Challenging growth in the luxury
and cosmetics sector
The luxury and cosmetics
financial factbook
2014 edition
“2013 has been a challenging year for the luxury
industry, perhaps the most challenging since the
recession of 2009, and we see this on the impact
on the overall industry growth rate.”
Paul Wood
Partner, Advisory
Contents
2 Executive summary
Statistics and key facts
Index evolution
6 DCF and valuation parameters
A. Financial parameters
B. Operating aggregates
C. A
dvertising expenses and net working
capital analyses
D. SOTP and segment analyses
E. Trading multiples
F. Transaction multiples
32 Industry overview
A. Global luxury goods market
B. Global cosmetic goods market
44 Methodology
Approach
SOTP analyses
Sample selection
Focus on Moncler, Coty, Tumi, Hengdeli and
Chow Tai Fook
54 Glossary
55 Contact us
Page 2
Executive summary
Welcome to the fourth edition of EY’s annual financial factbook for the
luxury and cosmetics sector, which focuses on the current industry trends,
the evolution of the operating aggregates and the key financial 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.
Paul Wood
Partner, Advisory — Paris
EMEIA and Global Coordinator
[email protected]
Andrea Guerzoni
Partner, Transaction Support — Milan
EMEIA TAS Leader
[email protected]
2013 has been a challenging year for the luxury industry, perhaps the
most challenging since the recession of 2009, and we see this on the
impact on the overall industry growth rate. For the first 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, profitability 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 efficiency.
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
*Includes currency effect
The luxury and cosmetics financial factbook 2014
(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 the
right 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.
Page 3
Executive summary
Executive summary
Focus on efficiency — While many large and small luxury houses deftly manage their
increased retail footprint, this is not always the case across the back office. 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 finance, 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 efficient 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 efficiency 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 traffic 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 financial 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.
Paul Wood
[email protected]
Andrea Guerzoni
[email protected]
The luxury and cosmetics financial factbook 2014
Page 4
Statistics and key facts
Global personal
luxury market
2.4%
grew by
in 2013.
The US market
has shown
sustainable signs
of recovery,
while the
Chinese market
is expected to
maintain lowdigit growth.
Online sales
30%
reached
year-on-year
growth in real
terms.
US demand
(+7%) surpassed
Asia as luxury’s
main growth
engine in
2013.
The luxury and cosmetics financial factbook 2014
Currency
fluctuations still
impact luxury
purchasing
patterns
(Japanese yen,
Russian ruble,
Indonesian
rupiah and
Brazilian real).
The global
cosmetics
market grew
3.8%
by
in 2013.
China, Brazil
and the US
contributed to
almost half
of the global
cosmetics
market
in 2013.
New markets in
Asia-Pacific and
Latin America
represented
80% of
the global
cosmetics
market growth.
Mass-market
sales tailed off,
particularly in
US and
Asia.
the
For both the
luxury
and
cosmetics
industries,
digital is
proving to be a
game-changer,
increasing
engagement
with consumers
The Urban
middle class
could drive
cosmetics
market
growth
over the next
50%
20 years
Younger
premium
consumers
from emerging
economies
and the US are
driving demand
Index evolution
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 significant return of 7.7%, despite the economic downturn.
This relative performance actually illustrates the appetite of investors for an industry that has demonstrated
solid financial fundamentals in terms of sales growth, major profitability, international client base and
exposure 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 specific weight has been attributed to each company included in the EY index based on its market
capitalization and revenues (each of these two parameters weighing for a half). The relative weights have
been revised 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).
EY luxury and cosmetics index evolution compared to major indices (base 100 as of 1 January 2008)
200
As of 31 J ul 2014
180
163.0
16 0
140
133.0
120
100
92.2
80
6 0
40
20
0
J an- 08
Apr- 08
J ul- 08
Oct- 08
J an- 09
Apr- 09
J ul- 09
Oct- 09
J an- 10
Apr- 10
J ul- 10
Oct- 10
J an- 11
EY index
Apr- 11
J ul- 11
STOX X
Oct- 11
J an- 12
Apr- 12
J ul- 12
Oct- 12
J an- 13
Apr- 13
J ul- 13
Oct- 13
J an- 14
Apr- 14
J ul- 14
S& P
Source: Capital IQ
The luxury and cosmetics financial factbook 2014
Executive summary
Page 5
PAGE 6
OPENING
“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.”
Paul Wood
Partner, Advisory
DCF and valuation parameters
LUXURY AND COSMETICS THE EY FINANCIAL FACTBOOK 2014
Page 7
Operating aggregates
C
Advertising expenses and net working
capital analyses
D
SOTP and segment analyses
E
Trading multiples
F
Transaction multiples
Industry overview
B
DCF and valuation parameters
Financial parameters
Executive summary
A
DCF and valuation
parameters
Opening
Methodology
and disclaimer
Sample selection
and specific analyses
Glossary
Contact us
The luxury and cosmetics financial factbook 2014
Page 8
A
DCF and valuation parameters
Luxury companies continue to reflect high-potential growth
combined with a limited risk profile
Financial parameters
• WACC ranges from 7.6% (Luxottica) to 10.5% (Ralph Lauren, Chow Tai Fook), depending on the companies’
risk profile 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 diversification.
WACC and LTGR by company
Luxury
companies
12.0
11.5
11.0
Chow Tai Fook
R alph Lauren
10.5
Salvatore
Ferragamo Swatch
WACC ( %)
10.0
Hengdeli
Kering
Burb erry
Brunello
Hugo
Cucinelli
Boss Coach Tod’ s
R ichemont
LVMH
Tif f any
Hermès
Prada
Michael Kors
Safilo
Moncler
9 .5
9 .0
8.5
8.0
Luxottica
7.5
7.0
0.0%
1.0%
2.0%
3.0%
4.0%
5 .0%
LTGR
Note: Bubble size reflects market capitalization. Dotted lines represent average values.
Source:
• 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’ financial statements
Notes:
•
•
•
•
Market capitalization is based on a one-month average as of 31 March 2014.
Gearing is defined as net financial debt/enterprise value.
Beta correspond to levered beta measured on a weekly basis over a two-year period.
Beta figure for Moncler might be influenced by an insufficient number of
observations on the considered period.
The luxury and cosmetics financial factbook 2014
Companies are sorted in
decreasing order based on the
market capitalization in euros
observed as of 31 March 2014
(one-month average).
LVMH
Richemont
Hermès
Swatch
Luxottica
Kering
Michael Kors
Prada
Chow Tai Fook
Ralph Lauren
Coach
Tiffany
Burberry
Hugo Boss
Salvatore Ferragamo
Moncler
Tod’s
Brunello Cucinelli
Tumi
Safilo
Hengdeli
Average
Median
Maximum
Minimum
Market
capitalization
(in €m)
65,304
39,688
24,528
23,706
18,865
18,000
14,293
13,657
12,268
10,451
9,914
8,422
7,691
6,540
3,657
3,217
2,908
1,333
1,139
964
679
WACC
Gearing
9.0%
9.0%
8.3%
9.3%
7.6%
9.6%
8.7%
8.7%
10.5%
10.5%
9.2%
8.6%
9.5%
9.2%
9.5%
8.3%
9.2%
8.9%
10.4%
8.4%
9.8%
9.1%
9.2%
10.5%
7.6%
7.8%
(15.9%)
(4.1%)
(4.1%)
7.5%
16.1%
(4.4%)
(2.0%)
1.8%
(8.4%)
(6.2%)
7.5%
(3.4%)
1.1%
1.1%
5.2%
(6.3%)
1.2%
(1.9%)
18.3%
21.6%
1.6%
1.1%
21.6%
(15.9%)
Beta
1.01
1.21
0.72
1.08
0.50
0.96
1.21
0.83
1.17
1.26
1.06
1.17
1.01
0.59
0.66
1.01
0.67
0.62
1.64
0.72
1.12
0.96
1.01
1.64
0.50
LTGR
2.3%
3.1%
3.6%
3.1%
3.1%
2.6%
4.5%
2.7%
3.6%
1.0%
2.7%
3.2%
3.3%
2.5%
3.1%
3.2%
2.9%
4.8%
n.a.
2.0%
3.7%
3.0%
3.1%
4.8%
1.0%
DCF and valuation parameters
A
Page 9
The cosmetics sample is characterized by a smaller number of
companies, which significantly impacts the average value of
financial parameters
Financial parameters
• Natura’s (Brazil) long-term growth rate is significantly higher than the average sample, driven by its
DCF and valuation
parameters
geographical coverage.
• WACC sample levels are balanced by the two extremes of Natura (Brazil geographical risk) and
Shiseido (Japan).
WACC and long-term growth rate (LTGR) by company
14.0
Cosmetics
companies
13.0
12.0
Natura
11.0
10.0
WACC (%)
9.0
Coty
7.0
Beiersdorf
6.0
WACC
Gearing
Beta
LTGR
L’Oréal
69,368
8.2%
(1.8%)
0.67
3.0%
L’Oréal
Estée Lauder
19,355
7.9%
(0.6%)
1.14
2.7%
Beiersdorf
15,908
7.6%
(8.7%)
0.69
2.1%
Estée Lauder
Natura
4,985
10.4%
10.8%
0.64
4.8%
L’Occitane
8.0
Market
capitalization
(in €m)
5.0
4.0
Shiseido
5,161
6.1%
15.2%
0.75
n.a.
3.0
Coty
4,226
8.2%
23.7%
1.08
2.0%
L’Occitane
2,483
8.7%
(8.7%)
0.65
2.3%
2.0
1.0
0.0
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
LTGR
Note: Bubble size reflects market capitalization. Dotted lines represent average values.
Companies are sorted in
decreasing order based on the
market capitalization in euros
observed as of 31 March 2014
(one-month average).
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’ financial statements
Notes:
•
•
•
Market capitalization is based on a one-month average as of 31 March 2014.
Gearing is defined as net financial debt/enterprise value.
Beta correspond to levered beta measured on a weekly basis over a
two-year period.
The luxury and cosmetics financial factbook 2014
Page 10
DCF and valuation parameters
A
EY luxury and cosmetics sample:
summary of financial parameters
Financial parameters
WACC (in %)
Beta
Gearing (in %)
Luxottica
Beiersdorf
LTGR (in %)
0.5 9
Beiersdorf
( 8.7)
Safilo
2.0%
Coty
2.0%
Hugo Boss
7.6 %
Brunello Cucinelli
0.6 2
L' Occitane
( 8.7)
Natura
0.6 4
R alph Lauren
( 8.4)
8.2%
L' Occitane
0.6 5
Tod' s
( 6 .3)
Coty
8.2%
Salvatore Ferragamo
0.6 6
Coach
( 6 .2)
Hermès
8.3%
Tod' s
0.6 7
Michael Kors
( 4.4)
Moncler
8.3%
L' Oré al
0.6 7
Swatch
( 4.1)
Safilo
8.4%
0.6 9
Hermès
( 4.1)
Burb erry
( 3.4)
Beiersdorf
8.6 %
2.1%
L' Occitane
2.3%
LVMH
2.3%
Hugo Boss
2.5 %
Kering
2.6 %
Coach
2.7%
2.7%
( 1.9 )
Prada
2.7%
L' Oré al
( 1.8)
Tod' s
2.9 %
( 2.0)
Tumi
0.75
Shiseido
Beiersdorf
Esté e Lauder
Prada
0.72
Hermès
8.7%
Prada
0.72
Safilo
8.7%
Michael Kors
1.0%
( 15 .9 )
L' Oré al
Tif f any
R alph Lauren
R ichemont
7.6 %
7.9 %
Esté e Lauder
0.5 0
Luxottica
6 .1%
Shiseido
L' Occitane
8.7%
Prada
Brunello Cucinelli
8.9 %
Average
0.9 2
Esté e Lauder
( 0.6 )
Average
3.0%
Average
8.9 %
Kering
0.9 6
Hugo Boss
1.1
L' Oré al
3.0%
LVMH
9 .0%
LVMH
1.01
Salvatore Ferragamo
1.1
R ichemont
3.1%
R ichemont
9 .0%
Burb erry
1.01
Brunello Cucinelli
1.2
Hugo Boss
9 .2%
Moncler
1.01
Tod' s
9 .2%
Coach
1.06
Average
Coach
9 .2%
Swatch
1.08
Moncler
Swatch
9 .3%
Coty
1.08
Tif f any
7.5
Burb erry
9 .5 %
Hengdeli
1.12
Luxottica
7.5
Salvatore Ferragamo
9 .5 %
Esté e Lauder
1.14
LVMH
Kering
9 .6 %
1.17
Natura
Hengdeli
9 .8%
1.17
Shiseido
Tumi
10.4%
Natura
10.5 %
Chow Tai Fook
WACC
Chow Tai Fook
Tif f any
Michael Kors
10.4%
R alph Lauren
R ichemont
R alph Lauren
10.5 %
Industry benchmark
High
The luxury and cosmetics financial factbook 2014
1.21
Safilo
1.26
Hengdeli
Industry benchmark
2.2
5 .2
High
3.1%
3.1%
Salvatore Ferragamo
3.1%
Moncler
3.2%
Tif f any
3.2%
Burb erry
7.8
21.6
Industry benchmark
4.5 %
Brunello Cucinelli
4.8%
Natura
4.8%
23.7
LTGR
High
3.7%
Michael Kors
18.3
2.2%
3.6 %
Hengdeli
16 .1
Low
3.6 %
Hermès
15 .2
Coty
3.3%
Chow Tai Fook
10.8
Gearing
0.92
Low
Source: Data based on consensus of several brokers’ reports for each company.
Note: LTGR data was not available for Tumi and Shiseido.
1.21
Kering
Swatch
Luxottica
1.8
Chow Tai Fook
1.6 4
Tumi
Beta
8.9%
Low
0.83
3.0%
Low
Industry benchmark
High
DCF and valuation parameters
Sales of the luxury companies sample are expected to grow an
average of 10% annually over the next three years
Operating aggregates
• 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.
DCF and valuation
parameters
B
Page 11
Sales CAGR, FY12A–FY15E — luxury companies
Michael Kors
32.7%
Chow Tai Fook
18.9 %
Moncler
17.0%
Tumi
16 .6 %
Brunello Cucinelli
13.6 %
Burb erry
12.1%
Hengdeli
10.8%
Average
10.1%
Hermès
9 .9 %
Prada
8.8%
Salvatore Ferragamo
8.6 %
8.5 %
Swatch
Tif f any
7.4%
R ichemont
7.4%
Ralph Lauren
7.3%
Hugo Boss
7.2%
6 .2%
LVMH
5 .5 %
Luxottica
Kering
Tod’ s
Safilo
Coach
4.6 %
4.1%
3.4%
2.2%
Source: Data based on consensus of several brokers’ reports for
each company.
Sales (in €m)
Michael Kors
Chow Tai Fook
Moncler
Tumi
Brunello Cucinelli
Burberry
Hengdeli
Hermès
Prada
Salvatore Ferragamo
Swatch
Tiffany
Richemont
Ralph Lauren
Hugo Boss
LVMH
Luxottica
*Kering sales for FY12A-FY15E
Kering*
exclude numbers for Groupe Fnac,
Tod’s
Redcats, Conforama and CFAO.
Safilo
Notes:
Coach
• 2013 figures are estimated or actual
Average
depending on their availability as of
the date of this study.
Median
• Figures are converted into euros
Maximum
using exchange rates as of 31 March
Minimum
2014. (Source: Capital IQ)
FY12A
FY13A/E
FY14E
FY15E
1,812
5,374
489
289
280
2,418
1,415
3,484
3,297
1,155
6,401
2,754
10,150
5,040
2,346
28,103
7,086
9,736
985
1,199
3,457
2,418
7,094
581
339
323
2,817
1,561
3,755
3,587
1,256
6,943
2,926
10,645
5,328
2,432
29,149
7,313
9,748
983
1,122
3,683
2,987
7,924
677
394
364
3,073
1,743
4,178
3,821
1,354
7,535
3,160
11,529
5,731
2,665
31,155
7,727
10,336
1,028
1,246
3,544
4,237
9,029
783
458
410
3,404
1,927
4,625
4,245
1,478
8,173
3,414
12,569
6,235
2,890
33,626
8,322
11,129
1,112
1,327
3,686
CAGR
(FY12A-FY15E)
32.7%
18.9%
17.0%
16.6%
13.6%
12.1%
10.8%
9.9%
8.8%
8.6%
8.5%
7.4%
7.4%
7.3%
7.2%
6.2%
5.5%
4.6%
4.1%
3.4%
2.2%
10.1%
8.5%
32.7%
2.2%
The luxury and cosmetics financial factbook 2014
Page 12
B
DCF and valuation parameters
Sales growth expectations for cosmetics players are lower than
for the luxury segment but still show an average annual growth
of 5% over the FY12A-FY15E period
Operating aggregates
• 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 to
Natura and L’Occitane significantly
outperformed the cosmetics sample
expectations.
drive demand.
• Innovation and emphasis on quality and new ideas have boosted the cosmetics market.
Sales CAGR, FY12A–FY15E — cosmetic companies
Natura
9 .7%
L’ Occitane
Esté e Lauder
5 .6 %
Average
5 .4%
Shiseido
4.7%
Beiersdorf
4.1%
L’ Oré al
Coty
Sales (in €m)
9 .4%
3.3%
1.0%
FY13A/E
FY14E
FY15E
Natura
1,530
1,691
1,838
2,021
L’Occitane
1,043
1,079
1,224
1,367
9.4%
Estée Lauder
7,050
7,389
7,817
8,291
5.6%
•
•
Source: Data based on consensus of several brokers’ reports for
each company.
The luxury and cosmetics financial factbook 2014
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)
9.7%
Shiseido
4,792
5,196
5,361
5,495
4.7%
Beiersdorf
6,040
6,141
6,421
6,816
4.1%
22,463
22,977
23,397
24,738
3.3%
3,347
3,374
3,335
3,404
1.0%
L’Oréal
Notes:
CAGR
(FY12A-FY15E)
FY12A
Coty
Average
5.4%
Median
4.7%
Maximum
9.7%
Minimum
1.0%
DCF and valuation parameters
The luxury sample confirmed last year’s healthy EBITDA
of 23.7%, with further marginal growth expected
Operating aggregates
• Most of the companies are expected to slightly improve their operating margin in the coming years,
EBITDA remains largely above 20% with some
notable exceptions higher than 30%.
driven by:
DCF and valuation
parameters
B
Page 13
• Volume growth (which implies higher SG&A leverage)
• Higher proportion of retail in the sales mix leading to higher margins
• Refocusing on efficiencies (declared by most of players)
Average EBITDA margin, FY12–FY15E — luxury companies
Hermès
Moncler
32.9 %
Prada
32.2%
Michael Kors
31.9 %
Coach
31.9 %
Swatch
29 .5 %
Richemont
27.9 %
Burberry
25 .9 %
Tod s
25 .1%
LVMH
25 .0%
Tiffany
24.6 %
Average
24.0%
Hugo Boss
23.3%
Tumi
22.0%
Kering
21.6 %
Salvatore Ferragamo
21.4%
Ralph Lauren
20.2%
Luxottica
20.0%
Brunello Cucinelli
Chow Tai Fook
Safilo
Hengdeli
EBITDA margin
35 .6 %
17.9 %
13.6 %
11.1%
10.0%
Source: Data based on consensus of several brokers’ reports for
each company.
*Kering margin for FY12AFY15E excludes numbers for
Fnac, Redcats, Conforama
and CFAO.
Note: The 2013 EBITDA margin is
computed on the basis of either
actual or estimated figures 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.
Hermès
Moncler
Prada
Michael Kors
Coach
Swatch
Richemont
Burberry
Tod’s
LVMH
Tiffany
Hugo Boss
Tumi
Kering*
Salvatore Ferragamo
Ralph Lauren
Luxottica
Brunello Cucinelli
Chow Tai Fook
Safilo
Hengdeli
Average
Median
Maximum
Minimum
FY12A
FY13A/E
FY14E
FY15E
Average ratio
(FY12A-FY15E)
35.5%
33.0%
31.9%
31.4%
34.5%
28.7%
27.7%
27.6%
25.4%
24.7%
22.7%
22.3%
20.9%
21.2%
19.8%
19.7%
18.7%
15.7%
13.2%
9.9%
12.6%
23.7%
22.7%
35.5%
9.9%
36.0%
33.0%
31.9%
32.3%
33.2%
31.0%
27.2%
25.7%
24.0%
24.5%
23.9%
23.1%
21.5%
21.0%
20.9%
19.2%
19.5%
18.6%
13.2%
10.0%
8.0%
23.7%
23.9%
36.0%
8.0%
35.4%
32.6%
32.3%
31.9%
29.9%
28.7%
28.1%
25.4%
25.3%
25.2%
25.4%
23.6%
22.7%
21.7%
22.0%
20.4%
20.5%
18.4%
13.7%
11.8%
9.6%
24.0%
25.2%
35.4%
9.6%
35.7%
32.9%
32.7%
32.2%
29.8%
29.5%
28.5%
24.9%
25.8%
25.5%
26.2%
24.3%
22.8%
22.5%
23.1%
21.4%
21.2%
18.8%
14.0%
12.9%
9.8%
24.5%
24.9%
35.7%
9.8%
35.6%
32.9%
32.2%
31.9%
31.9%
29.5%
27.9%
25.9%
25.1%
25.0%
24.6%
23.3%
22.0%
21.6%
21.4%
20.2%
20.0%
17.9%
13.6%
11.1%
10.0%
24.0%
24.6%
35.6%
10.0%
The luxury and cosmetics financial factbook 2014
Page 14
B
DCF and valuation parameters
Cosmetic companies show a solid average EBITDA of 17% that is
expected to grow, although at slightly lower rates than those for
luxury companies
Operating aggregates
• Like luxury companies, most cosmetic companies are expected to improve their operating margin in the
Notwithstanding its recent significant
growth, Natura still outperforms the sample’s
profitability
coming years.
• The key drivers of margin growth are:
• Operational efficiencies
• Consumers aspiring to increasingly high levels of quality
Average EBITDA margin, FY12A–FY15E — cosmetics companies
Natura
23.1%
L’ Oré al
Esté e Lauder
18.7%
L’ Occitane
17.9 %
Average
17.4%
Coty
15 .8%
Beiersdorf
Shiseido
15 .7%
10.2%
Source: Data based on consensus of several brokers’ reports for
each company.
The luxury and cosmetics financial factbook 2014
FY12A
FY13A/E
FY14E
FY15E
Average ratio
(FY12A-FY15E)
Natura
23.6%
22.7%
23.0%
23.1%
23.1%
EBITDA margin
20.7%
Note: The 2013 EBITDA margin is
computed on the basis of either
actual or estimated figures 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.
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%
DCF and valuation parameters
B
Page 15
Capex sales ratios for the luxury industry ranges from 5% to 6%,
based on historical and estimated figures
Operating aggregates
• Prada by far outperforms sample capex ratio due to its recent strong focus on retail business, mainly
DCF and valuation
parameters
carried out in 2012 and 2013 following its listing on the Hong-Kong Stock Exchange.
Average capex ratio, FY12A–FY15E — luxury companies
10.4%
Prada
8.2%
Burb erry
7.1%
Michael Kors
6 .6 %
R ichemont
6 .4%
Hugo Boss
6 .2%
Hermès
6 .0%
Swatch
5 .8%
LVMH
5 .6 %
Average
5 .5 %
Salvatore Ferragamo
Kering
5 .2%
Moncler
5 .2%
Tif f any
5 .2%
Tod' s
5 .1%
Coach
5 .1%
R alph Lauren
5 .1%
TU MI
5 .0%
Luxottica
4.9 %
Safilo
Hengdeli
Chow Tai Fook
Capex ratio
8.2%
Brunello Cucinelli
2.7%
1.8%
1.4%
Source: Data based on consensus of several brokers’ reports for
each company.
Note: The 2013 capex ratio is
computed based on either actual or
estimated figures for 2013 sales,
depending on their availability.
Prada
Brunello Cucinelli
Burberry
Michael Kors
Richemont
Hugo Boss
Hermès
Swatch
LVMH
Salvatore Ferragamo
Kering
Moncler
Tiffany
Tod’s
Coach
Ralph Lauren
Tumi
Luxottica
Safilo
Hengdeli
Chow Tai Fook
Average
Median
Maximum
Minimum
FY12A
FY13A/E
FY14E
FY15E
Average ratio
(FY12A-FY15E)
10.1%
9.1%
8.8%
6.0%
5.9%
7.0%
7.5%
6.0%
6.1%
5.1%
4.5%
5.4%
5.5%
4.8%
3.9%
4.0%
5.2%
5.3%
2.2%
3.7%
2.0%
5.6%
5.4%
10.1%
2.0%
15.3%
9.3%
8.4%
8.1%
7.2%
7.1%
5.6%
6.6%
5.7%
6.5%
6.8%
5.8%
5.1%
5.0%
4.8%
5.5%
5.3%
5.1%
2.5%
0.9%
1.5%
6.1%
5.7%
15.3%
0.9%
8.2%
8.6%
8.0%
7.2%
7.0%
5.8%
5.9%
5.7%
5.7%
5.3%
4.8%
4.7%
5.2%
5.8%
5.7%
6.1%
5.2%
4.9%
3.1%
1.4%
1.1%
5.5%
5.7%
8.6%
1.1%
7.8%
5.7%
7.6%
N/A
6.1%
5.5%
5.6%
5.7%
5.5%
5.0%
4.8%
5.0%
5.0%
4.9%
6.0%
4.8%
4.2%
4.6%
3.2%
1.2%
0.9%
5.0%
5.0%
7.8%
0.9%
10.4%
8.2%
8.2%
7.1%
6.6%
6.4%
6.2%
6.0%
5.8%
5.5%
5.2%
5.2%
5.2%
5.1%
5.1%
5.1%
5.0%
4.9%
2.7%
1.8%
1.4%
5.6%
5.2%
10.4%
1.4%
The luxury and cosmetics financial factbook 2014
Page 16
B
DCF and valuation parameters
Overall the cosmetics industry’s capex ranges from 4.5% to 5%
which has been elevated by those with retail networks
Operating aggregates
• L’Occitane and Natura capex ratios outperform the sample due to their retail profiles.
Average capex ratio, FY12A–FY15E — cosmetics companies
L’ Occitane
6 .6 %
Natura
Capex ratio
6 .4%
Average
4.7%
FY12A
FY13A/E
FY14E
FY15E
Average ratio
(FY12A-FY15E)
Esté e Lauder
4.5 %
L’Occitane
8.9%
7.4%
5.4%
4.8%
6.6%
L’ Oré al
4.5 %
Natura
6.8%
7.6%
6.1%
5.1%
6.4%
Coty
4.1%
Shiseido
Beiersdorf
3.8%
2.8%
Note: The 2013 capex ratio is
computed based on either actual or
estimated figures for 2013 sales,
depending on their availability.
Source: Data based on consensus of several brokers’ reports for
each company.
The luxury and cosmetics financial factbook 2014
Estée Lauder
4.3%
4.5%
4.6%
4.6%
4.5%
L’Oréal
4.2%
4.6%
4.9%
4.2%
4.5%
Coty
3.8%
3.6%
5.1%
4.0%
4.1%
Shiseido
2.6%
4.4%
4.2%
4.1%
3.8%
Beiersdorf
2.5%
3.5%
2.7%
2.6%
2.8%
Average
4.7%
5.1%
4.7%
4.2%
4.7%
Median
4.2%
4.5%
4.9%
4.2%
4.5%
Maximum
8.9%
7.6%
6.1%
5.1%
6.6%
Minimum
2.5%
3.5%
2.7%
2.6%
2.8%
DCF and valuation parameters
EY luxury and cosmetics sample:
summary of operating aggregates
Operating aggregates
Average sales CAGR, FY12A–FY15E
Average EBITDA margin, FY12A–FY15E
Michael Kors
Hermè s
32.7%
Chow Tai Fook
Tumi
Prada
16.6%
Michael Kors
31.9%
Coach
31.9%
10.4%
8.2%
Burberry
8.2%
Michael Kors
29.5%
Richemont
10.8%
Hengdeli
Prada
Brunello Cucinelli
32.2%
Swatch
12.1%
Burberry
32.9%
17.0%
13.6%
Brunello Cucinelli
35.6%
Moncler
18.9%
Moncler
Average capex ratio, FY12A–FY15E
27.9%
7.1%
L' Occitane
6.6%
Richemont
6.6%
Natura
6.4%
Hugo Boss
6.4%
Hermè s
9.9%
Burberry
Natura
9.7%
Tod' s
25.1%
Hermè s
6.2%
9.4%
LVMH
25.0%
Swatch
6.0%
L' Occitane
Prada
8.8%
Salvatore Ferragamo
8.6%
Swatch
7.4%
Richemont
7.4%
Ralph Lauren
7.3%
Hugo Boss
Esté e Lauder
5.6%
Luxottica
5.5%
Shiseido
4.7%
Kering
4.6%
Tod' s
4.1%
Beiersdorf
4.1%
afilo
3.4%
L' Oré al
3.3%
Coty
Sales CAGR
5.3%
5.2%
Tumi
22.0%
Moncler
5.2%
Kering
21.6%
Tiffany
5.2%
21.4%
L' Oré al
20.7%
20.2%
Ralph Lauren
5.1%
20.0%
Tumi
5.0%
Esté e Lauder
18.7%
L' Occitane
Brunello Cucinelli
Coty
Luxottica
17.9%
Esté e Lauder
17.9%
L' Oré al
15.8%
Beiersdorf
Hengdeli
10.0%
Industry benchmark
High
2.8%
afilo
2.7%
Hengdeli
Chow Tai Fook
Capex ratio
22.3%
Low
3.8%
Beiersdorf
11.1%
10.2%
4.5%
4.1%
Shiseido
13.6%
Shiseido
4.9%
4.5%
Coty
15.7%
Chow Tai Fook
EBITDA margin
Industry benchmark
5.1%
5.1%
Luxottica
2.2%
High
Tod' s
Coach
Ralph Lauren
1.0%
Low
23.1%
5.8%
5.5%
Kering
afilo
8.9%
Salvatore Ferragamo
Average
Salvatore Ferragamo
6.2%
23.3%
22.3%
Natura
Average
7.2%
LVMH
Coach
Hugo Boss
8.5%
Tiffany
LVMH
24.6%
Tiffany
8.9%
Average
25.9%
1.8%
1.4%
5.3%
Low
Industry benchmark
High
Source: Data based on consensus of several brokers’ reports for each company.
The luxury and cosmetics financial factbook 2014
DCF and valuation
parameters
B
Page 17
Page 18
C
DCF and valuation parameters
Advertising expenses and
net working capital analysis
Advertising remains a key driver of the industry
• Marketing and advertising represent a significant cost component for both global luxury and cosmetics
manufacturers.
• Advertising expenses will remain a major operating topic, especially for companies focusing on top-line
growth and brand awareness sustainability.
• Cosmetics advertising expenses are significantly influenced by their “mass-market” positioning.
• Luxury companies, in addition to advertising, promote their brands via flagship stores and ambassadors.
Selected companies — advertising expenses as a % of sales, FY13A/E
35 .0%
30.0%
30.0%
27.5 %
25 .0%
23.0% 23.1%
24.3%
in %
20.0%
15 .0%
Luxury companies
Source: Data based on consensus of several brokers’ reports for each company.
The luxury and cosmetics financial factbook 2014
Cosmetics companies
L’ Orèal
Estèe Lauder
Beiersdorf
Coty
Shiseido
9 .3%
LVMH
Safilo
R ichemont
6 .2%
Luxottica
Tumi
6 .2%
Salvatore
Ferragamo
Coach
5 .7%
Moncler
2.5 %
5 .6 %
Tif f any
2.0%
Prada
4.8%
5 .0%
6 .6 %
Hermès
10.0%
0.0%
11.4%
L’ Occitane
10.7%
9 .0%
DCF and valuation parameters
Page 19
Net working capital requirements for jewelry and watches
companies are higher than for other luxury companies
Advertising expenses and
net working capital analysis
C
• As shown in the graph below, the jewelry and watches business is the most working-capital-intensive of all
DCF and valuation
parameters
luxury segments.
Net work ing capital as a % of sales ( %)
• Hard luxuries (watches and jewelry) rely heavily on wholesale channels.
80%
6 0%
2015
2015
2012
2012
40%
2012
2015
2015
2012
20%
2015
2012
2015
2012
2015
2015
2012
2012
2015
2012
2014
2012
0%
- 20%
Swatch
Tif f any
Chow Tai
Fook
Hengdeli
R ichemont
Tod’ s
Safilo
Brunello
Cucinelli
LVMH
Michael
Kors
2015
2015
2012
2012
Salvatore Hugo Boss
Ferragamo
2015
2012
TU MI
2015
2012
R alph
Lauren
2015
2012
2012
Moncler
2015
2015
2012
Hermès
Prada
2012 2015 2012 2015
Burb erry
Coach
2012 2015
Luxottica
2012
2015
Kering
Source: Data based on consensus of several brokers’ reports for each company.
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.
The luxury and cosmetics financial factbook 2014
Page 20
C
DCF and valuation parameters
Net working capital requirements for cosmetics companies
appear more limited compared to other luxury segments, with a
stable trend over the period
Advertising expenses and
net working capital analysis
• Net working capital requirements are very heterogeneous in the cosmetics segment.
• Companies’ levels of requirements are expected to remain mainly stable over the FY12A-FY15E period.
However, Natura net working capital is expected to decrease as a % of sales.
Net work ing capital as a % of sales ( %)
16 %
14%
2012
2015
12%
2015
2012
2015
10%
8%
2015
2012
6 %
2012
2012
2015
2015
4%
2015
2012
2%
0%
- 2%
2012
- 4%
-6 %
Shiseido
L’ Occitane
Esté e Lauder
Source: Data based on consensus of several brokers’ reports for each company.
Note: Net working capital (NWC) is determined as current assets less current liabilities (excluding cash or debt-related elements).
The luxury and cosmetics financial factbook 2014
Beiersdorf
Natura
L’ Oré al
Coty
DCF and valuation parameters
D
Page 21
LVMH: sum of the parts (SOTP)
SOTP and segment analyses
Sales breakdown, FY14E (in €b)
EBIT breakdown, FY14E (in €b)
Enterprise value breakdown, FY14E (in €b)
31.5
9 .7
1.0
1.4
31%
4.3
2.9
3.8
6 .6
16 %
21%
14%
0.4
7%
3.4
9 %
5 .6
7%
12.4
0.4
6 %
13.7
45 .1
12%
11.0
DCF and valuation
parameters
• LVMH SOTP analyses imply a total enterprise valuation of €85.3b in FY14E.
• The fashion and leather segment is the largest contributor both in terms of sales (35%) and EBIT (53%).
6 .1
7%
5 .4
6 %
85 .3
15 %
16 %
5 3%
5 3%
35 %
Fashion
and
leather
goods
Perf umes
and
cosmetics
Watches
and
j ewelry
Luxury products
(excluding spirits)
Wines
and
spirits
Selective Eliminations
retailing
( 3.1)
( 0.1)
( 0.3)
- 2%
Total
Fashion
and
leather
goods
Perf umes
and
cosmetics
Watches
and
j ewelry
Wines and
spirits
Selective Eliminations
retailing
Luxury products
(excluding spirits)
- 4%
Total
Fashion
and
leather
goods
Perf umes Watches
and
and
cosmetics j ewelry
Wines
and
spirits
Selective Eliminations Hermès
retailing
stak e
Total
Luxury products
(excluding spirits)
Source: SOTP based on EY analysis and on the following brokers’ reports: Raymond James (31 January 2014), Barclays (31 January 2014),
Société Générale (31 January 2014) and Kepler Cheuvreux (11 December 2013).
The luxury and cosmetics financial factbook 2014
Page 22
D
DCF and valuation parameters
Kering: SOTP
SOTP and segment analyses
• 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 profitable segment in
terms of operating margin.
Sales breakdown, FY14E (in €b)
2.9
EBIT breakdown, FY14E (in €b)
0.0
0.3
10.1
0.1%
3%
Enterprise value breakdown, FY14E (in €b)
1.8
0.1
0.0
8%
1.0%
1.8
24.9
2.2
0.3
9 %
1.0%
25 .5
29 %
6 .9
9 8%
9 8%
6 8%
Gucci Group
Puma
Volcom
Eliminations
Total
Gucci Group
Luxury
Division
Sports & Lifestyle
Division
Luxury
Division
Puma
Volcom
( 0.1)
( 1.9 )
- 7%
- 7%
Eliminations
Total
Sports & Lifestyle
Division
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).
The luxury and cosmetics financial factbook 2014
Gucci Group
Luxury
Division
Puma
Volcom
Sports & Lifestyle
Division
Eliminations
Total
DCF and valuation parameters
Kering: further analysis of Gucci Group through SOTP approach
SOTP and segment analyses
• 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 in
FY14E, meaning that the Gucci brand is expected to constitute the largest segment within the Gucci Group
and is also the most profitable in terms of operating margin.
Sales breakdown, FY14E (in €b)
EBIT breakdown, FY14E (in €b)
1.5
6 .9
Enterprise value breakdown, FY14E (in €b)
0.2
0.1
22%
0.4
3.0
1.8
10%
1.5
5 %
1.1
21%
9 %
12%
6 %
5 .6
0.6
24.9
23%
1.1
14.8
16 %
3.6
6 5 %
5 9 %
5 3%
Gucci b rand
Bottega Veneta
Y SL
Other b rands
Gucci Group
Gucci b rand
Bottega Veneta
Y SL
Other b rands
Gucci Group
Gucci b rand
Bottega Veneta
Y SL
Other b rands
Gucci Group
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).
The luxury and cosmetics financial factbook 2014
DCF and valuation
parameters
D
Page 23
Page 24
D
DCF and valuation parameters
L’Oréal: segment analysis
SOTP and segment analyses
• 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, when
its 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.
Sales breakdown, FY12A–FY16E (in €b)
EBIT breakdown, FY12A–FY16E (in €b)
EBIT margin, FY12A-FY16E (in %)
6
30
25 %
4.7
4.5
24.9
25
22.5
26 %
26 %
CAGR
6 %
5 %
4.1
5
3.7
6 %
25 %
6 %
6 %
3.9
8%
8%
5 %
5 %
4
25 %
24%
6 %
8%
6 %
6 %
7%
7%
7%
7%
7%
20
23.6
23.0
25 .7
20%
9 %
9 %
8%
32%
30%
30%
29 %
15
3
10
2
19 %
30%
16 %
18%
18%
17%
21%
21%
20%
20%
18%
15 %
CAGR
9 %
10%
48%
48%
48%
48%
49 %
5 5 %
5 6 %
5 6 %
5 5 %
5 5 %
5 %
1
5
14%
13%
13%
13%
12%
17%
16 %
16 %
15 %
15 %
( 16 %)
( 16 %)
( 15 %)
( 15 %)
( 15 %)
2012A
2013A
2014E
2015 E
0
0
0%
-1
2012A
2013A
2014E
2015 E
Prof essional products
Consumer products
Active cosmetics
Other
Source: Analyst research (H2 2012)
The luxury and cosmetics financial factbook 2014
2016 E
L’ Oré al Luxe
2016 E
Prof essional products
Consumer products
L’ Oré al Luxe
Active cosmetics
Other
Eliminations
2012A
2013A
2014E
L’ Oré al Luxe
2015 E
Total
2016 E
DCF and valuation parameters
E
Page 25
Level of multiples illustrates the growing attractiveness of the
luxury sector
Trading multiples
trading multiples
• The expected evolution of valuation multiples is the result of an improvement in the top-line growth as well
as in the operating efficiency of the luxury companies.
• The average top-line growth for luxury companies is expected to average around the 10% level over
FY 2012A–15E.
EV/sales (FY12A-15E)
4.0x
3.5 x
3.7x
3.2x
EV/EBITDA (FY12A-15E)
Price to earnings (FY12A-15E)
18.0x
30.0x
15 .3x
3.3x
3.0x
3.0x
2.8x
25 .0x
12.7x
2.6 x
2.5 x
2.5 x
28.2x
25 .0x
15 .0x
2.9 x
29 .4x
13.3x
21.8x
11.8x
12.0x
11.8x
10.9 x
18.8x
20.0x
10.4x
21.0x
2.0x
18.2x
16 .8x
9 .7x
9 .0x
15 .0x
6 .0x
10.0x
3.0x
5 .0x
1.5 x
1.0x
0.5 x
0
2012A
2013A/ E
Average
2014E
2015 E
0
2012A
2013A/ E
Median
Average
2014E
Median
2015 E
0
2012A
2013A/ E
Average
2014E
2015 E
Median
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 2014.
The results of 2013 are actual (A) if the financial results are “closed” and expected (E) if the financial year is not closed yet.
The luxury and cosmetics financial factbook 2014
DCF and valuation
parameters
• In the luxury sector, expected strong growth and margin improvements are reflected in valuations of
Page 26
E
DCF and valuation parameters
Sales multiples illustrate the dynamism of cosmetics over the
past years
Trading multiples
• Cosmetics companies’ valuation trading multiples are expected to follow the same trend as the one
expected 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.
EV/sales (FY12A-15E)
EV/EBITDA (FY12A-15E)
3.5 x
18.0x
3.0x
15 .0x
Price to earnings (FY12A-15E)
35 .0x
30.0x
13.8x 13.9 x
13.1x 13.1x
2.5 x
2.4x
2.3x
2.4x
2.2x
12.0x
2.1x
25 .0x
11.0x
2.1x
26 .2x
25 .8x
11.8x
2.3x
28.2x
2.0x
10.8x
24.2x
22.7x
22.1x
10.5 x
2.0x
20.4x 20.2x
20.0x
9 .0x
1.5 x
15 .0x
6 .0x
1.0x
10.0x
3.0x
0.5 x
0
5 .0x
2012A
2013A/ E
Average
2014E
2015 E
0
2012A
2013A/ E
Median
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 2014.
• The results of 2013 are actual (A) if the financial results are “closed” and expected (E) if the financial year is not closed yet.
The luxury and cosmetics financial factbook 2014
Average
2014E
Median
2015 E
0
2012A
2013A/ E
Average
2014E
Median
2015 E
DCF and valuation parameters
EY luxury and cosmetics sample:
summary of EV/sales multiples
Trading multiples
EV/sales (FY13A/E)
EV/sales (FY14E)
Hermè s
6.3x
Hermè s
Michael Kors
6.2x
Moncler
TUMI
3.3x
Swatch
Hengdeli
3.3x
Richemont
Swatch
3.3x
L' Oré al
3.1x
Tiffany
4.3x
Michael Kors
4.2x
Brunello Cucinelli
3.3x
Prada
3.0x
3.2x
Swatch
2.8x
L' Oré al
2.8x
2.9x
Richemont
2.7x
2.9x
Tiffany
3.0x
Tiffany
3.2x
Richemont
5.1x
Moncler
3.5x
Prada
3.7x
Prada
4.9x
3.7x
Brunello Cucinelli
4.2x
Hermè s
5.0x
Michael Kors
5.8x
Moncler
Brunello Cucinelli
EV/sales (FY15E)
5.6x
2.7x
TUMI
2.8x
Coach
2.5x
Average
3.0x
Hengdeli
2.8x
Salvatore Ferragamo
2.5x
Salvatore Ferragamo
3.0x
Salvatore Ferragamo
2.8x
Average
2.5x
L' Oré al
3.0x
Average
2.7x
Tod' s
2.5x
Luxottica
2.8x
Tod' s
2.7x
Luxottica
Tod' s
2.8x
Luxottica
2.6x
TUMI
2.5x
2.4x
2.4x
Hengdeli
Hugo Boss
2.7x
Coach
Burberry
2.7x
Hugo Boss
2.5x
Esté e Lauder
Esté e Lauder
2.6x
Esté e Lauder
2.5x
Hugo Boss
2.4x
Burberry
2.6x
2.3x
2.3x
2.2x
Coach
2.5x
Burberry
Natura
2.5x
LVMH
2.3x
Beiersdorf
2.1x
LVMH
2.5x
Natura
2.3x
LVMH
2.1x
Beiersdorf
2.3x
Natura
2.4x
Beiersdorf
2.3x
Kering
2.1x
L' Occitane
1.8x
Ralph Lauren
Chow Tai Fook
1.8x
Coty
1.7x
Coty
Industry benchmark
Low
Industry benchmark
1.7x
Coty
1.6x
1.5x
Ralph Lauren
1.4x
1.1x
Shiseido
0.9x
afilo
0.9x
2.5x
2.7x
High
L' Occitane
Chow Tai Fook
1.2x
afilo
3.0x
Low
1.7x
1.6x
Shiseido
1.1x
afilo
1.7x
Chow Tai Fook
1.2x
Shiseido
1.9x
L' Occitane
Ralph Lauren
2.1x
2.0x
Kering
2.1x
Kering
High
Low
Industry benchmark
High
Source: Data based on consensus of several brokers’ reports for each company.
Note: Market capitalization is based on a one-month average as of 31 March 2014.
The luxury and cosmetics financial factbook 2014
DCF and valuation
parameters
E
Page 27
Page 28
E
DCF and valuation parameters
EY luxury and cosmetics sample:
summary of EV/EBITDA multiples
Trading multiples
EV/EBITDA (FY13A/E)
EV/EBITDA (FY14E)
22.6x
Brunello Cucinelli
Brunello Cucinelli
19.3x
Michael Kors
15.5x
Moncler
13.2x
L' Oré al
13.1x
15.3x
Hengdeli
14.3x
15.4x
15.3x
Tumi
17.6x
Hermè s
Moncler
15.9x
Beiersdorf
Brunello Cucinelli
16.0x
Michael Kors
17.4x
Hermè s
20.3x
Hermè s
17.7x
Moncler
EV/EBITDA (FY15E)
L' Oré al
14.1x
Michael Kors
12.9x
Beiersdorf
14.0x
Beiersdorf
12.8x
Luxottica
12.9x
Esté e Lauder
11.7x
Esté e Lauder
12.9x
Luxottica
11.6x
Luxottica
14.3x
L' Oré al
14.3x
Tumi
12.5x
Salvatore Ferragamo
11.0x
Salvatore Ferragamo
14.3x
Hengdeli
12.5x
Tumi
10.8x
12.5x
Hengdeli
Esté e Lauder
14.0x
Chow Tai Fook
Salvatore Ferragamo
13.4x
Average
Average
13.2x
L' Occitane
13.1x
13.0x
Tiffany
11.8x
Shiseido
Chow Tai Fook
11.6x
Average
Tiffany
11.3x
Tiffany
10.8x
10.5x
10.5x
10.2x
Shiseido
11.0x
Chow Tai Fook
Richemont
11.8x
Prada
10.9x
Prada
9.7x
Hugo Boss
11.8x
Richemont
10.6x
Tod' s
9.6x
Shiseido
11.8x
Tod' s
10.6x
Richemont
9.6x
Prada
11.7x
L' Occitane
10.6x
Swatch
9.5x
10.0x
Tod' s
11.6x
Swatch
10.6x
Hugo Boss
9.5x
Coty
11.5x
Hugo Boss
10.6x
Coty
9.3x
Natura
11.0x
Natura
9.9x
L' Occitane
Kering
10.8x
Kering
9.9x
Natura
9.0x
8.9x
Swatch
10.6x
afilo
10.5x
Burberry
10.4x
LVMH
9.4x
Coach
Industry benchmark
Source: Data based on consensus of several brokers’ reports for each company.
Note: Market capitalization is based on a one-month average as of 31 March 2014.
The luxury and cosmetics financial factbook 2014
8.9x
Coach
9.2x
8.5x
LVMH
8.8x
8.4x
Ralph Lauren
8.3x
Ralph Lauren
7.2x
afilo
8.1x
afilo
7.0x
7.6x
High
Kering
Burberry
Coach
13.2x
Low
9.8x
9.6x
LVMH
10.1x
Ralph Lauren
Coty
Burberry
9.2x
10.5x
11.8x
Low
Industry benchmark
High
Low
Industry benchmark
High
DCF and valuation parameters
E
Page 29
Regression analysis: EV/sales multiple vs. EBITDA margin, 2014
and 2015 growth
Trading multiples
• Analysis shows strong correlation between EV/sales levels and profitability but limited
R
2
Moncler
5 .0x
2014 EV/ sales
6 .0x
Hermès
= 0.5 5 72
Michael Kors
4.0x
Brunello Cucinelli
Hugo Boss
Prada
Salvatore Ferragamo
Swatch
TU MI
Hengdeli
Tif f any
Esté e Lauder L’ Oré al
Tod’ s R ichemont
Coach
Beiersdorf
Luxottica
Burb erry
L’ Occitane
LVMH
Kerning
Chow Tai Fook
Natura
Coty R alph Lauren
Shiseido
3.0x
2.0x
1.0x
4.0x
Coach
5 %
10%
15 %
20%
25 %
30%
35 %
3.0x
2.0x
Coty
1.0x
Safilo
0%
R
2
Moncler
40%
( 4.0%)
R
2
Safilo
1.0%
6 .0x
Hermès
3.0x
Luxottica
Hengdeli
2.0x
1.0x
Shiseido
0%
5 %
10%
L’ Oré al
Esté e Lauder
Beiersdorf
Coty
Chow Tai Fook
Safilo
15 %
Michael Kors
Salvatore
Ferragamo
Tif f any
Swatch
Prada
Tod’ s
Coach
TU MI
LVMH
Kering
R ichemont
Burb
erry
Natura
R alph Lauren
Hugo Boss
20%
25 %
R
11.0%
16 .0%
21.0%
26 .0%
31.0%
30%
35 %
= 0.26 83
Hermès
Moncler
40%
Michael Kors
4.0x
Brunello Cucinelli
Prada
Tif f any
Swatch R ichemont
Tod’ s
Coach
Salvatore Ferragamo
Luxottica
Natura Burb erry Hengdeli
Esté e Lauder LVMH
Coty
Beiersdorf Kering Hugo Boss
L’ Occitane
R alph Lauren
Chow Tai Fook
Shiseido
Safilo
3.0x
2.0x
1.0x
2015 EBITDA margin ( %)
2
5 .0x
Moncler
2015 EV/ sales
2015 EV/ sales
5 .0x
Brunello
Cucinelli
6 .0%
2014 sales growth ( %)
= 0.5 802
4.0x
Michael Kors
Brunello Cucinelli
Prada Swatch
Tif f any Salvatore Ferragamo
R ichemont
L’ Oré al
Luxottica
Hengdeli
Tod’ s
TU MI
LVMH
Hugo Boss
Beiersdorf
Burb erry
Kering Natura
L’
Occitane
Esté e Lauder
R alph Lauren Chow Tai Fook
Shiseido
2014 EBITDA margin ( %)
6 .0x
Hermès
= 0.2201
5 .0x
2014 EV/ sales
6 .0x
DCF and valuation
parameters
correlation with growth.
0%
5 .0%
10.0%
15 .0%
TU MI
20.0%
25 .0%
2015 sales growth ( %)
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 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.
The luxury and cosmetics financial factbook 2014
Page 30
F
DCF and valuation parameters
Transaction multiples
Transaction multiples in the luxury industry remain at a
significant premium to many other sectors
• Transaction multiples illustrate the growing attractiveness of the industry over the past few years.
• They also reflect a premium to rarity: indeed, the brands reputed to be “on the market” are very few, and
the buyers recognize this and agree to pay a higher price to ensure the priority of the deal.
• The average sales multiple over the last five years ranged between 0.5x and 1.7x, when the EBITDA
multiple ranged between 6.6x and 15.3x.
EV/sales (FY09-1H14)
EV/EBITDA (FY09-1H14)
2.0x
18.0x
1.7x
1.8x
16 .0x
15 .3x
1.6 x 1.6 x
1.6 x
1.5 x
1.4x
14.0x
1.2x
1.2x
12.3x
1.3x
1.3x
1.2x
1.1x
12.0x
12.0x
11.8x
11.2x
10.7x
1.1x
9 .9 x
10.0x
10.4x
1.0x
8.0x
7.5 x
0.8x
6 .6 x
6 .0x
0.6 x
0.5 x 0.5 x
2.0x
0.2x
2009
2010
2011
Average
Source: Capital IQ
The luxury and cosmetics financial factbook 2014
4.8x
4.0x
0.4x
0.0x
5 .2x
2012
Median
2013
1H14
0.0x
2009
2010
2011
Average
2012
Median
2013
1H14
DCF and valuation parameters
Transaction multiples
The M&A deals in the cosmetics industry show similar trend as
the luxury industry
• The average sales multiple over the last five years ranged between 1.0x and 2.4x, when the EBITDA
multiple 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 specific transactions, we note that valuations
were positively impacted by strategic acquisitions carried out by the major players to foster growth in
emerging 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.
EV/sales (FY09-1H14)
EV/EBITDA (FY09-1H14)
20.0x
3.0x
18.0x
2.4x
2.5 x
16 .0x
16 .0x
14.0x
2.0x
2.0x
1.7x
14.9 x
1.9 x
1.8x
1.7x
1.7x
1.8x
11.7x
12.0x
10.7x
1.6 x
1.5 x
10.0x
1.1x
8.0x
1.0x
0.9 x
1.0x
9 .1x
6 .9 x
10.2x
10.0x10.1x 10.1x
8.8x
6 .5 x
6 .0x
4.0x
0.5 x
2.0x
0.0x
2009
2010
2011
Average
2012
Median
2013
1H14
0.0x
2009
2010
2011
Average
2012
2013
1H14
Median
Source: Capital IQ
The luxury and cosmetics financial factbook 2014
DCF and valuation
parameters
F
Page 31
“2014 sales outlook still solid: Looking at
luxury’s core Chinese consumer, as well
as Korea, Japan, the US and even parts of
Europe, there are still reasons to believe
2014 should be at least as strong as 2013
in terms of organic sales growth for the
sector. We believe the outlook for the
industry sounds optimistic.”
“Global luxury goods,” HSBC research, March 2014
Industry overview
LUXURY AND COSMETICS THE EY FINANCIAL FACTBOOK 2014
“Purchase intent for the next 12 months is
rising across most categories we surveyed
and across all key emerging markets (except
for mixed trends in Brazil). Around 50% of
consumers we surveyed plan to purchase
Western brands over the next 12 months,
with sporting goods standing out.”
“Global luxury goods,” Credit Suisse, February 2014
Global luxury goods market
B
Global cosmetic goods market
Industry overview
A
LUXURY AND COSMETICS THE EY FINANCIAL FACTBOOK 2014
Page 34
Worldwide growth in the personal luxury goods market falls to
lower single digits after three years of strong double-digit growth
Global luxury goods market
Worldwide personal luxury goods market trend1
13.1%
11.0%
25 0
200
8.1%
8.2%
6 .9 %
€ b illion
15 0
100
147
16 7
15 9
173
15 3
19 2
15 %
CAGR :
+ 4- 6 %
10.4%
212
30%
217
245 - 25 5
20%
2.4%
5 0
0%
- 1.8%
10%
0%
- 10%
-5 0
-5 %
- 20%
- 100
- 15 0
10%
5 %
170
0
40%
Growth ( %)
300
Luxury goods demand growth by nationality (2009-15E)2
%
A
DCF and valuation
Industry
parameters
overview
- 8.4%
2005
2006
2007
2008
2009
Mark et size
2010
2011
2012
2013e
2016 e
- 10%
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.
The luxury and cosmetics financial factbook 2014
- 30%
2009
Chinese
2010
2011
North American
2012
European
2013e
2014e
J apanese
2015 e
Other
DCF
Industry
and overview
valuation parameters
Page 35
Industry overview
Global luxury goods market
The worldwide personal
luxury goods market is
estimated to have grown
2.4%
by
in 2013.
However, at constant
exchange rates, the
market with 6.0% growth
has outpaced the real
growth of 5.0% recorded
in 2012.
The industry experienced
the majority of its
demand coming from
younger premium
customers, emerging
economies and a reviving
US luxury market.
Retail is still an important
growth driver, mainly
fueled by network
expansion through the
opening of ~600 new
directly operated stores.
The organic growth
decelerated as more
focus was placed on
in-store renovations in
key markets versus new
store openings.
In 2013, the US
experienced a revival in
demand and the
European
consumer
demand is
expected
to stabilize
following expectations
of an improving
economic
environment and
recovery in most
European countries
with the exception of
Italy and France.
The online luxury goods
market continued its
successful run, with its
share of online
penetration increasing to
4.5% in 2013 from
3.6% recorded in the
previous year. The
brands are increasingly
leveraging the channel
for both sales and
communication.
(+7%)
Americas
surpassed Asia
(+5%) as luxury’s
main growth engine, with
positive trends expected
to continue in 2014.
Demand from Chinese
consumers is expected to
trend downward due to
ongoing austerity
measures, which seem to
have curbed luxury
spending by
10%–15%.
The fluctuations in the
euro
penalized the
market performance,
yen
with Japanese
contributing over half of
the differential between
real and nominal growth.
The luxury and cosmetics financial factbook 2014
Page 36
DCF and valuation
Industry
parameters
overview
A
Luxury goods market growth by geography
Global luxury goods market
“US: Strong consumer confidence among the affluent 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 to
consumers’ reactions to luxury prices increasing in response to the FX move and the increase in VAT.”
“Luxury goods,” Deutsche Bank, April 2014
Y ear- on- year growth
Luxury goods market growth by geography1
(constant exchange rates)
14%
12%
10%
8%
6 %
4%
2%
0%
- 2%
12%
10%
1
10%
• 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 benefiting local consumption.
9 %
7%
3%
4%
5 %
5 %
5 %
3%
Europe
Americas
2012A
- 1%
J apan
2013E
4%
3%
4%
Asia-Pacific R est of the world
2014F
Real GDP growth by selected market (2012-15E)2
(In %)
FY12A FY13E FY14E FY15E
Global
2.6
2.5
3.0
3.5
US
2.8
1.9
2.4
3.0
(0.6)
(0.4)
1.1
1.5
1.4
1.5
1.4
1.3
Eurozone
Japan
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
Key currency fluctuations impacting luxury purchasing patterns
• 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 inflation,
reducing purchases in Europe and Singapore and, to a lesser extent, the US.
2
Digital sales driving growth
• 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%)
BRIC
economies
• M-commerce currently represents one-third of traffic and over 10% of sales for some brands.
*Central and Eastern Europe
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.
The luxury and cosmetics financial factbook 2014
Industry
DCF
and overview
valuation parameters
China becoming a mature market with consolidating growth rates
Global luxury goods market
Mainland Chinese personal luxury
goods markets (2011-2014F)1
Top three global personal luxury goods
markets (2013E)1
Second position glob ally af ter
including Hong Kong
16
14
15 - 16
15 .3
15 .0
70
5 0
€ b illion
10
8
6
40
30
23.0
17.2
20
4
2
10
0
0
2011
2012
2013E
2014F
U S
Mainland China
and Hong Kong
J apan
Share of urban households in China2
100%
80%
16
29
20%
0%
5 4
14
3
2012
Affluent
Mass middle class
• Primary drivers of growth include a sustained domestic market, improved
performance 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.
2
Chinese consumers confirm dominance as top global customer
• In 2013, Chinese consumers accounted for about 29% of global luxury sales and
are heading to become nearly one-third of the luxury market.
5 4
• The Chinese middle class is evolving, with more higher-income households, which
is favorable for luxury spending.
9
2022E
Upper middle class
• The Chinese market is expected to maintain low-single-digit growth in 2014, with a
corruption crackdown still reducing sales, especially impacting gifting.
22
6 0%
40%
Sluggish growth in Greater China
• Significant price differential vs. abroad is driving purchases overseas, with luxury
retail expanding at slower pace.
6 0
12.5
12
€ b illion
6 2.5
1
Poor
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.
• 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.
The luxury and cosmetics financial factbook 2014
Industry overview
A
Page 37
Page 38
A
DCF and valuation
Industry
parameters
overview
Accessories continues to lead the pack amid polarization of
consumption across categories
Global luxury goods market
Global personal luxury goods market
by product type (2013E)1
4%
Accessories
20%
28%
Apparel
Hard luxury
Beauty
23%
25 %
Other
Growth rates of global personal luxury
goods market by product type1
Other
Hard luxury
2%
Beauty
2%
Apparel
Accessories
0%
Sources: Bain & Company and other selected research
3%
0%
• Women’s RTW witnessed down trading in mature markets, with more impact from
the competition from premium brands and apparel retailers.
13%
8%
• The high-end segment has shown super-performance in all its different shades,
including made-to-measure and sartorial, absolute luxury and first lines.
16 %
4%
5 %
10%
2012
15 %
20%
2013
Note: 1) “Worldwide Markets Monitor,” October 2013, and “Worldwide Luxury Markets Monitor,” Spring 2014, Bain & Company and
Fondazione Altagamma.
1
Apparel: high-end segment outperforming
• Men’s ready-to-wear (RTW) is outperforming women’s in most markets, except for
formalwear in Mainland China.
4%
1%
2
Accessories: resilient growth
• Brands are increasingly investing in the segment by opening dedicated stores.
• The online penetration is in line with the overall average of the sector.
3
Hard luxury: strong polarization
• Leather goods have been growing consistently over the years, with the men’s
segment recording double-digit growth.
• Strong polarization is observed as both high-end jewelry and affordable grow
significantly.
• Top players are investing in leather suppliers and animal farms as last year witnessed
the strongest focus on “ultimate luxury,” with precious skins ruling.
• 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.
• 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.
The luxury and cosmetics financial factbook 2014
• 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.
Page 39
Industry overview
Industry
DCF
and overview
valuation parameters
The luxury and cosmetics financial factbook 2014
Page 40
B
DCF and valuation
Industry
parameters
overview
Worldwide cosmetics market is solid, dynamic and fast-moving
Global cosmetic goods market
Global cosmetics industry market growth, YOY (2004-13)1
200
Global cosmetics market segmentation by products
and geographies (2013)1
6 .0%
4.9 %
5 .0%
4.2%
15 0
3.4%
4.6 %
1%
4.6 %
Sk in care
5 .0%
11%
3.8%
3.8%
Hair care
34%
13%
4.0%
Mak eup
3.0%
%
Fragrances
100
17%
Hygiene products
24%
€
b illion
2.9 %
Oral cosmetics
2.0%
1.0%
5 0
3%
1.0%
123
0
2004
127
2005
134
2006
141
145
2007
2008
Cosmetics mark et
147
2009
15 3
16 1
16 8
175
2010
2011
2012
2013
Asia- Pacific
8%
0.0%
Western Europe
33%
13%
Growth %
North America
Latin America
21%
22%
Eastern Europe
Af rica, Middle East
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 fluctuations.
The luxury and cosmetics financial factbook 2014
Industry
DCF and overview
valuation parameters
Page 41
Industry overview
Global cosmetic goods market
The global cosmetics
market grew by an
3.8%
estimated
during 2013, which
was slightly lower than
the historical average
over the past 15 years
estimated at
approximately 4.1%.
The combined effects of
population,
urbanization, progress
in infrastructure and
growth in world GDP will
continue to drive the
market.
The population with
access to modern
cosmetics could grow by
50% over the next 20
years, boosted by the
rapid rise of the urban
middle class in the new
markets.
The consumer behavior
has not changed since
the
market has
continued
to expand
steadily.
the crisis, and
The beauty market is set
to double in size in the
next 10 to 15 years, and
all the world’s regions
will grow, with China, the
The top trio of countries
US, Brazil, India and
and
Japan expected to
(new markets) become the top markets.
China
Brazil
and the US
(a mature market) —
contributed almost
half the
growth of the
worldwide cosmetics
market in 2013.
By 2020, it is estimated
that more than half of
consumers will be
located in tropical zones
with hot, humid climates,
and some 60% of the
world’s population will
live in major urban
centers affected by
pollution. These trends
will further boost the
demand for
quality
cosmetic
products.
Glossary
Contact us
The luxury and cosmetics financial factbook 2014
Page 42
DCF and valuation
Industry
parameters
overview
B
Global cosmetic goods market
1
Resilient demand
Cosmetics industry remained resilient even in a difficult
economic period
• 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.
3
Widespread growth
• 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-Pacific 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.
2
Dermocosmetics: huge potential
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.
• Digital media has emerged as a crucial dimension for the brands, with beauty
product consumers constantly looking for tips and recommendations.
• Traditionally strong in Western Europe, the segment is witnessing its development
accelerate in North America and the new markets
• The internet is increasingly integrated into the buying process in a multi channel
context with rise of digital media and social networks.
• The dynamism stems from the strong consumer appeal of products combining
efficacy and safety with good value.
• With consumer opinions just a click away, they influence final choices both online
and in the store.
• The distribution channels that earlier included traditional pharmacy and
“parapharmacies” channels have now expanded to drugstores, dermacenters in
department stores and medi-spas.
• 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.
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 fluctuations.
The luxury and cosmetics financial factbook 2014
Page 43
Industry overview
DCF
Industry
and overview
valuation parameters
The luxury and cosmetics financial factbook 2014
“The longer-term outlook also remains positive
as the world population with access to
cosmetics in emerging markets is estimated
to increase by 50%.”
Paul Wood
Partner, Advisory
Methodology
SOTP analyses
Focus on Moncler, Coty, Tumi, Chow
Tai Fook and Hengdeli
DCF AND VALUATION PARAMETERS
Sample selection
EXECUTIVE SUMMARY
Approach
Methodology
INDUSTRY OVERVIEW
SAMPLE SELECTION
AND SPECIFIC ANALYSES
Glossary
GLOSSARY
Contact
us
EY
EXPERTS
LUXURY AND COSMETICS THE EY FINANCIAL FACTBOOK 2014
Page 46
Methodology
Approach
There are many criteria to analyze the operating and financial performances of listed companies.
The aim of this survey is not to conduct a detailed analysis of the selected companies.
The approach implemented in this fourth edition of the The luxury and cosmetics financial factbook essentially
relies on three types of information:
• Several standard valuation parameters and operating aggregates
• Industry characteristics (in terms of growth forecasts and drivers)
• An overview of 28 major actors of the industry
Even though this data is important and essential to the analysis, it must be stressed that other criteria or
parameters could also have been analyzed.
The entirety of the data utilized in this factbook is publicly
disclosed information. The Transaction Advisory Services
teams of EY who participated in drafting this document have
not had access to any confidential 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 that the information provided in this study is
based on the latest available financial statements of each
company as at 31 March 2014. Market data has been
considered as of 31 March 2014, unless stated otherwise or
apart from subsequent pieces of information included in this
survey. Any modification of the analyzed groups’ financial
performances or any evolution of the financial markets that
occurred since 31 March 2014 could lead to partially or
completely different conclusions.
Please note that we have presented the actual 2013 figures
for the companies, which have already released their 2013
annual results as of 31 March 2014.
The luxury and cosmetics financial factbook 2014
SOTP analyses
For the companies that have diversified activities (LVMH,
Kering, L’Oréal), we performed sum-of-the-parts analyses to
isolate the pure luxury segment and to better understand its
characteristics, as well as its contribution to the companies’
performance.
This analysis was not possible for Swatch, Beiersdorf and
Shiseido as no accurate data was available.
Methodology
Page 47
Sample selection
The sample analyzed is composed of 28 listed companies from the luxury and cosmetics
industry, of which 21 were mostly in the luxury business and 7 were in the cosmetics
segment.
To select these companies we proceeded as follows:
• We firstly identified “pure players” of the luxury sector: Brunello Cucinelli S.p.A.
Please note that the sample has been adjusted in this fourth edition. Actually five
companies were added: Moncler and Coty have recently been listed, respectively, on
the Milan Stock Exchange and on the New York Stock Exchange. Tumi, Chow Tai Fook
and Hengdeli were included in the sample as they are also considered as the key players
in the luxury industry.
(Cucinelli), Burberry Group plc (Burberry), Coach Inc. (Coach), Chow Tai Fook Jewellery
Group Ltd (Chow Tai Fook), Hengdeli Holdings Limited (Hengdeli), Hermès International
S.C.A. (Hermès), Hugo Boss AG (Hugo Boss), Kering SA (Kering), LVMH Moet Hennessy
Louis Vuitton S.A. (LVMH), Michael Kors Holdings Ltd (Michael Kors), Moncler S.p.A.
(Moncler), Prada S.p.A. (Prada), Polo Ralph Lauren Corp. (Ralph Lauren), Compagnie
Financière Richemont S.A. (Richemont), Salvatore Ferragamo S.p.A. (Salvatore
Ferragamo), Swatch Group AG (Swatch), Tiffany & Co. (Tiffany), Tod’s S.p.A. (Tod’s) ,
and Tumi Holdings Inc. (Tumi).
• We completed this first list with other players in cosmetics: Beiersdorf AG (Beiersdorf),
Methodology
Coty Inc (Coty), Estée Lauder Companies Inc. (Estée Lauder), L’Occitane International
S.A. (L’Occitane), L’Oréal S.A. (L’Oréal), and Shiseido Co. Ltd (Shiseido).
• We also added companies that are in direct relation with luxury companies, such as
Luxottica Group S.p.A. (Luxottica) and Safilo Group S.p.A. (Safilo).
• Finally we decided to include an actor, not part of the luxury environment, but acting
as the largest cosmetics company from the emerging markets, Natura Cosméticos S.A.
(Natura), to enlarge the geographical coverage.
The luxury and cosmetics financial factbook 2014
Page 48
Focus on Moncler, Coty, Tumi, Chow
Tai Fook and Hengdeli
Methodology
Moncler: overview
We included Moncler in the sample as it was
listed on the Milan Stock Exchange on
16 December 2013.
Key facts:
Share trading pattern (post-listing)
• Founded in 1952, Moncler SpA designs and distributes
upscale clothing and accessories for men, women and
children.
120
• It is the reference brand in its core product category, the
down jacket.
105
• It has evolved from a mostly functional, wholesaleoriented brand into a highly aspirational brand with a
much greater focus on retail distribution.
115
110
100
9 5
9 0
85
80
IPO details:
• Total offered shares: 76.8m, all secondary shares
including 10.02m shares under greenshoe option.
Dec- 13
J an- 14
Feb - 14
Moncler S.p.A.
Mar- 14
FTSE MIB INDEX
Source: Capital IQ
Note: Moncler IPO date = 100
• Initial price range: €8.75–€10.2
• Final offer price: €10.2
• The IPO was oversubscribed 31 times, with value
of institutional investors’ orders exceeding €20b.
• It gave a staggering return of 46.8% on the
listing date.
FY13A
Sales
489
581
677
783
17.0%
EBITDA
162
192
220
258
16.9%
33.0%
33.0%
32.6%
32.9%
n.m
146
173
196
229
16.3%
29.8%
29.7%
29.0%
29.3%
n.m
82
96
117
144
20.5%
5.4%
229
5.8%
178
4.7%
102
5.0%
26
n.m
-51.8%
EBITDA margin
EBIT
EBIT margin
Net profit
Capex ratio
Net debt
Source: Capital IQ
Note: Financial figures are at 31 December. n.m = not meaningful
The luxury and cosmetics financial factbook 2014
FY14E
FY15E
FY12A–FY15E
CAGR
FY12A
Key financials (in €m)
Methodology
Focus on Moncler, Coty, Tumi, Chow
Tai Fook and Hengdeli
Page 49
Coty: overview
We included Coty in the sample as it was
listed on the New York Stock Exchange on
13 June 2013.
Key facts:
Share trading pattern (post-listing)
• Founded in 1904, Coty is a pure-play beauty company
that offers products in fragrances, color cosmetics
and skin and body care categories.
110
120
• The company has a portfolio of well-known brands,
which include Calvin Klein, Davidoff, Marc Jacobs,
Chloé, Playboy, Balenciaga, Beyoncé, Bottega Veneta,
Guess and others.
100
• The company distributes its products through multiple
channels, including department stores, specialty
retailers, traditional food, drug and mass retailers,
salons and e-commerce.
80
IPO details:
• Total offered shares: 65.7m, all secondary shares,
including 8.6m additional shares upon exercise of
underwriter’s option (out of which 93% — or 8.0m —
were exercised in the end)
• Final offer price: US$17.50
• The stock had a muted listing and closed below offer
price at US$17.36 on first day of trading
70
J un- 2013
J ul- 2013
Sep- 2013
Coty Inc.
Oct- 2013
Dec- 2013
NY SE Composite Index
J an- 2014
Mar- 2014
S& P 5 00 Index
Source: Capital IQ
Note: Coty IPO date = 100
Key financials (in €m)
Sales
EBITDA
EBITDA margin
FY12A
FY13A
FY14E
FY15E
FY12A–FY15E
CAGR
3,347
460
13.7%
3,374
490
14.5%
3,335
577
17.3%
3,446
610
17.7%
1.0%
9.9%
n.m
n.m
EBIT
-137
300
386
418
EBIT margin
-4.1%
8.9%
11.6%
12.1%
n.m
Net profit
-235
122
214
237
n.m
Capex ratio
Net debt
3.8%
3.6%
5.1%
4.0%
n.m
1,522
1,416
1,104
944
-14.7%
Source: Capital IQ
Note: Financial figures are at 30 June. n.m = not meaningful
The luxury and cosmetics financial factbook 2014
Methodology
9 0
Page 50
Focus on Moncler, Coty, Tumi, Chow
Tai Fook and Hengdeli
Methodology
Tumi: overview
We included Tumi in the sample as it has
emerged as a key player in the luxury industry.
Key facts:
• Founded in 1975, Tumi Holdings, Inc. designs, produces
and markets travel and business product accessories in
multiple categories.
Share trading pattern (since January 2013)
130
120
• Tumi distributes products globally in over 75 countries
through approximately 1,900 points of distribution.
110
• The company utilizes multiple channels including retail,
wholesale and e-commerce.
100
Segment information:
• The company generates 67% of its revenue from the
North American market.
• The company’s retail segment representing owned
stores in US and Europe contributes 50% of 2013 sales,
with balance coming from wholesale customers, which
includes specialty luggage retailers, prestige
department stores and business-to-business channels.
9 0
J an- 13
Feb - 13
Mar- 13
Source: Capital IQ
Note: 1 January 2013 = 100
Apr- 13
May- 13
J un- 13
Tumi Holdings, Inc.
Aug- 13
Sep- 13
Oct- 13
NY SE Composite Index
Nov- 13
Dec- 13
J an- 14
Feb - 14
FY12A–FY15E
CAGR
FY12A
FY13A
FY14E
FY15E
Sales
EBITDA
EBITDA margin
EBIT
EBIT margin
289
60
20.9%
52
18.0%
339
73
21.5%
63
18.5%
394
89
22.6%
78
19.7%
458
103
22.6%
92
20.2%
16.6%
19.6%
n.m
21.1%
n.m
29.3%
Net profit
Net debt
27
40
48
58
5.2%
5.3%
5.2%
4.2%
n.m
6
-21
-56
-99
n.m
Source: Capital IQ
Note: Financial figures are at 31 December. n.m = not meaningful
Mar- 14
S& P 5 00 Index
Key financials (in €m)
Capex ratio
The luxury and cosmetics financial factbook 2014
J ul- 13
Methodology
Focus on Moncler, Coty, Tumi, Chow
Tai Fook and Hengdeli
Page 51
Chow Tai Fook: overview
We included Chow Tai Fook in the sample as
it has emerged as a key player in the luxury
industry.
• Founded in 1929, Chow Tai Fook is a jeweler with an
extensive retail network, with over 2077 points of sale in
more than 470 cities in Greater China, Singapore and
Malaysia and has a growing presence in e-commerce.
• Its principal products are mass luxury jewelry and
high-end luxury jewelry products including gem-set
jewelry, gold products and platinum and karat gold
products, and watches.
Share trading pattern (since January 2013)
115
100
85
70
Segment information:
5 5
• The group’s vertically integrated business model gives it
an effective and tight control over the entire operation
chain: raw material procurement, design, production,
and marketing and sales.
Source: Capital IQ
Note: 1 January 2013 = 100
• Mainland China market constitutes approximately half of
company’s revenues, with remaining half generated in
Hong Kong, Macau and other Asian markets.
J an- 13
Feb - 13
Mar- 13
May- 13
J ul- 13
Aug- 13
Chow Tai Fook J ewellery Group Ltd.
Key financials (in €m)
Sales
EBITDA
EBITDA margin
EBIT
EBIT margin
Net profit
Capex ratio
Net debt
Sep- 13
Nov- 13
Dec- 13
Feb - 14
Mar- 14
Hang Seng Index
FY14E
FY15E
FY12A–FY15E
CAGR
FY12A
FY13A
5,374
7,094
7,924
9,029
18.9%
712
939
1,088
1,262
21.0%
13.2%
13.2%
13.7%
14.0%
n.m
21.6%
664
885
1,027
1,194
12.4%
12.5%
13.0%
13.2%
n.m
515
681
788
915
21.1%
2.0%
-207
1.5%
-381
1.1%
-517
0.9%
-560
n.m
n.m
Source: Capital IQ
Note: Financial figures are at 31 March n.m = not meaningful
The luxury and cosmetics financial factbook 2014
Methodology
Key facts:
Page 52
Focus on Moncler, Coty, Tumi, Chow
Tai Fook and Hengdeli
Methodology
Hengdeli: overview
We included Hengdeli Holdings in the sample
as it has emerged as a key player in the luxury
industry.
Key facts:
Share trading pattern (post-listing)
• Founded in 1957, Hengdeli is engaged in the retail,
distribution and wholesale of international brand
watches in Mainland China and Hong Kong.
120
• The company has 470 retails outlets, selling watches
from more than 50 internationally renowned brands as
well as middle- to high-end and accessories.
• The group has business relationships with the suppliers
of the world’s premier brands, such as Swatch Group,
LVMH Group, Richemont Group, Rolex Group and Kering
Group.
Segment information:
• Retail segment contributed approximately 60% to the
company’s revenues in 2013.
• Wholesale segment, which distributes numerous
world renowned brand watches, contributed about
35% in 2013.
• Remaining revenue is attributable to watch repairing and
maintenance business, a packaging and decoration
business, a watch case manufacturing business, a hotel
business and a property management business.
110
100
9 0
80
70
6 0
5 0
J an- 13
Feb - 13
Mar- 13
Apr- 13
May- 13
J ul- 13
Aug- 13
Hengdeli Holdings Limited
Sep- 13
Oct- 13
Nov- 13
Dec- 13
J an- 14
Feb - 14
Mar- 14
Hang Seng Index
Source: Capital IQ
Note: 1 January 2013 = 100
Key financials (in €m)
Sales
EBITDA
EBITDA margin
EBIT
EBIT margin
FY12A
FY13A
FY14E
FY15E
FY12A–FY15E
CAGR
1,415
1,561
1,743
1,927
10.8%
178
125
167
188
1.9%
12.6%
8.0%
9.6%
9.8%
n.m
164
109
152
172
1.6%
11.6%
7.0%
8.7%
8.9%
n.m
Net profit
100
47
87
99
-0.2%
Capex ratio
Net debt
3.7%
153
0.9%
206
1.4%
-145
1.2%
-140
n.m
n.m
Source: Capital IQ
Note: Financial figures are at 31 December n.m = not meaningful
The luxury and cosmetics financial factbook 2014
J un- 13
Page 53
Methodology
Methodology
The luxury and cosmetics financial factbook 2014
Page 54
Glossary
Glossary
CAGR: Compound annual growth rate
Capex: Capital expenditure
DCF: Discounted cash flow
EBIT: Earnings before interest and taxes
EBITDA: Earnings before interest, taxes,
depreciation and amortization
EV: Enterprise value
FX: Foreign exchange
FY: Financial year
GDP: Gross domestic product
LTGR: Long-term growth rate
M&A: Mergers and acquisitions
M-commerce: Mobile commerce
NWC: Net working capital
RTW: Ready-to-wear
SOTP: Sum-of-the-parts
WACC: Weighted average cost of capital
YOY: Year-on-year
The luxury and cosmetics financial factbook 2014
Contact us
Page 55
Contact us
Daniel Kaplan
Partner, Advisory — New York
NYC and Americas Coordinator
[email protected]
+1 212 773 7910
Paul Wood
Partner, Advisory — Paris
EMEIA and Global Coordinator
[email protected]
+33 1 4693 7722
Laurent Bludzien
Partner — Switzerland
[email protected]
+41 58 286 5677
Andrea Guerzoni
Partner, Transaction Support — Milan
EMEIA TAS Leader
[email protected]
+39 02 8066 9707
Hitoshi Sasaki
Consumer Products Leader — Japan
[email protected]
+81 3 3503 1701
Steve Auyeung
Advisory — China
[email protected]
+ 86 21 2228 8888
Flavie Lacault
Global Coordinator — Milan
[email protected]
+39 02 8066 9677
Michael Hasbani
Partner, Advisory — Dubai
[email protected]
+971 4 701 0100
The luxury and cosmetics financial factbook 2014
Contact us in
Roberto Bonacina
Director, Lead Advisory — Milan
[email protected]
+39 02 8066 9762
Production outsourcing
Wholesale market
Emerging geographies
Brand perceptions
Digital sales
Controlled distribution
Future of Chinese market
Working capital analyses
Consumer behaviour
Globalisation
Evolution of luxury
Dermocosmetics
Advertising expenses
European demand stabilizing
SOTP and segment analyses
Transaction multiples
New market segments
Currency fluctuations
Luxury
Focus on efficiency
Mixed and expanded offerings
Emergence of new luxury markets
Positive outlook
Wealth-creation opportunities
Evolution in attitudes
Premium pricing
European demand stabilizing
Urban middle class
Challenging growth
Premium customers
Longer term urbanization
Strong identity
Culture convergence
Uniqueness and exclusivity
Younger male customers
Infrastructure
Financial factbook
Accelerate your digital presence
Trading multiples
Sluggish growth in Greater China
Operating aggregates
Uniqueness and exclusivity
Cosmetics
Financial parameters
Urbanization
Cosmetics in emerging markets
Market dynamics
Revival in US
Lifestyle
Brand management
Experiential marketing
Sluggish growth in Greater China
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