4.7% Jimmy Choo 9.1% 8.1% 8.5% 8.5% n/a 8.5% Safilo 3.3% Average 5.9% 5.9% 6.0% 5.5% 5.1% 5.6% Chow Tai Fook 2.0% Median 6.1% 5.9% 6.0% 5.7% 5.2% 5.6% Hengdeli 0.8% Maximum 12.4% 9.6% 9.3% 8.7% 7.0% 8.5% Minimum (1.6%) 1.1% 0.8% 0.8% 0.9% 0.8% Source: Data based on consensus of several brokers reports for each company. Estimated data have not been derived from internal insights. The luxury and cosmetics financial factbook 2016
Page 16 DCF and valuation parameters B Operating aggregates Capital requirements for cosmetics companies are lower than in the luxury sector L’Occitane’s ratio outperforms the sample due to its retail profile. Average CAPEX ratio, Note: the 2015 CAPEX ratio is computed on the basis of either CAPEX Average ratio FY16E–FY18E — cosmetics companies actual (“A“) or estimated (“E“) FY14A FY15A/E FY16E FY17E FY18E ratio (FY16E–FY18E) figures for 2015 sales, depending L'Occitane 5.5% on their availability. L'Oréal 4.4% 4.6% 4.4% 4.4% 4.4% 4.4% Natura 4.5% Estée Lauder 4.7% 4.4% 4.7% 4.4% 4.2% 4.4% L'Oréal 4.4% Beiersdorf 4.4% 2.6% 3.0% 2.8% 3.1% 3.0% Estée Lauder 4.4% Shiseido 2.0% 2.8% 2.9% 2.8% n/a 2.9% Coty 4.1% Coty 4.4% 3.6% 4.1% 4.3% 4.0% 4.1% Natura 6.8% 3.9% 4.6% 4.7% 4.3% 4.5% Average 4.1% L'Occitane 5.0% 5.5% 5.5% 5.4% 5.7% 5.5% Beiersdorf 3.0% Average 4.5% 3.9% 4.2% 4.1% 4.3% 4.1% Shiseido 2.9% Median 4.4% 3.9% 4.4% 4.4% 4.3% 4.4% Maximum 6.8% 5.5% 5.5% 5.4% 5.7% 5.5% Minimum 2.0% 2.6% 2.9% 2.8% 3.1% 2.9% Source: Data based on consensus of several brokers reports for each company. Estimated data have not been derived from internal insights. The luxury and cosmetics financial factbook 2016
DCF and valuation parameters Page 17 B Operating aggregates EY luxury and cosmetics sample: summary of operating aggregates The charts below show the evolution of selected operating aggregates (sales CAGR, EBITDA margin, CAPEX ratio) over the past editions of The luxury and cosmetics financial factbook. Data reported represents estimates available for future years at the date of each factbook release. DCF and valuation parameters 1. Luxury Average sales CAGR Average EBITDA margin Average CAPEX ratio 12% 10.5% 27% 6.0% 10.4% 25.1% 5.7% 10% 9.3% 25% 24.6% 24.3% 5.6% 8.6% 5.4% 5.5% 5.3% 8% 23% 22.6% 6.6% 21.0% 6% 21% 5.0% 4.9% 4% 19% 4.5% 2% 17% 0% 15% 4.0% FY12 FY13 FY14 FY15 FY16 FY12 FY13 FY14 FY15 FY16 FY12 FY13 FY14 FY15 FY16 •• In an increasingly challenging market, future expected growth is slowing down but still shows significant growth levels. •• This slowdown in sales growth directly impacts the EBITDA margin aggregates, which also show a gradual contraction over the considered period. •• The CAPEX ratio is stable at 5% to 6%, illustrating a high requirement of investments, due to a progressive shift to the retail business. Source: Data based on consensus of several brokers reports for each company. The luxury and cosmetics financial factbook 2016
Page 18 DCF and valuation parameters B Operating aggregates EY luxury and cosmetics sample: summary of operating aggregates The charts below show the evolution of the operating aggregates estimates (sales CAGR, EBITDA margin, CAPEX ratio) over the past editions of The luxury and cosmetics financial factbook. for cosmetics companies. Data reported represents only estimates available for the next few years at the date of the factbook release. 2. Cosmetics Average sales CAGR Average EBITDA margin Average CAPEX ratio 12% 20% 5.0% 10% 18.9% 4.5% 8.2% 8.3% 19% 4.4% 18.2% 4.5% 8% 18.0% 18.0% 4.2% 6.1% 6.5% 18% 17.8% 4.1% 5.8% 4.0% 6% 4.0% 17% 4% 3.5% 2% 16% 0% 15% 3.0% FY12 FY13 FY14 FY15 FY16 FY12 FY13 FY14 FY15 FY16 FY12 FY13 FY14 FY15 FY16 •• The cosmetics sector, on average, has lower sales CAGR and EBITDA margins than the luxury sector, but the difference has been narrowing over the years. While the EBITDA margin expected for the cosmetics sector remains 3% lower than the luxury sample, the average sales CAGR of cosmetics is almost the same of luxury companies (6.5% versus 6.6%, respectively). •• Expected sales CAGR observed in 2016 is higher than 2015 figures, but considerably lower than the peak of 2012-13. •• The EBITDA margin has remained globally stable over the considered period, at a solid level around 18%. •• The CAPEX ratio is lower for luxury companies and mostly stable at 4.2%. Source: Data based on consensus of several brokers reports for each company. The luxury and cosmetics financial factbook 2016
DCF and valuation parameters Page 19 C Advertising expenses Advertising remains a key driver in the industry, with digital expenses’ share growing fast •• Marketing and advertising represent a significant cost component for both global luxury and cosmetics industries. DCF and valuation •• Digital expenses are gaining share in the advertising budget of companies, as influencers, Instagrammers parameters and social networks are replacing traditional channels. •• Communication media is now so diverse that companies can only focus on and allocate budget for some of the channels; in some cases, companies are dedicating more budget to communicating on new platforms. Selected companies — advertising expenses as a % of sales, FY15A/E 40% Average 26.8% 33.6% 35% 29.1% 30% 26.4% 25.7% 25% 22.9% 22.9% 20% Average 6.7% 15% 11.3% 11.3% 10% 6.8% 7.4% 5.6% 6.6% 6.7% 5.1% 5.4% 5% 3.4% 3.8% 0% Coach Brunello Cucinelli Moncler Luxottica Hugo Boss Tiffany Tumi Salvatore Ferragamo Prada LVMH Safilo Beiersdorf Coty Estée Lauder Shiseido L'Oréal Natura Luxury companies Cosmetics companies Source: Data based on actual or estimated numbers based on availability as of the date of this report. Note: The results of 2015 are actual (“A”) if the financial results are closed and expected (“E”) if the financial year is not closed yet. The luxury and cosmetics financial factbook 2016
Page 20 DCF and valuation parameters D SOTP and segment analyses LVMH SOTP •• LVMH SOTP analysis implies a total enterprise valuation of €106.9b in FY16E. •• The fashion and leather goods segment is the largest contributor both in terms of sales (35%) and EBIT (52%). Sales breakdown FY16E (in €b) EBIT breakdown FY16E (in €b) EV breakdown FY16E (in €b) 1.0 7.0 17.2 0.0 106.9 11.7 36.1 1.4 15% 21.9 16% 0% 31% 20% 20% 3.6 0.5 7.6 0.5 9.9 3.5 10% 13% 7% 13% 7% 13% 3.7 51.5 8% 9% 4.8 10% 9% 12.7 13% 13% 52% 48% 35% (0.3) (0.1) (1.3) -2% -1% Fashion Perfumes Watches Wines Selective Eliminations Total Fashion Perfumes Watches Wines Selective Eliminations Total Fashion Perfumes Watches Wines Selective Eliminations Investments Total and and and and retailing and and and and retailing and and and and retailing leather cosmetics jewelry spirits leather cosmetics jewelry spirits leather cosmetics jewelry spirits goods goods goods Luxury products Luxury products Luxury products (excluding wines and spirits (excluding wines and spirits (excluding wines and spirits and selective retailing) and selective retailing) and selective retailing) Sources: SOTP based on EY analysis and on the following brokers reports: UBS (18 January 2016), Macquarie Research (8 December 2015) and Natixis (4 December 2015). The luxury and cosmetics financial factbook 2016
DCF and valuation parameters Page 21 D SOTP and segment analyses Kering SOTP •• Kering SOTP analysis implies a total EV of €27.8b in FY16E. •• Contributing almost the whole of the total EBIT for 68% of sales, Gucci Group is the most profitable DCF and valuation segment in terms of operating margin. parameters Sales breakdown FY16E (in €b) EBIT breakdown FY16E (in €b) EV breakdown FY16E (in €b) 0.3 0.0 12.0 0.1 0.0 1.8 3.5 0.1 27.8 1.9 2.1 0% 6% 3% 1% 27.3 8% 1% 29% 8.2 103% 98% 68% (0.2) (1.7) -9% -6% Gucci Group Puma Other brands Eliminations Total Gucci Group Puma Other brands Eliminations Total Gucci Group Puma Other brands Eliminations Total Luxury Sport and lifestyle Luxury Sport and lifestyle Luxury Sport and lifestyle Sources: SOTP based on EY analysis and on the following brokers reports: Barclays (9 February 2016), UBS (18 January 2016) and Macquarie Research (8 December 2015). The luxury and cosmetics financial factbook 2016
Page 22 DCF and valuation parameters D SOTP and segment analyses Kering: further analysis of Gucci Group through SOTP approach •• Gucci Group SOTP analysis implies an EV of €27.3b in FY16E. •• Within the Gucci Group segment, the Gucci brand alone represents 49% of the top line and 60% of EBIT in FY16E, meaning that the Gucci brand is expected to constitute the largest segment within the Gucci Group and the most profitable in terms of operating margin. Sales breakdown FY16E (in €b) EBIT breakdown FY16E (in €b) EV breakdown FY16E (in €b) 1.7 8.2 0.2 1.9 3.6 27.3 0.2 8% 3.7 13% 21% 0.4 10% 1.1 5.9 14% 1.4 13% 22% 1.1 22% 4.0 17% 14.1 60% 49% 52% Gucci brand Bottega Veneta YSL Other brands Gucci Group Gucci brand Bottega Veneta YSL Other brands Gucci Group Gucci brand Bottega Veneta YSL Other brands Gucci Group Sources: SOTP based on EY analysis and on the following brokers reports: Barclays (9 February 2016), UBS (18 January 2016) and Macquarie Research (8 December 2015). The luxury and cosmetics financial factbook 2016
DCF and valuation parameters Page 23 D SOTP and segment analyses L’Oréal segment analysis •• The L’Oréal Luxe division accounted for 29% of the total sales in FY15A. •• This division is expected to register a sales growth at a CAGR of 4.4% over the 2015A–18E period, when its DCF and valuation operating income is anticipated to grow from €1.5m to €1.8m (or at a CAGR of 4.2%) over the same period. parameters •• The L’Oréal Luxe division will remain one of the biggest divisions within L’Oréal, together with consumer products. Sales breakdown FY14A–FY18E (in €b) EBIT breakdown FY14A–FY18E (in €b) EBIT margin FY14A–FY18E (in %) 30 27.2 5 4.9 22% 27.0 4.9 21% 21% 21% 25.8 4.6 2% 1% 25.3 4% 4% 20% 25 4.4 4% 2% 11% 4% 10% 19% 19% 22.5 8% 1% 8% 3.9 10% 18% 18% 18% 7% CAGR 4 CAGR 4% 7% 9% 2% 4.2% 4.4% 20 10% 7% 29% 35% 36% 30% 29% 29% 35% 34% 3 28% 33% 15 CAGR CAGR 0.9% 2.2% 2 10 45% 46% 46% 53% 53% 54% 54% 48% 47% 56% 1 5 13% 13% 13% 13% 13% 16% 15% 15% 15% 15% 0 0 (16%) (15%) (15%) (15%) (15%) 2014A 2015A 2016E 2017E 2018E 2014A 2015A 2016E 2017E 2018E 2014A 2015A 2016E 2017E 2018E L'Oreal Luxe Total cosmetics Professional products Consumer products Professional products Consumer products L'Oreal Luxe Active cosmetics L'Oreal Luxe Active cosmetics Body shop Eliminations Body shop Sources: Liberum (15 February 2016) and Kepler Cheuvreux (12 February 2016). Note: The results of 2015 are actual (“A”) if the financial results are closed and expected (“E”) if the financial year is not closed yet. The luxury and cosmetics financial factbook 2016
Page 24 DCF and valuation parameters E Trading multiples Level of multiples is affected by high volatility of financial markets •• The charts below show the evolution of the trading multiples over the past editions of the factbook. •• After reaching a peak in 2014, trading multiples for luxury companies are decreasing on all major valuation parameters, consistently with the lower growth expectations and margins showed by the listed company in this sector. EV/sales EV/EBITDA Price to earnings 4.0x 18.0x 35.0x 3.7x 3.6x 3.5x 16.0x 15.0x 15.3x 29.4x 3.3x 30.0x 28.2x 3.1x 3.0x 3.0x 14.0x 13.3x 13.3x 3.0x 12.7x 25.0x 25.2x 2.8x 24.1x 24.5x 2.7x 12.0x 11.9x 25.0x 12.0x 11.6x 22.0x 10.7x 21.4x 2.5x 2.3x 20.4x 2.2x 10.3x 20.0x 19.1x 10.0x 2.0x 8.0x 15.0x 1.5x 6.0x 10.0x 1.0x 4.0x 0.5x 5.0x 2.0x 0.0x 0.0x 0.0x 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016 Multiple on last FY Actual Multiple on current FY Forecast Multiple on last FY Actual Multiple on current FY Forecast Multiple on last FY Actual Multiple on current FY Forecast Source: Data based on consensus of several brokers reports for each company. Note: Year is referred to the Factbook edition. As an example 2016 is Factbook 2016 edition. Therefore “Multiple on last FY Actual” is calculated on 2015 results, while “Multiple on current FY forecast” is calculated on 2016 expected results. The luxury and cosmetics financial factbook 2016
DCF and valuation parameters Page 25 E Trading multiples Cosmetics multiples level illustrates the strong dynamism of the industry •• The charts below show the evolution of the trading multiples over the past editions of the factbook. •• Trading multiples for cosmetics companies showed more resilience over time, as the sector’s listed DCF and valuation companies are experimenting a stable growth over the last few years and a constant profitability. parameters EV/sales EV/EBITDA Price to earnings 3.0x 18.0x 35.0x 33.1x 2.8x 32.2x 2.6x 15.6x 2.5x 2.5x 16.0x 15.0x 14.6x 30.0x 28.9x 2.5x 2.4x 2.4x 14.4x 28.2x 27.7x 2.3x 14.1x 13.8x 26.9x 2.2x 2.2x 14.0x 13.1x 13.4x 25.8x 25.2x 2.1x 24.4x 12.3x 25.0x 2.0x 12.0x 11.3x 22.2x 20.0x 10.0x 1.5x 8.0x 15.0x 1.0x 6.0x 10.0x 4.0x 0.5x 5.0x 2.0x 0.0x 0.0x 0.0x 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016 Multiple on last FY Actual Multiple on current FY Forecast Multiple on last FY Actual Multiple on current FY Forecast Multiple on last FY Actual Multiple on current FY Forecast Source: Data based on consensus of several brokers reports for each company. Note: Year is referred to the Factbook edition. As an example 2016 is Factbook 2016 edition. Therefore “Multiple on last FY Actual” is calculated on 2015 results, while “Multiple on current FY forecast” is calculated on 2016 expected results. The luxury and cosmetics financial factbook 2016
Page 26 DCF and valuation parameters E Trading multiples EY luxury and cosmetics sample: summary of EV/sales multiples EV/sales (FY15A/E) EV/sales (FY16E) EV/sales (FY17E) EV/sales (FY18E) Hermés 6.6x Hermés 6.1x Hermés 5.6x Hermés 5.3x Moncler 4.3x Moncler 3.8x Moncler 3.4x Moncler 3.1x L'Oréal 3.5x L'Oréal 3.4x L'Oréal 3.2x L'Oréal 3.1x Estée Lauder 3.3x Estée Lauder 3.1x Estée Lauder 3.0x Estée Lauder 2.8x Tumi 3.0x Coty 3.0x Coty 2.9x Coty 2.7x Coty 2.9x Tumi 2.9x Tumi 2.8x Tumi 2.5x Luxottica 2.8x Richemont 2.7x Richemont 2.6x Richemont 2.5x Richemont 2.8x Luxottica 2.6x Luxottica 2.4x Luxottica 2.3x Brunello Cucinelli 2.8x Brunello Cucinelli 2.5x Salvatore Ferragamo 2.4x Salvatore Ferragamo 2.3x Salvatore Ferragamo 2.7x Salvatore Ferragamo 2.5x Beiersdorf 2.4x Beiersdorf 2.2x Beiersdorf 2.6x Beiersdorf 2.5x Brunello Cucinelli 2.3x Brunello Cucinelli 2.2x Coach 2.5x Coach 2.3x Coach 2.3x Coach 2.1x Tiffany 2.3x Tiffany 2.3x Prada 2.2x Prada 2.0x Average 2.3x LVMH 2.2x Tiffany 2.1x Tiffany 2.0x LVMH 2.3x Average 2.2x LVMH 2.1x LVMH 2.0x Kering 2.2x Prada 2.2x Average 2.1x Average 1.9x Prada 2.2x Kering 2.1x Burberry 2.0x Burberry 1.9x Burberry 2.2x Burberry 2.1x Kering 2.0x Kering 1.9x Tod's 2.1x Tod's 2.0x Tod's 1.9x Tod's 1.8x YOOX Net-A-Porter 2.1x Michael Kors 2.0x Michael Kors 1.9x Michael Kors 1.8x Michael Kors 2.0x Swatch 1.9x Swatch 1.8x Swatch 1.6x Swatch 2.0x Jimmy Choo 1.8x Jimmy Choo 1.6x Jimmy Choo 1.5x Jimmy Choo 2.0x YOOX Net-A-Porter 1.7x Natura 1.6x Natura 1.4x Natura 1.9x Natura 1.7x YOOX Net-A-Porter 1.5x YOOX Net-A-Porter 1.3x L'Occitane 1.7x L'Occitane 1.6x L'Occitane 1.4x L'Occitane 1.3x Hugo Boss 1.4x Hugo Boss 1.4x Hugo Boss 1.3x Hugo Boss 1.2x Shiseido 1.3x Shiseido 1.2x Shiseido 1.2x Shiseido 1.1x Ralph Lauren 1.0x Ralph Lauren 1.0x Ralph Lauren 0.9x Ralph Lauren 0.9x Chow Tai Fook 0.9x Chow Tai Fook 0.9x Chow Tai Fook 0.8x Chow Tai Fook 0.7x Safilo 0.5x Safilo 0.5x Safilo 0.5x Safilo 0.5x Hengdeli 0.4x Hengdeli 0.4x Hengdeli 0.4x Hengdeli 0.4x EV/sales (FY15A/E) EV/sales (FY16E) EV/sales (FY17E) EV/sales (FY18E) 2.3x 2.2x 2.1x 1.9x Low High Low High Low High Low High Industry benchmark Industry benchmark Industry benchmark Industry benchmark Source: Data based on consensus of several brokers reports for each company. Notes: • The results of 2015 are actual (“A”) if the financial results are closed and expected (“E”) if the financial year is not closed yet. • Market capitalization is based on a one‑month average as of 31 March 2016. The luxury and cosmetics financial factbook 2016
DCF and valuation parameters Page 27 E Trading multiples EY luxury and cosmetics sample: summary of EV/EBITDA multiples EV/EBITDA (FY15A/E) EV/EBITDA (FY16E) EV/EBITDA (FY17E) EV/EBITDA (FY18E) DCF and valuation YOOX Net-A-Porter 27.0x YOOX Net-A-Porter 21.0x Hermès 15.8x Hermès 15.1x parameters Hermès 18.6x Hermès 17.1x YOOX Net-A-Porter 15.6x YOOX Net-A-Porter 14.0x Coty 17.5x Coty 16.2x Coty 15.4x Coty 13.8x Estée Lauder 17.5x Estée Lauder 16.0x L'Oréal 14.9x L'Oréal 13.4x Brunello Cucinelli 16.7x L'Oréal 15.8x Estée Lauder 14.7x Estée Lauder 12.5x L'Oréal 16.5x Brunello Cucinelli 14.9x Tumi 13.7x Tumi 12.4x Beiersdorf 15.7x Beiersdorf 14.7x Beiersdorf 13.6x Beiersdorf 12.1x Shiseido 15.0x Tumi 14.1x Brunello Cucinelli 13.4x Brunello Cucinelli 10.9x Tumi 14.1x Shiseido 12.9x Shiseido 11.4x Shiseido 10.0x Luxottica 13.5x Luxottica 11.7x Luxottica 10.8x Luxottica 9.9x Coach 12.9x Kering 11.6x Kering 10.6x Kering 9.7x Moncler 12.6x Moncler 11.2x Salvatore Ferragamo 10.2x Salvatore Ferragamo 9.3x Kering 12.6x Average 11.1x Average 10.1x Average 9.3x Average 12.3x Salvatore Ferragamo 10.8x Moncler 10.0x Moncler 9.2x Jimmy Choo 12.2x Coach 10.7x Richemont 9.9x Richemont 9.2x Salvatore Ferragamo 11.7x Jimmy Choo 10.5x Coach 9.7x Coach 9.2x Richemont 10.8x Burberry 10.2x Burberry 9.6x Burberry 9.1x Tod's 10.6x Richemont 10.1x Jimmy Choo 9.3x Jimmy Choo 8.6x Natura 10.4x LVMH 9.7x LVMH 9.1x LVMH 8.5x LVMH 10.2x Tod's 9.5x Tod's 8.8x Tod's 8.4x Burberry 10.2x Natura 9.2x Prada 8.6x Prada 8.1x Tiffany 10.0x Tiffany 9.1x Tiffany 8.5x Tiffany 8.0x Swatch 9.9x Prada 9.0x Natura 8.2x Natura 7.8x L'Occitane 9.8x L'Occitane 8.9x L'Occitane 8.0x L'Occitane 7.3x Prada 9.8x Swatch 8.4x Swatch 7.9x Swatch 6.8x Chow Tai Fook 9.1x Chow Tai Fook 8.4x Chow Tai Fook 7.4x Chow Tai Fook 6.5x Hengdeli 7.3x Michael Kors 6.9x Hugo Boss 6.3x Hugo Boss 6.3x Michael Kors 6.9x Hugo Boss 6.6x Michael Kors 6.3x Michael Kors 5.6x Hugo Boss 6.7x Ralph Lauren 5.9x Safilo 6.1x Safilo 5.6x Safilo 6.5x Hengdeli 5.7x Ralph Lauren 5.3x Ralph Lauren 4.9x Ralph Lauren 6.4x Safilo 4.7x Hengdeli 5.0x Hengdeli 4.2x EV/EBITDA (FY15A/E) EV/EBITDA (FY16E) EV/EBITDA (FY17E) EV/EBITDA (FY18E) 12.3x 11.1x 10.1x 9.3x Low High Low High Low High Low High Industry benchmark Industry benchmark Industry benchmark Industry benchmark Source: Data based on consensus of several brokers reports for each company. Notes: •• Market capitalization is based on a one‑month average as of 31 March 2016. •• The results of 2015 are actual (“A”) if the financial results are closed and expected (“E”) if the financial year is not closed yet. The luxury and cosmetics financial factbook 2016
Page 28 DCF and valuation parameters E Trading multiples Regression analysis: EV/sales multiple vs. EBITDA margin •• Regression analyses show strong correlation between EV/sales levels and profitability, illustrating the premium paid for good profitability performance. •• Analyses show a robust correlation between EV/EBITDA and sales growth. Sales development is another driver for creating value, especially for the luxury segment. Regression analysis: EV/sales multiple vs. EBITDA margin 2016 Regression analysis: EV/EBITDA multiple vs. sales CAGR 2016E — 2018E 7.0x 25.0x Hermès YOOX Net-A-Porter 6.0x R² = 0.505 R² = 0.5575 20.0x 5.0x Hermès Brunello Cucinelli 15.0x EV/EBITDA 2016E Tumi 4.0x 2016 EV/sales Coach L'Oréal Moncler Salvatore Kering Luxottica Estée Lauder Salvatore Ferragamo Moncler Ferragamo 3.0x Coty Tumi Jimmy Choo Brunello Cucinelli Luxottica 10.0x Richemont Burberry Richemont Tod's LVMH Beiersdorf Kering Coach Tiffany Chow Tai Fook Tiffany Swatch YOOX Net- Burberry 2.0x LVMH Michael Kors Prada Michael Kors A-Porter Prada Tod's Hengdeli Jimmy Choo Hugo Boss Swatch Natura Ralph Lauren Shiseido L'Occitane 5.0x Hugo Boss Safilo 1.0x Chow Tai Fook Ralph Lauren Hengdeli Safilo - 0% 5% 10% 15% 20% 25% 30% 35% 40% -10% -5% 0% 5% 10% 15% 20% 25% 2016 EBITDA margin (%) Sales CAGR 2016E–2018E Source: Data based on consensus of several brokers reports for each company. Notes: market capitalization is based on a one–month average as of 31 March 2016. The luxury and cosmetics financial factbook 2016
DCF and valuation parameters The luxury and cosmetics financial factbook 2016
Page 30 DCF and valuation parameters F Transaction multiples Transaction multiples in the luxury industry remain at a significant premium to many other sectors •• Transaction multiples illustrate the high attractiveness of the industry over the past few years. •• They also reflect a premium to rarity, indeed the brands reputed to be “on the market” are very few. •• The average sales multiple in recent years ranged between 1.2x and 1.6x, when the average EBITDA multiple ranged between 10.4x and 15.0x. •• Key transaction announced in 2016 were the acquisition of Corneliany by Investcorp and the acquisition of Roger Vivier by Tods. EV/sales (FY12–1H16) EV/EBITDA (FY12–1H16) 1.8x 16.0x 15.0x 14.6x 1.6x 1.6x 1.6x 14.2x 14.1x 1.6x 1.5x 1.5x 1.5x 14.0x 13.1x 13.4x 12.8x 1.4x 12.0x 1.2x 1.2x 10.7x 10.4x10.2x 1.2x 1.1x 10.0x 1.0x 0.9x 8.0x 0.8x 6.0x 0.6x 4.0x 0.4x 0.2x 2.0x 0.0x 0.0x 2012 2013 2014 2015 1H16 2012 2013 2014 2015 1H16 Average Median Average Median Source: Capital IQ. The luxury and cosmetics financial factbook 2016
DCF and valuation parameters Page 31 F Transaction multiples The M&A deals in the cosmetics industry show a similar trend as the luxury industry •• The average sales multiple over the last five years ranged between 1.2x and 2.1x, when the EBITDA multiple ranged between 10.1x and 16.6x. DCF and valuation •• EV/EBITDA multiples in 1H16 are slightly lower than 2015 and include the acquisition of the P&G Beauty parameters Division by Coty and the acquisition of Avon by Cerberus. EV/sales (FY12–1H16) EV/EBITDA (FY12–1H16) 2.5x 18.0x 16.6x 2.1x 16.0x 14.9x 2.0x 1.9x 1.9x 14.0x 12.6x 1.6x 1.6x 11.7x 1.5x 12.0x 11.1x 11.0x 10.9x 1.5x 1.4x 10.1x 10.2x 1.2x 10.0x 8.8x 1.1x 1.0x 8.0x 1.0x 6.0x 0.5x 4.0x 2.0x 0.0x 0.0x 2012 2013 2014 2015 1H16 2012 2013 2014 2015 1H16 Average Median Average Median Source: Capital IQ. The luxury and cosmetics financial factbook 2016
Page 32 DCF and valuation parameters F Transaction multiples Analysis of worldwide M&A transactions in the luxury industry (2012–1H16) •• As shown in the number of completed deals sorted by geography and accounts for almost one‑third of total deals, Italy is the top target country of the luxury industry. Italy and US together represent more than an half of total deals (59% of total transactions). •• Private equity funds have a growing interest in the luxury sector, recently approx. 47% of total transactions. •• After a 2015 characterized by a large number of transactions, the deal activity in the first semester of 2016 has slowed down. Number of completed deals Number of completed deals by type of buyer Number of completed deals sorted by geography of the target over FY12–1H16 (among the top 10 countries) S. Korea 80 50 50% China 2% Canada Spain 2% 2% 45 43 47% 45% 3% 70 68 41 41 Germany 62 40 40% 4% Italy 40% 30% 60 35 34% 35% 52 UK 31 50 9% 44 30 30% No. of deals 27 30% 40 25 25% 21 Switzerland 20 20% 30 9% 17% 15 13 15% 19 20 10 10 9 9 10% France 10 5 5% 10% United 0 0 0% States 2012 2013 2014 2015 1H16 2012 2013 2014 2015 1H16 29% Corporate PE PE/total Sources: Capital IQ, Mergermarket, Factiva. The luxury and cosmetics financial factbook 2016
DCF and valuation parameters Page 33 F Transaction multiples Analysis of worldwide M&A transactions in the cosmetics industry (2012–1H16) •• As shown in the number of completed deals sorted by geography, and account for almost half of total deals, US remains the top target country for the cosmetics industry. DCF and valuation •• The first three countries by target geography (US, France and Italy) are the same of those of the luxury parameters industry, and they represent 68% of total transactions. •• PE funds are increasingly attracted by the cosmetic market and the personal care sector in general. Number of completed deals Number of completed deals by type of buyer Number of completed deals sorted by geography of the target over FY12–1H16 (among the top 10 countries) 45 35 70% Australia Spain China 4% Canada 31 Germany 4% 4% 40 39 62% 4% 30 60% 5% 28 United 35 States 35 UK 5% 41% 25 50% 30 S. Korea 26 20 40% 6% 25 21 33% No. of deals 16 20 15 14 14 30% 17 Italy 21% 20% 8% 15 10 10 20% 8 18% 10 7 7 5 10% 5 3 France 0 0 0% 19% 2012 2013 2014 2015 1H16 2012 2013 2014 2015 1H16 Corporate PE PE/total Sources: Capital IQ, Mergermarket, Factiva. The luxury and cosmetics financial factbook 2016
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