cfa institute research challenge · moncler,fashion luxury we initiate our coverage on moncler spa...

Moncler SpA February, 2018

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CFA Institute Research Challenge

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THE SURVIVORS


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MONCLER SpA

2016E 2017E 2018E 2019E 2020E 2021E 2022E

Sales 1,040.3 1,223.66 1,411.84 1,591.99 1,792.15 1,921.39 2,042.79

EBITDA 355.05 436.98 514.88 600.40 706.91 762.32 817.40

Margin % 34.13% 35.71% 36.47% 37.71% 39.45% 39.68% 40.01%

EBIT 297.68 379.08 453.25 533.43 634.96 687.68 739.46

Margin % 28.61% 30.98% 32.10% 33.51% 35.43% 35.79% 36.20%

Net Income 196.04 277.30 319.05 375.37 434.41 470.54 506.49

Margin % 18.84% 22.66% 22.60% 23.58% 24.24% 24.49% 24.79%

EPS 0.64 0.92 1.07 1.29 1.51 1.65 1.78

P/E 16.53 26.08 28.08 24.69 22.01 21.14 20.41

Net Debt -102.77 -195.13 -302.77 -401.68 -497.35 -576.10 -661.19

CFA Institute Research Challenge Italy | Luxury | Outerwear

Initiation of Coverage 21 ׀st February 2018

HOLD Price: €28.08 Target Price: €30.36 Upside: 9.05% - €33.27 Listed on: Italian Stock Exchange Ticker: BIT: MONC Market Data

Main Shareholders

Ruffini Partecipazioni S.r.l (Italy) 26.3%

ECIP M S.A (France) 5.3%

Treasury Shares 0.8%

Market 67.6%

Shares outstanding (m) 253.7

Market Cap (mln) 7.12

Stock Data

52-week range €17.48 - €28.25

Average daily volume 958,804 mln

Key Financials

18E 19E 20E

EPS 1.08 1.29 1.52

Div. Yield 0.0% 0.0% 0.0%

P/E 28.08 24.69 22.01

ROE 0.34 0.35 0.36

ROCE 0.41 0.44 0.48

Moncler,Fashion Luxury We initiate our coverage on Moncler SpA with a HOLD recommendation, assessing a €30.36 target price by the end of 2018, based on three-stage DCF model calculation approach and a three WACC discounter by region to avoid overestimation due to not fitting global risk premium.

Projections We based our revenues forecasts principally on a deep analysis of the distribution channel mix with a distinction between the retail network (concerning stores that are directly managed by the Group like free-standing stores, concessions and outlets), the wholesale network (including stores managed by third parties that sell Moncler products either in single-brand spaces like shop-in-shop or inside multi-brand stores) and the online (composed by the “digital flagship” moncler.com such as new mobile-oriented platforms). Great performance Moncler’s revenues accelerated in growth over the last 10 years ( 2007– 2016), with a CAGR of 21.45% driven by the company’s retail expansion policy. More precisely, retail revenues had a CAGR or 33.9% in the last 7 years. Overall, the company had a stable and positive growth, as can be seen from the cash flows analysis: the Free Cash Flow grew copiously, especially from 2013 to 2016, which suggests that Moncler has been generating a lot of cash. Moreover, the Free Cash Flow Yield has been increasing steadily over the last years, making Moncler’s shares increasingly attractive to investors, as had the Free Cash Flow per Share, suggesting good earnings per share, and an increase of the FCF per Share for the future. FCFF and FCFE are both positive over the years which underlines that the company is able to sustain its dividend policy and meet its future obligations.

Financial highlights Our assessment on Moncler business lead to a promising growth on revenues even in the future, even though tending to stabilize within three years due to saturation on retail channel expansion. Estimated COMP growth represents a 6% CAGR 2018-22 reflecting revenues generated by existing store for a minimum of 12 months, to which must be added the mark-up on revenues deriving from ne openings and the new Genius project expected to have positive returns on Company image and heritage (11.94% CAGR 2018-22 of total revenues growth).


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We start our initial coverage with a recommendation to HOLD with a target price of €30.36 by the end of 2018 providing shareholders a : net profit. i) We expect that the luxury market will display a steady growth (5% CAGR 2017E-2020 [Source: Bain&Co., 2017] ) across geographies with China top performer ii) We expect EBIT performances to grow at a 9,5% CAGR (2018-2021), with persistent expansion of the retail distribution channel with a 5,9% CAGR in 2018-2021, with an average of 12new DOSs per year in the same period. iii) Enlargement of product gammas: we expect revenues dependences on winter outerwear products to decrease with a following reduction of seasonal revenues in Q2 and Q3. iv) development of the online strategy and indirect revenues generated from the “Genius Project”. Since 2003, with the acquisition of the Brand by Remo Ruffini, the current Chairman and CEO of the company, the so called “Global Down Jacket Strategy” has been implemented. Moncler has been able to build a strong organic growth with a +25% 2003-2016 revenues CAGR. A strong development of the retail sector, a worldwide market penetration, the introduction of Haute Couture lines and huge investment in R&D and sustainability have made possible a repositioning of the brand, that has become a global luxury player. The management was able to innovate and create a new product with a different target of consumers, remaining faithful to the original heritage and sportive attitude of Moncler. The main steps taken by the management in order to boost organic growth has been: i) a strong development of retail sector with a no off-price pricing policy ii) a selective expansion of complementary products iii) development of new markets such as Asia and Americas. The main strength of the company is the capability to follow and adapt to the market trends: in 2018 a new project called Moncler Genius will be implemented in order to target the new share of millennials clients. Moncler is a relative small player if compared to other established brands in the luxury segment. Its products uniqueness put the company into a singular position in which there are not companies that perfectly match products offering neither in style nor in price. Competitive pressures come principally from the internal rivalry and the chance of having substitutive products: outerwear is the historical reference market for Moncler .The distribution strategies in the competitive arena are polarized into two main choices: generally big and positioned players tend to participate directly the market with strategic an local shops (DOSs); to unbalance seasonality coming from some products and to test marketability of new models, companies display also of a wholesale distribution channel that accounts for almost one third of total revenues, depending on the company. Low rank competitors tend to show a less developed retail channel and organize the distribution on a international chain of third part retailers. In last year is taking even more space in the aggregate revenues an online distribution channel that for Moncler is fairly less developed compared to other competitors. Through a continuous process of customer engagement, a growing culture for retail, the strong heritage and brand communication the company has always maintained a great performance with margins that have always been above the segment average. We based our company valuation on a three-stage DCF model considering at the same time the shot (2018-22), medium (2022-30) and long term (>2030). Furthermore, in order to avoid an overestimation due to market distortion, we considered three different WACC (one for each geographical area) representing a specific Risk Prime embody only countries with wholesale and retail penetration. As result we obtained three different DCF with a total discounter WACC of 8.36%. Considering a long term g growth of 2%, in line with the global GDP long-term growth, we obtained an actualized Equity Value of €7,593.75 that led us to a Target Price of €30.36 per share on a total shares base of 250,163 mln.

Moncler’s continuos growth in the last 10 years was sustained by their retail channel amplification policy.

Following this strategy, we observe an increase in Sales from €428.733 in 2010 to €1,040.311 in 2016, with a

CAGR of +18.47%. Focusing on sales coming form retail only, we observe a CAGR for the same years of +33.91%.

From the ROE analysis, Moncler’s profitability grew steadily until 2015, then it decreased from a 30.70% growth to

a 27.91 %. The company’s EBITDA and EBIT margins are sound and are always positive. Both had grown

constantly over the years, despite the slight decrease in Sales in 2013. EBITDA’s CAGR for the last 7 years is of

+19.24% and EBITDA as a percentage of sales in 2016 was 32.62%. Concentrating on Capital expenditure, we

observe an increase each year, peaking in 2015 at €67.66 mln, which is in line with the business investment

strategy, mainly the opening of the manufacturing plant in Romania that same year, and the continuous opening

of new retail spots. The steady positive growth of NWC could be attributed to the company’s efficient

management of the Net Operating Cycle. Moncler’s efficient management of the business has paved the way for a

bright future

Moncler is not exposed so heavily in term of likelihood on risks, but an eventual realization of them could have severe impacts: basing its strategy on new DOSs opening and widening in the last decade the amount of revenues generated from the retail distribution channel, main risks are related to strict regulation compliance and different regime of taxation. However considering the DOSs as single business unit, we can regard the exposure in terms of CAPEX as another source of risk: the risk mainly concerns the impact that a strategic error could have on ability the generate revenues in terms of m2 ,that currently is estimated to be 30.000€. Linked to this fact the luxury market is highly characterized by rapid shift in tendencies and fashion. To sustain the highly seasonal production the company relies heavily on short terms borrowing(( 25,7% of total cash availability at the end of 2016FY, and of 47,9% at the end of 2015FY) considered also that the majority of revenues are not generated in the same period in which the production cycle is working; jointly with a wrong management of inventories can affect negatively the depreciation and obsolescence rate (obsolescence, weighted 29,37% on gross inventory value in 2015FY, and 35,88% in 2016FY) of unsold product, considered the absence of a consistent secondary market. As minor risk the company has revenues exposure to currencies (JPY and USD in particular), but hedging policies and a wide net of international DOSs play as self-mitigant reducing the risks to a relatively small part of the total revenues.

Investment Summary

THE GLOBAL DOWN JACKET COMPANY STRATEGY

COMPETITIVE POSITIONING

VALUATION

BRIGHT FUTURE

RISKS


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Fig. 1

Founded in 1952 in France and headquartered in Milan, Moncler is an Italian fashion company with over € 1 bln sales and 7.12 mln market cap listed as MONC.MI on the Blue Chip segment of the Italian stock exchange since 2013.

Moncler: The Global Down Jacket Company

Born in a mountain village of the French Alps, Moncler production was originally focused on high quality sports clothing (down jackets, sleeping bags and mountaineering equipment). In the 80s the brand shifted from the activewear to the ready to wear, with the lacquered remake of the classic down jacket. In 2003 Remo Ruffini (current Chairman and CEO) took over the company and started a process of brand repositioning developing the idea of “global down jacket”. Merging the heritage of the brand together with a constant research on aesthetic and materials Moncler has branded luxury goods range from the two haute couture collections Gamme Rouge and Gamme Bleu, the Grenoble collection of skiing and après-skiing clothing, special partnerships with designers and the Main collection, the most diffused product line inspired by the archive. BUSINESS MODEL Moncler has built an integrated and flexible business model that allows the company direct control of the value chain, built on four pillars: i) high quality (through the highly selected supply of down from Europe and Asia and textile from Italy and Japan); ii) sustainability (introduction of DIST certificate); iii) time to market; iv) know how and R&D (with the establishment of the R&D hub Moncler clinique in Romania in 2015).Over the last decade growth has been driven, both in term of top line (Sales CAGR 2010-16 [+16%]) and marginality (EBIDTA CAGR 2010-16 [+23%]) by expanding the company geographical footprint (products are now distributed in Europe, Korea, APAC, Japan and Americas), mainly through the shift towards the retail network (195 monobrand stores and 65% of Sales as of Sep 2017), a selective reinforcement of the wholesale channel (48 shop-in shops and 35% of Sales as of Sep 2017), and, finally, adding new categories to its product portfolio. This success was made possible by a focused management team, with the Chairman and CEO also being the main shareholder with 26.3% share capital. BUSINESS SEGMENTS Moncler Genius: introduced in February 2018, the project replaces the Haute Couture Gammes and integrate the Grenoble Collection. Moncler Genius consists in monthly collaborations with guest designers sold month by month starting June. The products will be distributed via Moncler stores and Moncler Genius pop up stores, online and at selected wholesale partners Gamme Rouge: women Haute Couture collection designed by Gianbattista Valli, launched in 2006 and replaced in 2018 by Moncler Genius. The collection is tied with French and Italian high fashion and craftsmanship, it is totally made in Italy and distributed through high selected channels. Gamme Blue: men’s wear collection designed by Thom Browne. Launched in 2009, it has been replaced by Moncler Genius in 2018. The collection is made in Italy and is aimed to put together sartorial tradition with the original sporting attitude of the brand Grenoble: sporty and technical collection inspired by Moncler heritage and focused on ski and après-ski activewear. From February 2018 it became part of the Genius project. Enfant: baby and junior new interpretations of the adult ranges Special Projects: collaborations with leading-edge designers on avant-garde projects Knitewear, shoes and eyewear: selective and coherent with brand DNA expansion of the range of product including shoes, knitwear, glasses and handbags

Strategy

Moncler strategy is aimed to merge the traditional heritage of the brand with a constant research on innovative materials and models, creating a unique product immediately recognizable by clients. a. International brand: the main asset of the company is quality and uniqueness of the range of products that is constantly working towards new way to communicate the values of the brand and engage clients becoming a global brand with no filters with the markets. All the region where Moncler operates displayed in 2017 9M positive YoY growth, with APAC accounting for 35% of the revenues followed by EMEA ex Italy 33%, Americas 17% and Italy 15%. In the consolidated markets of Europe, Japan, China, Korea and North America Moncler will strengthen the travel retail channel and continue the reinforcement of wholesale and of retail with a selective enlargement of the store size. On the other hand, the company will assess the potential of the less developed markets such as Mexico, Northern Europe, UAE and Australia. b. Retail excellence: retail distribution channel consisting of mono-brand Directly Operated Stores (DOS)- including Free Standing Stores, Travel Retail Stores, Concessions, and Outlets - and an online store. The retail segment, main revenues driver, conveys the philosophy and image of the Brand and is able to establish a direct relationship with the client. In the retail channel the pricing strategy adopted is different from the wholesale one: no off price. The DOS reached 195 as of 30 September 2017 and the retail revenues has been 477.8 m, accounting for 65% of the total revenues vs 63% up 9M 2016 (20% YoY growth). c. Selective expansion of the wholesale: multi-brand stores and mono-brand sales points managed by third parties within department stores (shop-in-shops). Focus on a tight control of costumer order quantities in a selected network of luxury multi-brand shops and consolidate shop in shops presence globally, with a special attention to Canada and USA. d. Digital development: e-boutique launched in 2011 and powered by YOOX with the aim of building an online retail network. Reinforcement of online branding and consumers’ experience through ad hoc collaborationS and marketing campaigns. e. Products and production: focus on complementary products such as knitwear, shoes, bags and accessories such as glasses, hats, gloves and scarves. Implement R&D and continue to keep a strong link with the heritage and culture of the brand. f. Sustainability: introduction of DIST certification confirming the responsible sourcing of raw materials in respect of animal welfare. DownIntegritySystem&Traceability allows the total traceability of the down, taken from farmed geese coming from the food chain, whose welfare is assessed through animal-based-measures.

Business Description

Fig. 2

Fig. 3

Source: Team elaborations

Source: Company data

Source: Company data

Source: FactSet,

Fig. 4


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Market highlights . Sources: Bain&Co. Sources: Bain&Co. Fig.7 Fig.8

Moncler operates in the global personal luxury goods segment, accounting for 22,6% or c.a. € 262 bn (Source: Bain & Co, 2017) of the global luxury goods market, a business worth c.a. €1,2 tn.(2017E). In terms of growth pattern, after a phase of stagnation caused by Chinese slow down and global financial crisis in the 2015-2016 period, the sector is now experiencing a healthier steady growth, approaching a “new normal” phase, that will lead to a +4-5% CAGR 2017-2020, reaching a volume of €295-305 billion in 2020 (Source:Bain&Co). The sector shows a positive growth across geographies with China as an outstanding top performer: Greater China (+15% 2016-2017E): growth driven by renewed consumer trust and rise of middle class APAC ex China and Japan (+6% 2016-2017E): Hong Kong and Macau continue to grow, South Korea is positively growing on locals but decelerating on tourists due to Chinese travel ban, Taiwan stagnating; Europe (+6% 2016-2017E): rebound of tourists (Spain and UK most attractive) together with positive local consumption (strong German growth rate); Japan (+4% 2016-2017E): growth mainly driven by JPY fluctuation and accelerating Chinese expenditure, positive local consumption still not driven by millennials; Americas (+2% 2016-2017E): growth driven by top-spenders, struggling department stores and off-price segment, strong Canadian and Mexican expenditure; ROW (+1% 2016-2017E): flat middle East due to political turmoil and economic uncertainty; The luxury goods markets are characterized by few large global players and plenty of small ones, concentrated especially in western Europe. Key elements of the brand perception success include: brand’s history, heritage, craftsmanship, quality combined with creativity and innovation. According to their dimension, positioning and brand perceptions, firms manage their distribution thorough highly selected channels, generally located in Tier I cities. MACRO TRENDS a. Global economic and political uncertainty: Terrorist attacks, geopolitical turmoil, nuclear threats, independence movements and natural disasters have been making the world a predictably unpredictable place. The global outlook of fragmentation and uncertainty is driving companies to increase their cash reserves, improve their risk management and become more agile and flexible, using supply chain and delivery models that can change as fast as the environment they are operating in. b. A new era for globalization: Globalization is not stalling, but entering a new phase whose growth is driven by data flow and digital connectivity. Data flows already account for a greater share of GDP than the global trade in goods, and the largest social networks such as Facebook, YouTube, Twitter and Instagram have a user bases as big as country population. The digital revolution is making fashion industry more competitive: companies can now enter new markets without establishing a physical presence. Established companies are no longer sheltered by traditional advantages, but can still benefit from the growth of cross-border bandwidth, new and smaller incumbents on the other hand can use the digital ecosystem in order to gain access to a wider share of consumers with an unprecedented potential of reaching global scale. c. Groundbreaking Asia: Asia-Pacific is and will be the gravity center of global fashion market, and will account for 40% of the sales of footwear and apparel in 2020 (Source: McKinsey&Company), driven by a GDP growing at a faster pace than the global average. The middle class acceleration will allow Chinese consumers to continue growing both as international shoppers and as local consumers, but China is also one of the most active digital investment and startup environment. Asian players have control of more than half of global online retail sales made by two thirds of the world’s e-commerce: this will allow them to assert their leadership through pioneering business model innovation and global-scale investment in new technology. MICRO TRENDS a. Evolution of sustainability: If fashion company already started embracing sustainability, in 2018 it will evolve from being part of the “marketing menu” to an integral and defining part of the whole value chain, able to unlock efficiency and boosting innovation. Especially millennials consumers are interested in sustainable brands: this will be a chance for companies to use their advantage to promote revenue growth. b. New Models in distribution: The distributional channel showing the most significant growth rate from 2016 to 2017 is online, with a 24% increment, followed by airport shops (+12%) and off-price (+8%). Retail is nowadays the main focus of luxury personal goods companies: with a growth rate of 8% it is considered the best way to engage consumers and provide them with an experience of the brand values and vision. The wholesale sector growth has been of 3% and mainly driven by online wholesale channels. The off-price pricing strategy is the solution for excess stock and slow growth, but is often not aligned with the luxury brands image: this is why fashion executives main focus is to invest in brandbuilding increase full-price sell-through. c. Start up thinking: Given the intense and urgent need for constant innovation across the industry, brands will have to follow the mantra “innovate or die”. A growing number of companies will therefore embrace start-up thinking: the main focuses will be agility, collaboration and openness in order to emulate the operating models of start ups and digital native enterprises. d. Consumer shift: The main and most significant trend in luxury market is the consumer shift: young generations y and z in 2017 fuelled 85% of luxury growth. Millennials costumers are displaying clear tastes and behaviours that require tailored strategies and upgraded value proposition. The new consumers are asking for personalization and curation: they want to use fashion choices to express their own style, self-image and values.

Competitive Analysis

Source: Bain&Co.

Moncler is positioned in the luxury segment of the apparel/footwear market. Since its creation in the 50’s, Moncler centered its core business in the production and sell of outerwear, for which the brand is still today mainly recognized. However, in the last decade to fulfill its competitive positioning ambition, Moncler has progressive enlarged its offering with products typically proposed in the luxury good market (Gamme Bleu, Gamme Rouge), addressing other established big brand of the luxury segment: the main competitors are other big brands of the luxury segment (Burberry Group, Prada, Kering, Giorgio Armani, Canada Goose, LVMH, Ralph Lauren, Christian Dior, Hugo Boss).

Industry Overview & Competitive Positioning

Source: Bain&Co.

Source: Team Elaboration

Fig. 5

Fig. 6


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Fig.9

PRODUCTS COMPARISON The portfolio of products offered by the direct competitors is larger if compared with the one of Moncler, whose offering ranges from the high fashion with Gamme Rouge and Gamme Bleu to other more technical and prêt-a-porter collections (Grenoble and Main). Mocnler completes its products offering with accessorizes, complementary to the outerwears. Armani is mainly divided in two channels : Emporio Armani were are sold non-luxury gammas both of clothes products, accessories and perfumes, of course with a lower price; Giorgio Armani is focused on the selling of luxury goods, but lacks of a downs gamma able to challenge Moncler .The same strategy can be detected in the Kering group with the brand Gucci even though there is not a sharp distinction between luxury and non- luxury products (non-luxury products are mainly small objects are minor collections). Hermes matches the majority of category offered by Moncler ,but it does not offer downs. Prada and Burberry are the two competitors that reach the highest product match in their offers: both of them sell products in key areas (downs, coats, jackets, sweater, shirts, t-shirts), but they do not cover other minor areas (toes, scarf and sunglasses only Burberry). We recognize as minor competitor Canada Goose and Peuterey: both companies participate in the market with Downs, but the price and the quality of their products remove them from the competitive arena of the luxury segment. Then collections proposed by Emporio Armani is inferior in quality and target a different customer. Both Prada and Burberry from the opposite are more homogeneous with price and quality of the products offered.

Fig. 10

DISTRIBUTION STRATEGY The conglomerate of luxury competitors is mainly characterized by outsourced production and widespread global presence in the last part of the values chain. Prada’s retail presence accounts for more than 600 boutiques all over the world (Australia, Indonesia, India, Canada, Austria, U.K, Germany, Hong Kong, South East Asia, Russia, Europe, U.A.E and U.S.A.) .They also have online presence via their own e-store as well as famous e-commerce sites. Armani and Gucci have a more branched presence with extremely diversified production (in store and wholesale) by products, price, targets customers, geographic area. Giorgio Armani also offers its cosmetic and perfume range online. Burberry hold currently 215 mainline stores and 58 outlet stores, vary from high levels of product range to a more limited selection. The structure of its retail distribution is more similar to the one of Moncler: products are sold through an indirect two-link chain as wholesalers sell the products they have purchased to other retailers. Minor competitors are Canada Goose and Peuterey with a very little in store retail presence and mainly rely on third part wholesalers both in-store and online. By channel Moncler’s revenues are biased towards retail (73,5% of 2016FY revenues) showing a 2013-2016 CAGR of 22,9%. Wholesale revenues account for 26,5% in 2016FY, showing in the same period a CAGR of 2,9%. In particular other competitors have a ratio > 2 of retail vs wholesale revenues (Burberry, Prada). We recognize as the main place of competition the wholesale market : i) new models and gammas are sold one year before than in the retail market with a lower gross margin .ii) This enable the companies to reduce the effect of seasonal revenues linked to some kind of products (Moncler apparel and downs revenues 2.14% higher in Q1 of 2017 and 1.87% in Q3 of 2017 both respect to Q2 of 2017).iii) Moncler has an average number of 30 wholesalers over the two season per year, the wholesalers buy with master orders new models and gammas ,according to their forecast in sales and drivers in the market

Fig. 11

COMPETITIVE ADVANTAGE The 5 Porters’ forces analysis reveals that the wholesale market is mainly exposed in terms of competitive pressures: i) the internal rivalry of the segment; ii) Presence of substitutive products. In the retail market the main key features of the competition is the rivalry related to brand perception of the final consumer rather than the cost opportunity to buy the same products from another band. In neither of the two markets the purchase power of the supplier nor of the consumer constitute a threat. Moncler displays a well-diversified and outsourced supply by category: with a total of 412 supplier involved with the top 50 that account for almost the 70% of the production, 95% of suppliers located in EMEA (primarily in Italy 75,4%). The supply account for an 67% of raw materials, 16% of finished products, 16% Façon, and 1% services. The possibility of the entrance of new competitors is very low: the strength and the solidity of the competitors’ Brand relies on decades of history. The control of distribution chain, composed principally by highly experienced operators both in the retail and wholesale, represents a remarkable barrier for new competitors. Moncler’s key competitive advantages include: i) Uniqueness of the products: Moncler serves high quality, innovative and technological products with an undistinguishable style. Innovative technologies of materials have become a significant driver in the creation of downs and outerwear. The purchase of materials is one of the main areas of Moncler’s value chain: the quality standards are measured with the fine down content and the fill power (90% fine down and fill power equal or greater than 710 cubic inches per 30 grams of down). Typically a down has an average life of 3 years: Moncler achieved implementing new models every year, without changing the design, offering the customers a widely range of products: through the years the products have been subjected to a continuous evolution (Monclerization) that, together with a growing culture for the retail, brought to a solid and lasting customer fidelity. ii) Brand awareness, History and Heritage. iii) Great ability in maintaining and increasing above the average the marginality: greatest gross marginality than the median (60.8%) of the segment (72.6% H1 2016), margin on EBITDA and Net Margin almost the double (32.1% H1 2016 against a median of 19.4% and 18.5% H1 2016 against a median of 8.5%).

HIGH RANK COMPETITORS 2012 2013 2014 2015 2016

Burberry

Sales (Million $) 1,857.2 1,99.,7 2,329.8 2,523.2 2,514.7

Retail 1,270.3 1,416.6 1,622.6 1,807.4 1,837.7

Wholesale 586.9 582.1 707.2 715.8 677.0

EBITDA Margin 35.18% 38.51% 35.65% 34.17% 35.75%

Kering

Sales (Million $) 12,227 9,736 9,748 10,038 11,584

Retail 12,227 4,893 5,069 5,325 6,337

Wholesale 0 4,843 4,68 4,713 5,247

EBITDA Margin 22.66% 31.02% 29.67% 29.10% 26.89%

Hermes

Sales (Million $) 2,841 3,484 3,755 4,119 4,841

Retail 2,379 2,933 3,147 3,539 4,228

Wholesale 462 551 608 580 613

EBITDA Margin 36.10% 36.50% 35.60% 35.90% 36,70%

Prada

Sales (Million $) 27,576 32,936 37,017 36,032 30,345

Retail 19,942 28,047 31,378 26,081 25,767

Wholesale 7,634 4,888 5,639 9,951 4,578

EBITDA Margin 43.02% 46.84% 47.29% 40.78% 41.01%

LVMH

Sales (Million $) 23.,659 28.,103 29.,149 30.,638 35.,664

Retail 23,359 27,.787 28,.869 30,.340 35.,231

Wholesale 300 316 280 298 433

EBITDA Margin 32.59% 31.61% 33.05% 31.87% 32.43%

Hugo Boss

Sales (Million $) 2345,85 2432,13 2571,62 2808,75 2692,85

Retail 1,689 1,702.49 1,722.98 1,994.21 1,965.78

Wholesale 657 729.643 848.64 814.54 727.07

EBITDA Margin 22.57% 23.22% 23.02% 21.45% 18.19%

2016FY /million € Moncler Burberry Prada Kering Hermes LVMH Dior Hugo Boss Canada Goose RalphLauren

42,636 42,872 2,693 307.6 6,653Sales 1,040.30 2,766.00 27,286 13,988 5,202.20

14,810 14,986 915.38 151.07 2,828COGS incl, D&A 288.5 982.8 9,373 7,276 1,850

27,826 27,886 1,777 156.53 3,824Gross Income 751.8 1,783.20 17,913 6,712 3,352.20

19,557 19,596 1147 101.45 3,149SG&A 454.1 1,313.20 14,131 4,363 1,545.30

8,269 8,290 264 55.08 675EBIT (Operating Income) 297.7 470 3,783 2,249 1,706.50

29 -152 0 6Nonoperating Income -1.4 2 -13 -2 -28

110 134 3.73 7.59 12Interest Expense 3.2 1.8 122 139 2.1

251 284 24.23 774Unusual Expense 0 75.4 88 436 28

7,937 7,720 256 23.27 -105Pretax Income 293.1 394.8 3,560 1,671 1,648.80

2,318 2,274 61.99 6.78 -6Income Taxes 96.8 107.1 1,125 408 555.5

Fig. 12

Source: FactSet, Team elaborations





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A look into the past DISCIPLINED GROWTH IN SALES

Almost ten years ago, the opening of the first DOS in Paris (October 2007) marked a new course for the company. At that time Moncler, acquired by Mr. Ruffini just five years before, was a company with < € 150 mln Sales and totally wholesale network dependant. Ten years later, Moncler is > € 1 bln company in Sales with a completely different business mix in term of both geographies and sales channels. The 2007-2016 Sales CAGR of 21,45% was mainly driven by the expansion of the retail network with an average of 15 new DOS openings per year and a retail Sales CAGR of 49,8%. In terms of geographies Italy was a key market generating more than 50% of 2007 Sales, the opening of new DOS in Europe, Asia and Americas contribute to change the Sales breakdown. Retail channel has been the main sales growth driver over the last years. It grew from 57% of total sales in 2013 to 70% of total sales in 2016, while decreasing sales from wholesale from 43% in 2013 to 30% in 2016. Still, with its concentration on retail mostly, the group's sales volume is constantly growing.

SOUND MARGINS The company enjoys sound EBITDA and EBIT margins are always positive and had grown constantly over the years, despite the slight decrease in Sales in 2013. EBITDA’s CAGR for the last 7 years is of +19.24% and EBITDA as a percentage of sales in 2016 was 32.62%. These positive values could be attributed to Moncler’s increasing expansion policy, investing mainly in Retail, which so far has been a very profitable strategy. COGS as a percentage of Revenues was almost half of them, but it decreased linearly over the years, down to 27.73 % in 2016, as the numbers show, COGS remained more or less the same over the years, but Sales grew exponentially, allowing Moncler to generate more profits. Net Income had a significant decrease in 2012, probably due the fact that the Carlyle fund was cut out and was meant to be replaced right after, so 2012 was a transitioning year in that sense. Overall, Moncler shows positive margins and a linear growth throughout the years.

PROFITABILITY AND CASH FLOW ANALYSIS Looking at ROE we see that Moncler’s profitability grew steadily until 2015, after it decreased from a 30.70% growth to a 27.91 %. ROS is more or less the same over the years, denoting good profits gained from sales. ROA has also been growing steadily from 2013 to 2016. The Current Ratio has been increasing every year, going from 1,19 in 2013 to 1,89 in 2016, as has the Cash Ratio going from 0,39 in 2013 to 0,89 in 2016, showing that the business has become more and more liquid over the years so it is able to meet its maturing obligations. The Free Cash Flow of the company has been growing a lot, especially from 2013 to 2016, indicating that Moncler has been generating a lot of cash. Moreover, the Free Cash Flow Yield has been increasing steadily over the last years, making Moncler’s shares more and more attractive to investors, as had the Free Cash Flow per Share, suggesting good earnings per share and also an increase of the FCF per Share in the future. FCFF and FCFE are both positive over the years indicating that the company is able to sustain its dividend policy and meet its obligations. FCFE with respect to FCFF fluctuates much more over the years, the decrease that can be seen in 2015 and 2016 is probably due to the new investments made for the construction of the new plant in Romania and also because Moncler payed back much of its debts in the last 3 years.

CAPEX AND FIXED ASSETS ANALYSIS Capital expenditure increased each year, peaking in 2015 at €67.66 mln, which is in line with the business investments, particularly the opening of the manufacturing plant in Romania that same year, and the continuous opening of new retail spots. More specifically, Retail in 2016 accounted for 76% of total consolidated CapEx, Wholesale only 6,6% and Corporate 17,4%, while in the first half of 2017 Retail rose to 80% of total CapEx with respect to the 78,2% of the first half of 2016, which is in line with the business plan of retail expansion. Fixed assets increased constantly over the years, in particular intangibles fixed assets amounts to 70% of total fixed assets on average over the years, excluding Goodwill from the Intangibles it amounts on average to 45% of total fixed assets. Such a high percentage might be seen as a red flag, the company at first sight might seem riskier in terms of liquidity. Anyhow, the liquidity analysis demonstrates that Moncler is able to meet its obligations and is liquid enough. Almost half of the Intangibles assets are made up by the value of the brands, therefore one of the main risks would be the devaluation of the brands. Brands are not amortized but subject to impairment tests performed annually or more frequently if events or changes in circumstances indicate that the carrying value may not be recoverable.

NET WORKING CAPITAL Moncler’s NWC has always been positive, increasing a lot from 2013 to 2016. As a percentage of Sales, NWC was always a light weight, averaging around 9% from 2010 to 2013 and then growing over the last 3 years, reaching 22,47% of total Sales in 2016. Overall it can be said that the business is operating efficiently, it is able to generate enough to cover its obligations with its current assets. The main reason of the steady positive growth of NWC might be due to its efficient management of the Net Operating Cycle. Days of Inventory on Hand have been decreasing slightly since 2013 but still taking approximately 173 days. While DSO (Days of Sales Outstanding) decreased from 68 days in 2011 to 38 in 2016. Moreover, Days of Payables Outstanding (DPO) has also been decreasing over the last seven years, reaching an average of 5 months in 2016 with respect to the 6 months and a half needed in 2011.

Financial Analysis Fig. 13



Fig. 14

Fig. 15


Fig. 16


Fig. 17



Pag. 8 di 25

Peeking into the future

We focus our future analysis on the geographical distribution of the channel mix with a distinction between retail, wholesale and online. Considering the organic COMP growth increased by an extra growth from Moncler’s business expansion and the inorganic growth deriving from industry market, we expect revenues to grow 10.79% CAGR 2018-22 to €2,042.79 bln in 2022 with an expected 0.48 ROE and EPS €1.78 (13.96% CAGR 2018-22) in the same year.

Revenues • Retail: We based our assumptions principally on the retail channel, reducing to a single business unit (SBU) each DOS. According to the “Retail Excellence” project launched in 2016 and last press release we expect Moncler to consolidate its presence in main geographical areas with an average of 12 new openings for next three years (principally Asia and Russia) accompanied by a consistent reduction for following years. This assumption allows us to determine a three-stage analysis: - An organic growth based on a comparable (COMP) same-store sales analysis used to determine what portion of sales growth is attributed to old stores compared to new ones (6% CAGR 2018-20). - An extra growth deriving from new openings mark-up which imply a strengthening of brand visibility and brand awareness with a consequently exponential increase on revenues (16% CAGR 2018-20) - Inorganic growth based on macroeconomics forecasts taken from the International Monetary Fund (IMF) using then multiple linear regressions and ARMA linear models. According to this analysis we expected a total 12.77% CAGR 2018-22 of retail revenues reaching €1,700 bln in 2022 (79% of total sales). • Wholesale: We further considered an overall growth of the wholesale channel, with a decreasing marginal growth rate due to reallocations and dismissions of less performing wholesale locations not in line with Moncler image (8.38% CAGR 2018-22 with a 17% weight on total revenues). • Online: We expect the digital channel to play an increasingly important role in the Moncler business in terms of return of image and indirect revenues. For this reason we considered a low percentage on total revenues redistributing its effect on the wholesale and retail network system Costs and Margins Our separated analysis by channel mix and SBUs allow us to strictly define how the whole Moncler’ business model (costs) affect the principal Income Statement margins reported in percentage on total revenues: - Gross Margin (€1,555 bln in 2022 equal to 76.16%, +108bps from 2018 to 2022). This increase is positive related with the expected COGS growth (10.74% CAGR 2018-22) essential to support the great expansion of Moncler’s business and new product launches. - EBIT (€739.47 mln in 2022 equal to 36.20%, +143bps from 2018 to 2022). The positive result is mainly driven by Selling Expenses, strictly linked to the development of the retail business, that we expect to maintain a constant average weight of 30% on total revenues. According to the retail expansion program already mentioned, Selling Expenses will increase for next three years followed by a stabilization period and due to economies of scale. As we estimate a decreasing weight on revenues of G&A and A&P expenses (respectively 5.5% and 4.5% in 2022) a different trend growth on the EBIT adjusted is researchable on Non-recurring Items mainly related to the stock based compensation plans that we assumes to remain a valid incentive system in the future too. - EBITDA (€817.40 mln in 2022 equal to 40%, +133bps from 2018 to 2022). We foresee Moncler’s EBITDA to grow even though Amortizations and Depreciations are expected to grow as well: on one hand Key Money, Fixtures and Leasehold improvements (currently the 80% on total amortization) reflect the retail channel expansion, on the other hand Software, Plant and Equipment represent new investment sources necessary to support production expansion. With a total CAPEX growth of 2.27% CAGR 2018-22, we expect the company to widely cover emerging financial needs thanks to great liquidity cumulated over years. - Taxation: As Moncler had access to the optional tax exemption mechanism (the “Patent Box”) introduced by the Italian 2015 Stability Law with a duration of 5 tax periods (irrevocable and renewable), for the advantaged taxation of a share of income deriving from the use of some types of intangible assets, we estimated a tax benefit for the three-year period 2015-2017 at around €34 million, totally reflected in 2017 results. At the same time, we foresee the closure of the previous tax dispute (having a negative impact of €24.5 million, of which, however, approximately €10 million already provisioned) will negatively affect 2017 profit for a total of €14.5 million. Because of the tax benefit linked to the Patent Box (for €34 million) and the net cost related to agreements on tax breaks of €14.5 million, Moncler tax rate for the year 2017 is estimated to be around 26%, compared to 33% reported in 2016. Furthermore, according to latest indications provided by the management, we foresee benefits for an additional €14 million a year for 2018 and 2019 with an estimated tax rate of 29%. We do not incorporate renewal assumptions for the next five years as the benefits are almost entirely deriving from income attributed to the brand, no longer deductible Returns and Cash Flows Returns: Based on EBIT results and considering just organic growth, Moncler is expected to improve its ROCE form 38.54% at the beginning of 2018 to 48.04% in 2022. We forecast EPS to grow at 13.96% CAGR 2018-22 from €0.93 in 2018 to €1.78 in 2022. Cash flows: According to a restrictive internal policy, we foresee the Company will remain net cash as it is nowaday, confirming its strong cash flow generation with Cash and Cash Equivalents growth at 19.04% CAGR 2018-22 and a decreasing pay-out ratio (11.85% expected in 2022) principally due to a faster growth compared to dividend cupon.

FCFO calculation 2018E 2019E 2020E 2021E 2022E

EBIT 252.68 297.68 379.08 453.26 533.43

Taxes 107.41 - 122.52 - 154.24 - 165.38 - 179.02 -

NOPAT 145.27 175.16 224.84 287.88 354.41

Amortization 48.33 52.34 55.93 57.89 60.64

Provisions and other non-cash items10.22 11.06 11.93 12.69 13.22

After-tax profit magin 203.82 238.56 292.70 358.46 428.27

Δ Inventories 2.78 - 3.22 - 4.91 - 3.52 - 3.83 -

Δ Trade receivables 15.28 - 15.90 - 16.08 - 15.48 - 11.35 -

Δ Trade payables 22.81 20.70 17.06 17.01 15.94

Δ Oth. cur.nt assets/liabilities 4.15 4.68 5.00 5.34 5.71

Changes in working capital 8.91 6.25 1.06 3.36 6.46

CAPEX 76.18 78.92 80.76 74.54 77.04

FCFO 136.55 165.90 213.00 287.28 357.70

WACC 8.36% 8.36% 8.36% 8.36% 8.36%

Period 0.5 1.5 2.5 3.5 4.5

Discounter factor 0.96 0.89 0.82 0.76 0.70

DCF 131.17 147.07 174.26 216.90 249.23

CAGR 9%

Fig. 18


Fig. 19


Fig. 20


Fig. 21


Fig. 22



Pag. 9 di 25

We foresee a target price of €30.36, implying a +9.05% upside as of 21st of February 2018. In order to size correctly Moncler terminal value we based our valuation on a three-stages DCF model considering separately each area the company is exposed to. In fact the high volatility in countries like America and China significantly affect the market risk premium, having a notably impact on the Group valuation and target price as well. As a further check we embodied in our valuation a I) multiples analysis based on top performers on the high luxury market, which Moncler aspires to reach in its positioning process still in place; II) a Monte Carlo simulation on key stochastic variables randomness used to decline our assumption in a probabilistic interpretation.

DCF and further assessments

DCF - Methodology Stage 1: In order to narrowly estimate Moncler terminal value purified by a long-term overestimation growth, we separately considered FCFO generated in each geographic region and weighted by number of DOS presence in there: •Italy: the deep market penetration in this country makes Italy to remain an important strategic spot in Moncler Business (20 DOS in 2017), even though the fast retail network expansion is going to reduce its weight on total. For this reason we expect Italy Cash Flows to contribute 6.80% share on total with €19.55 mln in 2022. • EMEA (ex.Italy): mainly represented by Europe, it’s the central pole of the Group business with a total of 57 DOSs and a 22.24% share on total FCFO in 2022 and a stable risk premium expected for following years. • Asia and rest of the World: a huge market with a high potential for Moncler business expansion positively related to a high volatility that increase risk premium and, consequently, the discounter factor. Currently covered by 104 DOSs we expect to represent the 57.58% of total FCFO with €165.40 mln in 2022 (18.28% CAGR 2018-22). • Americas: still less covered, it represents a potential market as well, currently representing the 11.77% with 24 DOSs. We expect Americas penetration to reach 13.38% in 2022 (21.32% CAGR 2018-22). According to this sum-of-the-parts approach we estimate an aggregate FCFO growth of 27.22% CAGR 2018-22 reaching €357.70 mln in 2022. Stage 2: As Stage 1 is referred to a short-term period of 5 years (2018-2022) we extended the DCF calculation to a mid-period from 2022 to 2030. According to management release and market expectations, we foresee the company to approach an equilibrium phase as the saturation of market expansion, but still performing well thanks to forecasted reallocations and amplifications on both the retail and wholesale channel. As a result of this we foresee a 9.98% CAGR 2022-30 with a the last Cash Flow estimated of €676.12 mln in 2030. Stage 3: Considering a perpetual long-term growth at a constant g rate equal to 2%, assumed considering the weighted average of long-term GDP growth of areas in which Moncler is operating. We obtained a terminal growth value equal to €10,843.62 bln as of 2030. DCF - Results In order to discount DCF calculated as described above, we used four different WACC incorporating a weighted market risk premia only referred to specific countries in which the Group operates, with an overall result of 8.36%. As result we estimated an Equity Value of €7,593.75 bln that compared with an average number of shares of 250.16 mln it gives us a Target Price of €30.36 per share.

Multiples analysis

As the DCF approach is based only on organic Moncler growth, we further extend valuation with a multiple analysis based on a confrontation with the high ranked competitors of the segment. Considering the continuous repositioning on the high luxury segment, we chose the EV/EBITDA of top performers as key multiple to reflect the equity valuation. EV/EBITDA: using a x12,65 EV/EBITDA the target price at the end of 2018E is €31,30 per share, which is slightly higher than the target price highlighted by the DCF analysis (€30.36). Even though the results seems to partially justify our analysis, multiples are not rigorous method to determine the target price so we preferred to use the DCF method.

Montecarlo Simulation

As third check to assess the consistency of our target price we performed a Monte Carlo simulation to test the hypothesis underlying key elements that lead to the determination of our target price. We attribute a given distribution to EBIT, WACC and Terminal growth rate. As results the target price obtained with the DCF methods reveals that it is centres within the 50% quantile of the resamples distribution. Because of assumption underlying the Monte Carlo simulation, the distribution appears to be slightly right skewed.

18E 19E 18E 19E

Burberry 13.1x 14.68x 9.97x 10.09x

Prada 23.47x 20.24x 14.49x 13.07x

Hermes 23.49x 22.81x 20.83x 20.24x

Kering 15.96x 14.55x 13.83x 12.71x

LVMH 14.6x 13.48x 11.8x 10.94x

Hugo Boss 15.45x 14.68x 10.43x 10.03x

Dior 8.75x 8.17x 7.22x 6.8x

Mean Ex. Moncler 16.4x 15.51x 12.65x 11.98xMedian Ex Moncler 15.705x 14.68x 12.815x 11.825x

EV/EBIT EV/EBITDA

Valuation

Fig. 24


Fig. 25


Fig. 24

Source: Team elaborations

Fig. 27


Fig. 26


Fig. 23


Pag. 10 di 25

Investment Risks

Operational risks a) Inventory risk: having 13 months of production cycle, inventory management throughout the year is a key risk: spring and summer months see demand and sales decreasing sharply, and the amount of products provided is out of phase of about 6 months. Moncler has not a strong secondary market where unsold products could be disposed (company policy forbid to discount market price and the wholesale channel is shifted backward of one year with respect to the retail one). The risk is partially mitigated :the company did not had complications in the management of the inventory and the expected expansion in different geographical areas of both the firm and the luxury market does not arise doubts about the effectiveness of inventory strategy carried out until now. b) Availability of high quality raw materials: Moncler’s success can be found in the maniacal search and selection of top quality materials(principally down, nylon and cotton): supply is not high impacting negatively on the costs of such resources. The availability of such materials depends on a series of factors both known and unknown out of Moncler’s control.. The likelihood of this risk is low, the impact is severe also because the company does not hold mitigating factors.(obsolescence, computed making a ration between the value of depreciation of inventory for obsolescence and the gross value of the inventory at the end of the FY, weighted 29,37% on gross inventory value in 2015FY, and 35,88% in 2016FY). The risk however is dampened by the supervision of Moncler on the production of third part suppliers .The company conducts directly and with third parts audits throughout all the production phases to assess quality of the products . c) Customer perception of the brand : The concept of luxury is founded on exclusivity, this cannot be maintained when a product under a specific brand achieves broad-based penetration. The growing weight of the retail channel in Moncler’s revenues mix makes the brand perception a key risk for the company, especially when customers are required to pay a premium price for the company products. Moreover the risk for Moncler is heightened by the fact that down jackets are seasonal products for cold regions. Change in customer tastes or perception of the brand can have a huge impact on the company sales growth, Abercrombie is a prime example of the consequences of this change in perception. However Moncler can rely on a competitive communication strategy that stresses the uniqueness of the brand and points toward innovation and evolution hat mitigates this risk and lowers significantly the likelihood of such changes. Market risks d) Counterfeiting: forgery of company’s products affects in general every company selling high quality products with a strong brand presence in the market. This especially affect companies selling goods on-line: Moncler ‘s online sales account for a very little slice of total revenues and the company has in place internal procedures and processes to guarantee the quality of materials and production method mitigating this risk. e) New DOS opening : Moncler is present in approximately 70 markets worldwide with its retail network. The main risks concern principally the time it takes to a DOS to become profitable: strategic errors or wrong valuation of the country could cause a decrease in the profitability per m2 (currently is around 30.000€) and projects for new openings in countries or strategical places where the company is not present (Moncler is prospecting to open two DOSs in Barcelona and Oslo) , can become more uncertain. The risk cannot be easily mitigated since depends on unavailable information or factors out of the control of the company. f) Regulation, taxation and compliance: regulation and compliance have become more compelling and heterogeneous: the company was already subjected to pressures about the maltreatment of ducks and there is a strict regulation in the industrial production of petroleum derivatives, nylon in particular for what concerns pollution and sustainability. Furthermore Moncler has taxation outgoes from different taxation regimes due to its international presence. The company has an issue with the Italian tax authority: the management has preliminary set a provision for this purpose. Sustainability is an integral part of Moncler’s corporate governance (since 2015, the established Sustainability unit produces a Sustainability report, to manage the sustainability risk, identify areas and propose actions for improvement). Moreover, the Company also adopted an official Supplier Code of Conduct. The risk is partially mitigated and concerns principally changes in the current regulation, but future changes in compliance and sustainability are very likely. The company currently performs, directly and with the help of third part providers, audit and compliance checks on the operate of the suppliers according to the Code of Ethics and Supplier Code of Conduct. Rapid shift in taxation on imported goods can create constraints to sell and transportation of products impacting negatively on fixed costs, hence on marginality. g) Slowdown in global economic growth. As wealth is a key driver of luxury consumer goods, any significant change in the economic environment would translate into changes in the average sector growth. A slowdown in GDP growth in key geographical areas (such as China) can have an impact on consumer confidence and spending power. External unpredictable events (such as terrorism and epidemics) or drastic political changes can have an impact on sales growth in countries/cities with significant tourism flows. Financial risks h) Currency risks: a great part of Moncler’s revenues is still generated in the European Union (42,92% of total revenues from Italy and EMEA in 2016FY), but more than 50% of revenues is exposed to negative shifts of local currencies. Moncler displays a greater concentration of third part suppliers in Italy and EMEA (94,9% of total suppliers in 2016FY) Considering the expected double digits expansion of the Chinese Market in the next years, it is likely that Moncler will be more exposed to the Chinese currency risk. Currency exposure include: USD, JPY, CNY, HKD, GBP, KRW and CHF. Uses of derivatives and standard risk management policies do not mitigate the total risk since revenues in some countries are dangerously exposed to small currency rate change (USD and JPY are the more sensible currencies : a -1% of their value against the EUR can cause more than 1.6 mln € of loss on revenues for both currencies). i) Liquidity risk: the company’s need for liquidity is intermittent, but very high (6,19% of Net Working Capital H1 on FY Revenues in 2016 and 8,98% in 2015 during months in which Moncler starts the production of new models (in Q3 of the fiscal years there is an increases in accounts payables and inventory due to current expansion of the retail channel). Moncler focuses the CapEx especially in the retail (76,3% of total CapEX in 2016FY and 74,0% in 2015FY). As well the provision of cash from operational activities is intermittent (Q2 and Q3 are the critical ones due to high seasonality). The rate of new opened DOSs is about 15 per year (on average a DOS gets over the breakeven point after 1 fiscal year and has almost repaid its value in 3 fiscal years).Moncler relies heavily on short-term borrowing from banks and peer companies in the group (short-term borrowings accounted for 25,7% of total cash availability at the end of 2016FY, and of 47,9% at the end of 2015FY). The risk is partially mitigated: operative cash flows saw a double digit growth in 2015-2016FYs and the massive repayment of structural debt does not arise uncertainty about Moncler’s creditworthiness. The only factor to which the company remain exposed is the high seasonality of down jackets, company main product.

Impact/Likelihood Rare Unlikely Possible Likely Almost certain

Not significant

Minor d)

Moderate a) i) f)

Severe c)- h) b)

Major e)

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Pag. 11 di 25

Management & Governance

Shareholding structure. Though the IPO in 2013 the Private Equity companies Carlyle (CEP III Participations S.à r.l. SICAR), Eurazeo (ECIP M. S.A.) and Mittel (Brands Partners 2 S.p.A.), main shareholders of the company at that time, partially sold their stake in the company to the market. Nowadays, Remo Ruffini (current Chairman and CEO) is the main shareholder trhough Ruffini Partecipazioni S.r.l. with a 26.30% stake (Source: Consob, Feb 2018). Corporate Governance. Moncler operates with a traditional Corporate Governance system, with a Shareholders’ Meeting, a Board of Directors and a Board of Statutory Auditors. The company BoD, whose Chairman and CEO positions both in the hand of Remo Ruffini includes 9 members of which 4 are independent. Top Managers, along with Remo Ruffini, include Roberto Eggs (Chief Operating Officer since 2015 and Chief Marketing&Operating Officer since 2017), Luciano Santel (Chief Corporate Officer since 2013) and Andrea Tieghi (WW Senior Director of Retail Business&Development since 2003). The Nomination and Remuneration Committee and the Control and Risks Committee have been set up within the Board of Directors with propositional and consultative functions aligned with the recommendations of the Corporate Governance Code. The auditing firm KPMG has been appointed to perform the statutory audit of the accounts from 2003 to 2021. The Moncler Remuneration Policy for Group of Directors and Strategic Executives is in line with the recommendations of the Corporate Governance Code for Italian listed Companies as issued by Borsa Italiana. For Group of Directors and Strategic Executives a set of KPIs focused on Group EBITDA, Free Cash Flow and Sustainability Plan accomplishment determine a reward with increasing payout. CSR. In 2015 Moncler produced its first Sustainability Report and in 2016 established the Sustainability Unit, responsible for identifying sustainability risks and managing them as well as for identifying the more relevant improvement measures able to create long term value. The Unit is proposing a sustainability strategy in the annual Sustainability Plan and Sustainability Report. Human Resources Management. Moncler considers its human resources as one of its strategic assets and is aimed to help people to grow and develop. The highly experienced and highly motivated team led by Remo Ruffini has a proven track of record of delivering significant results. Stock Option. In 2014 Moncler approved two Stock Option Plans 2014-2018 (the “Top management and Key people” and the “Corporate Structure”) both with an exercise options price equal to €10.20. As at June 30th, 2017 the effect of the two plans on the income statement amounted to €2.3 million with a net equity grown by €41.0 million. As well as the 2015 stock option plan (intended for executive directors and/or Key-managers with strategic responsibilities, employees and external consultants and other collaborators of Moncler S.p.A. and its subsidiaries) with an exercise option price of €16.34 and an expiration date expected for June 30th 2020 for the first tranche (three in total). On April 20th of 2016 was approved a new stock grant plan entitled "2016-2018 Performance Shares Plan” addressed to the same subjects of 2015 with the free granting of Moncler shares (No. 13.8 million) at the end of the vesting period of 3 years. On the 26th of June 2017, Moncler launched a second share buyback programme for a maximum of 1,000,000 Moncler S.p.A. ordinary shares (equal to 0.4% of current share capital), in accordance with the resolution of the Shareholders’ Meeting of the 20th of April 2017.

Fig. 33

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Pag. 12 di 25

INDEX

1- MONCLER LINES 13

2- MONCLER PRODUCTS PRICE RANGE 14

3- MONCLER HISTORY 14

4- DIST 14

5- LUXURY MARKET AT GLANCE 15

6- SWOT ANALYSIS 16

7- FINANCIAL ANALYSIS 17

8- COMPETITIVE POSITIONING 21

9- INVESTMENT RISKS 24

10- CORPORATE GOVERNANCE 25


Pag. 13 di 25

APPENDIX

1. MONCLER LINES

MONCLER GENIUS: A NEW STRATEGY FOR INSTAGRAM AGE

The project Moncler Genius launched in February 2018 is the latest and more ambitious step taken by the brand in order to follow and adapt to markets trends remaining faithful to its image and heritage. The project is replacing the two Haute Couture Gamme and integrating the sportive collection Grenoble. It consists of monthly capsule collections produced in collaboration with eight designers: Pierpaolo Piccioli of Valentino, Kei Ninomiya of Noir Kei Ninomiya, Simone Rocha, Craig Green, Hiroshi Fujuwara of Fragment, Francesco Ragazzi of Palm Angels, Karl Templer of 1952 and Sandro Mandrino for Grenoble line. The idea is to target the consumer of the Instagram era (the personal luxury goods market growth is already driven for a 32% share by generation y and z) and build a new more dynamic engagement strategy. The different capsule collections will arrive one per month starting June and will be distributed via Moncler stores and Genius Building pop ups, online channel and selected wholesale shops


Pag. 14 di 25

2. MONCLER PRODUCTS PRICE RANGE

3. MONCLER HISTORY

4. DIST

One of the main focus of the management in the last years has been the environmental and ethical sustainability in the supplying of raw materials. The main step taken in this direction has been the introduction of a strict program for down traceability and animal welfare, with the introduction of the DIST Protocol (Down Integrity System and Traceability). Moncler only purchases DIST-certified down. The DIST regulates farming standards, respect for the animals, down traceability and technical quality. In particular: i) the down used for production come exclusively from farmed geese as a by product of the food chain ii) no form of live-plucking or force-feeding the animals is permitted. The three agents involved in supply chain of the raw materials which are the white geese farms, the abattoirs where animals are slaughtered for meat production and the companies that clean and sort the down, must comply with the protocol. The main difference between DIST and the traditional approach is the observation of the animals through the so-called Animal-Based Meastures (ABMs), allowing to assess geese’ conditions by how they respond to different factors within their environment. The nine Animal-Based Measures are welfare indicators designed to identify unusual behaviours of the animals such as feather pecking, broken or twisted wings, irregularities in the feathers and abnormal beak colour. The other important and innovative indicator introduced by the DIST regards human-animal interaction, assessed through the responses to the HAR (Estep and Hetts) test. Negative values in the tests could be a sign of high stocking density, lack of pasture and inappropriate animal management method. The impartiality in the protocol compliance controls is assured by the fact that the audits are chosen directly by Moncler and not by the supplier, and that the certification process is done by an independent body of auditors trained by veterinaries of the University of Milan, whose results are then verified by a second external body.

PRICE RANGE: <200 EUROS

PRODUCTS: accessories (hats, glasses, scarves, gloves) and childrenwear

PRICE RANGE: 200-400 EUROS

PRODUCTS: knitewear, basic down jackets, accessories (shoes, bags)

PRICE RANGE: 400-700 EUROS

PRODUCTS: down jackets, basic outwear, accessories (more elaborated shoes and bags)

PRICE RANGE: >700 EUROS

PRODUCTS: outwear, sartorial down jackets, fur accessories


Pag. 15 di 25

1. LUXURY GOODS MARKET AT GLANCE

SORTIE DU TEMPLE

luxury brand attempt to broaden their appeal

retaining their cachet

1996-2000

CAGR +11%

DEMOCRATIZATION

increase in amount and accessibility for fashion goods globally, increase of ready to wear sector

2001-2007

CAGR +4%

CRISIS

financial crisis makes luxury goods market

shrink

2008-2009

CAGR -8%

CHINESE BULIMIA

growth boosted by strong Chinese consumption

2010-2014

CAGR +7%

REBOOT

stagnation due to global uncertainty and Chinese

slowdown

2015-2016

CAGR -0.4%

NEW NORMAL

healthier steady growth

2017E-2020

CAGR +4/5%


Pag. 16 di 25

source: eMarketer RETAIL AND E-COMMERCE The so called Globalization Reboot is changing fast the way people shop. The e-commerce business is becoming more and more popular, being the preferred channel of gen y and z. The steady growth of the new market will require an improvement in the efficency of the traditional in-store purchese in order to remain competitive. The growth of the retail online channel is shown in the tables above.

Personal luxury Goods Retail Sales Worldwide, Offline vs. digital, 2016, 2020 (billions of € and % of total retail sales)

2016 2020 2025

Luxury Goods Retail Sales

% of total Retail Sales





Offline € 234 92% € 275 88% € 309 81%

Digital € 20 8% € 37 12% € 74 19%

Total € 254 100% € 312 100% € 383 100%

SWOT ANALYSIS

€ 0€ 50

€ 100€ 150€ 200€ 250€ 300€ 350

Luxury GoodsRetail Sales



2016 2020 2025

Personal luxury Goods Retail Sales Worldwide, Offline vs.

digital, 2016, 2020, 2025 (billions of €)

Offline Digital

92% 88% 81%

8% 12% 19%0%

20%40%60%80%

100%

% of total RetailSales



2016 2020 2025

Personal luxury Goods Retail Sales Worldwide, Offline vs.

digital, 2016, 2020, 2025 (% of total retail sales)

Offline Digital


Pag. 17 di 25

FINANCIAL ANALYSIS SALES The growth of sales has gone along with the increase in amount of point of sale: in the last years Moncler focused on the opening of new Retail shops, from 134 in the 2014 to 190 in 2016, whereas the wholesale shops remain almost constant in amount (38 in 2014 and 42 in 2016). Breaking down sales by region instead, Moncler’s is concentrating mainly in the EMEA regions and Asia & RoW, the first one producing 34% of sales in 2013 and 29% in 2016, the latter 31% in 2013 and 40% in 2016. CAPEX On average CapEx weights 6,41% of total Sales, a very low percentage. This could be explained by the fact that Moncler has specific leasing contracts. Assets under a lease contracts other than finance leases are not recognized in the Group’s consolidated statement of financial position. The Group lessees property and gross rent expenses related to these operating leases are recognized on a straight line basis over the period of the leases. CASH FLOWS The company always generated positive net cash from operating activities, increasing constantly over the last 7 years. The Free Cash Flow, on the other hand, wasn’t linear over the years. At first, it fluctuated from positive to negative each year until 2013, after it increased steadily from 2013 to 2016, coinciding from the year that Moncler was listed on the Italian stock exchange. DIVIDENDS Starting from 2013, when the company went public, dividends distributions have been introduced. Moncler’s DPS has been growing over the years, from a 0,10 in 2013 to 0.18 in 2016 with a Payout Ratio in the range of 20-30%. In terms of Dividend Yield, from 0.63% in 2013 to 1.08% in 2014 is now stable at that figure.

DEC '10 DEC '11 DEC '12 DEC '13 DEC '14 DEC '15 DEC '16

Free Cash Flow (FCF) 37.2 31.6 67.76 63.0 103.56 131.2 214.15

Free Cash Flow per Share 0.15 0.15 0.27 0.25 0.41 0.52 0.85

Free Cash Flow Yield (%) 1.6 3.72 4.06 5.15

Free Cash Flow Margin 8.67 6.15 10.8 10.8 14.91 14.9 20.58

Net Operating Cash Flow 62.1 58.7 88.5 90.4 141.7 181.8 277.4

Issuance/Reduction of Debt, Net (23.2) (122.1) (6.8) (47.6) (43.5) (59.7) (71.1)

Free Cash Flow to the Firm (FCFF) 100.8 114.3 146.9 180.4 172.4 154.2 235.8

Free Cash Flow to Equity (FCFE) 4.8 141.1 9.5 26.4 78.6 35.9 32.8

2016 H1 2016 H1 2017

CAPEX 63.30 28.9 34.4

Retail 47.5 22.6 27.5

Wholesale 4.1 1.1 1.4

Corporate 10.7 5.2 5.5

DEC '13 DEC '14 DEC '15 DEC '16

Dividends per Share 0,10 0,12 0,14 0,18

Dividend Payout Ratio (%) 27,78% 23,08% 20,90% 22,78%

Dividend Yield (%) 0,63% 1,08% 1,08% 1,09%

DEC '10 DEC '11 DEC '12 DEC '13 DEC '14 DEC '15 DEC '16

Retail 98.94 172.18 285.14 333.55 430.68 619.68 764.17

Retail % of Sales 23.08% 33.54% 45.71% 57.45% 62.04% 70.39% 73.46%

Wholesale 329.78 341.18 338.64 247.02 263.50 260.71 276.14

Wholesale % of Sales 76.92% 66.46% 54.29% 42.55% 37.96% 29.61% 26.54%


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MARGINS VISUALS INCOME STATEMENT HIGHLIGHTS


Pag. 19 di 25

REVENUES ESTIMATE We based our revenues forecasts principally on a deep analysis of the distribution channel mix with a distinction between the retail network (concerning stores that are directly managed by the Group like free-standing stores, concessions and outlets), the wholesale network (including stores managed by third parties that sell Moncler products either in single-brand spaces like shop-in-shop or inside multi-brand stores) and the online (composed by the “digital flagship” moncler.com such as new mobile-oriented platforms). RETAIL REVENUES According to the “Retail Excellence” project launched in 2016, the Group clearly expressed the intention to consolidate its presence in main geographical areas with/through Directly Operated Stores (DOS) and flagship stores, leading drivers of the whole Moncler revenues system. In sight of this, we elaborate an inside two-speed-grow model adjusted for/by the macroeconomics trends of each area the Group is exposed to. This approach considers:

An organic growth based on a comparable (COMP) same-store sales analysis used to determine what portion of sales growth is attributed to old stores

compared to new ones. Downgrading each store to a single business unit (SBU) and analysing the average variation of their revenues, we expect an 8%

CAGR 2017-22 on annual basis with around 6 mln revenues per store. This increase is due to the horizontal expansion of the product range which

reduces seasonality and increases profitability as well as the increase in brand awareness. The profitability per square meter will increase from €33K to

€47K in 5 years thanks to many reallocations and expansions and the enlargement of Asia-Pacific middle class: according to a study by consulting firm

McKinsey & Company, 76% of China’s urban population will be considered middle class by 2022;

An extra growth deriving from new openings mark-up which imply a strengthening of brand visibility and brand awareness with a consequently

exponential increase on revenues. The trend in last years was a +8.33% CAGR 2011-16, expected to grow at a +7% annual basis with a slightly reduction

trend in a long-term horizon, mainly due to retail network expansions in new countries like India, Russia and Mexico. (spiegare che le nuove aperture

puntano ad un breakeven annuale).

To estimate future projections on retail revenues in a more accurate way, we adjusted the result of a combination of both those internal growth trends with macroeconomics forecasts taken from the International Monetary Fund (IMF). Given the breakdown by regions, we further recognize each macro-region stated by the company as a single risk unit for the group revenues. Using then multiple linear regressions and ARMA linear models, we linked the historical trends to macroeconomics variables that reflect the economic wealth of countries and observed growth rate profitability per square meter. We subsequently multiplied each revenues growth rate for the number of DOSs that Moncler hold in a specific country, as we arranged that the maximum benefit/loss coming from macroeconomic wealth can affect group revenues as much as the company concentrate its DOSs in one or more specific region (Moncler exogenous exposition is currently concentrate in EMEA and Europe). It follows that once we have estimated the historical elasticity at mean of a change in macroeconomics factors reflected on Mocnler revenues, we used future forecast by the IMF to predict the growth rate of revenues driven by exogenous factors in each region. As result we obtained an average profitability per square meter of €46.83K on annual basis, with a 6.07% CAGR 2017-22, about to stabilize in a long-term prospective because of the decrease in new openings and the increase in DOS expansions. We estimated the more the company will complete its positioning process (around five years from now) the more it’s going to come into play a higher weight of these exogenous factors of macroeconomics regional growth, with an increasing impact on company revenues. WHOLESALE REVENUES Compounded by multi-brand stores, doors and shop-in-shop, the wholesale channel is still considered a strategic vehicle to penetrate new markets and cover suburban areas. According to recent conference calls with the investor relator of the Group, we assumed a constant presence of those shopping centers over time, performing a linear revenues growth with a +8% CAGR 2017-22 and a +5% CAGR 2017-30. This mid-single-digit growth is principally due to a constant reallocation and dismission of less performing wholesale locations not in line with Moncler image. Based on this long-term wholesale reallocation project, we estimate a 17% adjustment of the wholesale weight on total future revenues. E-COMMERCE REVENUES In a still embryonic phase of its development the digital channel is going to play an increasingly important role in the Moncler business. Currently responsible of 0.2% of total revenues, we foresee a target weight of 1% in the 2022 sustained by major resources and investments dedicated to a comprehensive range of digital platforms. A stronger collaboration with online platforms to deliver products and enrich brand image such as YOOX and IBM will provide an increase in online purchasing iven if previsions are more oriented towards a mitigation in line with the objective of preserving the niche spirit of the brand. COGS (COST OF GOODS SOLD) ESTIMATE We foresee a constantly and slightly increasing cost of sales with a +11.36% CAGR 2017-22 supported by expansion of productivity, to face the increasing demand, and the extension of product range with the development of new lines such as knitwear and accessories. For both those aspects the recent investments in a new property plant in Romania will help maintain the COGS growth restrained thanks to the internalization of some production processes and development costs. According to the retail networking expansion still in process, that provides a higher gross margin on revenues compared to the wholesale channel (respectively a 80% against a 60% of gross profitability), we forecast a proportioned decrease of weight on total revenues (settable around a 23% of total revenues) with a consequently gross margin growth of +10.71% CAGR 2017-22.

SELLING EXPENSES We expect selling expenses to grow by 12.06% CAGR for next 5 years, maintaining a constant percentage on revenues around 31%. This trend is reasonable correlated to new openings that requires set-up and personnel costs as well as other correlated cost to support the entire retail network, spreading out brand values and philosophy. As they’re strictly related to new openings we linked them to this increasing trend, considering a growing share of revenues per square meter. Based on that we foresee a 5% CAGR 2017-22 of costs per square meter, reaching an average amount of €18.19K annual basis in 2022. From these assumptions we expect a selling expenses growth trend that follows the revenues one but slightly less due to potential synergies and economies of scale. G&A EXPENSES We expect a +12.12% CAGR for G&A expenses, consisting of all costs related to investments in core business structure such as new designers, IT engineers and other strategic areas in the internal development process. Following past trend, we foresee a constant weight on revenues around 9% from 2017 to 2022 with a slight decrease in a longer-term horizon. A&P EXPENSES We forecast an increase in advertising and promotion expenses, especially in the long term, to support and confirm the brand philosophy and positioning. As well as previous budget items, we expect a strict correlation between A&P and revenues trend as part of their reallocation. TAXATION As Moncler had access to the optional tax exemption mechanism (Patent Box) introduced by the Italian 2015 Stability Law with a duration of 5 tax periods (irrevocable and renewable), for the advantaged taxation of a share of income deriving from the use of some types of intangible assets, we estimated a tax benefit for the three-year period 2015-2017 at around €34 mln, totally reflected in 2017 results. At the same time, we foresee the closure of the previous tax dispute (having a negative impact of €24.5 mln, of which, however, approximately €10 mln already provisioned) will negatively affect 2017 profit for a total of €14.5 mln. Because of the tax benefit linked to the Patent Box (for €34 mln) and the net cost related to agreements on tax breaks of €14.5 mln, Moncler tax rate for the year 2017 is estimated to be around 26%, compared to 33% reported in 2016. Furthermore, according to latest indications provided by the management, we foresee benefits for an additional €14 mln a year for 2018 and 2019 with an estimated tax rate of 29%. We do not incorporate renewal assumptions for the next five years as the benefits are almost entirely deriving from income attributed to the brand, no longer deductible.


Pag. 20 di 25

Balance sheet 2014 2015 2016 2017 2018E 2019E 2020E 2021E 2022E

Brands and other intangible assets - net 258.77 268.01 266.88 264.99 265.87 265.63 265.11 262.01 257.98 % of assets 27.91% 26.48% 23.23% 20.93% 18.86% 17.06% 15.53% 14.31% 13.18%

Goodwill 155.58 155.58 155.58 155.58 155.58 155.58 155.58 155.58 155.58 % of assets 16.78% 15.37% 13.54% 12.29% 11.04% 9.99% 9.12% 8.50% 7.95%

Property, plant and equipment - net 77.25 102.23 123.93 149.19 178.42 208.64 238.28 264.60 292.46 % of assets 8.33% 10.10% 10.79% 11.79% 12.66% 13.40% 13.96% 14.46% 14.94%

Other non-current assets 17.25 22.68 24.69 25.69 26.22 26.98 27.74 28.51 29.27 % of assets 1.86% 2.24% 2.15% 2.03% 1.86% 1.73% 1.63% 1.56% 1.50%

Deferred tax assets 45.97 65.97 74.68 72.58 68.27 70.77 74.22 76.92 79.92 % of assets 4.96% 6.52% 6.50% 5.73% 4.84% 4.54% 4.35% 4.20% 4.08%

Non-current assets 554.83 614.48 645.76 668.03 694.35 727.60 760.93 787.62 815.21 % of Growth 10.22% 10.75% 5.09% 3.45% 3.94% 4.79% 4.58% 3.51% 3.50%

% of assets 59.84% 60.72% 56.21% 52.77% 49.26% 46.72% 44.58% 43.03% 41.65%

Inventories and work in progress 122.82 134.06 135.85 138.50 141.28 144.50 149.41 152.93 156.76 % of assets 13.25% 13.25% 11.83% 10.94% 10.02% 9.28% 8.75% 8.35% 8.01%

% of growth 13.25% 13.25% 11.83% 10.94% 10.02% 9.28% 8.75% 8.35% 8.01%

Trade account receivable 86.59 89.78 104.86 118.71 133.99 149.89 165.97 181.45 192.81 % of assets 9.34% 8.87% 9.13% 9.38% 9.51% 9.62% 9.72% 9.91% 9.85%

Days of sales outstanding 45.53 37.22 36.79 35.41 34.64 34.37 33.80 34.47 34.45

Income taxes 5.94 4.16 5.56 5.27 6.09 6.82 7.60 8.10 8.54 % of assets 0.64% 0.41% 0.48% 0.42% 0.43% 0.44% 0.45% 0.44% 0.44%

Other current asstes 33.55 20.99 13.36 12.25 12.70 12.38 12.07 11.77 11.47 % of assets 3.62% 2.07% 1.16% 0.97% 0.90% 0.79% 0.71% 0.64% 0.59%

Financial current assets - 0.00 3.02 - - - - - - % of assets 0.00% 0.00% 0.26% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%

Cash and cash equivalent 123.42 148.60 243.39 323.18 421.07 516.15 610.80 688.54 772.61 % of assets 13.31% 14.68% 21.19% 25.53% 29.87% 33.14% 35.79% 37.62% 39.47%

Current assets 372.32 397.59 503.02 597.90 715.11 829.73 945.86 1,042.79 1,142.20 % of Growth 15.53% 6.79% 26.52% 18.86% 19.60% 16.03% 14.00% 10.25% 9.53%

% of assets 40.16% 39.28% 43.79% 47.23% 50.74% 53.28% 55.42% 56.97% 58.35%

Total assets 927.14 1,012.06 1,148.78 1,265.93 1,409.47 1,557.34 1,706.79 1,830.41 1,957.40 % of Growth -10.95% 9.16% 13.51% 10.20% 11.34% 10.49% 9.60% 7.24% 6.94%

Share capital 50.00 50.03 50.04 50.00 50.00 50.00 50.00 50.00 50.00 % of l iabilities 5.40% 4.94% 4.34% 3.95% 3.55% 3.21% 2.93% 2.73% 2.55%

Share premium reserve 107.04 108.28 109.19 110.00 110.00 110.00 110.00 110.00 110.00 % of l iabilities 11.55% 10.70% 9.48% 8.69% 7.80% 7.06% 6.44% 6.01% 5.62%

Other reserves 132.13 219.99 348.18 436.40 539.00 641.10 742.45 838.02 932.13 % of l iabilities 14.26% 21.73% 30.21% 34.47% 38.24% 41.17% 43.50% 45.78% 47.62%

% on net income of year X-1 75.90% 67.65% 76.37% 45.00% 37.00% 32.00% 27.00% 22.00% 20.00%

Net result, Group share 129.88 167.86 196.04 277.30 319.06 375.37 434.41 470.54 506.50 % of l iabilities 14.02% 16.58% 17.01% 21.91% 22.64% 24.10% 25.45% 25.71% 25.88%

Equity, Group share 419.05 546.16 703.45 873.70 1,018.06 1,176.47 1,336.86 1,468.56 1,598.63 % of l iabilities 45.22% 53.96% 61.04% 69.02% 72.23% 75.54% 78.33% 80.23% 81.67%

Non controlling interests 1.07 0.65 0.12 0.14 0.16 0.18 0.20 0.21 0.23 % of l iabilities 0.12% 0.06% 0.01% 0.01% 0.01% 0.01% 0.01% 0.01% 0.01%

Equity 420.12 546.90 704.13 826.82 945.14 1,066.38 1,190.81 1,291.20 1,395.25 % of Growth 35.41% 30.18% 28.75% 17.42% 14.31% 12.83% 11.67% 8.43% 8.06%

% of l iabilities 45.34% 54.03% 61.10% 65.31% 67.06% 68.47% 69.77% 70.54% 71.28%

Long-term borrowings 154.24 127.02 75.84 63.49 53.97 50.36 49.57 48.78 47.99 % of l iabilities 16.64% 12.55% 6.58% 5.02% 3.83% 3.23% 2.90% 2.66% 2.45%

Provisions non-current 3.11 5.69 11.88 3.99 4.31 4.63 4.96 5.28 5.36 % of l iabilities 0.34% 0.56% 1.03% 0.31% 0.31% 0.30% 0.29% 0.29% 0.27%

Pension funds and agents leaving indemnities 5.11 4.60 5.26 5.41 5.91 6.43 6.97 7.41 7.87 % of l iabilities 0.55% 0.45% 0.46% 0.43% 0.42% 0.41% 0.41% 0.40% 0.40%

Deferred tax liabilities 74.44 68.75 70.95 78.02 80.00 80.00 78.02 78.02 76.43 % of l iabilities 8.03% 6.79% 6.16% 6.16% 5.68% 5.14% 4.57% 4.26% 3.90%

Other non-current liabilities 3.49 6.22 12.04 5.99 5.23 6.58 5.82 5.17 6.41 % of l iabilities 0.38% 0.61% 1.05% 0.47% 0.37% 0.42% 0.34% 0.28% 0.33%

Non-current liabilities 240.39 212.28 175.97 156.89 149.42 148.00 145.34 144.66 144.05 % of Growth -1.54% -11.69% -17.11% -10.84% -4.76% -0.95% -1.80% -0.47% -0.42%

% of l iabilities 25.94% 20.97% 15.27% 12.39% 10.60% 9.50% 8.52% 7.90% 7.36%

Short-term borrowings 80.33 71.18 64.78 64.55 64.33 64.10 63.88 63.65 63.43 % of l iabilities 8.67% 7.03% 5.62% 5.10% 4.56% 4.12% 3.74% 3.48% 3.24%

Trade accounts payables 112.32 112.97 132.59 143.85 166.66 187.36 204.42 221.43 237.37 % of l iabilities 12.12% 11.16% 11.51% 11.36% 11.82% 12.03% 11.98% 12.10% 12.13%

Days of payables outstanding 213 183 192 180 179.53 183 181 180 178

Income taxes 43.56 36.61 24.58 20.26 25.77 28.98 35.14 37.23 39.64 % of l iabilities 4.70% 3.62% 2.13% 1.60% 1.83% 1.86% 2.06% 2.03% 2.03%

Other current libilities 29.97 32.21 50.32 53.56 58.15 62.51 67.20 72.24 77.66 % of l iabilities 3.23% 3.18% 4.37% 4.23% 4.13% 4.01% 3.94% 3.95% 3.97%

Current liabilities 266.18 252.97 272.26 282.22 314.91 342.96 370.63 394.55 418.10

% of Growth -1.7% -4.96% 7.62% 3.66% 11.58% 8.91% 8.07% 6.45% 5.97%

% of l iabilities 28.72% 24.99% 23.63% 22.29% 22.34% 22.02% 21.72% 21.56% 21.36%

TOTAL LIABILITIES AND EQUITY 926.69 1,012.16 1,152.36 1,265.93 1,409.47 1,557.34 1,706.79 1,830.41 1,957.40 % of Growth -10.9% 9.22% 13.85% 9.86% 11.34% 10.49% 9.60% 7.24% 6.94%


Pag. 21 di 25

COMPETITIVE POSITIONING

Trench Coats Jackets Downs Sweater Shirts T-shirts Dresses Blazers Trausers Linen Accessorizes

High rank

Moncler ✓ ✓ ✓ ✓ ✓ ✓ ✓

Burberry ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓

Prada ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓

Hermes ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓

Gucci ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓

Armani ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓

Dior ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓

Chanel ✓ ✓ ✓ ✓ ✓

Hugo Boss ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓

Low Rank

Canada Goose ✓ ✓ ✓ ✓

Peuterey ✓ ✓ ✓ ✓

Ralph Lauren ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓


Pag. 22 di 25

Burberry 2012 2013 2014 2015 2016 2017

Sales 1,857.20 1,998.70 2,329.80 2,523.20 2,514.70 2,766.00

In-store 1,270,3 1,416.60 1,622,6 1,807.40 1,837,7 2,127.20

Net Rental Expense 182.9 216.3 239.7 278.4 321.4 347.6

Minimum Rental Expense 112 142.6 156.5 190.9 235.3 239

Contingent Rental Expense 70.9 73.7 83.2 87.5 86.1 108.6

Net Rental Expense Growth (%) 30.46 18.26 10.82 16.15 15.45 8.15

Operating Lease Expense 182.9 216.3 239.7 278.4 321.4 347.6

Operating Lease Expense Growth (%) 30.46 18.26 10.82 16.15 15.45 8.15

EBITDAR 653.4 769.7 830.5 862.1 899.1 969.1

EBITDAR Margin 35.18 38.51 35.65 34.17 35.75 35.04

Capital Expenditures -153.1 -176 -154 -155.7 -138 -104.1

Capital Expenditures Growth (%) -41.24 -14.96 12.5 -1.1 11.37 24.57

Prada 2012 2013 2014 2015 2016

Sales 27,576.00 32,936.00 37,017.00 36,032.00 30,345.00

In-store 19942 28,047.00 31378 26,081.00 25767

Net Rental Expense 3,670.00 4,913.00 5,711.00 5,013.00 5,580.00

Minimum Rental Expense 1763 2,182.00 2595 2,284.00 2555

Contingent Rental Expense 1,907.00 2,731.00 3,116.00 2,730.00 3,024.00

Net Rental Expense Growth (%) N.A. 33.87 16.23 -12.21 11.29

New/Relocated Store Expense N.A. 2,011.00 2,534.00 1,361.00 960.00

New/Relocated Store Expense Growth (%) N.A. N.A. 26.03 -46.28 -29.48

Operating Lease Expense 3,670.00 4,913.00 5,711.00 5,013.00 5,580.00

Operating Lease Expense Growth (%) N.A. 33.87 16.23 -12.21 11.29

EBITDAR 11,863.00 15,426.00 17,507.00 14,694.00 12,446.00

EBITDAR Margin 43.02 46.84 47.29 40.78 41.01

Capital Expenditures -1,941.00 -2,790.00 -5,466.00 -2,283.00 -1,474.00

Capital Expenditures Growth (%) N.A. -43.74 -95.93 58.23 35.44

Kering 2016 2015 2014 2013 2012

Sales 12,385.00 11,584.00 10,038.00 9,748.00 9,736.00

In-store 6986 6,337.00 5325 5,069.00 4893

Net Rental Expense 1,161.00 1,060.00 930.00 803.00 946.00

Minimum Rental Expense 750 669.00 566 488.00 622

Contingent Rental Expense 414.00 393.00 365.00 316.00 328.00

Sub-Lease Income 3 3.00 1 1.00 4

Net Rental Expense Growth (%) 9.59 13.91 15.78 -15.09 10.73

Operating Lease Expense 1161 1,060.00 930 803.00 946

Operating Lease Expense Growth (%) 9.59 13.91 15.78 -15.09 10.73

EBITDAR 3365 3,115.00 2921 2,892.00 3021

EBITDAR Margin 27.17 26.89 29.10 29.67 31.02

Capital Expenditures -611 -482.00 -551 -678.00 -442

Capital Expenditures Growth (%) -26.79 12.60 18.64 -53.36 -35.84

LVMH 2016 2015 2014 2013 2012

Sales 37,600.00 35,664.00 30,638.00 29,149.00 28,103.00

In-store 36977 35,231.00 30340 28,869.00 27787

Net Rental Expense 3,422.00 3,388.00 2,742.00 2,489.00 1,944.00

Minimum Rental Expense 2249 2,213.00 1845 1,631.00 1087

Contingent Rental Expense 1,173.00 1,175.00 897.00 858.00 857.00

Net Rental Expense Growth (%) 1 23.56 10.16 28.03 24.38

Operating Lease Expense 3,422.00 3,388.00 2,742.00 2,489.00 1,944.00

Property 3422 3,388.00 N.A. N.A. N.A.

Operating Lease Expense Growth (%) 1.00 23.56 10.16 28.03 24.38

EBITDAR 12037 11,566.00 9764 9,634.00 8884

EBITDAR Margin 32.01 32.43 31.87 33.05 31.61

Hermes 2012 2013 2014 2015 2016

Sales 3,484.00 3,755.00 4,119.00 4,841.00 5,202.00

In-store 2933 3,147.00 3539 4,228.00 4554

Property 1,008.00 1,025.00 1,182.00 1,287.00 1,335.00

Operating leasing Expenses 367.2 414.10 587.3 557.00 810.6

EBITDAR 1,258.00 1,372.00 1,464.00 1,736.00 1,908.00

EBITDAR 0.3611 0.37 0.3554 0.36 0.3668

Capital Expenditures -240.00 -185.00 -245.00 -213.00 -215.00

Capital Expenditures Growth (%) -46.08 22.93 -32.13 12.83 -0.89

Capex 263.00 211.20 278.90 252.40 262.10

Capex growth 0.42 -0.20 0.32 -0.09 0.038

Hugo Boss 2012 2013 2014 2015 2016

Sales 2,345.90 2,432.10 2,571.60 2,808.70 2,692.80

In-store 1157.3 1,252.60 1403.5 1,606.20 1601.6

Online 48.90 61.50 67.80 82.60 75.50

Net Rental Expense 228.8 364.70 409.2 469.10 540.7

Minimum Rental Expense 178.60 260.50 318.40 364.90 405.50

Contingent Rental Expense 50.1 104.20 90.9 104.30 135.4

Net Rental Expense Growth (%) 30.40 59.42 12.19 14.64 15.26

Operating Lease Expense 228.8 364.70 409.2 469.10 540.7

Property N.A. N.A. 409.20 469.10 540.70

Operating Lease Expense Growth (%) 30.4 59.42 12.19 14.64 15.26

EBITDAR 758.10 929.40 1,001.00 1,071.60 1,033.70

EBITDAR Margin 32.32 38.21 38.93 38.15 38.39

Capital Expenditures -166.00 -160.20 -134.70 -130.00 -157.00

Capital Expenditures Growth (%) -53.03 3.47 15.92 3.52 -20.77

The Company’s Growths and vision of being the most desirable fashion and lifestyle brand, HUGO BOSS believes that the desirability of its brands will be the most important factor in the market positioning, The objectives of employing the right people, maximizing customer satisfaction and offering the best products in the industry are in line with this fundamental concept and are predicated on profitable growth, HUGO BOSS wants to ensure that all its activities are consistently aligned in a customer-oriented manner, Taking this as a basis, the Group must act in a digital, agile, sustainable and global manner in all areas, HUGO BOSS is redefining its brand portfolio and the positioning of its brands and is further developing its distribution strategy on this basis the Group is focusing on the digital transformation of its business model and is actively transforming its corporate culture in order to promote entrepreneurial thinking and actions, and to make its key business processes faster and more agile

According to the company’s annual report, Hermès products are available in the following categories – leather goods and saddlery, men’s and women’s ready-to-wear, footwear, belts, gloves, hats, silks and textiles, jewellery, furniture, furnishing fabrics, wallpaper, tableware, fragrances, watches and petit, The company’s brand strategy is consistent across each and every one of these product categories in which it has a presence The strategy that the company follows and adopts ensures the aura of exclusivity remains tightly woven around its products, Hermès also follows a continued tradition of innovation in the ultra-luxury segment, From its early years of inception to the most recent times, the company manufactures and launches exclusive products that increases the allure of the brand and strengthens its position as an object of significant desire among its ultra-rich customer base,

In 2018, growth at Louis Vuitton will be spurred by its continuing creative momentum and quest for excellence across all its businesses, Its many upcoming developments, which remain focused on eliciting high levels of desirability, will be supported by regular, global communication efforts, Events hosted by the brand will continue to be associated with emblematic places around the world Louis Vuitton continues to make solid progress, reflecting its outstanding creativity and the even balance achieved between innovation and reinforcing its iconic brands, The two successive lines released in this collection stand as a technical and aesthetic achievement, illustrating the breadth of Louis Vuitton’s expertise and the virtuosity of its artisans, In another important event, the Maison Louis Vuitton Vendôme opened its doors, This new Paris flagship store, which looks out onto one of the city’s most legendary squares, offers a fascinating new showcase for the brand’s spirit and collections, Accompanying these bold initiatives, Louis Vuitton saw strong momentum in all its business lines with a series of creative triumphs

The chosen strategy of related diversification since 2000 has taken place in Gucci Group corporate strategy proving its reliability and making the Group one of the strongest and recognized luxury market players, External environment and conditions are favorable for diversified companies in luxury industry, as long as highly diversified business groups are able to hold the biggest market stake and core resources and capabilities are efficiently used among different divisions within one group supporting trends for diversification in the luxury world, During 2000-2009 the strength of Gucci has been establishing and spreading to form a brand with strong international presence and economies of scope reached in tangible and intangible resources, Tangible resources were able to eliminate fixed costs for administrative and support services and sharing resources with other brands within Gucci Group can be referred as one of the company’s strengths

Prada is now implementing a turnaround strategy which includes a digital ad campaign, a focus on a younger customer, and a move to close stores and make the full Prada group product selection sold through e-commerce, Beyond e-commerce, Prada’s digital expansion includes forging a direct connection between customers and sales on social media platforms like WeChat in China, Line in Japan and Instagram, WeChat, which services the platform’s 800 million users in China, recently rolled out a capability for Chinese tourists to use its payment system, WeChat Pay, in luxury stores abroad, including Prada, Bertelli referred to physical stores as a “starting platform for digital activity,” including social payments and future online purchases,

Burberry future strategy will include adding more leather goods and newness to its collections, tightening distribution by scaling back its lower-end wholesale partnerships, refreshing stores and using its reputation as a digital innovator to better communicate the transformation of the product offering, The end goal is to elevate Burberry from an “accessible” label into a true luxury player that can go head-to-head with Europe’s most venerable houses, where prices are higher, margins are wider and growth is typically more stable,

http://www.prada.com/


Pag. 23 di 25

WACC Calculation We calculated free different WACC based on Moncler distribution channel by region as provided by the company: EMEA, Asia and Americas. After a deep analysis by Store locations as provided in online company website and Moody's data of the local currency sovereign rating default spread (based upon traded country bonds) over a default free government bond rate. For countries without a Moody's rating but with an S&P rating, I use the Moody's equivalent of the S&P rating. Risk Free Rate Considering the break-down by revenues and geographical area, we mainly averaged the risk free rate according to Moncler’s exposure. We also gave greater importance to the Euro area countries since Moncler is more affected in terms of systemic risk to this economical conglomerate of countries. We kept into consideration the current 10-years Bond interest rates as proxy for the Risk Free Rate. Market Risk Premium In this section we included countries in which Moncler participates with DOSs or is exposed in terms of revenues, but also we considered other countries whose outlook can affect adjacent economies both in terms of economic linkages and both in terms of Marginal GDP on the total. Then summed the Market Risk Premium of each countries and weighted it for the percentage of its GDP on the total : the result is the Market Risk Premium used in the computation of the WACC. Cost of Equity It has been derived using the Capital Asset Pricing Model. In this case the Beta had played a crucial role: it has been computed with two methods. The first one is a linear regression obtained regressing the daily logarithmic returns of Moncler on the ones of FTSEMIB and STOXX600 security Indexes. Both Indexes are not representative of the MRP of Moncler since are listed companies from different sector. Furthermore the linear regressions provided unstable and not reliable results.We then derived the Beta with a peer analysis, results are provides in the table below. The Cost of equity has been computed with the following formula : R_e=r_f+β_R MRP.

Canada Goose 2014 2015 2016

sales 218,414.00 290.83 403.78

in-store 7996 33,023.00 115.237

online N.A. N.A. N.A.

annual lease xpense 1927 4,459.00 8.654

contingent rental expene N.A. N.A. 1,075.00

property 12571 24,430.00 36467

% of growth N.A. 0.94 0.49

Capital Expenditure N.A. N.A. N.A.

% of growth N.A. N.A. N.A.

EBITDAR 30141.13 41,588.69 110634.9

EBITDAR margin 0.14 0.14 0.27

Ralph Lauren 2012 2013 2014 2015 2016 2017

Sales 6,860.00 6,945.00 7,450.00 7,620.00 7,405.00 6,653.00

In-store 3432 3,625.00 3798 3,956.00 3933 6653

Net Rental Expense 427.00 430.00 455.00 466.00 472.00 461.00

Contingent Rental Expense 182 174.00 176 172.00 163 164

Net Rental Expense Growth (%) 34.70 0.70 5.81 2.42 1.29 -2.44

Operating Lease Expense 427 430.00 455 466.00 472 461

Operating Lease Expense Growth (%) 34.70 0.70 5.81 2.42 1.29 -2.44

EBITDAR 1, 708 1,788.00 1839 1,809.00 1532 1443

EBITDAR Margin 24.90 25.74 24.68 23.74 20.69 21.69

Capital Expenditures -135 -158.00 -252 -237.00 -173 -284

Capital Expenditures Growth (%) 14.15 -16.93 -59.29 5.95 27.00 -64.16

Ralph Lauren Corporation’s business model is characterized by tremendous diversity

across distribution channels, merchandise categories and geographies, The

Company’s key competitive advantages are concentrated in inspiration and design;

product development; product merchandising; supply chain and logistics; advertising

and marketing; and unparalleled in-store customer experiences, These many areas of

leadership are complemented by a disciplined operational management that has

supported strong financial results and shareholder value creation over the long term,

Ralph Lauren’s key strategic growth objectives are centered on allocating our strong

cash flows to high ROI activities, including: Expanding our international presence,

principally in Asia and Europe;Extending our direct-to-customer reach via Ralph

Lauren stores and e-commerce;

After selling through wholesalers for most of its history, it's only just beginning to

roll out its direct-to-consumer strategy, Its strategy: rapid growth of e-commerce

bolstered by a few flagship stores that Reiss says will help close the 15-point profit

margin gap with its luxury peers, The direct-to-consumer approach has the added

advantage of reducing Canada Goose's reliance on the struggling retailers that

accounted for all of its sales just three years ago,


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Risk Likelihood/Impact Risk

Mitigated

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a) The risk concerns principally the possibility of a decreasing of inventory turn-over that could impact

negatively on the income statement since the high quality of products and materials has as a high rate

of depreciation.

b.1)The risk is related to the change of not having in the future the right top quality materials to produce

high technological and innovative products. The is risk lays in the impossibility of the company to fully

control all the variable involved in the future provision

b.2) The risk is partially mitigated with the big acquisition of the production plant in Romania. A further

solution would be to directly control other key suppliers of raw materials so as to acquire and control

more information and risk factors

c) shift in customer tastes or arising of new tendencies can impact negatively on revenues especially in

continuously emerging and evolving market like China or South Korea. The mitigant is this case relies

on the strategy of the company to innovate every year the products and the growing culture for the

retail, making very unlikely the possibility of not catching in time new trends in the luxury market

✓

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et

d.1) Counterfeiting risk concern all companies with a strong brand that sell costly products. Of course

the risk is not related nor to the DOS’s sales neither to the wholesale mono-brands’ sales, but rather

online sales that, in case of Moncler accounts for a very small part of the revenues (even though this is

a distribution channel in expansion)

d.2) Risk is not mitigated, but the impact is not severe on group revenues: a possible solution would be

to increase the customer awareness of high quality materials involved in the production

e.1) New DOSs opening has been the pivot of Moncler expansion in the last decade. The high capital

expenditure and investments made in Advertising and Promotion make the company particularly

exposed to this risk, which is also the one that could impact most negatively on revenues

e.2) A possible way to mitigate a part of this risk is to open small franchise shops in potential profitable

cities and invest only in the most profitable ones.

f) Compliance in industrial sector is very stringent because of negative impact that massive industrial

production has on sustainability and pollution. Moncler is seriously committed in sustainability and for

this reason the risk is currently mitigated, even though future changes in regulation are very likely and

the impact that they could have is not known.

g)Moncler revenues account for exogenous factors that do not depend on efficiency internal processes,

but rather on the drift that global economic expansion provide to the luxury segment. A general

slowdown could have negative impact on Moncler’s profitability, especially in regions where the

company is mainly exposed in terms of percentage of revenues (i.e. China, Europe). However the

likelihood for such event is very low since even after year of monetary expansion signs of fast-growing

inflation cannot be detected. The impact however can be severe as well and there are not mitigate.

✓

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h) Mocnler is exposed in for different values n terms of revenues to several currencies. Considering

that the directly production or through third part suppliers is mainly located in countries where the legal

currency is the Euro. However one of the biggest slice of Moncler revenues comes from China and

South Korea, market that are expected to growth further in the next couple of years . The exposure does

not constitute a risk since it is easy manageable through standard use of hedging derivatives i) Moncler has different needs of cash throughout the fiscal year and the ability to generate cash flows

from operational activities is bonded to Q1 and Q4 in particular. From there the need of short-terms

borrowings. Furthermore in months in which production starts (Q3) there is an evident increase in

Accounts payables and Inventory. Then Moncler has a heavy capital expenditure in the retail channel.

However the company managed to accumulated a great amount at the end of the year so this risk is

principally mitigated by the efficiency of the company processes.

✓

✓


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TOP MANAGEMENT

Remo Ruffini - Chairman and CEO Remo Ruffini - CEO

Virginie Morgon - Vice Chairwoman Roberto Eggs - CEONerio Alessandri - Director Luciano Santel - CEO

Vivianne Akriche - Director Andrea Tieghi - CEO

Alessandro Benetton - Director

Christian Gerard Blanchaert - Director

Sergio Buongiovanni - Director

Marco Diego De Benedetti - Director

Pier Francesco Saviotti - Director

Gabriele Galateri Di Genola - Director

Diva Moriani - Director

CORPORATE GOVERNANCE

cfa institute research challenge · moncler,fashion luxury we initiate our coverage on moncler spa...

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