Keep calm and care about your consumer - The luxury and cosmetics financial factbook 2016 edition - EY

 
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
                                                                                    elcome to the sixth edition of EY ann al financial factboo for the l x r 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 e financial parameters.
                                                                                  In 2015, the luxury goods industry experienced 13% growth at current exchange rates,
                                                                                  reaching       b ho e er, c rrenc      ct ations ere the main contrib tor of this gro th,
                                                                                  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.
                                                                                    an factors contrib te to the state of the mar et. i en 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 mar ets, as ell as other intangible elements, are contrib ting
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 an cons mer, none more so than hen a significant spend is re ired, s ch
                                                                                  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.“
                                                                                   o sho ld l x r pla ers act to a oid losing their cons mers     o ld a      ic reaction
                                                                                  s ffice, or do brands need to re ie their entire b siness 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
                                                                                               highl      alified shop assistants ho can pro ide an exceptional cons mer experience.
  world. New technology has changed the way companies do business, providing new
                                                                                                 his goes be ond ne openings companies sho ld foc s on impro ing the alit
  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 l x r and cosmetics ind stries as ell as e al ation
  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 cons mers’ expectations and tr ing to offer ni e prod cts that offer         o r sector leaders. e hope o find this report to be insightf l and tho ght pro o ing
  instant gratification. t is the latter here l x r companies are ris ing losing gro nd 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
   o of information regarding prod cts’ characteristics orld ide. op end l x r
  companies sho ld therefore emphasi e the alit and rarit 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
  p rchases instead, the ma ha e intangible or more ephemeral benefits, s ch 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                                rrent ct ations, 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 a erage earl significant ret rn of 8%.
This relati e performance act all ill strates the appetite of in estors for an ind str that is characteri ed b solid financial f ndamentals in terms of sales gro th, ma or
profitabilit , resilient international client base and expos re to gro ing mar ets, attrib ting higher al ations to companies related sec rities, 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 l x r and cosmetics companies anal ed ithin the factboo . specific eight has been attrib ted to each compan incl ded 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).

      l    y and c s e ics inde e   l i nc    pa ed      a   indices   ase   as       an a y

                                                                                                       As of
                                                                                                                CAGR
                                                                                                                       1
250                                                                                                  31 March
                                                                                                       2016     08–16

200

                                                                                                       183       8%

150
                                                                                                       142       4%

100
                                                                                                       94        -1%                                                ase          as            an a y

 50                                                                                                             125
                                                                                                                                                                                                       As of
                                                                                                                120
                                                                                                                                                                                                     1 January
                                                                                                                115                                                                                     2016
  0
                                                                                                                110

            16
              8

              9

              0

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             8

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             0

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             3

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             8
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            11

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            12

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            13

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            14

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                                                                                                                105
                                                                                                                                                                                                         102
                                        EY Index   S&P 500    Europe 600                                        100
                                                                                                                                                                                                         99
                                                                                                                 95

                                                                                                                 90

                                                                                                                 85

                                                                                                                                                15

                                                                                                                                                                   15

                                                                                                                                                                                        15
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                                                                                                                                                                           15

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                                                                                                                                                                                                     16
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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
a e                                                                                                                                                                                                                     DCF and valuation parameters

       A               Financial parameters                                                                             Luxury companies reflect moderate but steady growth, with a
                                                                                                                        limited risk profile

                                                                                                                        •            ranges from      afilo to             oach , depending on the compan ’s ris profile perception ith an
                                                                                                                            overall limited variance.
                                                                                                                        • LTGR presents a larger range (1% to 4.3%) mainly depending on size, maturity stage of the retail network
                                                                                                                            and prod ct di ersification. he estimated a erage      is slightl lo er o erall than last ear’s fig re,
                                                                                                                            re ecting a pre ailing conser ati e ie among financial mar ets operators abo t f t re gro th.

                     and               yc               pany                                                            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
   10.5%
                                                                                                                        (one-month average).
                                                           Coach
                                                                                                                        Michael Kors, Tumi and Hengdeli      Richemont
   10.0%
                                                                                                                        are not represented in the graphic   Hermès
       9.5%                                                         Chow Tai Fook                                       at left because LTGR data for them   Luxottica
                                               Hugo
                                                          Tiffany                                                       was not available.                   Kering
       9.0%                                    Boss

                                                                                                                                                             Swatch
                            Ralph Lauren    Prada                   Burberry        Brunello
                                             Swatch                                 Cucinelli
WACC

                                                                      Tod's
                                                                                                                                                             Coach
       8.5%
                                     Salvatore
                                                        Richemont
                                    Ferragamo                                         YOOX Net-A-Porter
                                                            Moncler
       8.0%                            Jimmy Choo
                                                              Kering
                                                                          Hermès
                                                                                                                                                             Michael Kors                                                                     n/a
                                                                  LVMH
                                                                                                                                                              i any
       7.5%
                                                               Luxottica                                                                                     Prada                           7,675
                                                 afil
       7.0%
                                                                                                                                                                   e y
       6.5%                                                                                                                                                  Ralph Lauren
              0.0%           1.0%                2.0%                    3.0%           4.0%              5.0%   6.0%
                                                                                                                                                                      ai                     5,657
                                                            LTGR
                                                                                                                                                             Hugo Boss
   ote b bble si e re ects mar et capitali ation. otted lines represent a erage al es.                                                                       Salvatore Ferragamo             3,726
                                                                                                                                                             Moncler                         3,723
Sources:                                                                                                                                                     YOOX Net–A–Porter               3,424
• WACC* and LTGR: based on consensus of several brokers reports for each company.                                                                            Tod’s                           2,263
• Market capitalization and beta: EY elaboration based on S&P Capital IQ.                                                                                    Tumi                                                                             n/a
• earing companies’ financial statements.                                                                                                                    Brunello Cucinelli
                                                                                                                                                              i     y                         642
Notes:
                                                                                                                                                              afil                            525
• Market capitalization is based on a one–month average as of 31 March 2016.                                                                                 Hengdeli                                                                         n/a
• earing is defined as net financial debt E .
                                                                                                                                                             Average                                          8.5%      2.4%     0.92        2.6%
• Beta corresponds to levered beta measured on a weekly basis over a two–year period.
• eta fig res for Y        et    orter is based on the share of Y   .p. ., hich 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%
• ata point denoted as n a represents information not a ailable.                                                                                             Minimum                                           7.0%   (14.3%)    0.68        1.0%

                     and other terms are defined in the glossar .

The luxury and cosmetics financial factbook 2016
DCF and valuation parameters                                                                                                                                                                                                                  a e

       A               Financial parameters                                                                   The cosmetics sample is characterized by stable growth and low
                                                                                                              risk, with the exception of Natura

                                                                                                              • at ra’s     ra il      contin es to be significantl higher the the sample’s a erage, dri en b its
                                                                                                                  geographical coverage.

                                                                                                                                                                                                                                                       DCF and valuation
                                                                                                              •     erage             is in    enced b the significantl high le el of at ra.

                                                                                                                                                                                                                                                         parameters
                      and                yc              pany                                                 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
       14.0%
                                                                                                                                                   Estée Lauder
                                                                                                              Shiseido is not represented in the
       13.0%
                                                                                                              graphic at left because LTGR data      eie sd
       12.0%                                                                                                  was not available.                   Coty
                                                                                                                                                   Shiseido                                                                                 n/a
       11.0%
                                                                                                                                                   Natura
WACC

       10.0%
                                                                                                                                                   L'Occitane                      2,472
        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

   ote b bble si e re ects mar et capitali ation. otted lines represent a erage al es.

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.
• earing companies’ financial statements.

Notes:
• Market capitalization is based on a one–month average as of 31 March 2016.
• earing is defined as net financial debt E .
• Beta corresponds to levered beta measured on a weekly basis over a two-year period.

                                                                                                                                                                                                    The luxury and cosmetics financial factbook 2016
a e                                                                                                                                                                                                                                                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%                                                                                                                                                                                  afil                   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%                                             afil                              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%                                 afil                                      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                                                                                                                                                                            a e

  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 mar ets diffic lt. t re gro th is expected thro gh

                                                                                                                                                                                                                    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
                                  l           yc           panies                                                 (in €m)               FY14A FY15A/E FY16E         FY17E      FY18E
                                                                            Sergio Rossi and Groupe Fnac.                                                                                (FY15A/E–FY18E)
  YOOX Net-A-Porter                                                 20.4%                                         LVMH                          35,664
                                                                            Notes:
                      ncle                                 11.3%                                                  Kering*
                                                                            •        fig res are estimated
          Jimmy Choo                                    10.3%                 (“E“) or actual (“A“) , depending   Richemont
         nell     cinelli                               10.1%                 on their availability as of the     Luxottica             7,652
                                                                              date of this study.                 Swatch                        7,742
                        ica                         8.1%
                                                                            • Figures are converted into                   ai           7,276
            ic ael            s                     8.0%                      euros, using exchange rates
                                                                                                                  Ralph Lauren                                      7,276      7,654
                 Hermès                          7.5%                         as of 31 March 2016 (Source:
                                                                              Capital IQ).
                                                                                                                  Hermès                                 5,245      5,652
                 ai                             7.2%
                                                                            • Figures for YOOX Net–A–             Michael Kors
                  e a e                        6.6%                           Porter for FY14 and FY15 are        Coach                                                        4,252
                      Tumi                    6.1%
                                                                              presented on a pro forma basis,      i any                3,732
                                                                              i.e., assuming the merger was       Prada                 3,552            3,553      3,664
                  Kering                     5.4%                             effective at the start of FY14.
                                                                            • Hengdeli is not represented
                                                                                                                        e y                                                    3,722
                                             5.3%
                                                                              in the graphic at left because      Hugo Boss             2,572
                Burberry                     5.2%
                                                                              FY18E data was not available.       Hengdeli                                                       n/a             n/a
                 Tiffany                  5.0%                                                                    YOOX Net–A–Porter                                 2,357
                  Coach                  4.9%                                                                     Salvatore Ferragamo
           alp    a en                   4.8%                                                                      afil
                 Swatch                  4.7%                                                                     Tod's
  al a    e e a a                        4.5%
                                                                                                                  Moncler
                                                                                                                  Tumi                   463                                    575
                      Tod's             4.4%
                                                                                                                  Brunello Cucinelli     356             454                    552
            Richemont                   4.2%
                                                                                                                   i     y                               443
                       afil            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
a e                                                                                                                                                                                             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
    ’ ccitane and at ra significantl
                                                                          and emerging brand expansion
                                                                                                   Coach     for ’ ccitane, and    channel di ersification and international gro th 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
                          c s e ics c          panies                         •       fig res 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
        Natura                                                                  date of this study.
                                        9.3%                                                      Brunello Cucinelli   Estée Lauder        17.3%
                                                                              • Figures are converted into
       Shiseido                  6.4%
                                                                                euros, using exchange  Ralph Lauren
                                                                                                          rates          eie sd            17.1%                                               7,523
       Average               5.9%                                               as of 31 March 2016 (Source:
                                                                                                        Jimmy Choo
                                                                                                                       Shiseido            16.8%
 Estée Lauder                5.5%
                                                                                Capital IQ).                           Coty                                                    3,762
                                                                                                     Chow Tai Fook                 10.9%
                                                                                                                       Natura                                                          2,337
        L'Oréal           4.2%                                                                                 afil              9.8%
                                                                                                                       L'Occitane
   Beiersdorf             4.0%                                                                  YOOX Net-A-Porter
                                                                                                                       Average9.5%                                                                             5.9%
          Coty     2.0%                                                                                    Hengdeli    Median 7.5%                                                                             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                                                                                                                                                                              a e

  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                                                             • ar et olatilit dri en b c rrenc s ings and ct ating to rist o s

                                                                                                                                                                                                                    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
              l    yc                 panies                                                                           margin                FY14A FY15A/E FY16E      FY17E      FY18E
                                                                                                                                                                                            (FY16E–FY18E)
                                                                                  Sergio Rossi and Groupe Fnac.
               Hermès                                                     35.5%                                        LVMH
                                                                                  Notes:
               Moncler                                                  33.6%                                          Kering*
                                                                                  • Figures for YOOX Net–A–
          Michael Kors                                          29.0%               Porter for FY14 and FY15
                                                                                                                       Richemont
            Richemont                                      26.7%                    are presented on a pro–forma       Luxottica
                                                                                    basis, i.e., assuming the merger   Swatch
                Tiffany                                   25.1%
                                                                                    was effective at the start of               ai
                 Prada                                   24.7%                      FY14.                              Ralph Lauren
                 Coach                                  24.0%                     • The 2015 EBITDA margin
                                                                                                                       Hermès
  Salvatore Ferragamo                                   23.5%                       is computed on the basis of
                                                                                    either actual (“A“) or estimated   Michael Kors
                 LVMH                                 23.2%
                                                                                       E fig res for        sales,     Coach
                Swatch                                23.1%                         depending on their availability.    i any
              Luxottica                               22.9%                         As some groups are listed          Prada
                                                                                    under different jurisdictions
                  Tod's                           21.3%                                                                      e y
                                                                                    around the world, they may use
             Hugo Boss                            21.1%                             different GAAP, and therefore      Hugo Boss
               Average                            21.0%                             a direct comparison of EBITDA      Hengdeli
              Burberry                            20.9%
                                                                                    may be less meaningful than        YOOX Net–A–Porter
                                                                                    if their results were presented    Salvatore Ferragamo
                  Tumi                            20.5%
                                                                                    under the International
                                                                                                                        afil
                 Kering                         19.1%                               Accounting Standards.
                                                                                                                       Tod's
      Brunello Cucinelli                      17.3%
                                                                                                                       Moncler
          Ralph Lauren                        17.1%
                                                                                                                       Tumi
           Jimmy Choo                         16.8%
                                                                                                                       Brunello Cucinelli
        Chow Tai Fook                 10.9%
                                                                                                                        i     y
                   afil          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
a e                                                                                                                                                                      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%

   o tperforming profitabilit .                                            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
              c s e ics c              panies                                                                             5.5%          FY14A FY15A/E FY16E     FY17E   FY18E
                                                                           actual (“A“) or estimated (“E“)             margin                                                     (FY16E–FY18E)
                                                                                 Brunello Cucinelli                       5.5%
        L'Oréal                             21.9%                          fig res for        sales, depending
                                                                                             Tod's
                                                                                                                       L'Oréal
Estée Lauder
                                                                           on their availability. As some                5.3%
                                        20.2%                                                                          Estée Lauder
                                                                           groups are listed   under different
                                                                                             LVMH                        5.1%
        Natura                         19.4%                               jurisdictions around the world,               eie sd
                                                                                           Moncler                      5.0%
          Coty                        19.0%                                they may use different GAAP, and            Shiseido
                                                                                            Kering
                                                                           therefore a direct   comparison of           4.9%
       Average
                                                                                                                       Coty
                                     18.0%                                 EBITDA may     beLauren
                                                                                             less meaningful
                                                                                     Ralph                             4.7%
                                                                                                                       Natura
  L'Occitane                         18.0%                                 than if their results were presented
                                                                                              afil                 3.3%L'Occitane
                                                                           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                                                                                                                                                                       a e

  B        Operating aggregates                                            Stable CAPEX sales ratio reflects that high investments are
                                                                           required to support long–term growth

                                                                           The stable a erage le el of a  to          E sales ratio is mainl explained b the re             irements 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
              l      yc            panies                                                                                              FY14A FY15A/E FY16E     FY17E      FY18E
                                                                           actual (“A“) or estimated (“E“)       ratio                                                               (FY16E–FY18E)
          Jimmy Choo                                     8.5%              fig res for        sales, depending
                                                                                                                 LVMH
                                                                           on their availability.
                Prada                                    8.3%                                                    Kering
                Coach                               7.2%                                                         Richemont
            Hugo Boss                             6.7%                                                           Luxottica
               Swatch                             6.7%                                                           Swatch
                 Tumi                             6.5%                                                                    ai
   YOOX Net-A-Porter                              6.4%
                                                                                                                 Ralph Lauren
              Hermès
                                                                                                                 Hermès
                                                 6.3%
                                                                                                                 Michael Kors
             Burberry                            6.3%
                                                                                                                 Coach
         Michael Kors                            6.3%
                                                                                                                  i any
           Richemont                         5.8%
                                                                                                                 Prada
               Tiffany                      5.6%                                                                       e y
              Average                       5.6%                                                                 Hugo Boss
 Salvatore Ferragamo                        5.5%                                                                 Hengdeli
             Luxottica                      5.5%                                                                 YOOX Net–A–Porter
     Brunello Cucinelli                     5.5%                                                                 Salvatore Ferragamo
                 Tod's                     5.3%                                                                   afil
                LVMH                       5.1%
                                                                                                                 Tod's
                                                                                                                 Moncler
              Moncler                     5.0%
                                                                                                                 Tumi
                Kering                    4.9%
                                                                                                                 Brunello Cucinelli
         Ralph Lauren                     4.7%
                                                                                                                  i     y                                                   n/a
                  afil             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
a e                                                                                                                                                               DCF and valuation parameters

  B          Operating aggregates                                          Capital requirements for cosmetics companies are lower than in
                                                                           the luxury sector

                                                                           L’Occitane’s ratio o tperforms the sample d e to its retail profile.

Average CAPEX ratio,                                                       Note: the 2015 CAPEX ratio is
                                                                           computed on the basis of either       CAPEX                                                      Average ratio
              c s e ics c               panies                             actual (“A“) or estimated (“E“)                       FY14A FY15A/E FY16E     FY17E   FY18E
                                                                                                                 ratio                                                     (FY16E–FY18E)
                                                                           fig res for        sales, depending
   L'Occitane                                  5.5%
                                                                           on their availability.                L'Oréal
        Natura                          4.5%
                                                                                                                 Estée Lauder
        L'Oréal                        4.4%                                                                        eie sd
 Estée Lauder                          4.4%                                                                      Shiseido                                         n/a
          Coty                        4.1%
                                                                                                                 Coty
                                                                                                                 Natura
       Average                        4.1%
                                                                                                                 L'Occitane
   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                                                                                                                                                             a e

  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

• n an increasingl challenging mar et, f t re expected gro th is slo ing do n b t still sho s significant gro th le els.
• This slowdown in sales growth directly impacts the EBITDA margin aggregates, which also show a gradual contraction over the considered period.
• he       E ratio is stable at  to , ill strating a high re irement of in estments, d e to a progressi e shift to the retail business.

Source: Data based on consensus of several brokers reports for each company.

                                                                                                                                             The luxury and cosmetics financial factbook 2016
a e                                                                                                                                                           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       obser ed in       is higher than      fig res, b t considerabl lo er than the pea of                           .
• 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                                                                                                                                                                                                                        a e

  C        Advertising expenses                                                               Advertising remains a key driver in the industry, with digital
                                                                                              expenses’ share growing fast

                                                                                              •          ar eting and ad ertising represent a significant cost component for both global l x r and cosmetics
                                                                                                       industries.

                                                                                                                                                                                                                                                          DCF and valuation
                                                                                              • igital expenses are gaining share in the ad ertising b dget of companies, as in                                         encers, nstagrammers

                                                                                                                                                                                                                                                            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.

 elec ed c        panies        ad e isin e penses as a                              sales

 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

                                        Salvatore
                                       Ferragamo

                                                             Prada

                                                                         Brunello
                                                                         Cucinelli

                                                                                             Moncler

                                                                                                              Luxottica

                                                                                                                                    Hugo Boss

                                                                                                                                                 Tiffany
           Tumi

                                                                                                                                                               LVMH

                                                                                                                                                                               Beiersdorf

                                                                                                                                                                                             Coty

                                                                                                                                                                                                         Estée Lauder

                                                                                                                                                                                                                         Shiseido

                                                                                                                                                                                                                                     L'Oréal

                                                                                                                                                                                                                                                Natura
                                                                                                                                                                       afil
                                                                                Luxury companies                                                                                                      Cosmetics companies

Source: Data based on actual or estimated numbers based on availability as of the date of this report.
 ote   he res lts of      are act al                if the financial res lts are closed and expected          E           if the financial ear is not closed et.

                                                                                                                                                                                                       The luxury and cosmetics financial factbook 2016
a e                                                                                                                                                                                                                           DCF and valuation parameters

  D          SOTP and segment analyses                                         LVMH SOTP

                                                                               •             anal sis implies a total enterprise al ation of    . b in Y E.
                                                                               • The fashion and leather goods segment is the largest contributor both in terms of sales (35%) and EBIT
                                                                                 (52%).

 ales        ea d         n          in                                                    ea d     n               in                                                    ea d       n                 in

                                                                                                                                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)

 o rces          based on EY anal sis and on the follo ing bro ers reports          an ar           ,   ac      arie esearch          ecember          and atixis    ecember             .

The luxury and cosmetics financial factbook 2016
DCF and valuation parameters                                                                                                                                                                                                        a e

  D         SOTP and segment analyses                                         Kering SOTP

                                                                              • ering       anal sis implies a total E of  . b in Y E.
                                                                              • ontrib ting almost the hole of the total E  for    of sales,                                       cci ro p is the most profitable

                                                                                                                                                                                                                                          DCF and valuation
                                                                                 segment in terms of operating margin.

                                                                                                                                                                                                                                            parameters
 ales      ea d      n            in                                                       ea d     n          in                                                   ea d           n          in

                                  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

 o rces         based on EY anal sis and on the follo ing bro ers reports   arcla s       ebr ar         ,       an ar          and       ac   arie esearch   ecember          .

                                                                                                                                                                                       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

                                                                              • cci ro p           anal sis implies an E of   . b in Y E.
                                                                              • 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.

 ales       ea d      n          in                                                            ea d         n          in                                                 ea d       n              in

                                               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

 o rces         based on EY anal sis and on the follo ing bro ers reports   arcla s    ebr ar           ,            an ar    and      ac   arie esearch   ecember          .

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.

 ales      ea d          n                               in                                                 ea d      n                              in                               a in                         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).
 ote    he res lts of              are act al          if the financial res lts are closed and expected      E   if the financial ear is not closed et.

                                                                                                                                                                                                   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 gro th o er the last fe                                       ears and a constant profitabilit .

                                                                                                                                                                                                                                                                    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

                                     sales                                                              sales                                                                          sales                                                        sales

                He             s                                                  He             s                                                                He             s                                             He             s
                M ncle                                                            M ncle                                                                          M ncle                                                       M ncle
                           al                                                                al                                                                              al                                                           al
          s e a de                                                          s e a de                                                                        s e a de                                                     s e a de
                               i                                                                 y                                                                               y                                                            y
                               y                                                                 i                                                                               i                                                            i
                          ica                                                    ic e        n                                                                   ic e        n                                                ic e        n
               ic e        n                                                                ica                                                                             ica                                                          ica
        nell      cinelli                                                 nell      cinelli                                                        al a    e e a a                                              al a    e e a a
 al a    e e a a                                                   al a    e e a a                                                                               eie sd                                                       eie sd
               eie sd                                                            eie sd                                                                   nell      cinelli                                            nell      cinelli
                          ac                                                                ac                                                                              ac                                                           ac
                  i any                                                             i any                                                                                   ada                                                          ada
                  e a e                                2.                                                                                                           i any                                                        i any
                                                       2.                           e a e
                      e in                         2.                                       ada                     2.                                              e a e                                                        e a e
                          ada                      2.                                   e in                                                                            e y                                                          e y
                      e y                                                               e y                                                                             e in                                                         e in
                          ds                      2.                                        ds                                                                              ds                                                           ds
          e                e                      2.                         ic ael              s                                                           ic ael              s                                        ic ael              s
           ic ael              s                                                        a c                                                                             a c                                                          a c
                      a c                                                    i     y                                                                         i     y                                                      i     y
           i     y                                                          e                e                                                                          a        a                                                   a        a
                      a        a                                                        a        a                                                          e                e                                           e                e
                cci ane                                                           cci ane                                                                         cci ane                                                      cci ane
                           ss               1.                                               ss                1.                                                            ss                                                           ss
                  iseid                     1.3                                     iseid                                                                           iseid                                                        iseid
          alp     a en                                                      alp     a en                                                                    alp     a en                                                 alp     a en
                 ai                   0.9                                          ai                    0.9                                                       ai                                                           ai
                      afil                                                              afil                                                                            afil                                                         afil
                 en deli                                                           en deli                                                                         en deli                                                      en deli

                                   sales                                                              sales                                                                          sales                                                        sales

                                                            Hi h                                                             Hi h                                                                        Hi h                                                         Hi h
                                      Ind s y ench a                                                     Ind s y ench a                                                                 Ind s y ench a                                               Ind s y ench a

Source: Data based on consensus of several brokers reports for each company.

Notes:
• he res lts of       are act al       if the financial res lts are closed and expected                        E    if the financial ear is not closed et.
• 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

                                                                                                                                                                                                                                                                                                                                                  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                                   al                                                14.9x                                   al                                       13.4x
        nell      cinelli                                       16.7x                                    al                                             15.8x                      Estée Lauder                                                    14.7x                     Estée Lauder                                          12.5x
                       al                                       16.5x                     nell      cinelli                                            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                          nell      cinelli                                          13.4x                          nell      cinelli                                   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                                         e in                                  11.6x                                             e in                                  10.6x                                               e in                               9.7x
                    ncle                                12.6x                                         ncle                                  11.2x                          al a    e e a a                                         10.2x                             al a    e e a a                                      9.3x
                    e in                                12.6x                                       e a e                                  11.1x                                            e a e                                  10.1x                                              e a e                               9.3x
                  e a e                                12.3x                       al a    e e a a                                         10.8x                                              ncle                                 10.0x                                                ncle                             9.2x
         Jimmy Choo                                    12.2x                                        Coach                                 10.7x                                      Richemont                                     9.9x                                        Richemont                                 9.2x
 al a    e e a a                                   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
                 en deli                  7.3x                                               ic ael          s                   6.9x                                                Hugo Boss                       6.3x                                                      Hugo Boss                       6.3x
           ic ael          s              6.9x                                               Hugo Boss                        6.6x                                                   ic ael          s               6.3x                                                      ic ael          s              5.6x
           Hugo Boss                     6.7x                                               alp     a en                     5.9x                                                             afil                  6.1x                                                                afil                  5.6x
                    afil                 6.5x                                                      en deli                   5.7x                                                   alp     a en                   5.3x                                                       alp     a en                   4.9x
          alp     a en                   6.4x                                                         afil                4.7x                                                             en deli                5.0x                                                               en deli               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.
• he res lts of       are act al       if the financial res lts are closed and expected                                  E     if the financial ear is not closed et.

                                                                                                                                                                                                                                                                 The luxury and cosmetics financial factbook 2016
a e                                                                                                                                                                                                                                                                           DCF and valuation parameters

                E           Trading multiples                                                                               Regression analysis: EV/sales multiple vs. EBITDA margin

                                                                                                                            • egression anal ses sho strong correlation bet een E sales le els and profitabilit , ill strating the
                                                                                                                             premi m paid for good profitabilit performance.
                                                                                                                            • nal ses sho a rob st correlation bet een E E             and sales gro th. ales de elopment is another
                                                                                                                             driver for creating value, especially for the luxury segment.

         e essi n analysis                             sales           l iple s                            a in                                                          e essi n analysis                                                            l iple s sales

                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
a e                                                                                                                                                                                         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.
                                                   • he also re ect a premi m to rarit , indeed the brands rep ted to be on the mar et are er fe .
                                                   • 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.
                                                   • e transaction anno nced in                                           ere the ac         isition of ornelian b n estcorp and the ac                       isition of
                                                          oger i ier b            ods.

                                                          sales

                                                   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                                                                                                                                                                    a e

  F       Transaction multiples   The M&A deals in the cosmetics industry show a similar trend as
                                  the luxury industry

                                  • he a erage sales m ltiple o er the last fi e ears ranged bet een . x and . x, hen the E                                                               m ltiple
                                    ranged between 10.1x and 16.6x.

                                                                                                                                                                                                        DCF and valuation
                                  •E E             m ltiples in                         are slightl lo er than   and incl de the ac                          isition of the              ea t

                                                                                                                                                                                                          parameters
                                         i ision b ot and the ac                        isition of on b erber s.

                                         sales

                                  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).
                                                                 • ri ate e it f nds ha e a gro ing interest in the l x r sector, recentl approx.                                                    of total
                                                                  transactions.
                                                                 • fter a     characteri ed b a large n mber of transactions, the deal acti it in the first semester of
                                                                  2016 has slowed down.

       e          c   ple ed deals                                                        e        c     ple ed deals y ype                  ye                            e    c ple ed deals s                    ed y
                                                                                                                                                                      e    ap y    e a e     e
                                                                                                                                                                      a   n    e p    c n ies

                                                                                                                                                                                                      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
                                                             • he first three co ntries b 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.

       e         c   ple ed deals                                                       e        c     ple ed deals y ype                       ye                             e    c ple ed deals s                      ed y
                                                                                                                                                                          e    ap y    e a e     e
                                                                                                                                                                          a   n    e p    c n ies

 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
Industry overview
G   Global luxury goods market

H   Global cosmetic goods market

    Points of view from EY global sector
I   and other industry professionals

                                                                Industry overview
             The luxury and cosmetics financial factbook 2016
Page 36                                                                                                                     Industry overview

Global luxury goods market

    Retail Directly Operated Stores (DOS)                           Personal luxury goods      Chinese consumers represent the
    accounted for about 29% of the overall                          have the second            largest share of buyers in the world,
    market, while monobrand distribution across                     largest market share of    accounting for about 31% of global

                            ~29%
    formats                                                         approximately 24.2% in     luxury goods purchases.
    accounts                                                        the luxury goods market.
    for about

                                                                                                                 ~31%
                       Retail DOS

                            ~53%
    53%
    of overall
    distribution.
                                   Monobrand distribution

    Retail sales account for                       The Hong Kong
                                                                                               Japan is the top performing area
    34% in 2015 and have                           and Macau

                                                                    ~24.2%
                                                                                               for the luxury goods market
    grown by 2% since 2014,                        markets posted
                                                                                               (+9% growth at a constant
    while wholesale represent                      a significant
                                                                                               rate , and in     , it as the first
    66% of the total personal                      contraction
                                                                                               foreign destination for Chinese

                              66%
    luxury                                         due to
                                                                                               consumers.
    goods                                          currency         As accessible status
    market.                                           ct ations,    s mbols, shoes benefit
                              Wholesale

                                                                                                                        +9%
                                                   government       from strong tailwinds

    34%
                                                   reforms and      and have been growing
                                                   decreasing       faster than
                                                   popularity.      the overall                                                   growth
    Retail
                                                                    leather goods
                                                                    category in
                                                                    the recent
                                                                    past.

The luxury and cosmetics financial factbook 2016
DCF
Industry
    and overview
         valuation parameters                                                                                                                                                                                            Page 37

                                                                                                                                                                                                                                            Executive summary
    G
    H        Global luxury
                     luxurygoods
                           goodsmarket                                                Title
                                                                                      Globalfor section
                                                                                             personal luxury goods continue to buoy the market, but
                                                                                      growth is leveling off

• Personal luxury goods have the second largest marketXshare
                                                        Sales(approximately  24.2%)
                                                              of industry players areinexpected
                                                                                        the luxury
                                                                                                 to goods market
                                                                                                    grow at       afterrate,
                                                                                                            a healthy    luxury
                                                                                                                             led cars, which account
                                                                                                                                 by double-digit     forgrowth
                                                                                                                                                 annual about arate
                                                                                                                                                                38.8%
                                                                                                                                                                    for
     Welcome
     share     to the
           in the     third edition of EY’s annual
                   industry.                                                            L’Occitane and Natura from FY11A to FY14E.
     Financial Factbook for the luxury and cosmetics

                                                                                                                                                                                                                                   DCF and valuation
•    Global luxury market value stood at €1 trillion in 2015,Xwith       the personal
                                                                    Increased   demand luxury  goods
                                                                                          through     market growing
                                                                                                   innovative productsatwill
                                                                                                                         13%   at current
                                                                                                                             cater        exchangeemerging
                                                                                                                                   to underserved  rates; however, at constant
                                                                                                                                                            markets.

                                                                                                                                                                                                                                     parameters
     sector. he actboo combines financial
     exchange    rates,  the growth   has  slowed
     data, insight from EY’s global team of sector to 1%, slower than  the 3%  recorded  in 2014.
                                                                  X Introduction of eco-friendly, sustainable and naturally derived beauty products and cosmetics will stimulate
•    Currency
     specialists andctopinions
                        ations,ofand in partic
                                  external     lar a strong
                                           experts.             dollar and depreciating
                                                                    demand                 e ro,
                                                                              in established     helped the market to show double-digit positive impact on overall market value.
                                                                                              geographies.
• While wholesale remains the dominant distribution channel for personal luxury goods (accounting for about two–thirds of market sales), the company–owned retail
     channels are growing twice as fast as the wholesale channel at current exchange rates and continue to gain market share due to network expansion (with 600 new
                              Titles for charts
     stores opened in 2015) and growth in same store sales (13% at the current exchange rate).

                                                                                                                                                                                                                                            Industry overview
                                                                                                                                                                                                                                            Industry overview
       ld ide pe s nal l            y       ds    a e          end                                                                                                    pc       n ies                  2

                                                                                                                                       280–295
      300                                                                                                                      CAGR              20%
                                                                                                                        253    2%–3%

      250                                                                                    218          224                                                                 US                                     78.6
                                                                                212
                                                                      192                                                                        15%
      200        170          167                      173
                                           153

                                                                                                                                                                                                                                   and disclaimer
                                                                                                                                                                                                                                    Methodology
      150                                                13%                                                             13%                                               Japan               20.1
                                                                      11%                                                                        10%
                                                                                10%
      100

                                                                                                                  +1% at
        50        7%                                                                                             constant                        5%                Mainland China             17.9

                                                                                                                                                        % growth
                                                                                                                   rate
€b

         0                                Titles for charts
                                                                                              3%          3%
                                                                                                                                                 0%
      -50                                                                                                                                                                   Italy          17.3

                                                                                                                                                                                                                                   and specific analyses
                              -2%

                                                                                                                                                                                                                                     Sample selection
     -100
                                                                                                                                                 -5%

     -150                                                                                                                                                                 France          17.1

     -200                                  -8%                                                                                                   -10%

                2007         2008        2009         2010           2011      2012         2013        2014           2015E           2020E                                        0    20               40   60   80      100

                                                               Market size              Growth                                                                                                                 €b

Source: Data based on consensus of several brokers’ reports for each
company.

                                                                                                                                                                                                                                   Contact us
                                                                                                                                                                                                                                    Glossary
Notes:
    ltagamma
Notes:Market      ain
             capitalizationxis based
                               r oods         orld ideaverage
                                      on a one-month       ar etas tof dDecember
                                                                            all inter
                                                                                 2012.     , Altagamma/Bain.
    ltagamma
The 2012          ain,
         growth corresponds orld    idesalesx growth
                                to the         r   arrate
                                                       etsbetween
                                                             onitor,            pdate, Altagamma/Bain, October 2015.
                                                                   FY11A and FY12A/E.

                                                                                                                                                                              The luxury and cosmetics financial factbook 2016
Page
 a e                                                                                                                                                                                                            DCF and valuation
                                                                                                                                                                                                                           Industry
                                                                                                                                                                                                                                  parameters
                                                                                                                                                                                                                                    overview

  G
  H                     Global luxury
                                luxurygoods
                                       goodsmarket                                  Luxury
                                                                                    Title forgoods market by geography and channel
                                                                                              section

                                                                                    X Sales of industry players are expected to grow at a healthy rate, led by double-digit annual growth rate for
    Welcome
        y      ds
               to the
                  de third
                         and edition ofyEY’s
                                          na iannual
                                               nali y and y e i n                                          l al pe s nal l   y     ds a e y c annel and        a        2
                                                                         L’Occitane and Natura from FY11A to FY14E.
    Financial Factbook for the luxury and cosmetics
                  Europe           Americas
    sector. he actboo combines financial              Japan     Mainland Increased demand
                                                                      X China         Rest of worldthrough innovative products will cater to underserved emerging markets.

    data,
       15% insight from EY’s global team of sector                    X Introduction of eco-friendly, sustainable and naturally derived beauty products and cosmetics will stimulate
    specialists and opinions of external experts.9%                      demand
                                                                           9%     in established geographies.
                 10%

                            5%                                                                                5%
                  5%                                                                                                                                                  Retail      Wholesale
                                                    3%
                                                 Titles for charts                                                                                                     34%          66%
  2015E growth

                                            0%
                  0%                                                                                                                                                                                       Online
                                                                                                                                                                                                            7%
                                                                                 -2%                                                                   Off-price                                 Airport            Monobrand
                                                                                                                                      Concession        stores                       Off-price    11%                 stores
                  -5%
                                                                                                                                       business          27%                          stores                           18%
                                                                                                       -5%                                                                              1%
                                                                                                                                         18%                       Online
                 -10%                                                                                                                                               4%
                                                                     -9%                                                                                                                                              Department
                                                                                                                                                                                                                        stores
                                 -12%                                                                                                                                                             Specialty              28%
                 -15%                                                                                                                         Retail DOS                                           stores
                                                                                                                                                 51%                                                35%
                                                         Region   Nationality

                         e and              y na i nali y and y a ea                                                  2        e ail and           n        and dis i          i n c n in ed                ain s a e

  • As illustrated in the graph above, there is a clear dichotomy between the region of                               • Retail sales have grown to 34% in 2015 from 32% in 2014, gaining shares from wholesale
                 consumption and nationality, based on the exchange rate        ct ations.                              sales       in     and      in      of the total personal l x r goods mar et. his re ects
                                 Titles
  • Mainland China remains the top      for charts
                                   consumer  by country with one–third of the global market.                            a trend that companies are converting their franchised locations into company-owned stores
                 Japanese consumers, who used to account for about 25% of global purchases, had a 10%                   or joint ventures.
                 share of the global personal luxury goods purchases in 2015.                                         • Monobrand stores sales (retail DOS and wholesale monobrand stores) accounts for about
  • Although luxury consumers in the mature markets, such as the US, Europe and Japan, tend                             29% of the overall market, while monobrand distribution across formats (including off-price
                 to purchase most of the products in their home market, the growth in these regions is                  stores, online and airport sales) already accounts for about 53% of overall distribution.
                 becoming increasingly dependent on tourists’ spending.                                               • The airport channel has posted annual growth of 29%, which is attributable to the increase in
                                                                                                                        luxury spending by tourists across the world and accounts for about 6% of the global market
                                                                                                                        share in the luxury goods led largely by beauty products sales.
                                                                                                                      • The online luxury market has grown tenfold since 2005 and accounts for about 7% of total
                                                                                                                        sales in 2015. The online sales were largely led by the accessories and apparel categories.

Source: Data based on consensus of several brokers’ reports for each
company.
Notes:
    ltagamma
Notes:Market      ain,
             capitalization  x based
                            is  r oods         orld ide
                                      on a one-month        ar et
                                                        average     t December
                                                                as of  d all 2012.
                                                                               inter       ,’’ Altagamma/Bain.
    ltagamma
The 2012          ain,
         growth corresponds orld    idesalesx growth
                                to the         r   arrate
                                                       ets    onitor,
                                                          between            pdate,’’ Altagamma/Bain, October 2015.
                                                                   FY11A and FY12A/E.

The luxury and cosmetics financial factbook 2016
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