_challenging growth in the luxury and cosmetics sector
TRANSCRIPT
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Challenging growth in the luxuryand cosmetics sector
The luxury and cosmeticsnancial factbook2014 edition
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“2013 has been a challenging year for the luxuryindustry, perhaps the most challenging since the
recession of 2009, and we see this on the impacton the overall industry growth rate.”Paul Wood
Partner, Advisory
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ContentsStatistics and key facts
Index evolution
2 Executive summary
A. Financial parameters
B. Operating aggregates
C. Advertising expenses and net workingcapital analyses
D. SOTP and segment analyses
E. Trading multiples
F. Transaction multiples
6 DCF and valuation parameters
A. Global luxury goods market
B. Global cosmetic goods market
32 Industry overview
Approach
SOTP analysesSample selection
Focus on Moncler, Coty, Tumi, Hengdeli andChow Tai Fook
44 Methodology
54 Glossary
55 Contact us
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The luxury and cosmetics nancial factbook 2014
Executive summary
Page 2
Andrea Guerzoni
Partner, Transaction Support — Milan
EMEIA TAS Leader
Welcome to the fourth edition of EY’s annual nancial factbook for the
luxury and cosmetics sector, which focuses on the current industry trends,
the evolution of the operating aggregates and the key nancial parameters.
The factbook combines publicly available data with input from our sector
leaders based on our experience working with many of the leading luxury
and cosmetics companies in the world.
2013 has been a challenging year for the luxury industry, perhaps the
most challenging since the recession of 2009, and we see this on theimpact on the overall industry growth rate. For the rst time in three
years, the industry growth rate has slowed to single digits at 2.4%*
(10.4% FY12) giving a personal luxury market worth an estimated
€217b. This smaller but still positive growth is mainly led by the US and
Chinese consumption (all over the world) and is supported by the resilient
accessories segment and the progression of the online channel. Looking to
the future, however, we still see positive annual growth rates in the range
of 4% to 6% through FY16. We believe that this positive future growth will
be driven by longer-term urbanization, a reduced drag on the wholesale
market and an increasing shift toward younger, male customers. If overall
growth rates have declined, protability in the sector has been maintained
on average 1% less than last year, and this is largely due to volume growth,
a high retail mix (with higher margins) and a declaration by many players
of an increased focus on efciency.
The cosmetics market shows a smaller decline in growth rates in 2013
(3.8%) and remains a solid market at €175b. The longer-term outlook
also remains positive as the world population with access to cosmetics
in emerging markets is estimated to increase by 50%. As a result, the
beauty industry is expected to double in the next 10 to 15 years with
China, the US, Brazil, India and Japan forecast to become the top markets
(only Europe is missing). By 2020, it is estimated that more than half of
consumers will be in tropical zones, with hot and humid climates, and
over 60% of the world’s population will be living in major urban areas
affected by pollution, so the demand for high-quality cosmetics will
never be higher.
What are the key areas of focus that executives in the industry should
focus on over the next year?
Develop a clearer strategy for the future Chinese market — Long seen as
the panacea for easy growth, the market for China business, both domestic
and tourist, is under pressure. Domestically, we saw the new president make
pronouncements against corruption and gift giving, and higher pricing
due to luxury sales taxes has had a slowdown effect on the domestic China
market for luxury. Many luxury houses invested heavily over the last 5 to 10
years to expand their retail estate into second- and third-tier cities and are
now seeing a reduction in demand in these markets. In some areas, some
of these stores are simply showcases for the Chinese customer to explore
before their overseas shopping trips. Amid a lack of brand loyalty, a desire
for higher-end and more unique products, and an increasing demand for
a digital channel, the right mix of wholesale, retail and online for the China
market is no longer clear. However, we believe adjusting or developing theright strategy to win in China is essential for the future.
Why?
In 2013, Chinese customers accounted for approximately one-third of
the global spend on luxury. The Chinese middle class is evolving, with
more higher-income households likely to fuel growth in the teens in luxury
demand. By 2020, Chinese customers are expected to add up to 40% to
luxury growth.
Paul Wood
Partner, Advisory — Paris
EMEIA and Global Coordinator
*Includes currency effect
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Page 3
The luxury and cosmetics nancial factbook 2014
E x e c u t i v e s u m m a r y
Executive summary
Focus on efciency — While many large and small luxury houses deftly manage their
increased retail footprint, this is not always the case across the back ofce. The core
skills, such as brand image and management, merchandising, range and assortment
planning — design and manufacture — have to be in order to compete in today’s world
of challenging growth. However, many houses, including the international groups, are
somewhat artisanal in how they organize and deliver what are considered non-core or
support functions such as nance, procurement, logistics, HR and IT. Relatively simple
things for other industries — such as leveraging enterprise resource planning, using
big data and analytics to enhance decision-making, and structuring decentralized or
centralized organizations — are often lacking when benchmarked against other sectors
and are leading to increasing pressures on margins.
Why?
This pressure is being compounded by increasing competition from mass prestige
pushing up into the luxury market. Houses are now turning their attention to becoming
as efcient and effective as possible. Upwards of 30% can be taken out of SG&A costs by
having leaner processes, better decision-making tools and more appropriately structured
support functions.
While this may seem small compared to some of the EBITDA delivered due to high margins
and volume-based growth, luxury houses should and are now starting to take
the efciency of their support functions more seriously.
Accelerate your digital presence — E-commerce strategies are not new to the sector,
but we have seen that the luxury houses have lagged behind other industries in
developing clear and concrete plans for capitalizing on the digital opportunity.
Historically, a luxury customer has typically been a middle-aged, high-net-worth
individual, and the intangible rarity associated with luxury products seemed to be at odds
with the fast, young, 24/7 world of the digital economy. However, the average age of the
luxury consumer is falling, largely due to the China and Asian market, and the emergence
of e-tailers, particularly in the US fashion market, is starting to challenge the traditional
luxury world. The need for a consistent digital strategy has never been more pressing.
Why?
Online penetration is growing at a rapid pace. While “only” 4.5% of sales, it is growing
at a massive 30% year-on-year growth. Sixty percent of the online luxury market is in
the US, despite all the hype about Chinese teenagers, with accessories having the highest
penetration to date. M-commerce currently represents one-third of all trafc and up to
10% of sales for some brands.
This edition of the factbook, based on your feedback, has been focused to deliver
operational and nancial aggregates about the industry, along with key valuation
parameters and multiples. We hope that this report proves to be insightful and provokes
constructive thought and discussion within your organization.
Andrea Guerzoni
Paul Wood
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The luxury and cosmetics nancial factbook 2014
Statistics and key facts
Page 4
New markets inAsia-Pacic andLatin Americarepresented
80% ofthe globalcosmeticsmarket growth.
US demand(+7%) surpassedAsia as luxury’smain growthengine in
2013. Youngerpremiumconsumersfrom emergingeconomiesand the US aredriving demand
Mass-marketsales tailed off,particularly in
the US and
Asia.
Global personalluxury market
grew by
in 2013.
2.4%
Online sales
reached30% year-on-yeargrowth in realterms.
The globalcosmetics
market grewby3.8% in 2013.
China, Braziland the UScontributed toalmost half of the global
cosmeticsmarket in 2013.
The US markethas shownsustainable signsof recovery,while theChinese marketis expected tomaintain low-digit growth.
Currencyuctuations stillimpact luxurypurchasingpatterns
(Japanese yen,Russian ruble,Indonesianrupiah andBrazilian real).
For both theluxuryandcosmeticsindustries,digital isproving to be agame-changer,increasingengagementwith consumers
The Urbanmiddle classcould drivecosmeticsmarket
growth 50%over the20 years
next
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The luxury and cosmetics nancial factbook 2014
Page 5
Source: Capital IQ
EY luxury and cosmetics index evolution compared to major indices (base 100 as of 1 January 2008)
The analysis reported in the graph below shows that the EY luxury and cosmetics index (represented by the
companies we included in the EY factbook) has outperformed the market over the last six years with a total
return of 63%, corresponding to an average yearly signicant return of 7.7%, despite the economic downturn.
This relative performance actually illustrates the appetite of investors for an industry that has demonstrated
solid nancial fundamentals in terms of sales growth, major protability, international client base andexposure to emerging markets, attributing higher valuations to companies-related securities.
The EY index is a representation of those luxury and cosmetics companies analyzed within the factbook.
A specic weight has been attributed to each company included in the EY index based on its market
capitalization and revenues (each of these two parameters weighing for a half). The relative weights have
been revised at every company inclusion after its IPO. Finally, the evolution of the EY index has been
compared to these of the S&P 500 and STOXX Europe 600 indexes using 1 January 2008 as a starting date
(rebased to 100).
Index evolution
E x e c u t i v e s u m m a r y
0
20
40
60
80
100
120
140
160
180
200
As of 31 Jul 2014
163.0
133.0
92.2
Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Jul-14Oct-13 Jan-14 Apr-14
EY index STOXX S&P
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PAGE 6 OPENING
LUXURY AND COSMETICS THE EY FINANCIAL FACTBOOK 2014
DCF and valuation parameters
“Positive future growth will be driven bylonger-term urbanization, a reduced drag onthe wholesale market and an increasing shifttoward younger, male customers.”
Paul WoodPartner, Advisory
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The luxury and cosmetics nancial factbook 2014
Page 7Opening
S am pl e s
el e c t i on
an d
s p e c i f c
an al y s e s
E x e c u t i v e s umm ar y
D C F an d v al u a t i on p ar am e t er s
I n d u s t r y ov er vi ew
M e t h o d ol o g y
an d d i s c l ai m er
G l o s s ar y
C on t a c t u s
Financial parameters
Operating aggregates
Advertising expenses and net workingcapital analyses
SOTP and segment analyses
Trading multiples
Transaction multiples
A
B
C
D
E
F
D C F a n d v a l u
a t i o n
p a r a m e t e
r s
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DCF and valuation parametersPage 8
Financial parametersA
Source:
• WACC and LTGR: based on consensus of several brokers’ reports foreach company
• Market capitalization and beta: EY elaboration based on S&P Capital IQ
• Gearing: companies’ nancial statements
Notes:
• Market capitalization is based on a one-month average as of 31 March 2014.
• Gearing is dened as net nancial debt/enterprise value.
• Beta correspond to levered beta measured on a weekly basis over a two-year period.
• Beta gure for Moncler might be inuenced by an insufcient number of
observations on the considered period.
WACC and LTGR by company
• WACC ranges from 7.6% (Luxottica) to 10.5% (Ralph Lauren, Chow Tai Fook), depending on the companies’risk prole perception, with an overall limited variance.
• There is a wider range in long-term growth rates (1% to 4.8%), mainly depending on geographical presence,size and product diversication.
Luxury companies continue to reect high-potential growthcombined with a limited risk prole
Companies are sorted in
decreasing order based on the
market capitalization in euros
observed as of 31 March 2014
(one-month average).
Michael Kors
W A C C ( % )
7.0
7.5
8.0
8.5
9.0
9.5
10.0
10.5
11.0
11.5
12.0
0.0% 1.0% 2.0% 3.0% 4.0% 5.0%
LTGR
Luxottica
Salo
SalvatoreFerragamo
BrunelloCucinelli
Prada
LVMH
Moncler
Swatch
Chow Tai FookRalph Lauren
Hengdeli
BurberryHugoBoss
Tiffany
Kering
Richemont
Hermès
Tod’sCoach
Luxury
companies
Marketcapitalization
(in €m)WACC Gearing Beta LTGR
LVMH 65,304 9.0% 7.8% 1.01 2.3%
Richemont 39,688 9.0% (15.9%) 1.21 3.1%
Hermès 24,528 8.3% (4.1%) 0.72 3.6%
Swatch 23,706 9.3% (4.1%) 1.08 3.1%
Luxottica 18,865 7.6% 7.5% 0.50 3.1%Kering 18,000 9.6% 16.1% 0.96 2.6%
Michael Kors 14,293 8.7% (4.4%) 1.21 4.5%
Prada 13,657 8.7% (2.0%) 0.83 2.7%
Chow Tai Fook 12,268 10.5% 1.8% 1.17 3.6%
Ralph Lauren 10,451 10.5% (8.4%) 1.26 1.0%
Coach 9,914 9.2% (6.2%) 1.06 2.7%
Tiffany 8,422 8.6% 7.5% 1.17 3.2%
Burberry 7,691 9.5% (3.4%) 1.01 3.3%
Hugo Boss 6,540 9.2% 1.1% 0.59 2.5%
Salvatore Ferragamo 3,657 9.5% 1.1% 0.66 3.1%
Moncler 3,217 8.3% 5.2% 1.01 3.2%
Tod’s 2,908 9.2% (6.3%) 0.67 2.9%
Brunello Cucinelli 1,333 8.9% 1.2% 0.62 4.8%
Tumi 1,139 10.4% (1.9%) 1.64 n.a.
Salo 964 8.4% 18.3% 0.72 2.0%
Hengdeli 679 9.8% 21.6% 1.12 3.7%
Average 9.1% 1.6% 0.96 3.0%
Median 9.2% 1.1% 1.01 3.1%
Maximum 10.5% 21.6% 1.64 4.8%
Minimum 7.6% (15.9%) 0.50 1.0%
The luxury and cosmetics nancial factbook 2014
Note: Bubble size reects market capitalization. Dotted lines represent average values.
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Financial parametersA
Page 9DCF and valuation parameters
WACC and long-term growth rate (LTGR) by company
• Natura’s (Brazil) long-term growth rate is signicantly higher than the average sample, driven by itsgeographical coverage.
• WACC sample levels are balanced by the two extremes of Natura (Brazil geographical risk) andShiseido (Japan).
The cosmetics sample is characterized by a smaller number ofcompanies, which signicantly impacts the average value ofnancial parameters
Companies are sorted in
decreasing order based on the
market capitalization in euros
observed as of 31 March 2014
(one-month average).
L’Occitane
Natura
L’Oréal
Beiersdorf Estée Lauder
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
10.0
11.0
12.0
13.0
14.0
0.0% 1.0% 2.0% 3.0% 4.0% 5.0%
W A
C C ( % )
LTGR
Coty
Cosmetics
companies
Market
capitalization
(in €m)
WACC Gearing Beta LTGR
L’Oréal 69,368 8.2% (1.8%) 0.67 3.0%
Estée Lauder 19,355 7.9% (0.6%) 1.14 2.7%
Beiersdorf 15,908 7.6% (8.7%) 0.69 2.1%
Natura 4,985 10.4% 10.8% 0.64 4.8%
Shiseido 5,161 6.1% 15.2% 0.75 n.a.
Coty 4,226 8.2% 23.7% 1.08 2.0%
L’Occitane 2,483 8.7% (8.7%) 0.65 2.3%
Average 8.2% 4.3% 0.80 2.8%
Median 8.2% (0.6%) 0.69 2.5%
Maximum 10.4% 23.7% 1.14 4.8%
Minimum 6.1% (8.7%) 0.64 2.0%
The luxury and cosmetics nancial factbook 2014
Sources:• WACC and LTGR: based on consensus of several brokers’ reports for
each company
• Market capitalization and beta: EY elaboration based on S&P Capital IQ
• Gearing: companies’ nancial statements
Notes:
• Market capitalization is based on a one-month average as of 31 March 2014.
• Gearing is dened as net nancial debt/enterprise value.
• Beta correspond to levered beta measured on a weekly basis over a
two-year period.
Note: Bubble size reects market capitalization. Dotted lines represent average values.
D C F a n d v a l u
a t i o n
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Page 10 DCF and valuation parameters
Financial parameters
WACC (in %) Beta Gearing (in %) LTGR (in %)
Source: Data based on consensus of several brokers’ reports for each company .
Note: LTGR data was not available for Tumi and Shiseido.
EY luxury and cosmetics sample:summary of nancial parameters
6.1%
7.6%
7.6%
7.9%
8.2%
8.2%
8.3%
8.3%
8.4%
8.6%
8.7%
8.7%
8.7%
8.9%
8.9%
9.0%
9.0%
9.2%
9.2%
9.2%
9.3%
9.5%
9.5%
9.6%
9.8%
10.4%
10.4%
10.5%
10.5%
Shiseido
Luxottica
Beiersdorf
Estée Lauder
L'Oréal
Coty
Hermès
Moncler
Salo
Tiffany
Michael Kors
Prada
L'Occitane
Brunello Cucinelli
Average
LVMH
Richemont
Hugo Boss
Tod's
Coach
Swatch
Burberry
alvatore Ferragamo
Kering
Hengdeli
Tumi
Natura
Ralph Lauren
Chow Tai Fook
WACC8.9%
Industry benchmark
Low High
0.50
0.59
0.62
0.64
0.65
0.66
0.67
0.67
0.69
0.72
0.72
0.75
0.83
0.92
0.96
1.01
1.01
1.01
1.06
1.08
1.08
1.12
1.14
1.17
1.17
1.21
1.21
1.26
1.64
Luxottica
Hugo Boss
Brunello Cucinelli
Natura
L'Occitane
Salvatore Ferragamo
Tod's
L'Oréal
Beiersdorf
Salo
Hermès
Shiseido
Prada
Average
Kering
LVMH
Burberry
Moncler
Coach
Swatch
Coty
Hengdeli
Estée Lauder
Chow Tai Fook
Tiffany
Michael Kors
Richemont
Ralph Lauren
Tumi
Beta0.92
Industry benchmark
Low High
Gearing2.2%
Industry benchmark
Low High
(15.9)
(8.7)
(8.7)
(8.4)
(6.3)
(6.2)
(4.4)
(4.1)
(4.1)
(3.4)
(2.0)
(1.9)
(1.8)
(0.6)
1.1
1.1
1.2
1.8
2.2
5.2
7.5
7.5
7.8
10.8
15.2
16.1
18.3
21.6
23.7
Richemont
Beiersdorf
L'Occitane
Ralph Lauren
Tod's
Coach
Michael Kors
Swatch
Hermès
Burberry
Prada
Tumi
L'Oréal
Estée Lauder
Hugo Boss
Salvatore Ferragamo
Brunello Cucinelli
Chow Tai Fook
Average
Moncler
Tiffany
Luxottica
LVMH
Natura
Shiseido
Kering
Salo
Hengdeli
Coty
LTGR3.0%
Industry benchmark
Low High
1.0%
2.0%
2.0%
2.1%
2.3%
2.3%
2.5%
2.6%
2.7%
2.7%
2.7%
2.9%
3.0%
3.0%
3.1%
3.1%
3.1%
3.1%
3.2%
3.2%
3.3%
3.6%
3.6%
3.7%
4.5%
4.8%
4.8%
Ralph Lauren
Salo
Coty
Beiersdorf
L'Occitane
LVMH
Hugo Boss
Kering
Coach
Estée Lauder
Prada
Tod's
Average
L'Oréal
Richemont
Swatch
Luxottica
Salvatore Ferragamo
Moncler
Tiffany
Burberry
Chow Tai Fook
Hermès
Hengdeli
Michael Kors
Brunello Cucinelli
Natura
The luxury and cosmetics nancial factbook 2014
A
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The luxury and cosmetics nancial factbook 2014
B Operating aggregates
Sales CAGR, FY12A–FY15E — luxury companies
Source: Data based on consensus of several brokers’ reports for
each company.
• Expected growth will mainly be driven by:
• Continued strengthening of US economy, resulting in strong domestic demand
• Longer-term urbanization and the shift toward younger and more male consumers • The waning drag on the wholesale segment
Michael Kors, Chow Tai Fook, Moncler and Tumi
notably outperformed average growth levels.
Sales of the luxury companies sample are expected to grow anaverage of 10% annually over the next three years
*Kering sales for FY12A-FY15Eexclude numbers for Groupe Fnac,
Redcats, Conforama and CFAO.
Notes:
• 2013 gures are estimated or actual
depending on their availability as of
the date of this study.
• Figures are converted into euros
using exchange rates as of 31 March
2014. (Source: Capital IQ)
Sales (in €m) FY12A FY13A/E FY14E FY15ECAGR
(FY12A-FY15E)
Michael Kors 1,812 2,418 2,987 4,237 32.7%
Chow Tai Fook 5,374 7,094 7,924 9,029 18.9%
Moncler 489 581 677 783 17.0%
Tumi 289 339 394 458 16.6%
Brunello Cucinelli 280 323 364 410 13.6%Burberry 2,418 2,817 3,073 3,404 12.1%
Hengdeli 1,415 1,561 1,743 1,927 10.8%
Hermès 3,484 3,755 4,178 4,625 9.9%
Prada 3,297 3,587 3,821 4,245 8.8%
Salvatore Ferragamo 1,155 1,256 1,354 1,478 8.6%
Swatch 6,401 6,943 7,535 8,173 8.5%
Tiffany 2,754 2,926 3,160 3,414 7.4%
Richemont 10,150 10,645 11,529 12,569 7.4%
Ralph Lauren 5,040 5,328 5,731 6,235 7.3%
Hugo Boss 2,346 2,432 2,665 2,890 7.2%
LVMH 28,103 29,149 31,155 33,626 6.2%
Luxottica 7,086 7,313 7,727 8,322 5.5%
Kering* 9,736 9,748 10,336 11,129 4.6%
Tod’s 985 983 1,028 1,112 4.1%
Salo 1,199 1,122 1,246 1,327 3.4%
Coach 3,457 3,683 3,544 3,686 2.2%
Average 10.1%
Median 8.5%
Maximum 32.7%
Minimum 2.2%
Page 11DCF and valuation parameters
2.2%
3.4%
4.1%
4.6%
5.5%
6.2%
7.2%
7.3%
7.4%
7.4%
8.5%
8.6%
8.8%
9.9%
10.1%
10.8%
12.1%
13.6%
16.6%
17.0%
18.9%
32.7%
Coach
Salo
Tod’s
Kering
Luxottica
LVMH
Hugo Boss
Ralph Lauren
Richemont
Tiffany
Swatch
Salvatore Ferragamo
Prada
Hermès
Average
Hengdeli
Burberry
Brunello Cucinelli
Tumi
Moncler
Chow Tai Fook
Michael Kors
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Page 12 DCF and valuation parameters
The luxury and cosmetics nancial factbook 2014
B Operating aggregates
Source: Data based on consensus of several brokers’ reports for
each company.
Sales CAGR, FY12A–FY15E — cosmetic companies
• Majority of players are expected to grow at lower single digits, except for Natura and L’Occitane.
• The rising middle class’s increased consumer spending, particularly in emerging markets, is likely todrive demand.
• Innovation and emphasis on quality and new ideas have boosted the cosmetics market.
Natura and L’Occitane signicantly
outperformed the cosmetics sample
expectations.
Sales growth expectations for cosmetics players are lower thanfor the luxury segment but still show an average annual growthof 5% over the FY12A-FY15E period
Notes:
• Figures for 2013 are estimated or
actual depending on their availability
as of the date of this study.
• Figures are converted into euros
using exchange rates as of 31 March
2014. (Source: Capital IQ)
Sales (in €m) FY12A FY13A/E FY14E FY15ECAGR
(FY12A-FY15E)
Natura 1,530 1,691 1,838 2,021 9.7%
L’Occitane 1,043 1,079 1,224 1,367 9.4%
Estée Lauder 7,050 7,389 7,817 8,291 5.6%
Shiseido 4,792 5,196 5,361 5,495 4.7%Beiersdorf 6,040 6,141 6,421 6,816 4.1%
L’Oréal 22,463 22,977 23,397 24,738 3.3%
Coty 3,347 3,374 3,335 3,404 1.0%
Average 5.4%
Median 4.7%
Maximum 9.7%
Minimum 1.0%
1.0%Coty
3.3%L’Oréal
4.1%Beiersdorf
4.7%Shiseido
5.4%Average
5.6%Estée Lauder
9.4%L’Occitane
9.7%Natura
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B Operating aggregates
Source: Data based on consensus of several brokers’ reports for
each company.
• Most of the companies are expected to slightly improve their operating margin in the coming years,driven by:
• Volume growth (which implies higher SG&A leverage)
• Higher proportion of retail in the sales mix leading to higher margins
• Refocusing on efciencies (declared by most of players)
EBITDA remains largely above 20% with some
notable exceptions higher than 30%.
The luxury sample conrmed last year’s healthy EBITDAof 23.7%, with further marginal growth expected
Average EBITDA margin, FY12–FY15E — luxury companies
*Kering margin for FY12A-
FY15E excludes numbers for
Fnac, Redcats, Conforama
and CFAO.
Note: The 2013 EBITDA margin is
computed on the basis of eitheractual or estimated gures for 2013
sales, depending on their availability.
As some groups are listed under
different jurisdictions around the
world, they may use different GAAP,
and therefore a direct comparison
of EBITDA may be less meaningful
than if their results were presented
under the International Accounting
Standards.
10.0%
11.1%
13.6%
17.9%
20.0%
20.2%
21.4%
21.6%
22.0%
23.3%
24.0%
24.6%
25.0%
25.1%
25.9%
27.9%
29.5%
31.9%
31.9%
32.2%
32.9%
35.6%
Hengdeli
Salo
Chow Tai Fook
Brunello Cucinelli
Luxottica
Ralph Lauren
Salvatore Ferragamo
Kering
Tumi
Hugo Boss
Average
Tiffany
LVMH
Tods
Burberry
Richemont
Swatch
Coach
Michael Kors
Prada
Moncler
Hermès EBITDA margin FY12A FY13A/E FY14E FY15EAverage ratio
(FY12A-FY15E)
Hermès 35.5% 36.0% 35.4% 35.7% 35.6%
Moncler 33.0% 33.0% 32.6% 32.9% 32.9%
Prada 31.9% 31.9% 32.3% 32.7% 32.2%
Michael Kors 31.4% 32.3% 31.9% 32.2% 31.9%
Coach 34.5% 33.2% 29.9% 29.8% 31.9%Swatch 28.7% 31.0% 28.7% 29.5% 29.5%
Richemont 27.7% 27.2% 28.1% 28.5% 27.9%
Burberry 27.6% 25.7% 25.4% 24.9% 25.9%
Tod’s 25.4% 24.0% 25.3% 25.8% 25.1%
LVMH 24.7% 24.5% 25.2% 25.5% 25.0%
Tiffany 22.7% 23.9% 25.4% 26.2% 24.6%
Hugo Boss 22.3% 23.1% 23.6% 24.3% 23.3%
Tumi 20.9% 21.5% 22.7% 22.8% 22.0%
Kering* 21.2% 21.0% 21.7% 22.5% 21.6%
Salvatore Ferragamo 19.8% 20.9% 22.0% 23.1% 21.4%
Ralph Lauren 19.7% 19.2% 20.4% 21.4% 20.2%
Luxottica 18.7% 19.5% 20.5% 21.2% 20.0%
Brunello Cucinelli 15.7% 18.6% 18.4% 18.8% 17.9%
Chow Tai Fook 13.2% 13.2% 13.7% 14.0% 13.6%
Salo 9.9% 10.0% 11.8% 12.9% 11.1%
Hengdeli 12.6% 8.0% 9.6% 9.8% 10.0%
Average 23.7% 23.7% 24.0% 24.5% 24.0%
Median 22.7% 23.9% 25.2% 24.9% 24.6%
Maximum 35.5% 36.0% 35.4% 35.7% 35.6%
Minimum 9.9% 8.0% 9.6% 9.8% 10.0%
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Page 14 DCF and valuation parameters
The luxury and cosmetics nancial factbook 2014
B Operating aggregates
Source: Data based on consensus of several brokers’ reports for
each company.
Average EBITDA margin, FY12A–FY15E — cosmetics companies
Cosmetic companies show a solid average EBITDA of 17% that isexpected to grow, although at slightly lower rates than those forluxury companies
• Like luxury companies, most cosmetic companies are expected to improve their operating margin in thecoming years.
• The key drivers of margin growth are:
• Operational efciencies
• Consumers aspiring to increasingly high levels of quality
Notwithstanding its recent signicant
growth, Natura still outperforms the sample’s
protability
Note: The 2013 EBITDA margin is
computed on the basis of either
actual or estimated gures for 2013
sales, depending on their availability.
As some groups are listed under
different jurisdictions around the
world, they may use different GAAP,
and therefore a direct comparison
of EBITDA may be less meaningful
than if their results were presented
under the International Accounting
Standards.
10.2%Shiseido
15.7%Beiersdorf
15.8%Coty
17.4%Average
17.9%L’Occitane
18.7%Estée Lauder
20.7%L’Oréal
23.1%NaturaEBITDA margin FY12A FY13A/E FY14E FY15E
Average ratio
(FY12A-FY15E)
Natura 23.6% 22.7% 23.0% 23.1% 23.1%
L’Oréal 20.2% 20.8% 20.7% 21.1% 20.7%
Estée Lauder 17.4% 18.6% 19.1% 19.7% 18.7%
L’Occitane 19.3% 16.3% 17.8% 18.2% 17.9%Coty 13.7% 14.5% 17.3% 17.7% 15.8%
Beiersdorf 14.7% 15.0% 16.3% 16.8% 15.7%
Shiseido 9.4% 10.2% 10.6% 10.8% 10.2%
Average 16.9% 16.9% 17.8% 18.2% 17.4%
Median 17.4% 16.3% 17.8% 18.2% 17.9%
Maximum 23.6% 22.7% 23.0% 23.1% 23.1%
Minimum 9.4% 10.2% 10.6% 10.8% 10.2%
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B Operating aggregates
Source: Data based on consensus of several brokers’ reports for
each company.
Average capex ratio, FY12A–FY15E — luxury companies
Capex sales ratios for the luxury industry ranges from 5% to 6%,based on historical and estimated gures
• Prada by far outperforms sample capex ratio due to its recent strong focus on retail business, mainlycarried out in 2012 and 2013 following its listing on the Hong-Kong Stock Exchange.
Note: The 2013 capex ratio is
computed based on either actual or
estimated gures for 2013 sales,
depending on their availability.
1.4%
1.8%
2.7%
4.9%
5.0%
5.1%
5.1%
5.1%
5.2%
5.2%
5.2%
5.5%
5.6%
5.8%
6.0%
6.2%
6.4%
6.6%
7.1%
8.2%
8.2%
10.4%
Chow Tai Fook
Hengdeli
Salo
Luxottica
TUMI
Ralph Lauren
Coach
Tod's
Tiffany
Moncler
Kering
Salvatore Ferragamo
Average
LVMH
Swatch
Hermès
Hugo Boss
Richemont
Michael Kors
Burberry
Brunello Cucinelli
PradaCapex ratio FY12A FY13A/E FY14E FY15E
Average ratio
(FY12A-FY15E)
Prada 10.1% 15.3% 8.2% 7.8% 10.4%
Brunello Cucinelli 9.1% 9.3% 8.6% 5.7% 8.2%
Burberry 8.8% 8.4% 8.0% 7.6% 8.2%
Michael Kors 6.0% 8.1% 7.2% N/A 7.1%
Richemont 5.9% 7.2% 7.0% 6.1% 6.6%Hugo Boss 7.0% 7.1% 5.8% 5.5% 6.4%
Hermès 7.5% 5.6% 5.9% 5.6% 6.2%
Swatch 6.0% 6.6% 5.7% 5.7% 6.0%
LVMH 6.1% 5.7% 5.7% 5.5% 5.8%
Salvatore Ferragamo 5.1% 6.5% 5.3% 5.0% 5.5%
Kering 4.5% 6.8% 4.8% 4.8% 5.2%
Moncler 5.4% 5.8% 4.7% 5.0% 5.2%
Tiffany 5.5% 5.1% 5.2% 5.0% 5.2%
Tod’s 4.8% 5.0% 5.8% 4.9% 5.1%
Coach 3.9% 4.8% 5.7% 6.0% 5.1%
Ralph Lauren 4.0% 5.5% 6.1% 4.8% 5.1%
Tumi 5.2% 5.3% 5.2% 4.2% 5.0%
Luxottica 5.3% 5.1% 4.9% 4.6% 4.9%
Salo 2.2% 2.5% 3.1% 3.2% 2.7%
Hengdeli 3.7% 0.9% 1.4% 1.2% 1.8%
Chow Tai Fook 2.0% 1.5% 1.1% 0.9% 1.4%
Average 5.6% 6.1% 5.5% 5.0% 5.6%
Median 5.4% 5.7% 5.7% 5.0% 5.2%
Maximum 10.1% 15.3% 8.6% 7.8% 10.4%
Minimum 2.0% 0.9% 1.1% 0.9% 1.4%
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B Operating aggregates
Source: Data based on consensus of several brokers’ reports for each company.
Average sales CAGR, FY12A–FY15E Average EBITDA margin, FY12A–FY15E Average capex ratio, FY12A–FY15E
EY luxury and cosmetics sample:summary of operating aggregates
EBITDA margin22.3%
Industry benchmark
Low High
10.0%
10.2%
11.1%
13.6%
15.7%
15.8%
17.9%
17.9%
18.7%
20.0%
20.2%
20.7%
21.4%
21.6%
22.0%
22.3%
23.1%
23.3%
24.6%
25.0%
25.1%
25.9%
27.9%
29.5%
31.9%
31.9%
32.2%
32.9%
35.6%
Hengdeli
Shiseido
aflo
Chow Tai Fook
Beiersdorf
Coty
Brunello Cucinelli
L'Occitane
Estée Lauder
Luxottica
Ralph Lauren
L'Oréal
Salvatore Ferragamo
Kering
Tumi
Average
Natura
Hugo Boss
Tiffany
LVMH
Tod's
Burberry
Richemont
Swatch
Coach
Michael Kors
Prada
Moncler
Hermès
1.4%
1.8%
2.7%
2.8%
3.8%
4.1%
4.5%
4.5%
4.9%
5.0%
5.1%
5.1%
5.1%
5.2%
5.2%
5.2%
5.3%
5.5%
5.8%
6.0%
6.2%
6.4%
6.4%
6.6%
6.6%
7.1%
8.2%
8.2%
10.4%
Chow Tai Fook
Hengdeli
aflo
Beiersdorf
Shiseido
Coty
L'Oréal
Estée Lauder
Luxottica
Tumi
Ralph Lauren
Coach
Tod's
Tiffany
Moncler
Kering
Average
Salvatore Ferragamo
LVMH
Swatch
Hermès
Hugo Boss
Natura
Richemont
L'Occitane
Michael Kors
Burberry
Brunello Cucinelli
Prada
Capex ratio5.3%
Industry benchmark
Low High
1.0%
2.2%
3.3%
3.4%
4.1%
4.1%
4.6%
4.7%
5.5%
5.6%
6.2%
7.2%
7.3%
7.4%
7.4%
8.5%
8.6%
8.8%
8.9%
9.4%
9.7%
9.9%
10.8%
12.1%
13.6%
16.6%
17.0%
18.9%
32.7%
Coty
Coach
L'Oréal
aflo
Beiersdorf
Tod's
Kering
Shiseido
Luxottica
Estée Lauder
LVMH
Hugo Boss
Ralph Lauren
Richemont
Tiffany
Swatch
Salvatore Ferragamo
Prada
Average
L'Occitane
Natura
Hermès
Hengdeli
Burberry
Brunello Cucinelli
Tumi
Moncler
Chow Tai Fook
Michael Kors
Sales CAGR8.9%
Industry benchmark
Low High
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Page 18 DCF and valuation parameters
The luxury and cosmetics nancial factbook 2014
CAdvertising expenses andnet working capital analysis
Source: Data based on consensus of several brokers’ reports for each company.
Selected companies — advertising expenses as a % of sales, FY13A/E
• Marketing and advertising represent a signicant cost component for both global luxury and cosmeticsmanufacturers.
• Advertising expenses will remain a major operating topic, especially for companies focusing on top-linegrowth and brand awareness sustainability.
• Cosmetics advertising expenses are signicantly inuenced by their “mass-market” positioning.
• Luxury companies, in addition to advertising, promote their brands via agship stores and ambassadors.
Advertising remains a key driver of the industry
Luxury companies Cosmetics companies
2.0% 2.5%
4.8%5.6% 5.7%
6.2 % 6.2% 6.6%
9.0%
10.7%11.4%
9.3%
23.0% 23.1%24.3%
27.5%
30.0%
C o a c h
T u m i
P r a d a
H e r m è s
T i f f a n y
M o n c l e r
S a l v a t o r e
F e r r a g a m o
L u x o t t i c a
R i c h e m o n t
S a l o
L V M H
L ’ O c c i t a n e
S h i s e i d o
C o t y
B e i e r s d o r f
E s t è e L a u d e r
L ’ O r è a l
i n %
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
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The luxury and cosmetics nancial factbook 2014
CAdvertising expenses andnet working capital analysis
Source: Data based on consensus of several brokers’ reports for each company.
Notes:
• Net working capital (NWC) is determined as current assets less current liabilities (excluding cash or debt-related elements).
• Michael Kors NWC only available for FY12A-FY14E.
• As shown in the graph below, the jewelry and watches business is the most working-capital-intensive of allluxury segments.
• Hard luxuries (watches and jewelry) rely heavily on wholesale channels.
Net working capital requirements for jewelry and watchescompanies are higher than for other luxury companies
Page 19DCF and valuation parameters
80%
N e t w o r k i n g c a p i t a l a s a % o f s a l e s ( % )
60%
40%
20%
-20%
Swatch Tiffany Chow TaiFook
Hengdel i R ichemont Tod’s Salo BrunelloCucinelli
LVMH MichaelKors
SalvatoreFerragamo
Hugo Boss TUMI RalphLauren
Moncler Hermès Burberry Coach Luxottica Kering
0%
Prada
2012 20152012
2015
2012
2015
2012
2015
2012
2015
2012
2015
2015
2012
20122015
2012
2015
2012
2015
2012
2015
2012
2015
2012
2014
2012
2015
2012
2015
2012
2015
2012
2015
2012
20152012 2015 2012 2015
2012
2015
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Page 22 DCF and valuation parameters
D SOTP and segment analyses
Sales breakdown, FY14E (in €b) EBIT breakdown, FY14E (in €b) Enterprise value breakdown, FY14E (in €b)
Source: SOTP based on EY analysis and on the following brokers’ reports: Credit Suisse (28 February 2014), Deutsche Bank (24 February 2014),
Société Générale (24 February 2014) and JP Morgan (21 February 2014).
• Kering SOTP analyses imply a total enterprise value of €25.5b in FY14E.
• Contributing around 98% of the total EBIT for 68% of sales, Gucci Group is the most protable segment interms of operating margin.
Kering: SOTP
6.9
2.90.3 0.0 10.1
0.1%3%
29%
68%
Gucci Group Puma Volcom
LuxuryDivision
Sports & LifestyleDivision
Eliminations Total
1.8
0.1 0.0
(0.1)
1.8
1.0%8%
98%
Gucci Group Puma Volcom
LuxuryDivision
Sports & LifestyleDivision
Eliminations Total
-7%
24.9
2.2 0.3
(1.9)
25.5
1.0%9%
98%
Gucci Group Puma Volcom
LuxuryDivision
Sports & LifestyleDivision
Eliminations Total
-7%
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The luxury and cosmetics nancial factbook 2014
D SOTP and segment analyses Kering: further analysis of Gucci Group through SOTP approach
• Gucci Group SOTP analyses imply an enterprise value of €24.9b in FY13E.
• Within the Gucci Group segment, the Gucci brand alone represents 53% of the top line and 65% of EBIT inFY14E, meaning that the Gucci brand is expected to constitute the largest segment within the Gucci Group
and is also the most protable in terms of operating margin.
Source: SOTP based on EY analysis and on the following brokers’ reports: Credit Suisse (28 February 2014), Deutsche Bank (24 February 2014),
Société Généerale (24 February 2014) and JP Morgan (21 February 2014).
Sales breakdown, FY14E (in €b) EBIT breakdown, FY14E (in €b) Enterprise value breakdown, FY14E (in €b)
Gucci brand
3.6
53%
16%
9%1.1
0.6
1.5 6.9
22%
Bottega Veneta YSL Other brands Gucci Group Gucci brand
1.1
65%
21%
5%0.4
0.1
0.2 1.8
10%
Bottega Veneta YSL Other brands Gucci Group Gucci brand
14.8
59%
23%
6%5.6
1.5
3.0 24.9
12%
Bottega Veneta YSL Other brands Gucci Group
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Page 24 DCF and valuation parameters
The luxury and cosmetics nancial factbook 2014
D SOTP and segment analyses L’Oréal: segment analysis
• The L’Oréal Luxe division accounts for 26% in the total sales in FY13A.
• This division is expected to register a sales growth at a CAGR of 6% over the 2012-16E period, whenits operating income is anticipated to grow from €1,077m to €1,493m (or at a CAGR of 9%) over the
same period.
• The L’Oréal Luxe division will remain one of the biggest divisions within L’Oréal.
Source: Analyst research (H2 2012)
Sales breakdown, FY12A–FY16E (in €b) EBIT breakdown, FY12A–FY16E (in €b) EBIT margin, FY12A-FY16E (in %)
14% 13% 13% 13% 12%
48% 48% 48%48% 49%
24% 25%
26%25%
7% 6%
6%
6%
6%
7%7%
7%
7%8%
0
5
10
15
20
25
30
2012A 2013A 2014E 2015E 2016E
Profess ional products Consumer products L ’O réal L uxe
Active cosmetics Other
22.5
25.724.9
23.623.0
26%CAGR
6%
19%20% 20%
21%21%
16%17%
18%18% 18%
0%
5%
10%
15%
20%
25%
2012A 2013A 2014E 2015E 2016E
L’Oréal Luxe Total
17% 16% 16% 15% 15%
55% 56%56%
55% 55%
29%30%
30%
30%32%8%
6% 9%
5%8%
8%
(16%) (16%) (15%) (15%) (15%)
5%
6%
-1
0
1
2
3
4
5
6
2012A 2013A 2014E 2015E 2016E
3.7
4.7
4.5
4.1
3.9
9%
5%
Profess ional products Consumer products L ’O réal L uxe
EliminationsActive cosmetics Other
CAGR
9%
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E Trading multiples Level of multiples illustrates the growing attractiveness of theluxury sector
• In the luxury sector, expected strong growth and margin improvements are reected in valuations oftrading multiples
• The expected evolution of valuation multiples is the result of an improvement in the top-line growth as wellas in the operating efciency of the luxury companies.
• The average top-line growth for luxury companies is expected to average around the 10% level overFY 2012A–15E.
Source: Data based on consensus of several brokers’ reports for each company.
Notes:
• Market capitalization is based on a one-month average as of 31 March 2014.
• The results of 2013 are actual (A) if the nancial results are “closed” and expected (E) if the nancial year is not closed yet.
EV/sales (FY12A-15E) EV/EBITDA (FY12A-15E) Price to earnings (FY12A-15E)
3.7x
3.3x
2.9x
2.6x
3.2x
3.0x
2.8x
2.5x
0
0.5x
1.0x
1.5x
2.0x
2.5x
3.0x
3.5x
4.0x
2012A 2013A/E 2014E 2015E
Average Median
15.3x
13.3x
11.8x
10.4x
12.7x
11.8x
10.9x
9.7x
0
3.0x
6.0x
9.0x
12.0x
15.0x
18.0x
2012A 2013A/E 2014E 2015E
Average Median
29.4x
28.2x
21.0x
18.2x
25.0x
21.8x
18.8x
16.8x
0
5.0x
10.0x
15.0x
20.0x
25.0x
30.0x
2012A 2013A/E 2014E 2015E
Average Median
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Page 26 DCF and valuation parameters
E Trading multiples Sales multiples illustrate the dynamism of cosmetics over thepast years
• Cosmetics companies’ valuation trading multiples are expected to follow the same trend as the oneexpected for luxury companies
• Sales multiples illustrate continuous improvement in cosmetics companies’ top line from FY12A to FY15E,with 2012 average growth of 4.6% expanding to 6.5% in 2015.
Source: Data based on consensus of several brokers’ reports for each company.
Notes:
• Market capitalization is based on a one-month average as of 31 March 2014.
• The results of 2013 are actual (A) if the nancial results are “closed” and expected (E) if the nancial year is not closed yet.
EV/sales (FY12A-15E) EV/EBITDA (FY12A-15E) Price to earnings (FY12A-15E)
2.3x 2.2x
2.1x
2.0x
2.4x2.4x
2.3x
2.1x
0
0.5x
1.0x
1.5x
2.0x
2.5x
3.0x
3.5x
2012A 2013A/E 2014E 2015E
Average Median Average Median
13.8x
13.1x
11.8x
10.8x
13.9x
13.1x
11.0x10.5x
0
3.0x
6.0x
9.0x
12.0x
15.0x
18.0x
2012A 2013A/E 2014E 2015E
Average Median
25.8x
28.2x
22.7x
20.4x
24.2x
26.2x
22.1x
20.2x
0
5.0x
10.0x
15.0x
20.0x
25.0x
30.0x
35.0x
2012A 2013A/E 2014E 2015E
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The luxury and cosmetics nancial factbook 2014
E Trading multiples EY luxury and cosmetics sample:summary of EV/sales multiples
Source: Data based on consensus of several brokers’ reports for each company.
Note: Market capitalization is based on a one-month average as of 31 March 2014.
EV/sales (FY13A/E) EV/sales (FY14E) EV/sales (FY15E)
6.3x
6.2x
5.8x4.2x
3.7x
3.3x
3.3x
3.3x
3.2x
3.1x
3.0x
3.0x
3.0x
2.8x
2.8x
2.7x
2.7x
2.6x
2.5x
2.5x
2.5x
2.4x
2.3x
2.1x
1.8x
1.8x
1.7x
1.2x
1.1x
Hermès
Michael Kors
MonclerBrunello Cucinelli
Prada
TUMI
Hengdeli
Swatch
Richemont
Tiffany
Average
Salvatore Ferragamo
L'Oréal
Luxottica
Tod's
Hugo Boss
Burberry
Estée Lauder
Coach
Natura
LVMH
Beiersdorf
Kering
L'Occitane
Ralph Lauren
Chow Tai Fook
Coty
Shiseido
aflo
3.0x
Industry benchmark
Low High
5.6x
5.0x
4.9x3.7x
3.5x
3.0x
3.0x
2.9x
2.9x
2.8x
2.8x
2.8x
2.7x
2.7x
2.6x
2.6x
2.5x
2.5x
2.4x
2.3x
2.3x
2.3x
2.1x
1.9x
1.7x
1.7x
1.6x
1.2x
0.9x
Hermès
Moncler
Michael KorsBrunello Cucinelli
Prada
Swatch
Richemont
L'Oréal
Tiffany
TUMI
Hengdeli
Salvatore Ferragamo
Average
Tod's
Luxottica
Coach
Hugo Boss
Estée Lauder
Burberry
LVMH
Natura
Beiersdorf
Kering
L'Occitane
Ralph Lauren
Coty
Chow Tai Fook
Shiseido
aflo
2.7x
Industry benchmark
Low High
5.1x
4.3x
4.2x3.3x
3.2x
2.8x
2.8x
2.7x
2.7x
2.5x
2.5x
2.5x
2.5x
2.5x
2.4x
2.4x
2.3x
2.3x
2.2x
2.1x
2.1x
2.1x
2.0x
1.7x
1.6x
1.5x
1.4x
1.1x
0.9x
Hermès
Moncler
Michael KorsBrunello Cucinelli
Prada
Swatch
L'Oréal
Richemont
Tiffany
Coach
Salvatore Ferragamo
Average
Tod's
Luxottica
TUMI
Hengdeli
Estée Lauder
Hugo Boss
Burberry
Beiersdorf
LVMH
Natura
Kering
L'Occitane
Coty
Ralph Lauren
Chow Tai Fook
Shiseido
aflo
2.5x
Industry benchmark
Low High
Page 27DCF and valuation parameters
D C F a n d v a l u a t i o n
p a r a m e t e r s
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Page 28 DCF and valuation parameters
The luxury and cosmetics nancial factbook 2014
E Trading multiples EY luxury and cosmetics sample:summary of EV/EBITDA multiples
Source: Data based on consensus of several brokers’ reports for each company.
Note: Market capitalization is based on a one-month average as of 31 March 2014.
EV/EBITDA (FY13A/E) EV/EBITDA (FY14E) EV/EBITDA (FY15E)
22.6x
19.3x
17.7x
17.4x
15.9x
15.3x
15.3x
14.3x
14.3x
14.3x
14.0x
13.4x
13.2x
13.1x
13.0x
11.8x
11.8x
11.8x
11.7x
11.6x
11.5x
11.0x
10.8x
10.6x
10.5x
10.4x
10.1x
9.4x
7.6x
Brunello Cucinelli
Michael Kors
Moncler
Hermès
Beiersdorf
Tumi
Hengdeli
Luxottica
L'Oréal
Salvatore Ferragamo
Estée Lauder
Chow Tai Fook
Average
L'Occitane
Tiffany
Richemont
Hugo Boss
Shiseido
Prada
Tod's
Coty
Natura
Kering
Swatch
aflo
Burberry
LVMH
Ralph Lauren
Coach
13.2x
Industry benchmark
Low High
20.3x
16.0x
15.5x
15.4x
14.1x
14.0x
12.9x
12.9x
12.5x
12.5x
12.5x
11.8x
11.6x
11.3x
11.0x
10.9x
10.6x
10.6x
10.6x
10.6x
10.6x
9.9x
9.9x
9.8x
9.6x
9.2x
8.8x
8.3x
8.1x
Brunello Cucinelli
Hermès
Michael Kors
Moncler
L'Oréal
Beiersdorf
Luxottica
Estée Lauder
Tumi
Hengdeli
alvatore Ferragamo
Average
Chow Tai Fook
Tiffany
Shiseido
Prada
Richemont
Tod's
L'Occitane
Swatch
Hugo Boss
Natura
Kering
Coty
Burberry
LVMH
Coach
Ralph Lauren
aflo
11.8x
Industry benchmark
Low High
17.6x
14.3x
13.2x
13.1x
12.9x
12.8x
11.7x
11.6x
11.0x
10.8x
10.8x
10.5x
10.5x
10.2x
10.0x
9.7x
9.6x
9.6x
9.5x
9.5x
9.3x
9.2x
9.0x
8.9x
8.9x
8.5x
8.4x
7.2x
7.0x
Brunello Cucinelli
Hermès
Moncler
L'Oréal
Michael Kors
Beiersdorf
Estée Lauder
Luxottica
alvatore Ferragamo
Tumi
Hengdeli
Shiseido
Average
Tiffany
Chow Tai Fook
Prada
Tod's
Richemont
Swatch
Hugo Boss
Coty
L'Occitane
Natura
Kering
Burberry
Coach
LVMH
Ralph Lauren
aflo
10.5x
Industry benchmark
Low High
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The luxury and cosmetics nancial factbook 2014
Page 29DCF and valuation parameters
D C F a n d v a
l u a t i o n
p a r a m e t e r s
E Trading multiples
6.0x
5.0x
4.0x
3.0x
2.0x
1.0x
2 0 1 5
E V / s a l e s
0% 5.0% 10.0% 15.0% 20.0% 25.0%
2015 sales growth (%)
Tiffany
Hermès
MonclerMichael Kors
Brunello CucinelliPrada
TUMIHengdeli
Chow Tai Fook
L’Occitane
NaturaLVMH
Kering
Salo
Ralph LaurenShiseido
Coty
Coach
Estée Lauder
Tod’s
Luxottica
Swatch Richemont
Hugo Boss
Burberry
Salvatore Ferragamo
Beiersdorf
R2 = 0.2683
Regression analysis: EV/sales multiple vs. EBITDA margin, 2014and 2015 growth
Source: Data based on consensus of several brokers’ reports for each company.
Notes: Market capitalization is based on a one-month average as of 31 March 2014. The 2014 growth corresponds to the sales growth rate between FY13E and FY14E, when the 2015 growth corresponds to the sales growth rate between FY14E and FY15E.
6.0x
5.0x
4.0x
3.0x
2 0 1 4
E V / s a l e s
2.0x
1.0x
0% 5% 10% 15% 20% 25%
2014 EBITDA margin (%)
30% 35% 40%
R2 = 0.5572
Hengdeli
Brunello Cucinelli
Salvatore FerragamoHugo Boss
TUMIEstée Lauder
Beiersdorf
L’Oréal
SaloCoty Ralph Lauren
NaturaKerning
Burberry
LVMH
CoachRichemont
SwatchPrada
Michael Kors
Moncler
Hermès
Chow Tai Fook
Shiseido
L’Occitane
TiffanyTod’s
Luxottica 2 0 1 4 E V / s a l e s
2014 sales growth (%)
Hermès
Moncler
Brunello CucinelliPrada
L’Oréal
Shiseido Ralph Lauren
Salo
Chow Tai Fook
L’Occitane
TUMIHugo BossHengdeli
Burberry
SwatchTiffanyRichemont
Tod’s
Estée LauderKering
Natura
LuxotticaCoach
Coty
Michael Kors
R2 = 0.22016.0x
5.0x
4.0x
3.0x
2.0x
1.0x
(4.0%) 1.0% 6.0% 11.0% 16.0% 21.0% 26.0% 31.0%
BeiersdorfLVMH
Salvatore Ferragamo
6.0x
5.0x
4.0x
3.0x
2 0 1 5
E V / s a l e s
2.0x
1.0x
0% 5% 10% 15% 20% 25%
2015 EBITDA margin (%)
30% 35% 40%
R2 = 0.5802
BrunelloCucinelli
Luxottica
Estée Lauder
L’Oréal
SalvatoreFerragamo
Beiersdorf
SaloShiseido
Chow Tai FookCoty
Ralph Lauren Hugo Boss
NaturaKering
TUMI
Burberry
LVMHTod’s
Tiffany
Richemont
Coach
Swatch
Prada
Michael Kors
Moncler
Hermès
Hengdeli
• Analysis shows strong correlation between EV/sales levels and protability but limitedcorrelation with growth.
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Page 30 DCF and valuation parameters
The luxury and cosmetics nancial factbook 2014
Source: Capital IQ
Transaction multiples Transaction multiples in the luxury industry remain at asignicant premium to many other sectors
• Transaction multiples illustrate the growing attractiveness of the industry over the past few years.
• They also reect a premium to rarity: indeed, the brands reputed to be “on the market” are very few, andthe buyers recognize this and agree to pay a higher price to ensure the priority of the deal.
• The average sales multiple over the last ve years ranged between 0.5x and 1.7x, when the EBITDAmultiple ranged between 6.6x and 15.3x.
EV/sales (FY09-1H14) EV/EBITDA (FY09-1H14)
F
1.2x
1.6x
1.5x
1.7x
1.3x
0.5x 0.5x
1.1x
1.6x
1.3x
1.2x1.1x
0.0x
0.2x
0.4x
0.6x
0.8x
1.0x
1.2x
1.4x
1.6x
1.8x
2.0x
2009 2010 2011 2012 2013 1H14
Average Median
0.0x
2.0x
4.0x
6.0x
8.0x
10.0x
12.0x
14.0x
16.0x
18.0x
7.5x
6.6x
15.3x
12.0x 11.8x11.2x
5.2x4.8x
12.3x
10.7x
9.9x10.4x
2009 2010 2011 2012 2013 1H14
Average Median
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Page 31DCF and valuation parameters
The luxury and cosmetics nancial factbook 2014
D C F a n d v a
l u a t i o n
p a r a m e t e r s
Transaction multiples The M&A deals in the cosmetics industry show similar trend asthe luxury industry
• The average sales multiple over the last ve years ranged between 1.0x and 2.4x, when the EBITDAmultiple ranged between 6.9x and 16.0x. 1H14 transaction multiples in the cosmetics industry materially
differ from the averages of the previous years. Looking at the specic transactions, we note that valuations
were positively impacted by strategic acquisitions carried out by the major players to foster growth inemerging markets and broaden the products’ offering into more innovative segments. In this respect, these
two key themes coupled with the uniqueness of targets have largely increased average valuations.
Source: Capital IQ
EV/sales (FY09-1H14) EV/EBITDA (FY09-1H14)
1.7x
2.4x
1.1x
1.6x
1.9x
1.7x
2.0x
1.8x
0.9x
1.0x
1.7x1.8x
0.0x
0.5x
1.0x
1.5x
2.0x
2.5x
3.0x
2009 2010 2011 2012 2013 1H14
Average Median
6.9x
10.7x
10.0x 10.1x
11.7x
16.0x
6.5x
9.1x
10.1x
8.8x
10.2x
14.9x
0.0x
2.0x
4.0x
6.0x
8.0x
10.0x
12.0x
14.0x
16.0x
18.0x
20.0x
2009 2010 2011 2012 2013 1H14
Average Median
F
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LUXURY AND COSMETICS THE EY FINANCIAL FACTBOOK 2014
Industry overview
“2014 sales outlook still solid: Looking atluxury’s core Chinese consumer, as wellas Korea, Japan, the US and even parts ofEurope, there are still reasons to believe
2014 should be at least as strong as 2013in terms of organic sales growth for thesector. We believe the outlook for theindustry sounds optimistic.”
“Global luxury goods,” HSBC research, March 2014
“Purchase intent for the next 12 months isrising across most categories we surveyedand across all key emerging markets (exceptfor mixed trends in Brazil). Around 50% of
consumers we surveyed plan to purchaseWestern brands over the next 12 months,with sporting goods standing out.”
“Global luxury goods,” Credit Suisse, February 2014
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LUXURY AND COSMETICS THE EY FINANCIAL FACTBOOK 2014
Global luxury goods market
Global cosmetic goods market
A
B
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Page 34 DCF and valuation parameters
The luxury and cosmetics nancial factbook 2014
Page 34 Industry overview
The luxury and cosmetics nancial factbook 2014
Worldwide growth in the personal luxury goods market falls tolower single digits after three years of strong double-digit growth
Global luxury goods market
Sources: Bain & Company and Fondazione Altagamma and other selected research.
Notes: 1) “Worldwide Markets Monitor,” October 2013, and “Worldwide Luxury Markets Monitor, spring 2014, Bain & Company
and Fondazione Altagamma.
2) “Luxury Outlook 2014,” Deutsche Bank, January 2014.
Luxury goods demand growth by nationality (2009-15E)2Worldwide personal luxury goods market trend1
147159
170
167153
173192
212 217245-2558.1% 8.2%
6.9%
-1.8%
-8.4%
13.1%
11.0%10.4%
2.4%
-10%
-5%
0%
5%
10%
15%
-150
-100
-50
0
50
100
150
200
250
300
2005 2006 2007 2008 2009 2010 2011 2012 2013e 2016e
€ b i l l i o n
G r o w t h ( % )
CA G R :
+ 4 - 6 %
Market size Growth
2009 2010 2011 2012 2013e 2014e 2015e
-30%
-20%
-10%
0%
10%
20%
30%
40%
%
Chinese North American European Japanese Other
A
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Page 35DCF and valuation parameters
The worldwide personalluxury goods market isestimated to have grown
by2.4% in 2013.However, at constantexchange rates, themarket with 6.0% growthhas outpaced the realgrowth of 5.0% recordedin 2012.
Retail is still an importantgrowth driver, mainlyfueled by networkexpansion through theopening of ~600 newdirectly operated stores.The organic growthdecelerated as morefocus was placed onin-store renovations inkey markets versus newstore openings.
Europeanconsumerdemand isexpectedto stabilize following expectationsof an improvingeconomicenvironment andrecovery in mostEuropean countrieswith the exception ofItaly and France.
The industry experiencedthe majority of itsdemand coming fromyounger premiumcustomers, emergingeconomies and a revivingUS luxury market.
In 2013, the USexperienced a revival indemand and the
Americas (+7%) surpassed Asia
(+5%) as luxury’s main growth engine, withpositive trends expectedto continue in 2014.
The uctuations in the
euro penalized themarket performance,with Japanese yen contributing over half ofthe differential between
real and nominal growth.
Demand from Chineseconsumers is expected totrend downward due toongoing austeritymeasures, which seem tohave curbed luxury
spending by
10%–15%.
The online luxury goodsmarket continued itssuccessful run, with itsshare of online
penetration increasing to
4.5% in 2013 from 3.6% recorded in theprevious year. Thebrands are increasinglyleveraging the channelfor both sales andcommunication.
The luxury and cosmetics nancial factbook 2014
Industry overview Page 35
Global luxury goods market
I n d u s t r y o v e r v i e w
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Page 36 DCF and valuation parameters
The luxury and cosmetics nancial factbook 2014
Page 36
The luxury and cosmetics nancial factbook 2014
Industry overview
Sources: Bain & Company and Fondazione Altagamma and other selected research.
Notes: 1) “Worldwide Markets Monitor,” October 2013, and “Worldwide Luxury Markets Monitor,” Spring 2014, Bain & Company and Fondazione Altagamma.
. 2) IHS Global Insights.
Global luxury goods market Luxury goods market growth by geography
• The yen’s massive devaluation, which started in 2013, has partially slowed, resulting in repatriated Japanese
luxury spending from South Korea, Europe and the US, greatly beneting local consumption.
• Russia’s ruble devaluation has worsened since 2013 due to its lower credit rating and geopolitical turbulence,
which has deepened its economic slowdown, reducing Russian international purchases (especially in Europe).
• The Indonesian rupiah and Brazilian real have weakened amid slower economic growth and persistent ination,reducing purchases in Europe and Singapore and, to a lesser extent, the US.
1 Key currency uctuations impacting luxury purchasing patterns
• Online penetration continued to expand at a rapid pace and reached 4.5%, supported by 30% y-o-y growth in
real terms.
• The online luxury market is enormously skewed to the US , with the Americas accounting for ~60% of the
worldwide luxury market and accessories having the highest online penetration.
• A number of players have entered the online arena , each having sizable share of the overall market: Brands.com
(35%), E-Tailers (30%) and Retailers.com (35%)
• M-commerce currently represents one-third of trafc and over 10% of sales for some brands.
2 Digital sales driving growth
Luxury goods market growth by geography1
(constant exchange rates)
3%
5%
-1%
10%
3%4%
7%
12%
5%
9%
3%
5%
10%
4% 4%
-2% Y e a r - o n - y e a r g r o w t h
0%
2%
4%
6%
8%
10%
12%
14%
Europe Americas Japan Asia-Pacic Rest of the world
2012A 2013E 2014F
Real GDP growth by selected market (2012-15E)2
BRIC economies
(In %) FY12A FY13E FY14E FY15E
Global 2.6 2.5 3.0 3.5
US 2.8 1.9 2.4 3.0
Eurozone (0.6) (0.4) 1.1 1.5
Japan 1.4 1.5 1.4 1.3
UK 0.3 1.7 2.8 2.6
CEE* 4.6 4.2 4.0 5.9
Brazil 1.0 2.3 1.9 2.9
Russia 3.4 1.3 1.0 1.7
India 4.7 4.6 5.3 6.0
China 7.7 7.7 7.5 7.6
*Central and Eastern Europe
A
“US: Strong consumer condence among the afuent class and an improving wealth effect have sustained US
luxury spending and should continue to do so in 2014.
“Japan: Japanese luxury consumers repatriated demand to their domestic market in 2013, as a result of the
weak yen. We expect this trend to continue in 2014; however, some uncertainties can be linked toconsumers’ reactions to luxury prices increasing in response to the FX move and the increase in VAT.”
“Luxury goods,” Deutsche Bank, April 2014
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The luxury and cosmetics nancial factbook 2014
Page 37DCF and valuation parameters
The luxury and cosmetics nancial factbook 2014
Industry overview Page 37
China becoming a mature market with consolidating growth rates
Mainland Chinese personal luxury
goods markets (2011-2014F)1Top three global personal luxury goods
markets (2013E)1
Share of urban households in China2
Sources: Bain & Company and other selected research Notes: 1) “Worldwide Markets Monitor,” October 2013, and “Worldwide Luxury Markets Monitor,” Spring 2014, Bain & Company
and Fondazione Altagamma.
2) “Luxury Outlook 2014,” Deutsche Bank, January 2014.
• The Chinese market is expected to maintain low-single-digit growth in 2014, with a
corruption crackdown still reducing sales, especially impacting gifting.
• Signicant price differential vs. abroad is driving purchases overseas, with luxury
retail expanding at slower pace.
• Primary drivers of growth include a sustained domestic market, improvedperformance from Hong Kong and Macau, more spending from top foreign markets
in new geographies (South Korea, US West Coast), and sustained spending in
Europe.
• Brands are reshaping their strategies, pushing high-end products and attempting
to improve service levels.
1 Sluggish growth in Greater China
• In 2013, Chinese consumers accounted for about 29% of global luxury sales and
are heading to become nearly one-third of the luxury market.
• The Chinese middle class is evolving, with more higher-income households, which
is favorable for luxury spending.
• By 2020, Chinese consumers are expected to add €70b–€80b (or 30%–40%) to
luxury demand.
• The increase in the number of wealthy households and of their average disposable
income is expected to drive growth levels in the teens in luxury demand in China,
even assuming subdued HNWI spending due to government austerity measures .
2 Chinese consumers confrm dominance as top global customer
Global luxury goods market
62.5
23.0
17.2
0
10
20
30
40
50
60
70
US Mainland Chinaand Hong Kong
Japan
12.5
15.0 15.315-16
0
2
4
6
8
10
12
14
16
2011 2012 2013E 2014F
€ b i l l i o n
€ b i l l i o n
Second position globally after
including Hong Kong
3 914
54
54
22
2916
0%
20%
40%
60%
80%
100%
2012 2022E
Af ue nt Uppe r m id dle cl as s M ass midd le cla ss Poo r
A
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Page 38 DCF and valuation parameters
The luxury and cosmetics nancial factbook 2014
Page 38
The luxury and cosmetics nancial factbook 2014
Industry overview
Accessories continues to lead the pack amid polarization ofconsumption across categories
• Men’s ready-to-wear (RTW) is outperforming women’s in most markets, except for
formalwear in Mainland China.
• Women’s RTW witnessed down trading in mature markets, with more impact from
the competition from premium brands and apparel retailers.
• The high-end segment has shown super-performance in all its different shades ,including made-to-measure and sartorial, absolute luxury and rst lines .
• Brands are increasingly investing in the segment by opening dedicated stores.
• The online penetration is in line with the overall average of the sector.
2 Apparel: high-end segment outperforming
• Strong polarization is observed as both high-end jewelry and affordable grow
signicantly.
• Silver and costume jewelry from fashion brands performed well thanks to the
growing middle class in emerging markets, with the latter becoming more of a
fashion item.
• The demand for watches is slowing down in real terms as over-exposed brands are
suffering in Mainland China.
• The accessible watch segment is showing the highest dynamism.
• Online penetration for hard luxury is far below average, with specialist
watchmakers almost absent from the channel.
3 Hard luxury: strong polarization
• Leather goods have been growing consistently over the years, with the men’s
segment recording double-digit growth.
• Top players are investing in leather suppliers and animal farms as last year witnessed
the strongest focus on “ultimate luxury,” with precious skins ruling.
• Shoes represent one of the fastest-growing categories, with both men’s and women’s
categories witnessing solid performance driven by specialist players.
• The online channel has been leveraged well by accessories segment, which has the
highest online penetration, with shoes above 10%.
• The eyewear market is pegged at €10b; eyewear specialist and house brands make up
a large portion, with absolute/niche players showing the highest growth.
1 Accessories: resilient growth
Sources: Bain & Company and other selected research
Note: 1) “Worldwide Markets Monitor,” October 2013, and “Worldwide Luxury Markets Monitor,” Spring 2014, Bain & Company and
Fondazione Altagamma.
Global luxury goods market
Global personal luxury goods market
by product type (2013E)1Growth rates of global personal luxury
goods market by product type1
Other
Accessories
Apparel
Hard luxury
Beauty
28%
25%
23%
20%
4%
4%
1%
2%
2%
0%
16%
8%
13%
4%
3%
0% 5% 10% 15% 20%
Accessories
Apparel
Beauty
Hard luxury
Other
2012 2013
A
P 39DCF d l ti t
I d t i P 39
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Page 39DCF and valuation parametersIndustry overview Page 39
The luxury and cosmetics nancial factbook 2014
I n d u s t r y o v e r v i e w
P 40 DCF d l ti t
P 40 I d t i
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The luxury and cosmetics nancial factbook 2014
Page 40 Industry overview
The luxury and cosmetics nancial factbook 2014
Worldwide cosmetics market is solid, dynamic and fast-movingGlobal cosmetic goods market
Global cosmetics industry market growth, YOY (2004-13)1
Sources: L’Oréal Annual Report 2013 and other selected research.
Note: 1) L’Oréal estimates of worldwide cosmetics market based on manufacturer net selling prices. Excluding soap, toothpaste, razors and blades. Excluding currency uctuations.
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
%
123 127 134 141 145 147 153 161 168 175
3.4%3.8%
4.9% 5.0%
2.9%
1.0%
4.2%4.6%
4.6%
3.8%
2004 2005 2006 2007 2008 2009 2010 2011 2012 20130
50
100
150
200
€
b i l l i o n
Cosmetics market Growth %
Global cosmetics market segmentation by products
and geographies (2013)1
34%
24%
17%
13%
11%
1%
Oral cosmetics
Makeup
Skin care
Hair care
Fragrances
Hygiene products
33%
22%
21%
13%
8%
3%
Africa, Middle East
North America
Asia-Pacic
Western Europe
Latin America
Eastern Europe
B
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G l o s s ar y
C on t a c t u s
The luxury and cosmetics nancial factbook 2014
Page 41DCF and valuation parameters
The luxury and cosmetics nancial factbook 2014
Industry overview Page 41
Global cosmetic goods market
I n d u s t r y o v e r v i e w
The global cosmeticsmarket grew by an
estimated3.8% during 2013, whichwas slightly lower thanthe historical averageover the past 15 yearsestimated atapproximately 4.1%.
The combined effects ofpopulation,urbanization, progressin infrastructure andgrowth in world GDP willcontinue to drive themarket.
The population withaccess to moderncosmetics could grow by50% over the next 20years, boosted by therapid rise of the urbanmiddle class in the newmarkets.
The consumer behaviorhas not changed since
the crisis, and themarket hascontinued
to expandsteadily.
The beauty market is setto double in size in thenext 10 to 15 years, andall the world’s regionswill grow, with China, theUS, Brazil, India andJapan expected tobecome the top markets.
By 2020, it is estimatedthat more than half ofconsumers will belocated in tropical zoneswith hot, humid climates,and some 60% of theworld’s population willlive in major urbancenters affected bypollution. These trendswill further boost the demand for
qualitycosmeticproducts.
The top trio of countries
China andBrazil (new markets)andthe US (a mature market) — contributed almost
half thegrowth of theworldwide cosmeticsmarket in 2013.
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The luxury and cosmetics nancial factbook 2014
Page 42
The luxury and cosmetics nancial factbook 2014
Industry overview
Cosmetics industry remained resilient even in a difculteconomic period
• The market was buoyant on all continents, even in Western Europe, with growth of
nearly 3.0%.
• From a geographic viewpoint, the new markets continue to attain increasing levels
of growth. Excluding Japan, they represented 80% of worldwide market growth due
in equal shares to Asia-Pacic and Latin America.
• With growth of 4.6%, the selective market continued to grow at a steady pace in
2013, bolstered by Asia. Travel retail contributes 24% of global growth.
• With growth of 3.9%, mass-market sales tailed off, particularly due to lagging
demand in the US and Asia.
• Demand for cosmetics has not been impacted by the economic crisis, with
consumers aspiring for better quality products and eager for new technology
and ideas.
• The beauty market is a supply-driven market fueled by innovation, and
consumers are always looking for quality, performance and perceived results.
• The market has been bolstered by the rise of middle classes all over the world .
31 Widespread growthResilient demand
• Digital media has emerged as a crucial dimension for the brands, with beauty
product consumers constantly looking for tips and recommendations.
• The internet is increasingly integrated into the buying process in a multi channel
context with rise of digital media and social networks.
• With consumer opinions just a click away, they inuence nal choices both online
and in the store.
• The online medium helps maintain a more direct and participative relationship with
their “consumer-ambassadors” while providing them with richer experiences and
services attuned to their vision of beauty.
4 Digital media: the game changer
• Dermocosmetics products that combine cosmetic and dermatological action to
preserve the health and beauty of skin and hair grew by 5.0% in 2013 .
• Traditionally strong in Western Europe, the segment is witnessing its development
accelerate in North America and the new markets
• The dynamism stems from the strong consumer appeal of products combining
efcacy and safety with good value.
• The distribution channels that earlier included traditional pharmacy and
“parapharmacies” channels have now expanded to drugstores, dermacenters in
department stores and medi-spas.
2 Dermocosmetics: huge potential
Sources: L’Oréal Annual Report 2013 and other selected research.
Notes: 1) L’Oréal estimates of worldwide cosmetics market based on manufacturer net selling prices. Excluding soap, toothpaste, razors and blades. Excluding currency uctuations.
Global cosmetic goods marketB
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I n d u s t r y o v e r v i e w
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G l o s s ar y
C on t a c t u s
LUXURY AND COSMETICS THE EY FINANCIAL FACTBOOK 2014
S A MP L E S E L
E C T I ON
AND S P E C I F I C ANAL Y S E S
E X E C UT I V E S U M MAR Y
D C F AND V
AL UAT I ONP A-
R A ME T E R S
I ND U S T R Y OV E R V I E W
G L O S S AR Y
E Y E XP E RT S
SOTP analyses
Approach
Sample selection
Focus on Moncler, Coty, Tumi, Chow
Tai Fook and Hengdeli
M e t h o d o l o g y
MethodologyPage 46
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The luxury and cosmetics nancial factbook 2014
gyg
The entirety of the data utilized in this factbook is publiclydisclosed information. The Transaction Advisory Services
teams of EY who participated in drafting this document have
not had access to any condential information.
If the information used turns out to be incomplete or
incorrect, EY will not be held responsible for any impact this
may have on the results or the analyses presented in this
document.
It must be noted t