_challenging growth in the luxury and cosmetics sector

8/17/2019 _Challenging Growth in the Luxury and Cosmetics Sector

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Challenging growth in the luxuryand cosmetics sector

The luxury and cosmeticsnancial factbook2014 edition


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“2013 has been a challenging year for the luxuryindustry, perhaps the most challenging since the

recession of 2009, and we see this on the impacton the overall industry growth rate.”Paul Wood

Partner, Advisory


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ContentsStatistics and key facts

Index evolution

2 Executive summary

A. Financial parameters

B. Operating aggregates

C. Advertising expenses and net workingcapital analyses

D. SOTP and segment analyses

E. Trading multiples

F. Transaction multiples

6 DCF and valuation parameters

A. Global luxury goods market

B. Global cosmetic goods market

32 Industry overview

Approach

SOTP analysesSample selection

Focus on Moncler, Coty, Tumi, Hengdeli andChow Tai Fook

44 Methodology

54 Glossary

55 Contact us


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The luxury and cosmetics nancial factbook 2014

Executive summary

Page 2

Andrea Guerzoni

Partner, Transaction Support — Milan

EMEIA TAS Leader

[email protected]

Welcome to the fourth edition of EY’s annual nancial factbook for the

luxury and cosmetics sector, which focuses on the current industry trends,

the evolution of the operating aggregates and the key nancial parameters.

The factbook combines publicly available data with input from our sector

leaders based on our experience working with many of the leading luxury

and cosmetics companies in the world.

2013 has been a challenging year for the luxury industry, perhaps the

most challenging since the recession of 2009, and we see this on theimpact on the overall industry growth rate. For the rst time in three

years, the industry growth rate has slowed to single digits at 2.4%*

(10.4% FY12) giving a personal luxury market worth an estimated

€217b. This smaller but still positive growth is mainly led by the US and

Chinese consumption (all over the world) and is supported by the resilient

accessories segment and the progression of the online channel. Looking to

the future, however, we still see positive annual growth rates in the range

of 4% to 6% through FY16. We believe that this positive future growth will

be driven by longer-term urbanization, a reduced drag on the wholesale

market and an increasing shift toward younger, male customers. If overall

growth rates have declined, protability in the sector has been maintained

on average 1% less than last year, and this is largely due to volume growth,

a high retail mix (with higher margins) and a declaration by many players

of an increased focus on efciency.

The cosmetics market shows a smaller decline in growth rates in 2013

(3.8%) and remains a solid market at €175b. The longer-term outlook

also remains positive as the world population with access to cosmetics

in emerging markets is estimated to increase by 50%. As a result, the

beauty industry is expected to double in the next 10 to 15 years with

China, the US, Brazil, India and Japan forecast to become the top markets

(only Europe is missing). By 2020, it is estimated that more than half of

consumers will be in tropical zones, with hot and humid climates, and

over 60% of the world’s population will be living in major urban areas

affected by pollution, so the demand for high-quality cosmetics will

never be higher.

What are the key areas of focus that executives in the industry should

focus on over the next year?

Develop a clearer strategy for the future Chinese market — Long seen as

the panacea for easy growth, the market for China business, both domestic

and tourist, is under pressure. Domestically, we saw the new president make

pronouncements against corruption and gift giving, and higher pricing

due to luxury sales taxes has had a slowdown effect on the domestic China

market for luxury. Many luxury houses invested heavily over the last 5 to 10

years to expand their retail estate into second- and third-tier cities and are

now seeing a reduction in demand in these markets. In some areas, some

of these stores are simply showcases for the Chinese customer to explore

before their overseas shopping trips. Amid a lack of brand loyalty, a desire

for higher-end and more unique products, and an increasing demand for

a digital channel, the right mix of wholesale, retail and online for the China

market is no longer clear. However, we believe adjusting or developing theright strategy to win in China is essential for the future.

Why?

In 2013, Chinese customers accounted for approximately one-third of

the global spend on luxury. The Chinese middle class is evolving, with

more higher-income households likely to fuel growth in the teens in luxury

demand. By 2020, Chinese customers are expected to add up to 40% to

luxury growth.

Paul Wood

Partner, Advisory — Paris

EMEIA and Global Coordinator

[email protected]

*Includes currency effect


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Page 3


E x e c u t i v e s u m m a r y

Executive summary

Focus on efciency — While many large and small luxury houses deftly manage their

increased retail footprint, this is not always the case across the back ofce. The core

skills, such as brand image and management, merchandising, range and assortment

planning — design and manufacture — have to be in order to compete in today’s world

of challenging growth. However, many houses, including the international groups, are

somewhat artisanal in how they organize and deliver what are considered non-core or

support functions such as nance, procurement, logistics, HR and IT. Relatively simple

things for other industries — such as leveraging enterprise resource planning, using

big data and analytics to enhance decision-making, and structuring decentralized or

centralized organizations — are often lacking when benchmarked against other sectors

and are leading to increasing pressures on margins.

Why?

This pressure is being compounded by increasing competition from mass prestige

pushing up into the luxury market. Houses are now turning their attention to becoming

as efcient and effective as possible. Upwards of 30% can be taken out of SG&A costs by

having leaner processes, better decision-making tools and more appropriately structured

support functions.

While this may seem small compared to some of the EBITDA delivered due to high margins

and volume-based growth, luxury houses should and are now starting to take

the efciency of their support functions more seriously.

Accelerate your digital presence — E-commerce strategies are not new to the sector,

but we have seen that the luxury houses have lagged behind other industries in

developing clear and concrete plans for capitalizing on the digital opportunity.

Historically, a luxury customer has typically been a middle-aged, high-net-worth

individual, and the intangible rarity associated with luxury products seemed to be at odds

with the fast, young, 24/7 world of the digital economy. However, the average age of the

luxury consumer is falling, largely due to the China and Asian market, and the emergence

of e-tailers, particularly in the US fashion market, is starting to challenge the traditional

luxury world. The need for a consistent digital strategy has never been more pressing.

Why?

Online penetration is growing at a rapid pace. While “only” 4.5% of sales, it is growing

at a massive 30% year-on-year growth. Sixty percent of the online luxury market is in

the US, despite all the hype about Chinese teenagers, with accessories having the highest

penetration to date. M-commerce currently represents one-third of all trafc and up to

10% of sales for some brands.

This edition of the factbook, based on your feedback, has been focused to deliver

operational and nancial aggregates about the industry, along with key valuation

parameters and multiples. We hope that this report proves to be insightful and provokes

constructive thought and discussion within your organization.

Andrea Guerzoni

[email protected]

Paul Wood

[email protected]


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Statistics and key facts

Page 4

New markets inAsia-Pacic andLatin Americarepresented

80% ofthe globalcosmeticsmarket growth.

US demand(+7%) surpassedAsia as luxury’smain growthengine in

2013. Youngerpremiumconsumersfrom emergingeconomiesand the US aredriving demand

Mass-marketsales tailed off,particularly in

the US and

Asia.

Global personalluxury market

grew by

in 2013.

2.4%

Online sales

reached30% year-on-yeargrowth in realterms.

The globalcosmetics

market grewby3.8% in 2013.

China, Braziland the UScontributed toalmost half of the global

cosmeticsmarket in 2013.

The US markethas shownsustainable signsof recovery,while theChinese marketis expected tomaintain low-digit growth.

Currencyuctuations stillimpact luxurypurchasingpatterns

(Japanese yen,Russian ruble,Indonesianrupiah andBrazilian real).

For both theluxuryandcosmeticsindustries,digital isproving to be agame-changer,increasingengagementwith consumers

The Urbanmiddle classcould drivecosmeticsmarket

growth 50%over the20 years

next


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Page 5

Source: Capital IQ

EY luxury and cosmetics index evolution compared to major indices (base 100 as of 1 January 2008)

The analysis reported in the graph below shows that the EY luxury and cosmetics index (represented by the

companies we included in the EY factbook) has outperformed the market over the last six years with a total

return of 63%, corresponding to an average yearly signicant return of 7.7%, despite the economic downturn.

This relative performance actually illustrates the appetite of investors for an industry that has demonstrated

solid nancial fundamentals in terms of sales growth, major protability, international client base andexposure to emerging markets, attributing higher valuations to companies-related securities.

The EY index is a representation of those luxury and cosmetics companies analyzed within the factbook.

A specic weight has been attributed to each company included in the EY index based on its market

capitalization and revenues (each of these two parameters weighing for a half). The relative weights have

been revised at every company inclusion after its IPO. Finally, the evolution of the EY index has been

compared to these of the S&P 500 and STOXX Europe 600 indexes using 1 January 2008 as a starting date

(rebased to 100).

Index evolution

E x e c u t i v e s u m m a r y

0

20

40

60

80

100

120

140

160

180

200

As of 31 Jul 2014

163.0

133.0

92.2

Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Jul-14Oct-13 Jan-14 Apr-14

EY index STOXX S&P


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PAGE 6 OPENING

LUXURY AND COSMETICS THE EY FINANCIAL FACTBOOK 2014

DCF and valuation parameters

“Positive future growth will be driven bylonger-term urbanization, a reduced drag onthe wholesale market and an increasing shifttoward younger, male customers.”

Paul WoodPartner, Advisory


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Page 7Opening

S am pl e s

el e c t i on

an d

s p e c i f c

an al y s e s

E x e c u t i v e s umm ar y

D C F an d v al u a t i on p ar am e t er s

I n d u s t r y ov er vi ew

M e t h o d ol o g y

an d d i s c l ai m er

G l o s s ar y

C on t a c t u s

Financial parameters

Operating aggregates

Advertising expenses and net workingcapital analyses

SOTP and segment analyses

Trading multiples

Transaction multiples

A

B

C

D

E

F

D C F a n d v a l u

a t i o n

p a r a m e t e

r s


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DCF and valuation parametersPage 8

Financial parametersA

Source:

• WACC and LTGR: based on consensus of several brokers’ reports foreach company

• Market capitalization and beta: EY elaboration based on S&P Capital IQ

• Gearing: companies’ nancial statements

Notes:

• Market capitalization is based on a one-month average as of 31 March 2014.

• Gearing is dened as net nancial debt/enterprise value.

• Beta correspond to levered beta measured on a weekly basis over a two-year period.

• Beta gure for Moncler might be inuenced by an insufcient number of

observations on the considered period.

WACC and LTGR by company

• WACC ranges from 7.6% (Luxottica) to 10.5% (Ralph Lauren, Chow Tai Fook), depending on the companies’risk prole perception, with an overall limited variance.

• There is a wider range in long-term growth rates (1% to 4.8%), mainly depending on geographical presence,size and product diversication.

Luxury companies continue to reect high-potential growthcombined with a limited risk prole

Companies are sorted in

decreasing order based on the

market capitalization in euros

observed as of 31 March 2014

(one-month average).

Michael Kors

W A C C ( % )

7.0

7.5

8.0

8.5

9.0

9.5

10.0

10.5

11.0

11.5

12.0

0.0% 1.0% 2.0% 3.0% 4.0% 5.0%

LTGR

Luxottica

Salo

SalvatoreFerragamo

BrunelloCucinelli

Prada

LVMH

Moncler

Swatch

Chow Tai FookRalph Lauren

Hengdeli

BurberryHugoBoss

Tiffany

Kering

Richemont

Hermès

Tod’sCoach

Luxury

companies

Marketcapitalization

(in €m)WACC Gearing Beta LTGR

LVMH 65,304 9.0% 7.8% 1.01 2.3%

Richemont 39,688 9.0% (15.9%) 1.21 3.1%

Hermès 24,528 8.3% (4.1%) 0.72 3.6%

Swatch 23,706 9.3% (4.1%) 1.08 3.1%

Luxottica 18,865 7.6% 7.5% 0.50 3.1%Kering 18,000 9.6% 16.1% 0.96 2.6%

Michael Kors 14,293 8.7% (4.4%) 1.21 4.5%

Prada 13,657 8.7% (2.0%) 0.83 2.7%

Chow Tai Fook 12,268 10.5% 1.8% 1.17 3.6%

Ralph Lauren 10,451 10.5% (8.4%) 1.26 1.0%

Coach 9,914 9.2% (6.2%) 1.06 2.7%

Tiffany 8,422 8.6% 7.5% 1.17 3.2%

Burberry 7,691 9.5% (3.4%) 1.01 3.3%

Hugo Boss 6,540 9.2% 1.1% 0.59 2.5%

Salvatore Ferragamo 3,657 9.5% 1.1% 0.66 3.1%

Moncler 3,217 8.3% 5.2% 1.01 3.2%

Tod’s 2,908 9.2% (6.3%) 0.67 2.9%

Brunello Cucinelli 1,333 8.9% 1.2% 0.62 4.8%

Tumi 1,139 10.4% (1.9%) 1.64 n.a.

Salo 964 8.4% 18.3% 0.72 2.0%

Hengdeli 679 9.8% 21.6% 1.12 3.7%

Average 9.1% 1.6% 0.96 3.0%

Median 9.2% 1.1% 1.01 3.1%

Maximum 10.5% 21.6% 1.64 4.8%

Minimum 7.6% (15.9%) 0.50 1.0%


Note: Bubble size reects market capitalization. Dotted lines represent average values.


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Financial parametersA

Page 9DCF and valuation parameters

WACC and long-term growth rate (LTGR) by company

• Natura’s (Brazil) long-term growth rate is signicantly higher than the average sample, driven by itsgeographical coverage.

• WACC sample levels are balanced by the two extremes of Natura (Brazil geographical risk) andShiseido (Japan).

The cosmetics sample is characterized by a smaller number ofcompanies, which signicantly impacts the average value ofnancial parameters

Companies are sorted in

decreasing order based on the

market capitalization in euros

observed as of 31 March 2014

(one-month average).

L’Occitane

Natura

L’Oréal

Beiersdorf Estée Lauder

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

10.0

11.0

12.0

13.0

14.0

0.0% 1.0% 2.0% 3.0% 4.0% 5.0%

W A

C C ( % )

LTGR

Coty

Cosmetics

companies

Market

capitalization

(in €m)

WACC Gearing Beta LTGR

L’Oréal 69,368 8.2% (1.8%) 0.67 3.0%

Estée Lauder 19,355 7.9% (0.6%) 1.14 2.7%

Beiersdorf 15,908 7.6% (8.7%) 0.69 2.1%

Natura 4,985 10.4% 10.8% 0.64 4.8%

Shiseido 5,161 6.1% 15.2% 0.75 n.a.

Coty 4,226 8.2% 23.7% 1.08 2.0%

L’Occitane 2,483 8.7% (8.7%) 0.65 2.3%

Average 8.2% 4.3% 0.80 2.8%

Median 8.2% (0.6%) 0.69 2.5%

Maximum 10.4% 23.7% 1.14 4.8%

Minimum 6.1% (8.7%) 0.64 2.0%


Sources:• WACC and LTGR: based on consensus of several brokers’ reports for

each company

• Market capitalization and beta: EY elaboration based on S&P Capital IQ

• Gearing: companies’ nancial statements

Notes:


• Gearing is dened as net nancial debt/enterprise value.

• Beta correspond to levered beta measured on a weekly basis over a

two-year period.

Note: Bubble size reects market capitalization. Dotted lines represent average values.

D C F a n d v a l u

a t i o n

p a r a m e t e

r s


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Page 10 DCF and valuation parameters

Financial parameters

WACC (in %) Beta Gearing (in %) LTGR (in %)

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

Note: LTGR data was not available for Tumi and Shiseido.

EY luxury and cosmetics sample:summary of nancial parameters

6.1%

7.6%

7.6%

7.9%

8.2%

8.2%

8.3%

8.3%

8.4%

8.6%

8.7%

8.7%

8.7%

8.9%

8.9%

9.0%

9.0%

9.2%

9.2%

9.2%

9.3%

9.5%

9.5%

9.6%

9.8%

10.4%

10.4%

10.5%

10.5%

Shiseido

Luxottica

Beiersdorf

Estée Lauder

L'Oréal

Coty

Hermès

Moncler

Salo

Tiffany

Michael Kors

Prada

L'Occitane

Brunello Cucinelli

Average

LVMH

Richemont

Hugo Boss

Tod's

Coach

Swatch

Burberry

alvatore Ferragamo

Kering

Hengdeli

Tumi

Natura

Ralph Lauren

Chow Tai Fook

WACC8.9%

Industry benchmark

Low High

0.50

0.59

0.62

0.64

0.65

0.66

0.67

0.67

0.69

0.72

0.72

0.75

0.83

0.92

0.96

1.01

1.01

1.01

1.06

1.08

1.08

1.12

1.14

1.17

1.17

1.21

1.21

1.26

1.64

Luxottica

Hugo Boss

Brunello Cucinelli

Natura

L'Occitane

Salvatore Ferragamo

Tod's

L'Oréal

Beiersdorf

Salo

Hermès

Shiseido

Prada

Average

Kering

LVMH

Burberry

Moncler

Coach

Swatch

Coty

Hengdeli

Estée Lauder

Chow Tai Fook

Tiffany

Michael Kors

Richemont

Ralph Lauren

Tumi

Beta0.92

Industry benchmark

Low High

Gearing2.2%

Industry benchmark

Low High

(15.9)

(8.7)

(8.7)

(8.4)

(6.3)

(6.2)

(4.4)

(4.1)

(4.1)

(3.4)

(2.0)

(1.9)

(1.8)

(0.6)

1.1

1.1

1.2

1.8

2.2

5.2

7.5

7.5

7.8

10.8

15.2

16.1

18.3

21.6

23.7

Richemont

Beiersdorf

L'Occitane

Ralph Lauren

Tod's

Coach

Michael Kors

Swatch

Hermès

Burberry

Prada

Tumi

L'Oréal

Estée Lauder

Hugo Boss

Salvatore Ferragamo

Brunello Cucinelli

Chow Tai Fook

Average

Moncler

Tiffany

Luxottica

LVMH

Natura

Shiseido

Kering

Salo

Hengdeli

Coty

LTGR3.0%

Industry benchmark

Low High

1.0%

2.0%

2.0%

2.1%

2.3%

2.3%

2.5%

2.6%

2.7%

2.7%

2.7%

2.9%

3.0%

3.0%

3.1%

3.1%

3.1%

3.1%

3.2%

3.2%

3.3%

3.6%

3.6%

3.7%

4.5%

4.8%

4.8%

Ralph Lauren

Salo

Coty

Beiersdorf

L'Occitane

LVMH

Hugo Boss

Kering

Coach

Estée Lauder

Prada

Tod's

Average

L'Oréal

Richemont

Swatch

Luxottica

Salvatore Ferragamo

Moncler

Tiffany

Burberry

Chow Tai Fook

Hermès

Hengdeli

Michael Kors

Brunello Cucinelli

Natura


A


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B Operating aggregates

Sales CAGR, FY12A–FY15E — luxury companies

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

each company.

• Expected growth will mainly be driven by:

• Continued strengthening of US economy, resulting in strong domestic demand

• Longer-term urbanization and the shift toward younger and more male consumers • The waning drag on the wholesale segment

Michael Kors, Chow Tai Fook, Moncler and Tumi

notably outperformed average growth levels.

Sales of the luxury companies sample are expected to grow anaverage of 10% annually over the next three years

*Kering sales for FY12A-FY15Eexclude numbers for Groupe Fnac,

Redcats, Conforama and CFAO.

Notes:

• 2013 gures are estimated or actual

depending on their availability as of

the date of this study.

• Figures are converted into euros

using exchange rates as of 31 March

2014. (Source: Capital IQ)

Sales (in €m) FY12A FY13A/E FY14E FY15ECAGR

(FY12A-FY15E)

Michael Kors 1,812 2,418 2,987 4,237 32.7%

Chow Tai Fook 5,374 7,094 7,924 9,029 18.9%

Moncler 489 581 677 783 17.0%

Tumi 289 339 394 458 16.6%

Brunello Cucinelli 280 323 364 410 13.6%Burberry 2,418 2,817 3,073 3,404 12.1%

Hengdeli 1,415 1,561 1,743 1,927 10.8%

Hermès 3,484 3,755 4,178 4,625 9.9%

Prada 3,297 3,587 3,821 4,245 8.8%

Salvatore Ferragamo 1,155 1,256 1,354 1,478 8.6%

Swatch 6,401 6,943 7,535 8,173 8.5%

Tiffany 2,754 2,926 3,160 3,414 7.4%

Richemont 10,150 10,645 11,529 12,569 7.4%

Ralph Lauren 5,040 5,328 5,731 6,235 7.3%

Hugo Boss 2,346 2,432 2,665 2,890 7.2%

LVMH 28,103 29,149 31,155 33,626 6.2%

Luxottica 7,086 7,313 7,727 8,322 5.5%

Kering* 9,736 9,748 10,336 11,129 4.6%

Tod’s 985 983 1,028 1,112 4.1%

Salo 1,199 1,122 1,246 1,327 3.4%

Coach 3,457 3,683 3,544 3,686 2.2%

Average 10.1%

Median 8.5%

Maximum 32.7%

Minimum 2.2%


2.2%

3.4%

4.1%

4.6%

5.5%

6.2%

7.2%

7.3%

7.4%

7.4%

8.5%

8.6%

8.8%

9.9%

10.1%

10.8%

12.1%

13.6%

16.6%

17.0%

18.9%

32.7%

Coach

Salo

Tod’s

Kering

Luxottica

LVMH

Hugo Boss

Ralph Lauren

Richemont

Tiffany

Swatch

Salvatore Ferragamo

Prada

Hermès

Average

Hengdeli

Burberry

Brunello Cucinelli

Tumi

Moncler

Chow Tai Fook

Michael Kors

D C F a n d v a l u a t i o n

p a r a m e t e

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each company.

Sales CAGR, FY12A–FY15E — cosmetic companies

• Majority of players are expected to grow at lower single digits, except for Natura and L’Occitane.

• The rising middle class’s increased consumer spending, particularly in emerging markets, is likely todrive demand.

• Innovation and emphasis on quality and new ideas have boosted the cosmetics market.

Natura and L’Occitane signicantly

outperformed the cosmetics sample

expectations.

Sales growth expectations for cosmetics players are lower thanfor the luxury segment but still show an average annual growthof 5% over the FY12A-FY15E period

Notes:

• Figures for 2013 are estimated or

actual depending on their availability

as of the date of this study.

• Figures are converted into euros

using exchange rates as of 31 March

2014. (Source: Capital IQ)

Sales (in €m) FY12A FY13A/E FY14E FY15ECAGR

(FY12A-FY15E)

Natura 1,530 1,691 1,838 2,021 9.7%

L’Occitane 1,043 1,079 1,224 1,367 9.4%

Estée Lauder 7,050 7,389 7,817 8,291 5.6%

Shiseido 4,792 5,196 5,361 5,495 4.7%Beiersdorf 6,040 6,141 6,421 6,816 4.1%

L’Oréal 22,463 22,977 23,397 24,738 3.3%

Coty 3,347 3,374 3,335 3,404 1.0%

Average 5.4%

Median 4.7%

Maximum 9.7%

Minimum 1.0%

1.0%Coty

3.3%L’Oréal

4.1%Beiersdorf

4.7%Shiseido

5.4%Average

5.6%Estée Lauder

9.4%L’Occitane

9.7%Natura


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each company.

• Most of the companies are expected to slightly improve their operating margin in the coming years,driven by:

• Volume growth (which implies higher SG&A leverage)

• Higher proportion of retail in the sales mix leading to higher margins

• Refocusing on efciencies (declared by most of players)

EBITDA remains largely above 20% with some

notable exceptions higher than 30%.

The luxury sample conrmed last year’s healthy EBITDAof 23.7%, with further marginal growth expected

Average EBITDA margin, FY12–FY15E — luxury companies

*Kering margin for FY12A-

FY15E excludes numbers for

Fnac, Redcats, Conforama

and CFAO.

Note: The 2013 EBITDA margin is

computed on the basis of eitheractual or estimated gures for 2013

sales, depending on their availability.

As some groups are listed under

different jurisdictions around the

world, they may use different GAAP,

and therefore a direct comparison

of EBITDA may be less meaningful

than if their results were presented

under the International Accounting

Standards.

10.0%

11.1%

13.6%

17.9%

20.0%

20.2%

21.4%

21.6%

22.0%

23.3%

24.0%

24.6%

25.0%

25.1%

25.9%

27.9%

29.5%

31.9%

31.9%

32.2%

32.9%

35.6%

Hengdeli

Salo

Chow Tai Fook

Brunello Cucinelli

Luxottica

Ralph Lauren

Salvatore Ferragamo

Kering

Tumi

Hugo Boss

Average

Tiffany

LVMH

Tods

Burberry

Richemont

Swatch

Coach

Michael Kors

Prada

Moncler

Hermès EBITDA margin FY12A FY13A/E FY14E FY15EAverage ratio

(FY12A-FY15E)

Hermès 35.5% 36.0% 35.4% 35.7% 35.6%

Moncler 33.0% 33.0% 32.6% 32.9% 32.9%

Prada 31.9% 31.9% 32.3% 32.7% 32.2%

Michael Kors 31.4% 32.3% 31.9% 32.2% 31.9%

Coach 34.5% 33.2% 29.9% 29.8% 31.9%Swatch 28.7% 31.0% 28.7% 29.5% 29.5%

Richemont 27.7% 27.2% 28.1% 28.5% 27.9%

Burberry 27.6% 25.7% 25.4% 24.9% 25.9%

Tod’s 25.4% 24.0% 25.3% 25.8% 25.1%

LVMH 24.7% 24.5% 25.2% 25.5% 25.0%

Tiffany 22.7% 23.9% 25.4% 26.2% 24.6%

Hugo Boss 22.3% 23.1% 23.6% 24.3% 23.3%

Tumi 20.9% 21.5% 22.7% 22.8% 22.0%

Kering* 21.2% 21.0% 21.7% 22.5% 21.6%

Salvatore Ferragamo 19.8% 20.9% 22.0% 23.1% 21.4%

Ralph Lauren 19.7% 19.2% 20.4% 21.4% 20.2%

Luxottica 18.7% 19.5% 20.5% 21.2% 20.0%

Brunello Cucinelli 15.7% 18.6% 18.4% 18.8% 17.9%

Chow Tai Fook 13.2% 13.2% 13.7% 14.0% 13.6%

Salo 9.9% 10.0% 11.8% 12.9% 11.1%

Hengdeli 12.6% 8.0% 9.6% 9.8% 10.0%

Average 23.7% 23.7% 24.0% 24.5% 24.0%

Median 22.7% 23.9% 25.2% 24.9% 24.6%

Maximum 35.5% 36.0% 35.4% 35.7% 35.6%

Minimum 9.9% 8.0% 9.6% 9.8% 10.0%



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each company.

Average EBITDA margin, FY12A–FY15E — cosmetics companies

Cosmetic companies show a solid average EBITDA of 17% that isexpected to grow, although at slightly lower rates than those forluxury companies

• Like luxury companies, most cosmetic companies are expected to improve their operating margin in thecoming years.

• The key drivers of margin growth are:

• Operational efciencies

• Consumers aspiring to increasingly high levels of quality

Notwithstanding its recent signicant

growth, Natura still outperforms the sample’s

protability

Note: The 2013 EBITDA margin is

computed on the basis of either

actual or estimated gures for 2013

sales, depending on their availability.

As some groups are listed under

different jurisdictions around the

world, they may use different GAAP,

and therefore a direct comparison

of EBITDA may be less meaningful

than if their results were presented

under the International Accounting

Standards.

10.2%Shiseido

15.7%Beiersdorf

15.8%Coty

17.4%Average

17.9%L’Occitane

18.7%Estée Lauder

20.7%L’Oréal

23.1%NaturaEBITDA margin FY12A FY13A/E FY14E FY15E

Average ratio

(FY12A-FY15E)

Natura 23.6% 22.7% 23.0% 23.1% 23.1%

L’Oréal 20.2% 20.8% 20.7% 21.1% 20.7%

Estée Lauder 17.4% 18.6% 19.1% 19.7% 18.7%

L’Occitane 19.3% 16.3% 17.8% 18.2% 17.9%Coty 13.7% 14.5% 17.3% 17.7% 15.8%

Beiersdorf 14.7% 15.0% 16.3% 16.8% 15.7%

Shiseido 9.4% 10.2% 10.6% 10.8% 10.2%

Average 16.9% 16.9% 17.8% 18.2% 17.4%

Median 17.4% 16.3% 17.8% 18.2% 17.9%

Maximum 23.6% 22.7% 23.0% 23.1% 23.1%

Minimum 9.4% 10.2% 10.6% 10.8% 10.2%


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each company.

Average capex ratio, FY12A–FY15E — luxury companies

Capex sales ratios for the luxury industry ranges from 5% to 6%,based on historical and estimated gures

• Prada by far outperforms sample capex ratio due to its recent strong focus on retail business, mainlycarried out in 2012 and 2013 following its listing on the Hong-Kong Stock Exchange.

Note: The 2013 capex ratio is

computed based on either actual or

estimated gures for 2013 sales,

depending on their availability.

1.4%

1.8%

2.7%

4.9%

5.0%

5.1%

5.1%

5.1%

5.2%

5.2%

5.2%

5.5%

5.6%

5.8%

6.0%

6.2%

6.4%

6.6%

7.1%

8.2%

8.2%

10.4%

Chow Tai Fook

Hengdeli

Salo

Luxottica

TUMI

Ralph Lauren

Coach

Tod's

Tiffany

Moncler

Kering

Salvatore Ferragamo

Average

LVMH

Swatch

Hermès

Hugo Boss

Richemont

Michael Kors

Burberry

Brunello Cucinelli

PradaCapex ratio FY12A FY13A/E FY14E FY15E

Average ratio

(FY12A-FY15E)

Prada 10.1% 15.3% 8.2% 7.8% 10.4%

Brunello Cucinelli 9.1% 9.3% 8.6% 5.7% 8.2%

Burberry 8.8% 8.4% 8.0% 7.6% 8.2%

Michael Kors 6.0% 8.1% 7.2% N/A 7.1%

Richemont 5.9% 7.2% 7.0% 6.1% 6.6%Hugo Boss 7.0% 7.1% 5.8% 5.5% 6.4%

Hermès 7.5% 5.6% 5.9% 5.6% 6.2%

Swatch 6.0% 6.6% 5.7% 5.7% 6.0%

LVMH 6.1% 5.7% 5.7% 5.5% 5.8%

Salvatore Ferragamo 5.1% 6.5% 5.3% 5.0% 5.5%

Kering 4.5% 6.8% 4.8% 4.8% 5.2%

Moncler 5.4% 5.8% 4.7% 5.0% 5.2%

Tiffany 5.5% 5.1% 5.2% 5.0% 5.2%

Tod’s 4.8% 5.0% 5.8% 4.9% 5.1%

Coach 3.9% 4.8% 5.7% 6.0% 5.1%

Ralph Lauren 4.0% 5.5% 6.1% 4.8% 5.1%

Tumi 5.2% 5.3% 5.2% 4.2% 5.0%

Luxottica 5.3% 5.1% 4.9% 4.6% 4.9%

Salo 2.2% 2.5% 3.1% 3.2% 2.7%

Hengdeli 3.7% 0.9% 1.4% 1.2% 1.8%

Chow Tai Fook 2.0% 1.5% 1.1% 0.9% 1.4%

Average 5.6% 6.1% 5.5% 5.0% 5.6%

Median 5.4% 5.7% 5.7% 5.0% 5.2%

Maximum 10.1% 15.3% 8.6% 7.8% 10.4%

Minimum 2.0% 0.9% 1.1% 0.9% 1.4%



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19/60


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

Average sales CAGR, FY12A–FY15E Average EBITDA margin, FY12A–FY15E Average capex ratio, FY12A–FY15E

EY luxury and cosmetics sample:summary of operating aggregates

EBITDA margin22.3%

Industry benchmark

Low High

10.0%

10.2%

11.1%

13.6%

15.7%

15.8%

17.9%

17.9%

18.7%

20.0%

20.2%

20.7%

21.4%

21.6%

22.0%

22.3%

23.1%

23.3%

24.6%

25.0%

25.1%

25.9%

27.9%

29.5%

31.9%

31.9%

32.2%

32.9%

35.6%

Hengdeli

Shiseido

aflo

Chow Tai Fook

Beiersdorf

Coty

Brunello Cucinelli

L'Occitane

Estée Lauder

Luxottica

Ralph Lauren

L'Oréal

Salvatore Ferragamo

Kering

Tumi

Average

Natura

Hugo Boss

Tiffany

LVMH

Tod's

Burberry

Richemont

Swatch

Coach

Michael Kors

Prada

Moncler

Hermès

1.4%

1.8%

2.7%

2.8%

3.8%

4.1%

4.5%

4.5%

4.9%

5.0%

5.1%

5.1%

5.1%

5.2%

5.2%

5.2%

5.3%

5.5%

5.8%

6.0%

6.2%

6.4%

6.4%

6.6%

6.6%

7.1%

8.2%

8.2%

10.4%

Chow Tai Fook

Hengdeli

aflo

Beiersdorf

Shiseido

Coty

L'Oréal

Estée Lauder

Luxottica

Tumi

Ralph Lauren

Coach

Tod's

Tiffany

Moncler

Kering

Average

Salvatore Ferragamo

LVMH

Swatch

Hermès

Hugo Boss

Natura

Richemont

L'Occitane

Michael Kors

Burberry

Brunello Cucinelli

Prada

Capex ratio5.3%

Industry benchmark

Low High

1.0%

2.2%

3.3%

3.4%

4.1%

4.1%

4.6%

4.7%

5.5%

5.6%

6.2%

7.2%

7.3%

7.4%

7.4%

8.5%

8.6%

8.8%

8.9%

9.4%

9.7%

9.9%

10.8%

12.1%

13.6%

16.6%

17.0%

18.9%

32.7%

Coty

Coach

L'Oréal

aflo

Beiersdorf

Tod's

Kering

Shiseido

Luxottica

Estée Lauder

LVMH

Hugo Boss

Ralph Lauren

Richemont

Tiffany

Swatch

Salvatore Ferragamo

Prada

Average

L'Occitane

Natura

Hermès

Hengdeli

Burberry

Brunello Cucinelli

Tumi

Moncler

Chow Tai Fook

Michael Kors

Sales CAGR8.9%

Industry benchmark

Low High




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CAdvertising expenses andnet working capital analysis


Selected companies — advertising expenses as a % of sales, FY13A/E

• Marketing and advertising represent a signicant cost component for both global luxury and cosmeticsmanufacturers.

• Advertising expenses will remain a major operating topic, especially for companies focusing on top-linegrowth and brand awareness sustainability.

• Cosmetics advertising expenses are signicantly inuenced by their “mass-market” positioning.

• Luxury companies, in addition to advertising, promote their brands via agship stores and ambassadors.

Advertising remains a key driver of the industry

Luxury companies Cosmetics companies

2.0% 2.5%

4.8%5.6% 5.7%

6.2 % 6.2% 6.6%

9.0%

10.7%11.4%

9.3%

23.0% 23.1%24.3%

27.5%

30.0%

C o a c h

T u m i

P r a d a

H e r m è s

T i f f a n y

M o n c l e r

S a l v a t o r e

F e r r a g a m o

L u x o t t i c a

R i c h e m o n t

S a l o

L V M H

L ’ O c c i t a n e

S h i s e i d o

C o t y

B e i e r s d o r f

E s t è e L a u d e r

L ’ O r è a l

i n %

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%


21/60


CAdvertising expenses andnet working capital analysis


Notes:

• Net working capital (NWC) is determined as current assets less current liabilities (excluding cash or debt-related elements).

• Michael Kors NWC only available for FY12A-FY14E.

• As shown in the graph below, the jewelry and watches business is the most working-capital-intensive of allluxury segments.

• Hard luxuries (watches and jewelry) rely heavily on wholesale channels.

Net working capital requirements for jewelry and watchescompanies are higher than for other luxury companies


80%

N e t w o r k i n g c a p i t a l a s a % o f s a l e s ( % )

60%

40%

20%

-20%

Swatch Tiffany Chow TaiFook

Hengdel i R ichemont Tod’s Salo BrunelloCucinelli

LVMH MichaelKors

SalvatoreFerragamo

Hugo Boss TUMI RalphLauren

Moncler Hermès Burberry Coach Luxottica Kering

0%

Prada

2012 20152012

2015

2012

2015

2012

2015

2012

2015

2012

2015

2015

2012

20122015

2012

2015

2012

2015

2012

2015

2012

2015

2012

2014

2012

2015

2012

2015

2012

2015

2012

2015

2012

20152012 2015 2012 2015

2012

2015


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23/60


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D SOTP and segment analyses

Sales breakdown, FY14E (in €b) EBIT breakdown, FY14E (in €b) Enterprise value breakdown, FY14E (in €b)

Source: SOTP based on EY analysis and on the following brokers’ reports: Credit Suisse (28 February 2014), Deutsche Bank (24 February 2014),

Société Générale (24 February 2014) and JP Morgan (21 February 2014).

• Kering SOTP analyses imply a total enterprise value of €25.5b in FY14E.

• Contributing around 98% of the total EBIT for 68% of sales, Gucci Group is the most protable segment interms of operating margin.

Kering: SOTP

6.9

2.90.3 0.0 10.1

0.1%3%

29%

68%

Gucci Group Puma Volcom

LuxuryDivision

Sports & LifestyleDivision

Eliminations Total

1.8

0.1 0.0

(0.1)

1.8

1.0%8%

98%


LuxuryDivision


Eliminations Total

-7%

24.9

2.2 0.3

(1.9)

25.5

1.0%9%

98%


LuxuryDivision


Eliminations Total

-7%



25/60


D SOTP and segment analyses Kering: further analysis of Gucci Group through SOTP approach

• Gucci Group SOTP analyses imply an enterprise value of €24.9b in FY13E.

• Within the Gucci Group segment, the Gucci brand alone represents 53% of the top line and 65% of EBIT inFY14E, meaning that the Gucci brand is expected to constitute the largest segment within the Gucci Group

and is also the most protable in terms of operating margin.

Source: SOTP based on EY analysis and on the following brokers’ reports: Credit Suisse (28 February 2014), Deutsche Bank (24 February 2014),

Société Généerale (24 February 2014) and JP Morgan (21 February 2014).

Sales breakdown, FY14E (in €b) EBIT breakdown, FY14E (in €b) Enterprise value breakdown, FY14E (in €b)

Gucci brand

3.6

53%

16%

9%1.1

0.6

1.5 6.9

22%

Bottega Veneta YSL Other brands Gucci Group Gucci brand

1.1

65%

21%

5%0.4

0.1

0.2 1.8

10%

Bottega Veneta YSL Other brands Gucci Group Gucci brand

14.8

59%

23%

6%5.6

1.5

3.0 24.9

12%

Bottega Veneta YSL Other brands Gucci Group



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D SOTP and segment analyses L’Oréal: segment analysis

• The L’Oréal Luxe division accounts for 26% in the total sales in FY13A.

• This division is expected to register a sales growth at a CAGR of 6% over the 2012-16E period, whenits operating income is anticipated to grow from €1,077m to €1,493m (or at a CAGR of 9%) over the

same period.

• The L’Oréal Luxe division will remain one of the biggest divisions within L’Oréal.

Source: Analyst research (H2 2012)

Sales breakdown, FY12A–FY16E (in €b) EBIT breakdown, FY12A–FY16E (in €b) EBIT margin, FY12A-FY16E (in %)

14% 13% 13% 13% 12%

48% 48% 48%48% 49%

24% 25%

26%25%

7% 6%

6%

6%

6%

7%7%

7%

7%8%

0

5

10

15

20

25

30

2012A 2013A 2014E 2015E 2016E

Profess ional products Consumer products L ’O réal L uxe

Active cosmetics Other

22.5

25.724.9

23.623.0

26%CAGR

6%

19%20% 20%

21%21%

16%17%

18%18% 18%

0%

5%

10%

15%

20%

25%

2012A 2013A 2014E 2015E 2016E

L’Oréal Luxe Total

17% 16% 16% 15% 15%

55% 56%56%

55% 55%

29%30%

30%

30%32%8%

6% 9%

5%8%

8%

(16%) (16%) (15%) (15%) (15%)

5%

6%

-1

0

1

2

3

4

5

6

2012A 2013A 2014E 2015E 2016E

3.7

4.7

4.5

4.1

3.9

9%

5%

Profess ional products Consumer products L ’O réal L uxe

EliminationsActive cosmetics Other

CAGR

9%


27/60

E Trading multiples Level of multiples illustrates the growing attractiveness of theluxury sector

• In the luxury sector, expected strong growth and margin improvements are reected in valuations oftrading multiples

• The expected evolution of valuation multiples is the result of an improvement in the top-line growth as wellas in the operating efciency of the luxury companies.

• The average top-line growth for luxury companies is expected to average around the 10% level overFY 2012A–15E.


Notes:


• The results of 2013 are actual (A) if the nancial results are “closed” and expected (E) if the nancial year is not closed yet.

EV/sales (FY12A-15E) EV/EBITDA (FY12A-15E) Price to earnings (FY12A-15E)

3.7x

3.3x

2.9x

2.6x

3.2x

3.0x

2.8x

2.5x

0

0.5x

1.0x

1.5x

2.0x

2.5x

3.0x

3.5x

4.0x

2012A 2013A/E 2014E 2015E

Average Median

15.3x

13.3x

11.8x

10.4x

12.7x

11.8x

10.9x

9.7x

0

3.0x

6.0x

9.0x

12.0x

15.0x

18.0x

2012A 2013A/E 2014E 2015E

Average Median

29.4x

28.2x

21.0x

18.2x

25.0x

21.8x

18.8x

16.8x

0

5.0x

10.0x

15.0x

20.0x

25.0x

30.0x

2012A 2013A/E 2014E 2015E

Average Median




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E Trading multiples Sales multiples illustrate the dynamism of cosmetics over thepast years

• Cosmetics companies’ valuation trading multiples are expected to follow the same trend as the oneexpected for luxury companies

• Sales multiples illustrate continuous improvement in cosmetics companies’ top line from FY12A to FY15E,with 2012 average growth of 4.6% expanding to 6.5% in 2015.


Notes:


• The results of 2013 are actual (A) if the nancial results are “closed” and expected (E) if the nancial year is not closed yet.

EV/sales (FY12A-15E) EV/EBITDA (FY12A-15E) Price to earnings (FY12A-15E)

2.3x 2.2x

2.1x

2.0x

2.4x2.4x

2.3x

2.1x

0

0.5x

1.0x

1.5x

2.0x

2.5x

3.0x

3.5x

2012A 2013A/E 2014E 2015E

Average Median Average Median

13.8x

13.1x

11.8x

10.8x

13.9x

13.1x

11.0x10.5x

0

3.0x

6.0x

9.0x

12.0x

15.0x

18.0x

2012A 2013A/E 2014E 2015E

Average Median

25.8x

28.2x

22.7x

20.4x

24.2x

26.2x

22.1x

20.2x

0

5.0x

10.0x

15.0x

20.0x

25.0x

30.0x

35.0x

2012A 2013A/E 2014E 2015E



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E Trading multiples EY luxury and cosmetics sample:summary of EV/sales multiples


Note: Market capitalization is based on a one-month average as of 31 March 2014.

EV/sales (FY13A/E) EV/sales (FY14E) EV/sales (FY15E)

6.3x

6.2x

5.8x4.2x

3.7x

3.3x

3.3x

3.3x

3.2x

3.1x

3.0x

3.0x

3.0x

2.8x

2.8x

2.7x

2.7x

2.6x

2.5x

2.5x

2.5x

2.4x

2.3x

2.1x

1.8x

1.8x

1.7x

1.2x

1.1x

Hermès

Michael Kors

MonclerBrunello Cucinelli

Prada

TUMI

Hengdeli

Swatch

Richemont

Tiffany

Average

Salvatore Ferragamo

L'Oréal

Luxottica

Tod's

Hugo Boss

Burberry

Estée Lauder

Coach

Natura

LVMH

Beiersdorf

Kering

L'Occitane

Ralph Lauren

Chow Tai Fook

Coty

Shiseido

aflo

3.0x

Industry benchmark

Low High

5.6x

5.0x

4.9x3.7x

3.5x

3.0x

3.0x

2.9x

2.9x

2.8x

2.8x

2.8x

2.7x

2.7x

2.6x

2.6x

2.5x

2.5x

2.4x

2.3x

2.3x

2.3x

2.1x

1.9x

1.7x

1.7x

1.6x

1.2x

0.9x

Hermès

Moncler

Michael KorsBrunello Cucinelli

Prada

Swatch

Richemont

L'Oréal

Tiffany

TUMI

Hengdeli

Salvatore Ferragamo

Average

Tod's

Luxottica

Coach

Hugo Boss

Estée Lauder

Burberry

LVMH

Natura

Beiersdorf

Kering

L'Occitane

Ralph Lauren

Coty

Chow Tai Fook

Shiseido

aflo

2.7x

Industry benchmark

Low High

5.1x

4.3x

4.2x3.3x

3.2x

2.8x

2.8x

2.7x

2.7x

2.5x

2.5x

2.5x

2.5x

2.5x

2.4x

2.4x

2.3x

2.3x

2.2x

2.1x

2.1x

2.1x

2.0x

1.7x

1.6x

1.5x

1.4x

1.1x

0.9x

Hermès

Moncler

Michael KorsBrunello Cucinelli

Prada

Swatch

L'Oréal

Richemont

Tiffany

Coach

Salvatore Ferragamo

Average

Tod's

Luxottica

TUMI

Hengdeli

Estée Lauder

Hugo Boss

Burberry

Beiersdorf

LVMH

Natura

Kering

L'Occitane

Coty

Ralph Lauren

Chow Tai Fook

Shiseido

aflo

2.5x

Industry benchmark

Low High



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E Trading multiples EY luxury and cosmetics sample:summary of EV/EBITDA multiples


Note: Market capitalization is based on a one-month average as of 31 March 2014.

EV/EBITDA (FY13A/E) EV/EBITDA (FY14E) EV/EBITDA (FY15E)

22.6x

19.3x

17.7x

17.4x

15.9x

15.3x

15.3x

14.3x

14.3x

14.3x

14.0x

13.4x

13.2x

13.1x

13.0x

11.8x

11.8x

11.8x

11.7x

11.6x

11.5x

11.0x

10.8x

10.6x

10.5x

10.4x

10.1x

9.4x

7.6x

Brunello Cucinelli

Michael Kors

Moncler

Hermès

Beiersdorf

Tumi

Hengdeli

Luxottica

L'Oréal

Salvatore Ferragamo

Estée Lauder

Chow Tai Fook

Average

L'Occitane

Tiffany

Richemont

Hugo Boss

Shiseido

Prada

Tod's

Coty

Natura

Kering

Swatch

aflo

Burberry

LVMH

Ralph Lauren

Coach

13.2x

Industry benchmark

Low High

20.3x

16.0x

15.5x

15.4x

14.1x

14.0x

12.9x

12.9x

12.5x

12.5x

12.5x

11.8x

11.6x

11.3x

11.0x

10.9x

10.6x

10.6x

10.6x

10.6x

10.6x

9.9x

9.9x

9.8x

9.6x

9.2x

8.8x

8.3x

8.1x

Brunello Cucinelli

Hermès

Michael Kors

Moncler

L'Oréal

Beiersdorf

Luxottica

Estée Lauder

Tumi

Hengdeli

alvatore Ferragamo

Average

Chow Tai Fook

Tiffany

Shiseido

Prada

Richemont

Tod's

L'Occitane

Swatch

Hugo Boss

Natura

Kering

Coty

Burberry

LVMH

Coach

Ralph Lauren

aflo

11.8x

Industry benchmark

Low High

17.6x

14.3x

13.2x

13.1x

12.9x

12.8x

11.7x

11.6x

11.0x

10.8x

10.8x

10.5x

10.5x

10.2x

10.0x

9.7x

9.6x

9.6x

9.5x

9.5x

9.3x

9.2x

9.0x

8.9x

8.9x

8.5x

8.4x

7.2x

7.0x

Brunello Cucinelli

Hermès

Moncler

L'Oréal

Michael Kors

Beiersdorf

Estée Lauder

Luxottica

alvatore Ferragamo

Tumi

Hengdeli

Shiseido

Average

Tiffany

Chow Tai Fook

Prada

Tod's

Richemont

Swatch

Hugo Boss

Coty

L'Occitane

Natura

Kering

Burberry

Coach

LVMH

Ralph Lauren

aflo

10.5x

Industry benchmark

Low High


31/60



D C F a n d v a

l u a t i o n

p a r a m e t e r s

E Trading multiples

6.0x

5.0x

4.0x

3.0x

2.0x

1.0x

2 0 1 5

E V / s a l e s

0% 5.0% 10.0% 15.0% 20.0% 25.0%

2015 sales growth (%)

Tiffany

Hermès

MonclerMichael Kors

Brunello CucinelliPrada

TUMIHengdeli

Chow Tai Fook

L’Occitane

NaturaLVMH

Kering

Salo

Ralph LaurenShiseido

Coty

Coach

Estée Lauder

Tod’s

Luxottica

Swatch Richemont

Hugo Boss

Burberry

Salvatore Ferragamo

Beiersdorf

R2 = 0.2683

Regression analysis: EV/sales multiple vs. EBITDA margin, 2014and 2015 growth


Notes: Market capitalization is based on a one-month average as of 31 March 2014. The 2014 growth corresponds to the sales growth rate between FY13E and FY14E, when the 2015 growth corresponds to the sales growth rate between FY14E and FY15E.

6.0x

5.0x

4.0x

3.0x

2 0 1 4

E V / s a l e s

2.0x

1.0x

0% 5% 10% 15% 20% 25%

2014 EBITDA margin (%)

30% 35% 40%

R2 = 0.5572

Hengdeli

Brunello Cucinelli

Salvatore FerragamoHugo Boss

TUMIEstée Lauder

Beiersdorf

L’Oréal

SaloCoty Ralph Lauren

NaturaKerning

Burberry

LVMH

CoachRichemont

SwatchPrada

Michael Kors

Moncler

Hermès

Chow Tai Fook

Shiseido

L’Occitane

TiffanyTod’s

Luxottica 2 0 1 4 E V / s a l e s

2014 sales growth (%)

Hermès

Moncler

Brunello CucinelliPrada

L’Oréal

Shiseido Ralph Lauren

Salo

Chow Tai Fook

L’Occitane

TUMIHugo BossHengdeli

Burberry

SwatchTiffanyRichemont

Tod’s

Estée LauderKering

Natura

LuxotticaCoach

Coty

Michael Kors

R2 = 0.22016.0x

5.0x

4.0x

3.0x

2.0x

1.0x

(4.0%) 1.0% 6.0% 11.0% 16.0% 21.0% 26.0% 31.0%

BeiersdorfLVMH

Salvatore Ferragamo

6.0x

5.0x

4.0x

3.0x

2 0 1 5

E V / s a l e s

2.0x

1.0x

0% 5% 10% 15% 20% 25%

2015 EBITDA margin (%)

30% 35% 40%

R2 = 0.5802

BrunelloCucinelli

Luxottica

Estée Lauder

L’Oréal

SalvatoreFerragamo

Beiersdorf

SaloShiseido

Chow Tai FookCoty

Ralph Lauren Hugo Boss

NaturaKering

TUMI

Burberry

LVMHTod’s

Tiffany

Richemont

Coach

Swatch

Prada

Michael Kors

Moncler

Hermès

Hengdeli

• Analysis shows strong correlation between EV/sales levels and protability but limitedcorrelation with growth.


32/60



Source: Capital IQ

Transaction multiples Transaction multiples in the luxury industry remain at asignicant premium to many other sectors

• Transaction multiples illustrate the growing attractiveness of the industry over the past few years.

• They also reect a premium to rarity: indeed, the brands reputed to be “on the market” are very few, andthe buyers recognize this and agree to pay a higher price to ensure the priority of the deal.

• The average sales multiple over the last ve years ranged between 0.5x and 1.7x, when the EBITDAmultiple ranged between 6.6x and 15.3x.

EV/sales (FY09-1H14) EV/EBITDA (FY09-1H14)

F

1.2x

1.6x

1.5x

1.7x

1.3x

0.5x 0.5x

1.1x

1.6x

1.3x

1.2x1.1x

0.0x

0.2x

0.4x

0.6x

0.8x

1.0x

1.2x

1.4x

1.6x

1.8x

2.0x

2009 2010 2011 2012 2013 1H14

Average Median

0.0x

2.0x

4.0x

6.0x

8.0x

10.0x

12.0x

14.0x

16.0x

18.0x

7.5x

6.6x

15.3x

12.0x 11.8x11.2x

5.2x4.8x

12.3x

10.7x

9.9x10.4x

2009 2010 2011 2012 2013 1H14

Average Median


33/60



D C F a n d v a

l u a t i o n

p a r a m e t e r s

Transaction multiples The M&A deals in the cosmetics industry show similar trend asthe luxury industry

• The average sales multiple over the last ve years ranged between 1.0x and 2.4x, when the EBITDAmultiple ranged between 6.9x and 16.0x. 1H14 transaction multiples in the cosmetics industry materially

differ from the averages of the previous years. Looking at the specic transactions, we note that valuations

were positively impacted by strategic acquisitions carried out by the major players to foster growth inemerging markets and broaden the products’ offering into more innovative segments. In this respect, these

two key themes coupled with the uniqueness of targets have largely increased average valuations.

Source: Capital IQ

EV/sales (FY09-1H14) EV/EBITDA (FY09-1H14)

1.7x

2.4x

1.1x

1.6x

1.9x

1.7x

2.0x

1.8x

0.9x

1.0x

1.7x1.8x

0.0x

0.5x

1.0x

1.5x

2.0x

2.5x

3.0x

2009 2010 2011 2012 2013 1H14

Average Median

6.9x

10.7x

10.0x 10.1x

11.7x

16.0x

6.5x

9.1x

10.1x

8.8x

10.2x

14.9x

0.0x

2.0x

4.0x

6.0x

8.0x

10.0x

12.0x

14.0x

16.0x

18.0x

20.0x

2009 2010 2011 2012 2013 1H14

Average Median

F


34/60


Industry overview

“2014 sales outlook still solid: Looking atluxury’s core Chinese consumer, as wellas Korea, Japan, the US and even parts ofEurope, there are still reasons to believe

2014 should be at least as strong as 2013in terms of organic sales growth for thesector. We believe the outlook for theindustry sounds optimistic.”

“Global luxury goods,” HSBC research, March 2014

“Purchase intent for the next 12 months isrising across most categories we surveyedand across all key emerging markets (exceptfor mixed trends in Brazil). Around 50% of

consumers we surveyed plan to purchaseWestern brands over the next 12 months,with sporting goods standing out.”

“Global luxury goods,” Credit Suisse, February 2014


35/60


Global luxury goods market

Global cosmetic goods market

A

B

I n d u s t r y o v e r v i e w


36/60



Page 34 Industry overview


Worldwide growth in the personal luxury goods market falls tolower single digits after three years of strong double-digit growth


Sources: Bain & Company and Fondazione Altagamma and other selected research.

Notes: 1) “Worldwide Markets Monitor,” October 2013, and “Worldwide Luxury Markets Monitor, spring 2014, Bain & Company

and Fondazione Altagamma.

2) “Luxury Outlook 2014,” Deutsche Bank, January 2014.

Luxury goods demand growth by nationality (2009-15E)2Worldwide personal luxury goods market trend1

147159

170

167153

173192

212 217245-2558.1% 8.2%

6.9%

-1.8%

-8.4%

13.1%

11.0%10.4%

2.4%

-10%

-5%

0%

5%

10%

15%

-150

-100

-50

0

50

100

150

200

250

300

2005 2006 2007 2008 2009 2010 2011 2012 2013e 2016e

€ b i l l i o n

G r o w t h ( % )

CA G R :

+ 4 - 6 %

Market size Growth

2009 2010 2011 2012 2013e 2014e 2015e

-30%

-20%

-10%

0%

10%

20%

30%

40%

%

Chinese North American European Japanese Other

A


37/60


The worldwide personalluxury goods market isestimated to have grown

by2.4% in 2013.However, at constantexchange rates, themarket with 6.0% growthhas outpaced the realgrowth of 5.0% recordedin 2012.

Retail is still an importantgrowth driver, mainlyfueled by networkexpansion through theopening of ~600 newdirectly operated stores.The organic growthdecelerated as morefocus was placed onin-store renovations inkey markets versus newstore openings.

Europeanconsumerdemand isexpectedto stabilize following expectationsof an improvingeconomicenvironment andrecovery in mostEuropean countrieswith the exception ofItaly and France.

The industry experiencedthe majority of itsdemand coming fromyounger premiumcustomers, emergingeconomies and a revivingUS luxury market.

In 2013, the USexperienced a revival indemand and the

Americas (+7%) surpassed Asia

(+5%) as luxury’s main growth engine, withpositive trends expectedto continue in 2014.

The uctuations in the

euro penalized themarket performance,with Japanese yen contributing over half ofthe differential between

real and nominal growth.

Demand from Chineseconsumers is expected totrend downward due toongoing austeritymeasures, which seem tohave curbed luxury

spending by

10%–15%.

The online luxury goodsmarket continued itssuccessful run, with itsshare of online

penetration increasing to

4.5% in 2013 from 3.6% recorded in theprevious year. Thebrands are increasinglyleveraging the channelfor both sales andcommunication.


Industry overview Page 35




38/60



Page 36


Industry overview

Sources: Bain & Company and Fondazione Altagamma and other selected research.

Notes: 1) “Worldwide Markets Monitor,” October 2013, and “Worldwide Luxury Markets Monitor,” Spring 2014, Bain & Company and Fondazione Altagamma.

. 2) IHS Global Insights.

Global luxury goods market Luxury goods market growth by geography

• The yen’s massive devaluation, which started in 2013, has partially slowed, resulting in repatriated Japanese

luxury spending from South Korea, Europe and the US, greatly beneting local consumption.

• Russia’s ruble devaluation has worsened since 2013 due to its lower credit rating and geopolitical turbulence,

which has deepened its economic slowdown, reducing Russian international purchases (especially in Europe).

• The Indonesian rupiah and Brazilian real have weakened amid slower economic growth and persistent ination,reducing purchases in Europe and Singapore and, to a lesser extent, the US.

1 Key currency uctuations impacting luxury purchasing patterns

• Online penetration continued to expand at a rapid pace and reached 4.5%, supported by 30% y-o-y growth in

real terms.

• The online luxury market is enormously skewed to the US , with the Americas accounting for ~60% of the

worldwide luxury market and accessories having the highest online penetration.

• A number of players have entered the online arena , each having sizable share of the overall market: Brands.com

(35%), E-Tailers (30%) and Retailers.com (35%)

• M-commerce currently represents one-third of trafc and over 10% of sales for some brands.

2 Digital sales driving growth

Luxury goods market growth by geography1

(constant exchange rates)

3%

5%

-1%

10%

3%4%

7%

12%

5%

9%

3%

5%

10%

4% 4%

-2% Y e a r - o n - y e a r g r o w t h

0%

2%

4%

6%

8%

10%

12%

14%

Europe Americas Japan Asia-Pacic Rest of the world

2012A 2013E 2014F

Real GDP growth by selected market (2012-15E)2

BRIC economies

(In %) FY12A FY13E FY14E FY15E

Global 2.6 2.5 3.0 3.5

US 2.8 1.9 2.4 3.0

Eurozone (0.6) (0.4) 1.1 1.5

Japan 1.4 1.5 1.4 1.3

UK 0.3 1.7 2.8 2.6

CEE* 4.6 4.2 4.0 5.9

Brazil 1.0 2.3 1.9 2.9

Russia 3.4 1.3 1.0 1.7

India 4.7 4.6 5.3 6.0

China 7.7 7.7 7.5 7.6

*Central and Eastern Europe

A

“US: Strong consumer condence among the afuent class and an improving wealth effect have sustained US

luxury spending and should continue to do so in 2014.

“Japan: Japanese luxury consumers repatriated demand to their domestic market in 2013, as a result of the

weak yen. We expect this trend to continue in 2014; however, some uncertainties can be linked toconsumers’ reactions to luxury prices increasing in response to the FX move and the increase in VAT.”

“Luxury goods,” Deutsche Bank, April 2014


39/60





China becoming a mature market with consolidating growth rates

Mainland Chinese personal luxury

goods markets (2011-2014F)1Top three global personal luxury goods

markets (2013E)1

Share of urban households in China2

Sources: Bain & Company and other selected research Notes: 1) “Worldwide Markets Monitor,” October 2013, and “Worldwide Luxury Markets Monitor,” Spring 2014, Bain & Company

and Fondazione Altagamma.

2) “Luxury Outlook 2014,” Deutsche Bank, January 2014.

• The Chinese market is expected to maintain low-single-digit growth in 2014, with a

corruption crackdown still reducing sales, especially impacting gifting.

• Signicant price differential vs. abroad is driving purchases overseas, with luxury

retail expanding at slower pace.

• Primary drivers of growth include a sustained domestic market, improvedperformance from Hong Kong and Macau, more spending from top foreign markets

in new geographies (South Korea, US West Coast), and sustained spending in

Europe.

• Brands are reshaping their strategies, pushing high-end products and attempting

to improve service levels.

1 Sluggish growth in Greater China

• In 2013, Chinese consumers accounted for about 29% of global luxury sales and

are heading to become nearly one-third of the luxury market.

• The Chinese middle class is evolving, with more higher-income households, which

is favorable for luxury spending.

• By 2020, Chinese consumers are expected to add €70b–€80b (or 30%–40%) to

luxury demand.

• The increase in the number of wealthy households and of their average disposable

income is expected to drive growth levels in the teens in luxury demand in China,

even assuming subdued HNWI spending due to government austerity measures .

2 Chinese consumers confrm dominance as top global customer


62.5

23.0

17.2

0

10

20

30

40

50

60

70

US Mainland Chinaand Hong Kong

Japan

12.5

15.0 15.315-16

0

2

4

6

8

10

12

14

16

2011 2012 2013E 2014F

€ b i l l i o n

€ b i l l i o n

Second position globally after

including Hong Kong

3 914

54

54

22

2916

0%

20%

40%

60%

80%

100%

2012 2022E

Af ue nt Uppe r m id dle cl as s M ass midd le cla ss Poo r

A



40/60



Page 38


Industry overview

Accessories continues to lead the pack amid polarization ofconsumption across categories

• Men’s ready-to-wear (RTW) is outperforming women’s in most markets, except for

formalwear in Mainland China.

• Women’s RTW witnessed down trading in mature markets, with more impact from

the competition from premium brands and apparel retailers.

• The high-end segment has shown super-performance in all its different shades ,including made-to-measure and sartorial, absolute luxury and rst lines .

• Brands are increasingly investing in the segment by opening dedicated stores.

• The online penetration is in line with the overall average of the sector.

2 Apparel: high-end segment outperforming

• Strong polarization is observed as both high-end jewelry and affordable grow

signicantly.

• Silver and costume jewelry from fashion brands performed well thanks to the

growing middle class in emerging markets, with the latter becoming more of a

fashion item.

• The demand for watches is slowing down in real terms as over-exposed brands are

suffering in Mainland China.

• The accessible watch segment is showing the highest dynamism.

• Online penetration for hard luxury is far below average, with specialist

watchmakers almost absent from the channel.

3 Hard luxury: strong polarization

• Leather goods have been growing consistently over the years, with the men’s

segment recording double-digit growth.

• Top players are investing in leather suppliers and animal farms as last year witnessed

the strongest focus on “ultimate luxury,” with precious skins ruling.

• Shoes represent one of the fastest-growing categories, with both men’s and women’s

categories witnessing solid performance driven by specialist players.

• The online channel has been leveraged well by accessories segment, which has the

highest online penetration, with shoes above 10%.

• The eyewear market is pegged at €10b; eyewear specialist and house brands make up

a large portion, with absolute/niche players showing the highest growth.

1 Accessories: resilient growth

Sources: Bain & Company and other selected research

Note: 1) “Worldwide Markets Monitor,” October 2013, and “Worldwide Luxury Markets Monitor,” Spring 2014, Bain & Company and

Fondazione Altagamma.


Global personal luxury goods market

by product type (2013E)1Growth rates of global personal luxury

goods market by product type1

Other

Accessories

Apparel

Hard luxury

Beauty

28%

25%

23%

20%

4%

4%

1%

2%

2%

0%

16%

8%

13%

4%

3%

0% 5% 10% 15% 20%

Accessories

Apparel

Beauty

Hard luxury

Other

2012 2013

A

P 39DCF d l ti t

I d t i P 39


41/60


Page 39DCF and valuation parametersIndustry overview Page 39



P 40 DCF d l ti t

P 40 I d t i


42/60





Worldwide cosmetics market is solid, dynamic and fast-movingGlobal cosmetic goods market

Global cosmetics industry market growth, YOY (2004-13)1

Sources: L’Oréal Annual Report 2013 and other selected research.

Note: 1) L’Oréal estimates of worldwide cosmetics market based on manufacturer net selling prices. Excluding soap, toothpaste, razors and blades. Excluding currency uctuations.

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

%

123 127 134 141 145 147 153 161 168 175

3.4%3.8%

4.9% 5.0%

2.9%

1.0%

4.2%4.6%

4.6%

3.8%

2004 2005 2006 2007 2008 2009 2010 2011 2012 20130

50

100

150

200

€

b i l l i o n

Cosmetics market Growth %

Global cosmetics market segmentation by products

and geographies (2013)1

34%

24%

17%

13%

11%

1%

Oral cosmetics

Makeup

Skin care

Hair care

Fragrances

Hygiene products

33%

22%

21%

13%

8%

3%

Africa, Middle East

North America

Asia-Pacic

Western Europe

Latin America

Eastern Europe

B




43/60

G l o s s ar y

C on t a c t u s





Global cosmetic goods market


The global cosmeticsmarket grew by an

estimated3.8% during 2013, whichwas slightly lower thanthe historical averageover the past 15 yearsestimated atapproximately 4.1%.

The combined effects ofpopulation,urbanization, progressin infrastructure andgrowth in world GDP willcontinue to drive themarket.

The population withaccess to moderncosmetics could grow by50% over the next 20years, boosted by therapid rise of the urbanmiddle class in the newmarkets.

The consumer behaviorhas not changed since

the crisis, and themarket hascontinued

to expandsteadily.

The beauty market is setto double in size in thenext 10 to 15 years, andall the world’s regionswill grow, with China, theUS, Brazil, India andJapan expected tobecome the top markets.

By 2020, it is estimatedthat more than half ofconsumers will belocated in tropical zoneswith hot, humid climates,and some 60% of theworld’s population willlive in major urbancenters affected bypollution. These trendswill further boost the demand for

qualitycosmeticproducts.

The top trio of countries

China andBrazil (new markets)andthe US (a mature market) — contributed almost

half thegrowth of theworldwide cosmeticsmarket in 2013.

Page 42 DCFand valuationparameters



44/60



Page 42


Industry overview

Cosmetics industry remained resilient even in a difculteconomic period

• The market was buoyant on all continents, even in Western Europe, with growth of

nearly 3.0%.

• From a geographic viewpoint, the new markets continue to attain increasing levels

of growth. Excluding Japan, they represented 80% of worldwide market growth due

in equal shares to Asia-Pacic and Latin America.

• With growth of 4.6%, the selective market continued to grow at a steady pace in

2013, bolstered by Asia. Travel retail contributes 24% of global growth.

• With growth of 3.9%, mass-market sales tailed off, particularly due to lagging

demand in the US and Asia.

• Demand for cosmetics has not been impacted by the economic crisis, with

consumers aspiring for better quality products and eager for new technology

and ideas.

• The beauty market is a supply-driven market fueled by innovation, and

consumers are always looking for quality, performance and perceived results.

• The market has been bolstered by the rise of middle classes all over the world .

31 Widespread growthResilient demand

• Digital media has emerged as a crucial dimension for the brands, with beauty

product consumers constantly looking for tips and recommendations.

• The internet is increasingly integrated into the buying process in a multi channel

context with rise of digital media and social networks.

• With consumer opinions just a click away, they inuence nal choices both online

and in the store.

• The online medium helps maintain a more direct and participative relationship with

their “consumer-ambassadors” while providing them with richer experiences and

services attuned to their vision of beauty.

4 Digital media: the game changer

• Dermocosmetics products that combine cosmetic and dermatological action to

preserve the health and beauty of skin and hair grew by 5.0% in 2013 .

• Traditionally strong in Western Europe, the segment is witnessing its development

accelerate in North America and the new markets

• The dynamism stems from the strong consumer appeal of products combining

efcacy and safety with good value.

• The distribution channels that earlier included traditional pharmacy and

“parapharmacies” channels have now expanded to drugstores, dermacenters in

department stores and medi-spas.

2 Dermocosmetics: huge potential

Sources: L’Oréal Annual Report 2013 and other selected research.

Notes: 1) L’Oréal estimates of worldwide cosmetics market based on manufacturer net selling prices. Excluding soap, toothpaste, razors and blades. Excluding currency uctuations.

Global cosmetic goods marketB




45/60

Page 43DCF and valuation parametersIndustry overview Page 43




46/60


47/60

G l o s s ar y

C on t a c t u s


S A MP L E S E L

E C T I ON

AND S P E C I F I C ANAL Y S E S

E X E C UT I V E S U M MAR Y

D C F AND V

AL UAT I ONP A-

R A ME T E R S

I ND U S T R Y OV E R V I E W

G L O S S AR Y

E Y E XP E RT S

SOTP analyses

Approach

Sample selection

Focus on Moncler, Coty, Tumi, Chow

Tai Fook and Hengdeli

M e t h o d o l o g y

MethodologyPage 46


48/60


gyg

The entirety of the data utilized in this factbook is publiclydisclosed information. The Transaction Advisory Services

teams of EY who participated in drafting this document have

not had access to any condential information.

If the information used turns out to be incomplete or

incorrect, EY will not be held responsible for any impact this

may have on the results or the analyses presented in this

document.

It must be noted t

_challenging growth in the luxury and cosmetics sector

Documents