Luxury and cosmetics - EY

1 Luxury and cosmeticsThe EY Financial Factbook2013 editionLuxury and cosmetics : the EY Financial Factbook1 2013 EYGM Limited. All rights 3 Executive summary4 Methodology and disclaimer5 Sample selection and specific analyses 6 39 A. Financial parametersB. Operating aggregatesC. Advertising expenses and net working capital analysisD. SOTP and segment analysesE. Trading multiplesF. Focus on transactionsG. Transaction multiplesH. EY Luxury and cosmetics IndexDCF and valuation parametersLet us first have a detailed look at financial parameters ..4 0 7 7A. Global Luxury goods market B. Global cosmetic goods marketC. Points of view from EY s global sector specialists and outside expertsD. Focuses on Brunello Cucinelli and Michael KorsIndustry and then study the industry size and drivers78 80 GlossaryLuxury and cosmetics : EY Global Coordinators2 Luxury and cosmetics : the EY Financial FactbookExecutive summaryWelcome to the third edition of EY s annual Financial factbook for the Luxury and cosmetics sector.

2 The factbook combines financial data, insight from EY s global team of sector specialists and opinions of external back over the past 12 months, some Luxury groups have started to ask questions about their future focus. Some are feeling the pressure of the gradual slowing of global growth in the Luxury market. Growth was in 2012, compared with in 2011. Is this just a short-term slowdown or an indicator of a longer-term trend? Was China just a bubble that has now burst, and will the slow recovery in the US and European markets mean the end of Luxury as we know it? We don t think so. The value of the global market for personal Luxury goods is at an all-time high of more than 200b. With forecasts predicting an average long-term compounded annual growth rate (CAGR) of 5% 6%, we believe that the Luxury industry has a strong future.

3 But, like all industries, it will need to adapt. This factbook gives some insight into how the industry might develop over the years to WoodAndrea GuerzoniLike Luxury , the value of the cosmetics industry has also reached an all-time high. It stands at an estimated 180b, after a growth of in 2012 which was a similar rate to that seen in previous years. Emerging markets in the Asia Pacific Region are the strongest drivers of this growth. In particular, we believe that Africa and Brazil will be markets for the cosmetics industry to watch in the near future. It will be essential for global players to have a local presence in these , what other challenges will the Luxury and cosmetics industries face in the years to come and how can they deal with them?

4 We believe that three key factors are of prime importance to most of the sector s CEOs and their teams. And these factors have a common theme: sustainability and sustainability in its broadest sense. 1. Sustaining the Luxury position: growth, profitability and customer loyalty to a brand will not be easy to sustain. The rise of a new generation of connected customers who have instant access to globally transparent pricing, product comparisons and the opinions of Luxury bloggers means that it will be increasingly challenging to justify and sustain the high pricing differentials that are crucial to a Luxury , combined with the deliberate and valid restriction in the supply of some Luxury goods in order to maintain their value, will pose more than one dilemma for Luxury houses.

5 With emerging market wealth driving near insatiable demand, the supply of some Luxury goods will be restricted to enable them to maintain their value. This will pose logistical and strategic challenges for Luxury houses. 3 2013 EYGM Limited. All rights have seen many Luxury houses respond to the challenges of the new kind of customer by slowly developing a digital strategy. This is not just a web presence to manage brand content and deal with online sales. It is an integrated approach that harnesses social media, and connects mobile and tablet applications with back-office logistics to deliver a viable e-channel. The channel can provide an alternative to retail and wholesale, or complement the more traditional routes to Sustaining development: maintaining the quality and supply of crucial raw materials, such as increasingly rare skins and ethically traceable gems, is a big challenge for some houses.

6 It has led to an increase in vertical acquisitions in the supply chain. For example, crocodile farms in Australia and African ostrich ranches have been on the acquisition menu of larger Luxury groups. But the challenge is not just to secure supply. The focus is on sustainable development in all its forms. It is important to consider the ethics behind the products and images of Luxury ; the perceived and actual wastage in production processes and packaging; and the carbon footprint and water impact of the end Sustaining growth in China: In the long term, how will the Luxury industry develop and sustain the right kind of relationship with Chinese customers?Many Luxury houses have derived great success from their early investments in China. But some are pulling back, especially on retail expansion into tier 3 cities and shopping malls.

7 Recent reports in the French and Italian media have described over-development and fatigue in China s demand for Luxury goods. But, you have to dig beneath the surface to understand the political and social challenges that China faces when it comes to Luxury . Indeed, China is now seeing, on a much greater scale, a phenomenon that we first observed in Japan a few years ago: the Luxury tourist. Such tourists have had a significant impact on retail and wholesale revenues in European and American Luxury cities. Some Luxury houses are struggling to adapt to these customers needs and expectations, and to meet them consistently across all of their believe that China will have a sustainable long-term impact on the global Luxury market. But the lessons that houses learn as they adapt to new ways of doing business must also be applied to other BRIC markets that, we predict, will form the next wave of the Luxury industry s continued factbook follows the same format as previous editions.

8 We present a number of operational and financial aggregates about the industry, along with key valuation parameters and multiples. This content is enriched by opinion from EY s global sector specialists and outside experts. We hope that it proves to be insightful, and that the facts and opinions provoke constructive thought and discussion within your and cosmetics : the EY Financial FactbookMethodology and disclaimerMethodologyThere are many criteria to analyze the operating and financial performances of listed companies. The aim of this survey is not to conduct a detailed analysis of the selected approach implemented in this third edition of the Luxury and cosmetics : EY Financial factbook essentially relies on three types of information: XSeveral standard valuation parameters and operating aggregates XIndustry characteristics (in terms of growth forecasts and drivers) XAn overview of 23 major actors of the industryEven though this data is important and essential to the analysis, it must be stressed that other criteria or parameters could also have been entirety of the data utilized in this factbook is publicly disclosed information.

9 The Transaction Advisory Services teams of EY who participated in drafting this document have not had access to any confidential 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 must be noted that the information provided in this study titled Luxury and cosmetics : The EY Financial factbook 2013 edition is only relevant as of 31 December 2012, unless stated otherwise or apart from subsequent pieces of information included in this survey. Any modification of the analyzed groups financial performances or any evolution of the financial markets that occurred since 31 December 2012 could lead to partially or completely different note that we have presented the actual 2012 figures for the companies that have already released their 2012 annual results as of 31 March 2013 EYGM Limited.

10 All rights selection and specific analysesSample selectionThe sample analyzed is composed of 23 listed companies from the Luxury and cosmetics industry, of which 17 are mostly in the Luxury business and 6 in the cosmetics select these companies, we proceeded as follows: XWe firstly identified pure players of the Luxury sector: Brunello Cucinelli (Cucinelli), Burberry Group plc (Burberry), Coach Inc. (Coach), Compagnie Financi re Richemont (Richemont), Herm s International (Herm s), Hugo Boss AG (Hugo Boss), Kering (Kering), LVMH Moet Hennessy Louis Vuitton (LVMH), Michael Kors Holdings Ltd (Michael Kors), Polo Ralph Lauren Corp. (Ralph Lauren), Prada (Prada), Salvatore Ferragamo (Ferragamo), Swatch Group AG (Swatch), Tiffany & Co.