Ernst&Young Luxury factbook-2015

Seeking
sustainable growth
The luxury and cosmetics
financial factbook
2015 edition

Contents Statistics and key facts
Index evolution
2 Executive summary
A. Financial parameters
B. Operating aggregates
C. Advertising expenses
D. SOTP and segment analyses
E. Trading multiples
F. Transaction multiples
8 DCF and valuation parameters
G. Global luxury goods market
H. Global cosmetics market
I. Points of view from EY’s global sector
specialists and outside experts
36 Industry overview
Approach and SOTP analyses
Sample selection
Focus on Jimmy Choo
64 Methodology
67 Glossary
68 Contact us

The luxury and cosmetics financial factbook 2015
Executive summary
Welcome to the fifth edition of EY’s annual financial factbook for the luxury and cosmetics
sector. The factbook combines publicly available data with input from our sector leaders
based on their work with the world’s leading luxury and cosmetics companies. It looks
at current industry trends, the evolution of operating aggregates and key financial
parameters.
For the second year in a row, the industry experienced an overall contraction in growth:
the value of the global market for personal luxury goods grew by 3.0%, reaching €224b.
After a decade of double-digit growth, fueled by the “retail rush,” brand extensions and
the quest for the highest product positioning, the industry has now entered a period of
maturity. Firms are now focusing on more sustainable growth rates, effective and cost-
conscious retail investments, and how to balance different distribution strategies. Despite
a generally more favorable outlook in Western countries, the economic environment
remains complex. Currency fluctuations and the growing importance of travel retail, are
affecting pricing strategies. And while major emerging markets, such as China and Russia,
show negative trends, Japan and other Asian-Pacific markets are gaining pace.
In terms of profitability, the slowdown in sales has clearly negatively impacted operating
margins: the average margin of the industry’s listed companies declined by 1 percentage
point compared with last year. Overall however, expectations for annual growth for
the industry remain unchanged, in the range of 4% to 6% through 2017. This continued
positive performance will be supported by the growth of luxury consumers and high-net-
worth individuals (HNWIs), accessories and the continued development of online sales.
The global cosmetics market grew by 3.6% in line with the previous year, reaching €181b
in 2014. We expect a positive long-term trend in this segment. Steady growth will be led
mainly by middle-class consumers’ aspiration for high-quality and innovative products. We
also see development opportunities in the natural products and men’s segments.
Flavie Lacault
Factbook global coordinator,
Fashion Luxury — Milan
flavie.lacault@it.ey.com
Executive summaryPage 2
Roberto Bonacina
Director, Lead Advisory MA,
Fashion Luxury — Milan
roberto.bonacina@it.ey.com
Marco Pier Mazzucchelli
Partner, Head of TAS*
Mediterranean — Milan
marco.mazzucchelli@it.ey.com
Note: *Transaction Advisory Services

Executivesummary
The industry faces three main challenges in the year ahead:
• Manage demand worldwide — This year, the industry has been impacted by currency
volatility: many consumers have abandoned local markets and shopped abroad instead,
to benefit from pricing differences. Most dramatically, while domestic consumption
in mainland China dropped 3% in 2014, Chinese consumers increased their spending
globally by 8%. Luxury companies have started to re-think the idea of a consistent offer
throughout the world, to minimize further effects of currency variations. The choice
is between maintaining a consistent pricing policy without adapting to specific local
fluctuations, or presenting a variable price for each area, chasing exchange rates and
purchasing power.
• Define an omni-channel strategy — Most companies are refocusing their strategies on
the customer experience: omni-channel, flawless retail management, people excellence.
Brands are seeking to take control of their operations by managing a dedicated retail
network. In parallel, companies have to deploy their presence worldwide and thus
continue to develop their wholesale portfolio, focusing on the high quality of their
partners. Digital is increasingly important, both as a marketing tool and as a sales
channel. Companies can no longer focus on a single channel: they have to define a
consistent strategy for all distribution networks and adapt their DNA specifically for
each channel, including social media.
• Fine-tune the retail model — The muscular retail strategy carried out by the major
international brands in worldwide tier-one cities has lowered the return of top-line
growth that can be obtained by increasing direct distribution networks. Today clients
are well informed about what they want to buy because of a combination of continuous
on-line/off-line switches, word of mouth, social communities. This may lead to a partial
redefinition of retail strategies, with selected closures of less-performing retail shops,
focus on core locations and well-positioned flagships, reduction in the average size of
directly operated stores (DOS) to improve main sale ratios and reduce costs.
This edition of the factbook, based on your feedback, offers operational and financial
aggregates on the industry, along with key valuation parameters and multiples. It looks at
the industry’s future trends and includes input from our sector leaders. We hope you find
this report insightful and that it provokes constructive thought and discussion within your
organization.
Do not hesitate to contact us for any comments or suggestions.
Roberto Bonacina
roberto.bonacina@it.ey.com
Flavie Lacault
flavie.lacault@it.ey.com
Page 3Executive summary
Marco Pier Mazzucchelli
marco.mazzucchelli@it.ey.com

Statistics and key facts
Globalcosmetics
marketremains
asupply-driven
market,fueledby
innovationwhere
consumersare
alwayslooking
forquality,
performanceand
perceivedresults.
China continues
to be the top
consumer
country (
of the total
market).
Retail remained
a key growth
driver in 2014,
but the market
saw a slowdown
in retail network
expansion,
illustrating the
players’ objective
to focus on
organic growth.
Accessories
have become
the largest
category within
luxury goods
and have grown
the fastest
lately.
Global personal
luxury market
grew by
in 2014.
3%
The online
luxury market
has grown
twelvefold in
the past 11
years and now
makes up
of total
sales.
The global
cosmetics
market grew
by 3.6%
in 2014.
Asia-Pacific and
Latin America
represented
almost half
of the global
cosmetics
market
in 2014.
Demand is still
growing, mainly
sustained by
the touristic
consumption,
which has
been heavily
influenced
by currency
fluctuations
and local
regulations.
The growth
was helped
by the sharp
depreciation
of the euro,
which left the
sector with an
unbalanced
price structure
across regions.
The digital
revolution
has
opened
up huge
opportunities
for both luxury
and cosmetics
industry.
For the second
year running,
dermocosmetics
was the most
dynamic
market,
with growth
of 5.1%.
Executive summaryPage 4
5%
1/3

Source: Capital IQ
Note: 1) Compound annual growth rate
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 seven years with a total return of 87%, corresponding to an average yearly significant return of 9%, despite the economic downturn. This relative
performance actually illustrates the appetite of investors for an industry that is characterized by solid financial fundamentals in terms of sales growth, major profitability,
resilient international client base and exposure to growing markets, attributing higher valuations to companies-related securities.
The EY index is a representation of those luxury and cosmetics companies analyzed within the factbook. A specific weight has been attributed to each company included in
the EY index based on its market capitalization and revenues (each of these two parameters weighing for a half). The relative weights have been revised at every company
inclusion after its initial public offering (IPO). Finally, the evolution of the EY index has been compared to these of the SP 500 and STOXX Europe 600 indexes using
1 January 2008 as a starting date (rebased to 100).
Index evolution
Executivesummary
0
50
100
150
200
250
EY INDEX STOXX SP
As of 31
March
2015
9%
5%
1%
187
143
111
CAGR
08-15
1
85
90
95
100
105
110
115
120
EY INDEX STOXX SP
111
118
116
Page 5Executive summary
(Base 100 as of 1 March 2014)

OPENING
LUXURY AND COSMETICS THE EY FINANCIAL FACTBOOK 2014
DCF and valuation parameters

Opening
DCFandvaluation
parameters
Financial parametersA
B Operating aggregates
C Advertising expenses
D SOTP and segment analyses
E Trading multiples
Transaction multiplesF

DCF and valuation parametersPage 8
Source:
•• WACC and LTGR: based on consensus of several broker reports for each company
•• Market capitalization and beta: EY elaboration based on SP Capital IQ
•• Gearing: companies’ financial statements
Notes:
•• Market capitalization is based on a one-month average as of 31 March 2015.
•• Gearing is defined as net financial debt/enterprise value.
•• Beta corresponds to levered beta measured on a weekly basis over a two-year
period.
•• Beta figure for Moncler and Jimmy Choo might be influenced by an insufficient
number of observations on the considered period.
WACC and LTGR by company
•• WACC ranges from 7.2% (Safilo) to 10.8% (Chow Tai Fook) depending on the company’s risk profile
perception with an overall limited variance.
•• Long-term growth rate (LTGR) presents a larger range (2.0% to 5.0%) mainly depending on size, maturity
stage of the retail network and product diversification.
Luxury companies continue to reflect high-potential growth
combined with a limited risk profile
Companies are sorted in decreasing
order based on the market capitalization
in euros observed as of 31 March 2015
(one-month average).
Note: Bubble size reflects market capitalization. Dotted lines represents average
values.
Luxury
companies
Market
capitalization
(in €m)
WACC Gearing Beta LTGR
LVMH 83,940 9.3% 6.3% 0.95 3.0%
Richemont 44,067 9.8% (10.3%) 1.25 3.0%
Hermès 31,827 8.4% (4.0%) 0.72 3.5%
Luxottica 27,580 7.7% 3.8% 0.64 2.5%
Kering 23,653 9.1% 16.4% 0.88 2.7%
Swatch 21,873 9.5% (6.3%) 1.08 2.8%
Prada 14,983 9.1% (0.5%) 0.53 2.6%
Michael Kors 12,392 10.0% (7.7%) 0.74 3.0%
Burberry 11,211 9.4% (3.9%) 0.98 3.2%
Ralph Lauren 10,754 8.9% (9.4%) 0.81 3.5%
Coach 10,666 10.0% (10.0%) 0.80 2.5%
Tiffany 10,400 9.0% 6.8% 1.10 2.5%
Chow Tai Fook 9,972 10.8% 6.3% 0.81 3.3%
Hugo Boss 8,025 9.6% 1.1% 0.70 2.6%
Salvatore Ferragamo 4,825 9.4% 1.2% 0.75 3.0%
Moncler 3,759 9.1% 2.9% 0.64 3.0%
Tod’s 2,759 10.3% (3.8%) 0.83 3.5%
Tumi 1,463 8.8% (3.5%) 0.91 na
Brunello Cucinelli 1,194 9.2% 4.1% 0.62 5.0%
Jimmy Choo 905 8.1% 16.1% 0.83 na
Safilo 861 7.2% 18.7% 0.79 2.0%
Hengdeli 804 10.2% 21.6% 0.69 2.0%
Average 9.2% 2.1% 0.82 3.0%
Median 9.2% 1.2% 0.80 3.0%
Maximum 10.8% 21.6% 1.25 5.0%
Minimum 7.2% (10.3%) 0.53 2.0%

WACC and LTGR by company
•• Natura’s (Brazil) long-term growth rate continues to be significantly higher than the average sample, driven
by its geographical coverage.
•• WACC sample levels are balanced by the two extremes of Natura (Brazil geographical risk) and Shiseido
(Japan).
The cosmetic sample is characterized by a smaller number of
companies, which significantly impacts the variance of financial
parameters
Companies are sorted in decreasing
order based on the market capitalization
in euros observed as of 31 March 2015
(one-month average).
Natura
L'Oréal
Beiersdorf
Estée Lauder
L'Occitane
Coty
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
10.0%
11.0%
0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0%
WACC
LTGR
Source:
•• WACC and LTGR: based on consensus of several broker reports for each company
•• Market capitalization and beta: EY elaboration based on SP Capital IQ
•• Gearing: companies’ financial statements
Notes:
•• Market capitalization is based on a one-month average as of 31 March 2015.
•• Gearing is defined as net financial debt/enterprise value.
•• Beta corresponds to levered beta measured on a weekly basis over a two-year
period.
Note: Bubble size reflects market capitalization. Dotted lines represents average
values.
DCFandvaluation
parameters
Cosmetics
companies
Market
capitalization
(in €m)
WACC Gearing Beta LTGR
L’Oréal 93,163 7.9% 2.3% 0.71 2.0%
Estée Lauder 28,982 8.3% 0.9% 1.04 2.5%
Beiersdorf 18,242 7.8% (4.4%) 0.77 2.3%
Coty 7,444 8.0% 23.5% 0.99 1.8%
Shiseido 6,788 4.1% 9.3% 0.72 na
L’Occitane 3,628 9.1% (5.3%) 0.68 3.0%
Natura 3,237 10.0% 17.0% 0.87 6.0%
Average 7.9% 6.2% 0.83 2.9%
Median 8.0% 2.3% 0.77 2.4%
Maximum 10.0% 23.5% 1.04 6.0%
Minimum 4.1% (5.3%) 0.68 1.8%

Financial parameters
WACC Beta Gearing LTGR
Source: data based on consensus of several brokers reports for each company
Note: LTGR data was not available for Tumi, Shiseido and Jimmy Choo
EY luxury and cosmetics sample:
summary of financial parameters
A
4.1%
7.2%
7.7%
7.8%
7.9%
8.0%
8.1%
8.3%
8.4%
8.8%
8.9%
8.9%
9.0%
9.1%
9.1%
9.1%
9.1%
9.2%
9.3%
9.4%
9.4%
9.5%
9.6%
9.8%
10.0%
10.0%
Shiseido
Safilo
Luxottica
Beiersdorf
L'Oréal
Coty
Jimmy Choo
Estée Lauder
Hermès
Tumi
Average
Ralph Lauren
Tiffany
Kering
Prada
L'Occitane
Moncler
Brunello Cucinelli
LVMH
Burberry
Swatch
Hugo Boss
Richemont
Michael Kors
Coach
Natura
Hengdeli
Tod's
Chow Tai Fook
WACC9.2%
Industry benchmark
Low High
WACC 8.9%
Industry benchmark
Low High
10.0%
10.2%
10.3%
10.8%
Salvatore Ferragamo
(10.3%)
(10.0%)
(9.4%)
(7.7%)
(6.3%)
(5.3%)
(4.4%)
(4.0%)
(3.9%)
(3.8%)
(3.5%)
(0.5%)
0.9%
1.1%
1.2%
2.3%
2.9%
3.1%
3.8%
4.1%
6.3%
6.3%
6.8%
9.3%
16.1%
16.4%
17.0%
18.7%
21.6%
23.5%
Richemont
Coach
Ralph Lauren
Michael Kors
Swatch
L'Occitane
Beiersdorf
Hermès
Burberry
Tod's
Tumi
Prada
Estée Lauder
Hugo Boss
L'Oréal
Moncler
Average
Luxottica
Brunello Cucinelli
Chow Tai Fook
LVMH
Tiffany
Shiseido
Jimmy Choo
Kering
Natura
Safilo
Hengdeli
Coty
9.2%
Industry benchmark
Low High
Gearing 3.1%
Industry benchmark
Low High
Salvatore Ferragamo
0.53
0.62
0.64
0.64
0.68
0.69
0.70
0.71
0.72
0.72
0.74
0.75
0.77
0.79
0.80
0.81
0.81
0.82
0.83
0.83
0.87
0.88
0.91
0.95
0.98
0.99
1.04
1.08
1.10
1.25
Prada
Brunello Cucinelli
Moncler
Luxottica
L'Occitane
Hengdeli
Hugo Boss
L'Oréal
Shiseido
Hermès
Michael Kors
Beiersdorf
Safilo
Coach
Ralph Lauren
Chow Tai Fook
Average
Tod's
Jimmy Choo
Natura
Kering
Tumi
LVMH
Burberry
Coty
Estée Lauder
Swatch
Tiffany
Richemont
9.2%
Industry benchmark
Low High
Beta 0.82
Industry benchmark
Low High
Salvatore Ferragamo
1.8%
2.0%
2.0%
2.0%
2.3%
2.5%
2.5%
2.5%
2.5%
2.6%
2.6%
2.7%
2.8%
3.0%
3.0%
3.0%
3.0%
3.0%
3.0%
3.0%
3.2%
3.3%
3.5%
3.5%
3.5%
5.0%
6.0%
Coty
Safilo
Hengdeli
L'Oréal
Beiersdorf
Coach
Tiffany
Luxottica
Estée Lauder
Prada
Hugo Boss
Kering
Swatch
Average
Richemont
Michael Kors
Salvatore
Ferragamo
Moncler
L'Occitane
LVMH
Burberry
Hermès
Ralph Lauren
Tod's
Brunello
Cucinelli
Natura
9.2%
Industry benchmark
Low High
LTGR 3.0%
Industry benchmark
Low High
Chow Tai Fook

Sales CAGR, FY13A–FY16E – luxury companies
Source: Data based on consensus of several brokers’ reports for each company
On average, revenue growth of listed companies is still high and almost doubles the growth of the industry.
However growth rates are decreasing. Retail expansion as a growth driver is becoming less effective and still
requires high investments. Expected growth will mainly be driven by:
•• The touristic consumption, oriented by changing currency fluctuations
•• The internet channel, which is expected to experience the highest annual growth ever
•• The rationalization of the retail network in search of a like-for-like growth
Michael Kors and Moncler notably
outperformed the average growth levels.
The sales outlook of luxury companies points to organic
and more like-for-like growth
*Kering sales for FY13A-FY16E exclude
numbers for Redcats, Sergio Rossi and
Groupe Fnac
Notes:
• 2014 figures 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
2015 (Source: Capital IQ).
•• The results of 2014 are actual (A) if
the financial results are closed and
expected (E) if the financial year is
not closed yet.
Page 11DCF and valuation parameters
(6.3%)
1.6%
4.0%
4.4%
5.5%
5.8%
5.6%
6.2%
6.4%
7.3%
7.6%
7.6%
7.8%
8.2%
8.3%
8.3%
8.6%
10.7%
10.8%
11.1%
13.9%
16.3%
20.7%
Coach
Swatch
Tod's
Chow Tai Fook
Prada
Saﬁlo
Tiffany
Ralph Lauren
Richemont
LVMH
Hengdeli
Hugo Boss
Average
Salvatore Ferragamo
Kering
Luxottica
Burberry
Hermès
Jimmy Choo
Brunello Cucinelli
Tumi
Moncler
Michael Kors
DCFandvaluation
parameters
The negative CAGR of Coach is mainly explained by the management
plan to reduce square footage in its directly operated stores by
about 5%, involving the closure of 70 retail stores and 50 outlet
stores by the end of FY15.
Sales (in €m) FY13A FY14A/E FY15E FY16E
CAGR
(FY13A-FY16E)
Michael Kors 3,082 4,055 4,779 5,422 20.7%
Moncler 581 694 806 913 16.3%
Tumi 435 491 563 642 13.9%
Brunello Cucinelli 322 356 400 442 11.1%
Jimmy Choo 130 138 158 177 10.8%
Hermès 3,755 4,119 4,646 5,089 10.7%
Burberry 3,222 3,472 3,816 4,122 8.6%
Luxottica 7,313 7,652 8,659 9,299 8.3%
Kering 9,656 10,038 11,494 12,256 8.3%
Salvatore Ferragamo 1,247 1,321 1,469 1,582 8.2%
Hugo Boss 2,432 2,572 2,813 3,033 7.6%
Hengdeli 2,008 2,217 2,347 2,503 7.6%
LVMH 29,016 30,638 33,604 35,839 7.3%
Richemont 10,649 11,042 12,022 12,831 6.4%
Ralph Lauren 6,935 7,309 7,750 8,296 6.2%
Safilo 1,122 1,179 1,256 1,327 5.8%
Tiffany 3,752 3,956 4,091 4,419 5.6%
Prada 3,587 3,552 3,903 4,207 5.5%
Chow Tai Fook 9,293 8,398 9,449 10,572 4.4%
Tod’s 967 966 1,025 1,088 4.0%
Swatch 8,111 8,353 8,042 8,503 1.6%
Coach 4,724 4,474 3,892 3,892 (6.3%)
Average 7.8%
Median 7.6%
Max 20.7%
Min (6.3%)

Source: data based on consensus of several brokers’ reports for each company
Sales CAGR, FY13A–FY16E – cosmetic companies
Majority of players are expected to grow at lower single digits except for L’Occitane and Natura.
The cosmetics market is still driven by:
•• Innovation and emphasis on quality and new ideas
•• Increased focus on customized and green cosmetics
•• A regional focus on new markets to compensate the slow growth expected in Europe
L’Occitane and Natura significantly
outperformed the cosmetics sample
expectations.
Sales growth expectations for cosmetics players are lower than
for the luxury segment but still show an average annual growth
of 5% over the FY13A-FY16E period
Notes:
•• 2014 figures 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
2015 (Source: Capital IQ).
0.7%
3.0%
4.2%
4.3%
4.6%
5.4%
9.5%
11.7%
Coty
Shiseido
Beiersdorf
L'Oréal
Estée Lauder
Average
Natura
L'Occitane
Sales (in €m) FY13A FY14A/E FY15E FY16E
CAGR
(FY13A-FY16E)
L’Occitane 1,055 1,180 1,333 1,471 11.7%
Natura 2,040 2,155 2,438 2,676 9.5%
Estée Lauder 9,478 10,210 10,142 10,833 4.6%
L’Oréal 22,124 22,532 24,033 25,136 4.3%
Beiersdorf 6,141 6,285 6,595 6,946 4.2%
Shiseido 5,913 5,972 5,695 6,455 3.0%
Coty 4,328 4,237 4,195 4,422 0.7%
Average 5.4%
Median 4.3%
Max 11.7%
Min 0.7%

The slightly lower 2014 EBITDA margin vs 2013 is mainly due to:
•• Lower growth experienced in the emerging markets
•• Sharp currency movements leading to unprecedented price cuts putting pressure on margins
•• Partially compensated by the good performance of accessories
EBITDA remains largely above 20% with few
notable exceptions higher than 30%.
The luxury sample average earnings before taxes, depreciation
and amortization (EBITDA) margin shows that profitability will
not materially grow, even if it still reaches significant level
Average EBITDA margin, FY13A–FY16E — luxury
companies
*Kering margin for FY12A-FY15E
exclude numbers for Redcats, Sergio
Rossi and Groupe Fnac
Note: the 2014 EBITDA margin is
computed on the basis of either
actual or estimated figures for
2014 sales, depending on their
availability. As some groups are listed
under different jurisdictions around
the world, they may use different
generally accepted accounting
principles (GAAP), and therefore a
direct comparison of EBITDA may
be less meaningful than if their
results were presented under the
International Accounting Standards.
7.8%
10.6%
12.8%
17.2%
18.3%
18.4%
20.4%
20.5%
21.0%
21.4%
22.0%
22.5%
23.6%
23.6%
23.8%
23.9%
25.3%
27.1%
27.1%
29.2%
32.5%
33.4%
36.0%
Hengdeli
Saﬁlo
Chow Tai Fook
Jimmy Choo
Ralph Lauren
Brunello Cucinelli
Luxottica
Kering
Tod's
Tumi
Salvatore Ferragamo
Average
Hugo Boss
Swatch
LVMH
Burberry
Tiffany
Coach
Richemont
Prada
Michael Kors
Moncler
Hermès
DCFandvaluation
parameters
EBITDA margin FY13A FY14A/E FY15E FY16E
Average ratio
(FY13A-FY16E)
Hermès 36.0% 35.1% 36.2% 36.7% 36.0%
Moncler 33.0% 33.5% 33.4% 33.8% 33.4%
Michael Kors 32.9% 32.5% 32.5% 32.0% 32.5%
Prada 31.7% 26.8% 28.5% 29.6% 29.2%
Richemont 26.8% 28.2% 26.5% 26.9% 27.1%
Coach 33.2% 27.2% 23.3% 24.5% 27.1%
Tiffany 23.9% 25.5% 25.6% 26.1% 25.3%
Burberry 24.7% 23.4% 23.3% 24.1% 23.9%
LVMH 24.6% 23.0% 23.4% 24.2% 23.8%
Swatch 24.8% 21.6% 23.9% 24.0% 23.6%
Hugo Boss 23.2% 23.0% 23.8% 24.2% 23.6%
Salvatore Ferragamo 20.8% 22.2% 22.1% 22.9% 22.0%
Tumi 21.5% 21.2% 21.6% 21.3% 21.4%
Tod’s 24.0% 19.9% 19.8% 20.4% 21.0%
Kering 21.2% 19.8% 20.1% 20.9% 20.5%
Luxottica 19.5% 20.1% 20.8% 21.2% 20.4%
Brunello Cucinelli 18.6% 18.4% 18.1% 18.4% 18.4%
Ralph Lauren 18.7% 17.6% 18.0% 18.7% 18.3%
Jimmy Choo 15.2% 16.8% 18.1% 18.8% 17.2%
Chow Tai Fook 12.4% 13.0% 13.1% 12.9% 12.8%
Safilo 10.0% 9.4% 11.0% 12.0% 10.6%
Hengdeli 8.0% 7.2% 7.8% 8.0% 7.8%
Average 23.0% 22.1% 22.3% 22.8% 22.5%
Median 23.6% 21.9% 22.7% 23.5% 22.8%
Maximum 36.0% 35.1% 36.2% 36.7% 36.0%
Minimum 8.0% 7.2% 7.8% 8.0% 7.8%

Average EBITDA margin, FY13A–FY16E — cosmetics
companies
Cosmetic companies confirmed last year’s average EBITDA of
17.4% for the FY13A-FY16E period
Cosmetics companies are expected to improve their operating margin in the coming years.
The key drivers of margin growth are:
•• Higher sales of prestige products (which bear higher price tags and margins) in emerging markets
•• Consumers still aspiring to more innovating and high-quality products
Natura and L’Oréal are showing
outperforming profitability.
Note: the 2014 EBITDA margin is
computed on the basis of either
actual or estimated figures for 2014
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.
9.8%
15.2%
15.7%
17.4%
18.6%
19.3%
21.2%
21.9%
Shiseido
Coty
Beiersdorf
Average
L'Occitane
Estée Lauder
L'Oréal
Natura
EBITDA Margin FY13A FY14A/E FY15E FY16E
Average ratio
(FY13A-FY16E)
Natura 22.8% 21.1% 21.6% 22.2% 21.9%
L’Oréal 20.5% 21.1% 21.5% 21.8% 21.2%
Estée Lauder 18.0% 20.2% 18.8% 20.3% 19.3%
L’Occitane 17.4% 18.2% 19.1% 19.5% 18.6%
Beiersdorf 15.1% 15.5% 16.0% 16.4% 15.7%
Coty 14.3% 13.9% 16.1% 16.6% 15.2%
Shiseido 12.0% 8.1% 9.5% 9.6% 9.8%
Average 17.1% 16.9% 17.5% 18.1% 17.4%
Median 17.4% 18.2% 18.8% 19.5% 18.6%
Maximum 22.8% 21.1% 21.6% 22.2% 21.9%
Minimum 12.0% 8.1% 9.5% 9.6% 9.8%

Average capex ratio, FY13A–FY16E — luxury companies
The average capital expenditure (capex) sales ratio of the sample
confirms an industry with intensive capital requirements
The stable average level of 5% to 6% of the capex sales ratio is mainly explained by the requirements of the
retail network (openings, renovations, etc.).
Note: the 2014 capex ratio is computed
on the basis of either actual or estimated
figures for 2014 sales, depending on
their availability.
0.3%
2.0%
3.1%
3.7%
4.7%
5.1%
5.2%
5.5%
5.7%
5.8%
5.8%
5.9%
6.0%
6.0%
6.0%
6.1%
6.9%
7.2%
7.4%
7.8%
8.2%
8.5%
Hengdeli
Chow Tai Fook
Saﬁlo
Luxottica
Kering
Ralph Lauren
LVMH
Tod's
Richemont
Average
Tiffany
Moncler
Tumi
Salvatore Ferragamo
Hugo Boss
Hermès
Coach
Burberry
Michael Kors
Brunello Cucinelli
Jimmy Choo
Swatch
Prada 10.9%
DCFandvaluation
parameters
Prada continues to outperform on capex ratio;
however it is expected to moderate as the
company slows down its store expansion pace.
Capex ratio FY13A FY14A/E FY15E FY16E
Average ratio
(FY13A-FY16E)
Prada 15.3% 10.2% 9.0% 9.0% 10.9%
Swatch 7.1% 12.4% 7.3% 7.1% 8.5%
Jimmy Choo 7.7% 9.1% 7.9% 8.1% 8.2%
Brunello Cucinelli 9.3% 8.8% 7.8% 5.4% 7.8%
Michael Kors 5.6% 9.1% 8.1% 6.7% 7.4%
Burberry 6.4% 7.9% 7.4% 6.9% 7.2%
Coach 4.8% 4.6% 10.5% 7.7% 6.9%
Hermès 5.6% 6.8% 6.1% 5.8% 6.1%
Hugo Boss 7.1% 5.0% 6.0% 5.8% 6.0%
Salvatore Ferragamo 6.6% 6.3% 6.4% 4.7% 6.0%
Tumi 5.4% 6.9% 5.8% 5.7% 6.0%
Moncler 5.6% 7.1% 5.8% 5.2% 5.9%
Tiffany 5.5% 5.8% 6.0% 6.0% 5.8%
Richemont 6.0% 5.3% 5.8% 5.5% 5.7%
Tod’s 5.1% 6.5% 5.3% 5.2% 5.5%
LVMH 5.4% 5.0% 5.3% 5.2% 5.2%
Ralph Lauren 5.2% 5.4% 5.0% 4.8% 5.1%
Kering 6.9% 1.8% 5.0% 4.9% 4.7%
Luxottica 3.7% 3.7% 3.8% 3.7% 3.7%
Safilo 3.2% 3.2% 3.1% 3.0% 3.1%
Chow Tai Fook 1.7% 3.0% 1.8% 1.4% 2.0%
Hengdeli 0.9% (1.6%) 0.9% 0.9% 0.3%
Average 5.9% 6.0% 5.9% 5.4% 5.8%
Median 5.6% 6.0% 5.9% 5.4% 5.9%
Maximum 15.3% 12.4% 10.5% 9.0% 10.9%
Minimum 0.9% (1.6%) 0.9% 0.9% 0.3%

Average capex ratio, FY13A–FY16E — cosmetic
companies
Overall, the capital requirements are lower for the cosmetics
sample, with the exception of those with retail networks
Natura and L’Occitane capex ratios outperform the sample due to their retail profiles.
Note: the 2014 capex ratio is computed
on the basis of either actual or estimated
figures for 2014 sales, depending on
their availability.
3.1%
3.4%
4.0%
4.4%
4.5%
4.6%
5.7%
6.3%
Shiseido
Beiersdorf
Coty
L'Oréal
Average
Estée Lauder
L'Occitane
Natura
Capex ratio FY13A FY14A/E FY15E FY16E
Average ratio
(FY13A-FY16E)
Natura 7.6% 6.8% 5.6% 5.2% 6.3%
L’Occitane 5.7% 6.3% 5.5% 5.5% 5.7%
Estée Lauder 4.5% 4.7% 4.8% 4.6% 4.6%
L’Oréal 4.6% 4.4% 4.4% 4.4% 4.4%
Coty 3.6% 4.4% 4.2% 4.0% 4.0%
Beiersdorf 3.5% 4.3% 3.3% 2.7% 3.4%
Shiseido 1.4% 2.7% 4.3% 3.8% 3.1%
Average 4.4% 4.8% 4.6% 4.3% 4.5%
Median 4.5% 4.4% 4.4% 4.4% 4.4%
Maximum 7.6% 6.8% 5.6% 5.5% 6.3%
Minimum 1.4% 2.7% 3.3% 2.7% 3.1%

Average sales CAGR Average EBITDA margin Average capex ratio
summary of operating aggregates
21.6%
24.1%
24.6%
24.0%
22.5%
20%
21%
22%
23%
24%
25%
FY11 FY12 FY14 FY14 FY15
Ebitda Margin
4.7% 4.9%
5.8% 5.6%
5.9%
0%
1%
2%
3%
4%
5%
6%
7%
Capex ratio
9.7%
11.8% 12.3%
10.1%
7.8%
0%
2%
4%
6%
8%
10%
12%
14%
Sales Growth
DCFandvaluation
parameters
The charts below show the evolution of selected operating aggregates (sales CAGR, EBITDA margin, capex ratio) over the past editions of the EY luxury and cosmetics
factbook. While growth and average profitability are decreasing within the increasingly competing and challenging environment, capex are not.
The market still demands a high operating leverage.
Luxury
After the rebound due to the financial crisis, reaching a peak of 12.3% in FY13, the estimated CAGR of sales for FY15 reached its minimum over the past five years.
Nevertheless, the pace is still significant, and the foreseen growth around 8% reflects a reduced but more sustainable development rate. Actually, after a phase of
accelerated development (mainly driven by retail expansion, product diversification and geographic extension), companies are now more focused on organic growth.
This slowdown in sales growth directly impacts the EBITDA margin aggregates, also showing a slight contraction over the considered period, as a consequence of the
slowdown of emerging markets and a higher pressure on margins.
The capex ratio has remained close to 6%, at its highest over the past five years, confirming the need of high operating leverage of the industry.

Source: data based on consensus of several brokers reports for each company
summary of operating aggregates
The charts below show the evolution of selected operating aggregates (sales CAGR, EBITDA margin, capex ratio) over the past editions of the EY luxury and cosmetics
factbook.
Cosmetics
•• The cosmetics sector on average has lower sales CAGR and EBITDA margin than the luxury sector.
•• Sales CAGR observed in 2014 is in line with the 2013 figure, at the lowest point over the last five years.
•• The EBITDA margin has remained globally stable over the considered period, at a solid level of around 17-18%.
•• The capex ratio is slightly lower than for the luxury companies, mostly stable at 4.5%, which illustrates the lower exposition to retail and thus a lower requirement
for investment.
Average sales CAGR Average EBITDA margin Average capex ratio
17.0%
18.1%
18.3%
17.4% 17.4%
16%
17%
18%
19%
Ebitda Margin
3.3%
4.0%
4.4%
4.7%
4.5%
0%
1%
2%
3%
4%
5%
Capex ratio
8.2%
7.7%
8.8%
5.4% 5.4%
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
Sales Growth

Source: Data based on actual or estimated numbers based on availability as of the date of this report
•• Marketing and advertising represent a significant cost component for both global luxury and cosmetics manufacturers.
•• Advertising expenses will remain a major operating topic, especially for cosmetics companies focusing on top-line growth and brand awareness sustainability.
•• Cosmetics advertising expenses are significantly influenced by their mass-market positioning.
•• Luxury companies have a lower incidence of advertising costs; however, in addition to advertising, one should consider the additional costs/investments to promote
their brands embedded in flagship stores and ambassadors.
Advertising remains a key cost of the industry
C Advertising expenses
4.8% 5.0% 5.2%
6.6% 6.7% 6.7%
9.2%
11.0% 11.4%
23.9%
25.9%
29.1%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
Coach
Tumi
Prada
Hermès
Salvatore
Ferragamo
Moncler
Tiffany
Luxottica
Richemont
Saﬁlo
LVMH
Beiersdorf
Coty
Shiseido
Estée
Lauder
L'Oréal
Luxury companies Cosmetics companies
Average 6.6%
Average 25.1%
2.7% 3.1%
23.2% 23.5%
DCFandvaluation
parameters
Selected companies — advertising expenses as a percentage of sales, FY14A/E

Sales breakdown FY15E (in €b) EBIT breakdown FY15E (in €b) Enterprise value breakdown FY15E (in €b)
Source: SOTP based on EY analysis and on the following brokers reports: RBC Capital (11 February 2015), Deutsche Bank AG (23 February 2015) and JP Morgan (23 March 2015)
•• LVMH SOTP analysis implies a total enterprise valuation of €100.6b in FY15E.
•• The fashion and leather goods segment is the largest contributor both in terms of sales (35%) and EBIT
(57%).
LVMH: SOTPD SOTP and segment analyses
35%
13%
9%
13%
31%
Fashion and
leather goods
Perfumes and
cosmetics
Watches and
jewelry
Wines and
spirits
Selective
retailing
Eliminations Total
34.710.9
3.1
4.4
4.4
(0.4)
12.2
57%
7%
5%
20%
16%
-5%
Fashion and
leather goods
Perfumes and
cosmetics
Watches and
jewelry
Wines and
spirits
Selective
retailing
Eliminations Total
6.61.1
0.3
0.5
1.3
(0.3)
3.7
55%
8%
5%
22%
14%
-4%
0%
Fashion and
leather
goods
Perfumes
and
cosmetics
Watches and
jewelry
Wines and
spirits
Selective
retailing
Elimination Total
100.6
5.2
8.0
22.6
55.1
13.9
(4.4)
0.3
Surplus
assets
Luxury products
(excluding spirits)
Luxury products
(excluding spirits)
Luxury products
(excluding spirits)

Source: SOTP based on EY analysis and on the following brokers reports: RBC Capital (11 February 2015),
JP Morgan (11 February 2015), Societe Generale (18 February 2015) and Deutsche bank (23 February 2015)
•• Kering SOTP analyses imply a total enterprise value of €28.1b in FY15E.
•• Contributing around 97% of the total EBIT for 69% of sales, Gucci group is the most profitable segment in
terms of operating margin.
Kering: SOTP
DCFandvaluation
parameters
69%
7.8
29%
0.3 11.30.0
3.2
3.0%
0%
Gucci Group Puma Other brands Eliminations Total
97%
1.9 8%
.00 2.0
(0.1)
0.2
1.0%
-6%
100%
28.1 8%
0.2 28.1
(2.4)
2.2
1.0%
-8%
Luxury Sport and lifestyle Luxury Sport and lifestyle Luxury Sport and lifestyle

Source: SOTP based on EY analysis and on the following brokers reports: RBC Capital (11 February 2015),
JP Morgan (11 February 2015), Societe Generale (18 February 2015) and Deutsche bank (23 February 2015)
•• Gucci Group SOTP analyses imply an enterprise value of €28.1b in FY15E.
•• Within the Gucci Group segment, the Gucci brand alone represents 49% of the top line and 61% of EBIT in
FY15E, meaning that the Gucci brand is expected to constitute the largest segment within the Gucci Group
and also the most profitable in terms of operating margin.
Kering: further analysis of Gucci Group through SOTP approach
49%
17%
11%
23%
Gucci brand Bottega Veneta YSL Other brands Gucci Group
7.81.8
0.9
1.3
3.8
61%
22%
7%
10%
1.90.2
0.1
0.4
1.2
54%
25%
9%
12%
28.13.3
2.4
7.0
15.3

L’Oréal: segment analysis
•• The two main divisions of L’Oréal are Consumer Products and L’Oréal Luxe, accounting together for 76% of the group’s revenues and 90% of the EBIT. In particular,
the L’Oréal Luxe division accounts for 28% of the total sales in FY14A.
•• This division is expected to register a sales growth at a CAGR of 7.8% over the 2013A-17E period when its operating income is anticipated to grow from €1.17b to
€1.65b (or at a CAGR of 8.9%) over the same period.
•• The L’Oréal Luxe division will remain one of the biggest divisions within L’Oréal.
Sales breakdown FY13A–FY17E (in €b) EBIT breakdown FY13A–FY17E (in €b) EBIT margin FY13A-FY17E
DCFandvaluation
parameters
20% 20% 21% 21% 21%
17% 18% 18% 18% 18%
0%
5%
10%
15%
20%
25%
2013A 2014A 2015E 2016E 2017E
L’Oréal Luxe Total cosmetics
Source: Analyst research H2 2014
13% 13% 14% 13% 13%
49% 48%
48% 47% 47%
27% 28%
28%
28%
29%7% 7%
7%
7%
7%
4% 4%
4%
4%
4%
0
5
10
15
20
25
30
2013A 2014A 2015E 2016E 2017E
Professional Products Consumer Products
L’Oréal Luxe Active Cosmetics
Body Shop
22.1 22.5
25.1
27.6
26.3
CAGR
7.8%
CAGR
4.6%
16% 16% 15% 15% 15%
58% 56%
56% 55% 56%
31%
33%
33% 33%
34%
9% 10%
10%
10%
10%
(16%) (16%) (15%) (15%) (15%)
2%
2%
2%
2%
2%
-1
0
1
2
3
4
5
6
2013A 2014A 2015E 2016E 2017E
Professional Products Consumer Products
L’Oréal Luxe Active Cosmetics
Eliminations Body Shop
3.8
4.9
4.6
4.4
3.9
CAGR
8.9%
CAGR
5.5%

Level of multiples illustrates the still-high attractiveness of the
luxury industry
•• The level is quite stable with respect to last year’s figures, even considering the slightly lower margins,
showing a good resilience of the industry and confidence of the analysts in future strong growth and
significant margins.
•• The decreasing trend observed over the years is actually explained by the expected improvement of the
operating performance.
Source: Data based on consensus of several brokers reports for each company
Notes:
•• The trading multiples are based on:
•• Fixed EV computed as market capitalization as of 31 March 2015 (one-month average) and latest-available net financial debt
•• Projections estimated by analysts for successive years
EV/sales (FY14A/E-16E) EV/EBITDA (FY14A/E-16E) Price to earnings (FY14A/E-16E)
E Trading multiples
3.0x
2.8x
2.5x
2.9x
2.7x
2.5x
0
0.5x
1.0x
1.5x
2.0x
2.5x
3.0x
3.5x
4.0x
2014A/E 2015E 2016E
Average Median
13.3x
11.9x
10.8x
13.4x
12.1x
10.9x
0
3.0x
6.0x
9.0x
12.0x
15.0x
18.0x
2014A/E 2015E 2016E
Average Median
24.1x
21.4x
19.1x
23.4x
21.7x
19.4x
0
5.0x
10.0x
15.0x
20.0x
25.0x
30.0x
2014A/E 2015E 2016E
Average Median

Improvement of multiples level for the cosmetics companies
illustrates the growing dynamism of the industry
•• Trading multiples of the cosmetics companies are globally in line with those of the luxury industry, even
with slightly higher figures for EBITDA multiples, illustrating analysts’ expectations for margins to improve
in the next years.
Notes:
•• The trading multiples are based on:
•• Fixed EV computed as market capitalization as of 31 March 2015 (one-month average) and latest-available net financial debt
•• Projections estimated by analysts for successive years
EV/sales (FY14A/E-16E) EV/EBITDA (FY14A/E-16E) Price to earnings (FY14A/E-16E)
DCFandvaluation
parameters
E Trading multiples
2.6x
2.5x
2.3x
2.8x
2.6x
2.3x
0
0.5x
1.0x
1.5x
2.0x
2.5x
3.0x
3.5x
2014A/E 2015E 2016E
Average Median
15.6x
14.4x
13.0x
16.0x
14.8x
13.3x
0
3.0x
6.0x
9.0x
12.0x
15.0x
18.0x
2014A/E 2015E 2016E
Average Median
27.7x
28.9x
24.4x
28.5x 28.3x
23.9x
0
5.0x
10.0x
15.0x
20.0x
25.0x
30.0x
35.0x
2014A/E 2015E 2016E
Average Median

summary of EV/sales multiples
Note: Market capitalization is based on a one-month average as of 31 March 2015.
E Trading multiples
EV/sales (FY14A/E) EV/sales (FY15E) EV/sales (FY16E)
0.5x
0.9x
1.3x
1.3x
1.3x
1.8x
2.2x
2.3x
2.5x
2.6x
2.8x
2.8x
2.8x
2.8x
2.9x
2.9x
2.9x
2.9x
3.0x
3.0x
3.1x
3.2x
3.5x
3.6x
3.7x
3.7x
4.2x
4.2x
5.6x
7.4x
Hengdeli
Safilo
Shiseido
Chow Tai Fook
Ralph Lauren
Natura
Coach
Coty
Swatch
Jimmy Choo
Tod's
Beiersdorf
Tiffany
Michael Kors
Estée Lauder
Tumi
Kering
L'Occitane
LVMH
Average
Burberry
Hugo Boss
Brunello Cucinelli
Richemont
Salvatore Ferragamo
Luxottica
Prada
L'Oréal
Moncler
Hermés
9.2%
Industry benchmark
Low High
EV/sales (FY14A/E)
3.0x
Industry benchmark
Low High
0.5x
0.8x
1.1x
1.3x
1.4x
1.6x
2.3x
2.3x
2.4x
2.5x
2.5x
2.5x
2.6x
2.6x
2.6x
2.7x
2.7x
2.7x
2.8x
2.8x
2.9x
2.9x
3.1x
3.3x
3.3x
3.4x
3.8x
4.0x
4.8x
6.6x
Hengdeli
Safilo
Chow Tai Fook
Ralph Lauren
Shiseido
Natura
Jimmy Choo
Coty
Michael Kors
Coach
Tumi
Kering
Swatch
L'Occitane
Tod's
Beiersdorf
LVMH
Tiffany
Average
Burberry
Estée Lauder
Hugo Boss
Brunello Cucinelli
Luxottica
Richemont
Salvatore Ferragamo
Prada
L'Oréal
Moncler
Hermés
9.2%
Industry benchmark
Low High
EV/sales (FY15E)
2.8x
Industry benchmark
Low High
0.5x
0.8x
1.0x
1.2x
1.2x
1.5x
2.0x
2.1x
2.2x
2.2x
2.3x
2.4x
2.4x
2.4x
2.5x
2.5x
2.5x
2.6x
2.6x
2.6x
2.7x
2.7x
2.8x
3.1x
3.1x
3.1x
3.6x
3.8x
4.2x
6.0x
Hengdeli
Safilo
Chow Tai Fook
Ralph Lauren
Shiseido
Natura
Jimmy Choo
Michael Kors
Tumi
Coty
L'Occitane
Kering
Swatch
Tod's
Coach
Beiersdorf
LVMH
Average
Tiffany
Burberry
Hugo Boss
Estée Lauder
Brunello Cucinelli
Luxottica
Salvatore Ferragamo
Richemont
Prada
L'Oréal
Moncler
Hermés
9.2%
Industry benchmark
Low High
EV/sales (FY16E)
2.6x
Industry benchmark
Low High

summary of EV/EBITDA multiples
DCFandvaluation
parameters
E Trading multiples
Note: Market capitalization is based on a one-month average as of 31 March 2015.
EV/EBITDA (FY14A/E) EV/EBITDA (FY15E) EV/EBITDA (FY16E)
7.2x
7.6x
8.0x
8.6x
8.7x
9.6x
9.9x
11.1x
11.5x
12.9x
12.9x
13.1x
13.6x
13.7x
13.8x
13.9x
14.2x
14.6x
15.5x
15.7x
16.0x
16.0x
16.6x
16.6x
16.8x
17.9x
18.6x
19.1x
20.1x
21.2x
Hengdeli
Ralph Lauren
Coach
Natura
Michael Kors
Safilo
Chow Tai Fook
Tiffany
Swatch
Richemont
LVMH
Burberry
Tumi
Hugo Boss
Average
Tod's
Estée Lauder
Kering
Jimmy Choo
Prada
L'Occitane
Shiseido
Coty
Moncler
Salvatore Ferragamo
Beiersdorf
Luxottica
Brunello Cucinelli
L'Oréal
Hermés
9.2%
Industry benchmark
Low High
EV/EBITDA (FY14A/E)
13.8x
Industry benchmark
Low High
6.3x
7.0x
7.4x
7.4x
7.7x
8.7x
10.7x
10.7x
10.8x
11.6x
11.7x
12.0x
12.2x
12.5x
12.6x
12.6x
12.6x
13.1x
13.4x
13.5x
14.4x
14.7x
14.8x
15.2x
15.4x
15.9x
16.6x
17.3x
18.1x
18.4x
Hengdeli
Ralph Lauren
Michael Kors
Natura
Safilo
Chow Tai Fook
Tiffany
Coach
Swatch
LVMH
Tumi
Burberry
Hugo Boss
Average
Kering
Richemont
Jimmy Choo
Tod's
Prada
L'Occitane
Moncler
Shiseido
Coty
Salvatore Ferragamo
Estée Lauder
Luxottica
Beiersdorf
Brunello Cucinelli
Hermés
L'Oréal
9.2%
Industry benchmark
Low High
EV/EBITDA (FY15E)
12.5x
Industry benchmark
Low High
5.8x
6.3x
6.6x
6.6x
6.7x
8.0x
9.8x
10.2x
10.2x
10.3x
10.5x
10.8x
11.0x
11.1x
11.3x
11.4x
11.6x
12.0x
12.0x
12.0x
12.6x
12.7x
13.3x
13.6x
13.8x
14.6x
15.4x
15.4x
16.3x
17.4x
Hengdeli
Ralph Lauren
Natura
Michael Kors
Safilo
Chow Tai Fook
Tiffany
Swatch
Coach
Tumi
LVMH
Jimmy Choo
Burberry
Hugo Boss
Average
Kering
Richemont
L'Occitane
Tod's
Prada
Moncler
Shiseido
Estée Lauder
Salvatore Ferragamo
Coty
Luxottica
Brunello Cucinelli
Beiersdorf
Hermés
L'Oréal
9.2%
Industry benchmark
Low High
EV/EBITDA (FY16E)
11.3x
Industry benchmark
Low High

Regression analysis:
EV/sales multiple vs EBITDA margin
E Trading multiples
•• Regression analyses show strong correlation between EV/sales levels and profitability.
•• Actually, this analysis illustrates that the premium paid on multiples is mainly explained by the good
profitability performance.
Notes: Market capitalization is based on a one-month average as of 31 March 2015.
The analyses based on sales growth are not presented, as they resulted in an absence of correlation between sales multiples and growth.
For information, the results of the analyses performed are: R2
for EV/sales multiple vs sales growth 2015: 6%; R2
for EV/sales multiple vs sales growth 2016: 0%.
Regression analysis: EV/sales multiple vs EBITDA margin 2015 Regression analysis: EV/sales multiple vs EBITDA margin 2016
Burberry
Prada
LVMH
Tod's
Ralph Lauren
Coach
Hugo Boss
Saﬁlo
Hermès
Tiffany
Swatch
Shiseido
Salvatore
Ferragamo
L'Oréal
Richemont
Luxottica
Estée Lauder
Beiersdorf
Brunello Cucinelli
Michael Kors
Coty
Jimmy Choo
R² = 0.64
-
1.0x
2.0x
3.0x
4.0x
5.0x
6.0x
7.0x
0% 5% 10% 15% 20% 25% 30% 35% 40%
2015EV/sales
2015 EBITDA margin
L'Occitane
Natura
Moncler
Tumi
Kering
Chow Tai
Hengdeli
Burberry
LVMH
Tod's
Ralph Lauren
Coach
Hugo Boss
Saﬁlo
Hermès
Tiffany
Swatch
Shiseido
Kering
Salvatore
Ferragamo
L'Oréal
Richemont
Luxottica
Estée Lauder
Beiersdorf
TUMI
Brunello
Cucinelli
Coty
Jimmy Choo
R² = 0.63
-
1.0x
2.0x
3.0x
4.0x
5.0x
6.0x
7.0x
0% 5% 10% 15% 20% 25% 30% 35% 40%
2016EV/sales
2016 EBITDA margin
Natura
Chow Tai
Michael Kors
Prada
L'Occitane
Hengdeli
Moncler

DCFandvaluation
parameters
Transaction multiples in the luxury industry remain at a
significant premium to many other sectors
Source: Capital IQ
•• There are several parameters that influence the valuation multiples. In particular: the brand positioning, the
historical and expected growth, profitability and cash flow generation, management and organization,
premium to rarity, etc.
•• Transaction multiples confirm that the industry kept its attractiveness over the past few years.
•• The average sales multiple over the last years ranged between 1.4x and 2.0x, where the average EBITDA
multiple ranged between 11.7x and 15.3x.
1.6x
1.5x
1.9x
1.4x
2.0x
1.8x
1.3x
1.2x
1.6x
1.8x
0.0x
0.5x
1.0x
1.5x
2.0x
2.5x
2011 2012 2013 2014 1Q15
Average Median
15.3x
12.0x
13.5x
11.7x
13.5x
12.3x
10.7x 11.5x
10.2x
13.2x
0.0x
2.0x
4.0x
6.0x
8.0x
10.0x
12.0x
14.0x
16.0x
18.0x
2011 2012 2013 2014 1Q15
Average Median
EV/sales (FY11-1Q15) EV/EBITDA (FY11-1Q15)

The MA deals in the cosmetics industry show a similar trend as
the luxury industry
Source: Capital IQ
•• The average sales multiple over the last five years ranged between 1.1x and 1.9x, when the EBITDA multiple
ranged between 10.0x and 16.6x.
•• 1Q15 multiples went back to previous 2014 levels. 2014 multiples illustrated an exceptionally positive trend,
mainly driven by strategic acquisitions carried out by the major players to foster growth in emerging
markets, and broaden the products’ offering into innovative segments.
1.1x
1.6x
1.9x
1.4x
1.6x
0.9x
1.0x
1.6x
1.5x
1.7x
0.0x
0.2x
0.4x
0.6x
0.8x
1.0x
1.2x
1.4x
1.6x
1.8x
2.0x
2011 2012 2013 2014 1Q15
Average Median
10.0x
10.1x
11.7x
16.6x
11.1x
10.1x
8.8x
10.2x
14.9x
11.1x
0.0x
2.0x
4.0x
6.0x
8.0x
10.0x
12.0x
14.0x
16.0x
18.0x
2011 2012 2013 2014 1Q15
Average Median
EV/sales (FY11-1Q15) EV/EBITDA (FY11-1Q15)

DCFandvaluation
parameters
Analysis of worldwide MA transactions in the luxury industry
since 2011
•• The number of completed deals on global scale is still significant, despite the financial crisis. The MA activity from both strategic and financial investors in the
industry experienced a strong first quarter in 2015 with 18 completed deals.
•• PE activity was intense and stable during the past years, showing an always-stronger interest for the industry, confirmed through the creation of dedicated funds.
•• As presented in the graph about the top 10 markets by the number of completed deals over the FY11-1Q15 period, Italy turns out to be the first country as a target
nationality, proving the attractiveness of Italian companies for investors (investors’ interest for ‘‘made in Italy’’ and brands’ high quality).
Number of completed deals in the luxury industry
(global)
Number of completed deals by type of buyer
(global)
Number of completed deals sorted by nationality of the
target over FY11–1Q15 (among the top 10 markets)
Source: Capital IQ, Mergermarket, Factiva
48
52
62
44
18
0
10
20
30
40
50
60
70
FY11 FY12 FY13 FY14 1Q15
No.ofdeals
37
44
42
31
1211
8
20
13
6
23%
15%
32%
30%
33%
0%
5%
10%
15%
20%
25%
30%
35%
0
5
10
15
20
25
30
35
40
45
50
FY11 FY12 FY13 FY14 1Q15
Corporate PE PE/total
No.ofdeals
Italy
30%
United States
28%
France
12%
Switzerland
14%
UK
8%
India
3%
HK
1%
China
2%
Germany
1%
Netherlands
1%

Analysis of worldwide MA transactions in the cosmetics
industry since 2011
•• The number of deals completed in 2014 and in the first quarter 2015 illustrates a return to a sustained
level of MA activity after a drop in 2013.
•• The dynamism of the cosmetics industry recently attracted a larger number of PE funds, respected to past
years: in 2014, they were involved in 62% of the transactions globally.
•• As presented in the graph about the number of completed deals by markets, quite interestingly, the first
three positions are similar to those of the luxury industry, even if in a different order (US, France and Italy).
30
39
17
26
8
0
5
10
15
20
25
30
35
40
45
FY11 FY12 FY13 FY14 1Q15
No.ofdeals
22
31
14
10
5
8
8
3
16
3
27%
21%
18%
62%
38%
0%
10%
20%
30%
40%
50%
60%
70%
0
5
10
15
20
25
30
35
FY11 FY12 FY13 FY14 1Q15
No.ofdeals
Corporate PE PE/total
United States
36%
France
23%
Italy
8%
Germany
7%
South Korea
7%
United Kingdom
5%
Spain
4%
Japan
4%
Canada
3%
China
3%
Number of completed deals
(global)
Number of completed deals by type of buyer
(global)
Number of completed deals sorted by nationality of the
target over FY11-1Q15 (amongst the top 10 markets)

DCFandvaluation
parameters

LUXURY AND COSMETICS THE EY FINANCIAL FACTBOOK 2014
Industry overview

Global luxury goods marketG
Global cosmetics marketH
Points of view from EY’s global sector
specialists and outside expertsI
Industryoverview

DCFandvaluation
parameters
The worldwide personal
luxury goods market is
estimated to have
grown by 3.0%in
2014. However, at
constant exchange
rates, the market-
observed growth (4.0%)
was comparatively
slower than the 7.0%
recorded in 2013.
Monobrand stores
represent close to 30%
of the overall market,
while monobrand
distribution across
formats already claims
52%.
The share of company-
owned retail sales has
gained 10 percentage
points and represents
nearly one third of the
luxury goods market.
This reflects a trend of
brands increasingly
seeking global control of
their operations.
In 2014, the historical
pattern held true, as
accessories grew
4.0%
— more than any other
personal luxury goods
category and more than
the market overall.
As accessible status
symbols, shoes benefit
from strong tailwinds
and have been growing
faster than the overall
leather-goods category
for the last three years.
Chinese consumers are
now focused on
purchasing more from
overseas, with
Korea and
Japan
emerging
as hot new destinations.
The Chinese luxury
market in 2014 was in
line with 2013 at €15
billion, primarily due to
slowdown in the
demand for watches,
men’s wear and leather
goods.
The online luxury goods
market continued its
successful run with the
share of online purchases
increasing to
5.0% in 2014
from 4.5%
recorded last year.
Retailers are still the
top-performing players
online, followed by
e-tailers and individual
brands.
Global luxury goods market
Page 36 Industry overview

Glossary
Contactus
Title for section
Welcome to the third edition of EY’s annual
Financial Factbook for the luxury and cosmetics
sector. The Factbook combines financial
data, insight from EY’s global team of sector
specialists and opinions of external experts.
XX Sales of industry players are expected to grow at a healthy rate, led by double-digit annual growth rate for
L’Occitane and Natura from FY11A to FY14E.
XX Increased demand through innovative products will cater to underserved emerging markets.
XX Introduction of eco-friendly, sustainable and naturally derived beauty products and cosmetics will stimulate
demand in established geographies.
Source: Data based on consensus of several brokers’ reports for each
company.
Notes:Market capitalization is based on a one-month average as of December 2012.
The 2012 growth corresponds to the sales growth rate between FY11A and FY12A/E.
Titles for charts
Titles for charts
H Global luxury goods
Sampleselection
andspecificanalyses
ExecutivesummaryDCFandvaluation
parameters
IndustryoverviewMethodology
anddisclaimer
Sources: Altagamma/Bain and other selected research
Note: 1) Luxury Goods Worldwide Market Study Fall–Winter 2014, Altagamma/Bain

Global personal luxury goods continue to buoy the market, but
growth is leveling off
•• The worldwide personal luxury goods market is estimated to have grown by 3.0% in 2014. However, at
constant exchange rates, the market-observed growth (4.0%) was comparatively slower than the 7.0%
recorded in 2013.
•• The growth was helped by the sharp depreciation of the euro, which left the sector with an unbalanced price
structure across regions.
•• Retail remained a key growth driver in 2014, but the market saw a slowdown in the retail network
expansion, illustrating the players’ objective to focus on organic growth.
•• The online luxury goods market continued its successful run with the share of online purchases increasing to
5.0% in 2014 from 4.5% recorded last year. Retailers are still the top-performing players online, followed by
e-tailers and individual brands.
159
170
167
153
173
192 212
218 224
250 -265
8%
7%
-2%
-8%
13%
11%
10%
3% 3%
-10%
-5%
0%
5%
10%
15%
-200
-150
-100
-50
0
50
100
150
200
250
300
2006 2007 2008 2009 2010 2011 2012 2013 2014e 2017e
Growth
€billion
Market size Growth
Worldwide personal luxury goods market trend1
Industry overview Page 37
Industryoverview

Title for section
company.
Titles for charts
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Page 38 DCF and valuation parametersPage 38
Industry overview
Global personal luxury goods market, by channel and format (2014E)2
•• Demand is still growing, mainly sustained by touristic consumption, which has been
heavily influenced by currency fluctuations and local regulations.
•• As illustrated in the graph above, there is a clear dichotomy between area of
consumption and nationality, based on the exchange rate evolutions.
•• China continues to be the top consumer country (1/3 of the total market), but
Chinese customers tend to consume outside their home country.
•• Conversely, Europe and Japan will benefit from this trend in 2015, with Japan
reaching a growth leadership position and Europe particularly benefiting from
dynamic touristic inflows.
1 Currency fluctuations and tourism flows heavily impact luxury
consumption
•• The share of company-owned retail sales has gained 10 percentage points and
represent nearly one third of the luxury goods market. This reflects a trend of
brands increasingly seeking global control of their operations.
•• Monobrand stores represent close to 30% of the overall market, while monobrand
distribution across formats already claims 52%.
•• The airport channel has generated a CAGR of 11.0% from 2011 through 2014 and
now represents 5.0% of total luxury sales and is particularly critical in Asia and
Europe.
•• The online luxury market has grown twelvefold in the past 11 years and now makes
up 5.0% of total sales, mainly led by the accessories and apparel categories.
2 Company-owned retail continues to gain share
Notes: 1) Business Monitor International
2) Luxury Goods Worldwide Market Study Fall-Winter 2014, Altagamma/Bain
1%
6%
1%
8%
7%
4%
2%
6%
-3%
1%
-4%
-2%
0%
2%
4%
6%
8%
10%
Europe Americas Japan Mainland China ROW
2015Fgrowth
Nationality Area
29%
27%
25%
9%
5%
5%
Monobrand stores Department stores
Specialty stores Off-price stores
Airport Online
Luxury goods demand growth by nationality and by area (2015F)1
Luxury goods market by geography and channel

Glossary
Contactus
Title for section
company.
Titles for charts
Titles for charts
Sampleselection
andspecificanalyses
parameters
anddisclaimer
The Chinese luxury market is experiencing a contraction in
growth, yet Chinese consumers continue to represent about a
third of the global market
•• The Chinese luxury market in 2014 was in line with 2013 at €15 billion, primarily
due to slowdown in the demand for watches, men’s wear and leather goods.
•• Like-for-like sales struggled the most due to change in customer behavior across
demographic groups — increased diversity of preferred brands, and exclusivity,
quality and value for money becoming increasingly more important than logos.
•• Continued impact of anti-corruption and frugality campaigns undermined luxury
demand and was further exacerbated by the economic slowdown.
1 Slowdown across the board
•• Chinese consumers are now focused on purchasing more from overseas, with
Korea and Japan emerging as hot new destinations. In 2014, there has been a 61%
increase in the number of trips by Chinese nationals to these destinations.
•• This dominance has further increased with the development of new outlet sites in
China and the fact that Chinese travelers have been enthusiastic visitors of the
many outlet malls in Europe.
•• In terms of outlook, a softer economy and political pressures on gifting and
high-end spending are continuing to put pressure on overall spending. However, a
weak euro and the low price points are making both travel and shopping in Europe
increasingly attractive.
2
Chinese consumers continue to dominate as top global
customers
Mainland Chinese personal luxury goods
market (2011-2014E)1
Top three global personal luxury goods
markets (2014E)1
China luxury demand by luxury consumer cohort2
Notes: 1) Worldwide Luxury Markets Monitor, 2015 Spring Update, May 2015, Altagamma/Bain
2) Europe: Branded Consumer Goods, Goldman Sachs, February 2015
12.9
15.0 15.3 15.3
0.0
4.0
8.0
12.0
16.0
2011 2012 2013 2014E
€billion
72.0
23.2
17.9
0
10
20
30
40
50
60
70
80
US China and Hong
Kong
Japan
€billion
Second position globally after including Hong Kong
23%
27%
49%
40%
28%
32%
39%
36%
25%
0%
10%
20%
30%
40%
50%
60%
Middle class Afﬂuent High net worth
2004 2014 2024
Industryoverview

Title for section
company.
Titles for charts
Titles for charts
Page 40 DCF and valuation parameters
Accessories remain the biggest category, and it is the fastest
growing
•• Since 2012, accessories have become the largest category within luxury goods and
have grown the fastest lately, with a CAGR of 11% from 2010 through 2014.
•• In 2014, the historical pattern held true, as accessories grew 4% — more than any
other personal luxury goods category and more than the market overall.
•• The online channel is developed well in the accessories segment and constitutes
41% of total sales.
•• Soft accessories have been the top-performing luxury category in both the short
and the long term.
1 Accessories: outperformer
•• As accessible status symbols, shoes benefit from strong tailwinds and have been
growing faster than the overall leather-goods category for the last three years.
Shoe specialists are outpacing lifestyle brands, especially in the men’s segment.
•• However, price as a contribution to growth has reached an unsustainable level, and
implies the brands have been overpricing, particularly in the leather/accessories
category, which is expected to limit the growth in the near future.
•• The increase in competition is also expected to put some price pressures in the
leather/accessories segment.
2 Soft accessories driving the growth
Global personal luxury goods market by
product type (2014E)1
Growth rates of global personal luxury
goods market by product type1
Luxury leather goods and shoes, 2011-14E2
Notes: 1) Worldwide Luxury Markets Monitor, 2015 Spring Update, May 2015, Altagamma/Bain
2) Luxury Goods Worldwide Market Study Fall-Winter 2014, Altagamma/Bain
*Others include “Arts de la table”, textile furniture etc.
Accessories
29%
Apparel
25%
Hard luxury
22%
Beauty
20%
Others*
4%
15%
4%
9%
5%
11%
0% 5% 10% 15% 20%
Others*
Beauty
Hard luxury
Apparel
Accessories
CAGR 10-14E
29
34
36 37
11 12 13 14
0
5
10
15
20
25
30
35
40
2011 2012 2013 2014E
€billion
Luxury leather goods Luxury shoes
Page 40
Industry overview

Industryoverview

Global cosmetic goods market
The beauty market is
set to double
in size in
the next 10
to 15 years,
and all the world’s
regions will grow, with
China, the US, Brazil,
India and Japan
expected to become
the top markets.
The global cosmetics
market grew by an
estimated 3.6%
during 2013, which was
slightly lower than the
average of 3.8%
observed in the past
decade.
With growth
of 5.2%, the
selective market
continued to grow at a
steady pace in 2014,
bolstered by Asia, the
United States and
e-commerce. It
contributed 29% of
global growth.
Skin and hair care
account for more than
the half of the total
market.
The consumer
behavior has not
changed since the
crisis, and
the market
has
continued
to expand
steadily.
Cosmetics world has
been reinterpreted by
the digital arena,
illustrating the growing
interest for beauty
topics in the social
world, an interest that
comes from a larger
and more aware
consumer base
receptive to new
product launches.
Page 42 Industry overview

Glossary
Contactus
Title for section
company.
Titles for charts
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Sampleselection
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parameters
anddisclaimer
The global cosmetics market continues to grow steadily …
Source: L’Oréal Annual Report 2014 and other selected research
Note: 1) L’Oréal estimates of the worldwide cosmetics in net manufacturer costs, excluding soaps, oral hygiene, razors and blades as well as currency effects.
•• The market continues to expand steadily and has proved resilient even during times of tough economic
conditions as the consumer behavior has not changed after the crisis. The size of the global cosmetics
market reached €181b, recording growth of 3.6% in 2014, which is slightly lower than the average of 3.8%
observed in the past decade. Consumers’ aspirations for quality have increased, and they are open to new
technology, more sophisticated dermocosmetics products and new retail distribution models.
•• The market remains supply-driven, fueled by innovation, where consumers are always looking for quality,
performance and perceived results.
Global cosmetics marketH
Global cosmetics industry market growth, YOY (2005-2014)1
Global cosmetics market segmentation by products and geographies (2014)1
127 134 141 145 147 153 161 168 175 181
4%
5% 5%
3%
1%
4%
5%
5%
4%
4%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
0
20
40
60
80
100
120
140
160
180
200
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014E
€billion
Cosmetics market Growth %
Skincare
35%
Hair care
23%
Makeup
17%
Fragrances
13%
Hygiene
11%
Other
1%
Asia, Paciﬁc
35%
Western
Europe
22%
North
America
21%
Latin
America
12%
Eastern
Europe
7%
Africa,
Middle East
3%
Industryoverview

Title for section
company.
Titles for charts
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Page 44 DCF and valuation parameters
… and remains a supply-driven market underpinned by innovationGlobal cosmetics marketH
•• The product portfolio of industry players has expanded into natural and green
products, replacing commonly used chemicals and synthetic ingredients with
organic inputs, responding to changes in consumer tastes and preferences.
•• Initially introduced into the skin-care product segment, the natural product shelf
has now expanded to other segments of the industry.
•• The new product lines have created new markets for the industry, and new
companies have entered the industry to satisfy this demand.
•• The demand for research and development personnel has increased significantly,
which is key to remaining competitive and staying on top of the latest industry
trends.
1 Natural products
•• The digital revolution has opened up huge opportunities for the beauty world as it
allows mass-market brands to foster closer relationships with their consumers
through web interaction.
•• It has enabled brands to provide new ways to reach, educate and inspire new
consumers, as well as loyal customers, in order to stimulate the market’s future
growth.
•• Today’s consumers are informed and connected, and are looking to personalize
their routines. The tendency is also clear in the prescription-based dermocosmetics
sector, which meets the health and beauty expectations of a growing number of
consumers.
2 Key role of digital media
•• The demand for men’s products has also boomed during the past five years, with
Asia emerging as the most crucial market.
•• Consumers in Asia account for 64.0% of the global men’s skin care market, which
still pales in comparison with the overall women’s skin care, but is reportedly
growing at a rapid 9.4% per annum.
•• Moreover, spending on men’s skin care still totals less than 3.3% of the total
women’s skin care market, further indicating potential room for growth.
3 Strong potential from the men’s segment
•• For the second year running, dermocosmetics was the most dynamic market, with
growth of 5.1%.
•• Makeup, which provides consumers with a medium to express themselves and their
creativity, was in 2014 the fastest growing category worldwide at 5.0%.
•• The market was buoyant on all continents, even in Western Europe, with growth of
nearly 3.0%.
•• With growth of 5.2%, the selective market continued to grow at a steady pace in
2014, bolstered by Asia, the United States and e-commerce; it contributed 29% of
global growth.
4 Widespread growth1
Source: L’Oréal Annual Report 2014 and other selected research
Note: 1) L’Oréal estimates of the worldwide cosmetics in net manufacturer costs, excluding soaps, oral hygiene, razors and blades as well as currency effects.
Page 44
Industry overview

Industryoverview

Industry overview
The Italian luxury market from an MA and investor perspectivePoints of view from EY’s global sector
Roberto Bonacina
EY Lead Advisory MA
Fashion Luxury
The fashion and luxury market is continuing to grow
despite the difficult macroeconomic and financial
landscape. This sector remains highly attractive to
financial and strategic investors, both national and
international.
MA in the fashion and luxury sector, unlike others
industries that experienced a decrease after the
financial crisis, is facing a positive pattern.
2014 registered a slight decrease in the total number
of completed deals compared to the last three years;
however, the first quarter activity of 2015 boosts
hopes for strong growth for this year.
The Italian MA market was characterized in the
recent years by the foreign acquisition of Italian
brands.
In 2014, the so-called inbound MA accounted for
75% of the total number of transactions carried out in
Italy. In the same year in Italy, two-thirds of the deals
were completed by financial investors, in contrast
with prior years, where corporates had a greater
percentage of successful deals than PE.

17
12
17
12
5
31 40
45
32
13
0
10
20
30
40
50
60
70
FY11 FY12 FY13 FY14 1Q15
No.ofdeals
Italy Global
48
52
62
44
18
- -
2 1 2
11
6
8 9
1
6
6
7
2
2
0
2
4
6
8
10
12
14
16
18
2011 2012 2013 2014 1Q15
Outbound Inbound Domestic
4
2
6
8
2
13
10
11
4
3
0
2
4
6
8
10
12
14
16
18
2011 2012 2013 2014 1Q15
PE Corporate
Number of completed deals (Italy vs global) Outbound/inbound/domestic — Italian deals Deals by nature of buyer (corporate vs PE) — Italian deals
Top luxury houses are looking for unique brands and
new stylists and talents with a quasi-venture capital
approach. Strategic investors’ interest is in
supporting/investing in product excellence:
uniqueness of brand, made in Italy, craftsmanship,
superior quality and privileged access to raw
materials and heritage. These qualities are key to
being positioned as high end, absolute luxury and to
winning in certain niche segments (tailor-made suits,
precious leather goods, jewels, etc.).
Italy remains the place to be for its strong backbone
of entrepreneurs and companies that come from the
art of doing and the unparalleled tradition in the use
of hands in manufacturing, crafting and made-to-
measure products. Today, the most illuminated
entrepreneurs are becoming aware that such
knowledge and art need to be renewed and
transferred to the younger generations, and they are
therefore investing in training in order to transmit the
traditions of old experience and craftsmen to them.
Interest from financial investors is related not only to
high-margin/high-growth companies with clear
positioning, but also to fashion houses that, although
small, have a good equity story to grow, operating in
market niches with proved capabilities to expand
business in fast growing countries. In all cases, the
presence of a relevant share of international sales is
key to proving the scalability of the business also on
foreign markets.
Industryoverview

Industry overview
Emerging market investors are heavily looking for
opportunity, but so far, only a very limited number of
transactions have taken place, mainly driven by
Middle-East investors (Valentino being a landmark
transaction). Overall, they usually act through local
contacts that sometimes have a limited knowledge of
the market, like to invest in minority stakes with the
strategy of working closely with the entrepreneur in
order to plan credible growth strategies, identify
value creation levers and deploy resources to
accelerate developments in local markets such as
China, Japan, Korea and Russia.
If brand and uniqueness of products is usually the key
driver for acquisitions and values, for strategic,
financial and alternative investors, recent experience
shows that the presence of an experienced
management and an adequate organization is able to
command much higher valuations.
In fact, the execution risk of an investment in the
fashion and luxury sector, although potentially very
rewarding, is perceived as high, particularly by
financial investors. The level of complexity is growing
in terms of consumers, purchasing behaviors,
distribution models, geographies. Executing an
appropriate development strategy that would
envisage internationalization, brand/product
extension, retail investments and distribution rollout
in various channels is very challenging and needs
vision by entrepreneurs and management capabilities
by key executives.
Management can be a value multiplier when coupled
with high brand recognition and products. The recent
Versace and Pomellato transactions are a clear
example for this: good management coupled with
exceptional brands. And investors pay for that! In this
respect, Italy has great room for improvement.
A recent survey that compares the major European
countries clearly shows that if, on average, family-
owned businesses are often led by a CEO member of
the family, when it goes down to the key
management team, Italy changes the situation.
In fact, in family businesses in Italy, 66% of the
management is composed of family members, a big
difference if compared to 10.4% in UK, 25.8% in
France, 28.0% in Germany and 35.5% in Spain.
This could at least partially explain why Italian fashion
companies have always excelled in growing and
extending a single brand name (usually the family
name), but more rarely have successfully achieved a
conglomeration/portfolio strategy through
acquisitions and the integration of different brands
under the same umbrella.
Summarizing, Italy remains the place to be, where
brands, craftsmanship and product innovation lie.
However, to grow in such a competitive industry,
companies and entrepreneurs need to reinforce their
structures to bring their own organizations to the
next phase of growth. This will pay off and not only in
terms of value paid by investors.

Managing performance improvement of luxury storesPoints of view from EY’s global sector
The luxury sector is showing an inconsistent trend.
In Asia, the luxury sector slowed in 2013. It levelled
out in 2014 and over the coming years, it will hardly
see the rapid growth as in the previous years. The
main reasons are anti-corruption campaigns in the
Chinese market and increased prudence and maturity
of consumers. Anti-corruption measures in mainland
China have reduced the use of public funds for
high-end gifts, and in the meantime, for people with
spending growth driven by rising incomes, luxury
purchase are made in Hong Kong or other low-tax
destinations. That is not enough anyway for the
luxury growth in the entire area.
Brazil, Russia, India, China and South Africa (BRICS)
consumers recently developed a more sophisticated
awareness of luxury: many have become more
selective and mature. Moreover, in countries such as
Brazil and Mexico, strong import taxes limits foreign
luxury brands growth. “New BRICS” emerging
countries in the Middle East and Asia are fast
becoming core drivers of domestic and tourist
spending growth, with national birth rate decreases
and discretionary spending increases. In mature
markets, consumer confidence slightly increased in
the last month’s driving rise of leisure spending. The
US remains the world’s number one nation for luxury
goods consumption thanks to renewed consumer
confidence and soaring GDP.
With those light-and-shadows scenarios the luxury
sector is facing, it becomes crucial to identify critical
success factors, risks and opportunities for store
performance improvement.
Paolo Lobetti Bodoni
Mediterranean Retail and consumer products Advisory
Leader
Marketing of locally manufactured items with a global
appeal is for sure a key differentiator: luxury brands
want people to know that their products are sourced
and crafted locally. An example of this approach
comes from a major high end fashion company that
hosted an artisan in selected US stores to create
handbags live in front of the customers. Another way
to promote effectively a global brand locally is to
leverage media and communication: a leading
clothing manufacturer opened recently its Shanghai
flagship store using a Chinese local messaging
platform, WeChat, as a medium for advertising the
launch, plus it has included its global followers in the
preparation, posting a series of photos of the journey
from London to Shanghai.
The physical store is the opportunity to present
high-end goods evoking an aspirational lifestyle:
many of the top brands are embracing the
environmentally friendly movement by choosing
specific store design and furniture (green, steel, glass
and wood are main patterns), along with a peaceful
and comforting atmosphere, all in order to
communicate specific brand values and deliver an
exclusive customer experience.
Store staff preparation is vital since sales assistants
are acting as permanent ambassadors of the brand,
and the one to one relationship with the customer is
a key factor for the accomplishment of the sale.
Chinese consumers list meager customer service and
inadequate knowledge among retail staff as a
primary reason for shopping abroad.
Industryoverview

Industry overview
The majority of luxury consumers are willing to
interact with a digitally enabled sales associate.
Bringing mobile technology into stores and investing
in training and coaching for the sales representatives
may help enforce trust while creating an even-more
made-to-measure experience for consumers.
Brands and retailers that wish to distinguish their
customer experience should take into consideration
the omni-channel approach. Specifically, mobile will
continue to be an essential medium for reaching
international, affluent consumers, and marketers
should work to create an optimized, user-friendly
shopping environment on mobile devices.
Although there is no reason, for example, why
customers could not go online, choose items they
want to try on and send that information to the store,
that would eliminate a lot of pre-work that could be
automated. In any case, digital should be used to
enrich, not disrupt customer experience.
A relevant example comes from a leading jewelry
retailer that in October 2013 revealed an in-store
iPad application that helps customers to create a
made-to-measure engagement ring. The app allows
customers to compare features for their perfect
diamonds ring. With the help of a sales associate, the
client uses the app to select specific elements of the
ring such as diamond shape, color, clarity, etc. If you
are wondering if digital apps will eventually replace
the sales associate, the iPad app gets the best from
the two in order to enforce customer service.
A leading department store chain in New York also
created an iPad application to recreate its in-store
experience. The app combines products’ contents
with online shopping features to provide customers a
thorough brand experience.
Digital technology can also be helpful on the
customer relationship management (CRM) side:
today, only few luxury players are fully aware of the
potential of customer relationship management; that
opens large opportunities for improvement through
digital integration — for instance, by having the sales
team using iPads to scan and record customer details
and social media information and retrieve data from
previous customers’ visits.
Both luxury retailers and many luxury hotels, such as
a leading Asian hotel chain, are already using mobile
devices to increase the effectiveness of CRM: to
quickly and effectively help customers check out and
find products in store, and sales staff pull up
consumer preferences, giving them a tailored
shopping experience. On the hotel’s side, the
advantage of mobile integration helps with traveler
check in as well as with concierge and in-room
services, etc.
A US-based leading jewelry retailer stands out for its
CRM attitude: people into the stores able to provide
outstanding customer service or product-related
information.
It has a database that includes more than 60,000
customers who have spent more than US$5,000 in
the past 18 months. These customers are offered a
made-to-measure experience, such as: meetings with
personal shoppers, free engraving, shipping,
champagne receptions on the mezzanine of the New
York flagship store and occasional private events.

DCF and valuation parametersIndustry overview Page 51
Then, CRM should be accompanied by customer
satisfaction analysis: today, only 10% of luxury
brands measure customer satisfaction, huge
improvements can be realized by properly
implementing customer satisfaction analyses.
Not less relevant is store’s efficiency, new for the
luxury sector, which is driven by margin reduction,
increased competition, improved consumer maturity
and awareness: a lean organization can deliver
benefits to a variety of services or processes.
A luxury handbags retailer in-store’s lean
reorganization regards service lead time reduction: in
the past, salespeople counseling customers would
vanish into storerooms when goods weren’t available
on the shop floor. Now, at each store, a few
employees are assigned to the storeroom to convey
goods not available. At a large store in Paris, items
are sent via a service elevator from the storeroom to
the cashier, already wrapped to be sold.
As a result, to fully exploit stores’ performance and to
drive more customers and more profit, luxury brands
will need to:
•• Ensure a made-to-measure customer experience
along with a coherent brand image worldwide
•• Tailor the store concept and customer experience
to meet local needs
•• Activate specific training and coaching modules for
the sales staff in order to continuously improve the
capability to communicate brand values
•• Analyze competition through mystery shopping,
and implement customer satisfaction measurement
•• Omni-channel approach through adoption of all the
possibilities made available by technology such as a
specific iPad app to be used either from home by
the customer alone (in order to generate interest in
the products and encourage customers to buy or
move to the nearest store) or as a support (not
replacement) of sales personnel
•• Enforce CRM by using new technologies: the sales
staff sees on iPad all the track records and statistic
of the customer they are serving (without
interfering with sales process or bothering the
customer)
•• Promote efficiency in order to decrease lead time
during customer service by implementing lean
principles into the in-store processes
Industryoverview

Industry overview
Recent challenges for luxury business in ChinaPoints of view from EY’s global sector
Recent tax challenges for the luxury
business in China
Please note that the issues hereafter presented are
valid June 2015
The luxury business in China has definitely
experienced various types of challenges during the
last years/months (anti-corruption measures, slowing
down of the economy, distribution structure’s
challenges); but had at the same time to deal on a
daily basis with the evolving tax rules applicable here
in Mainland.
We will summarize below what makes China so
challenging — to some extent — from a tax point of
view for the luxury groups, but we will also give you
some insights on what could allow you to improve
your tax position and make your tax journey into the
Chinese market more successful:
1. The China consumption tax (CT) reform:
It seems now clear that a CT reform policy is
expected to be promulgated in late 2015. A
possible expansion in charge scope, possible
changing CT rates and computation method for
some of the already in-scope CT items would be
also altered, depending on the extent of shift in
the point of taxation.
In that respect, some consumer goods with a
highly luxury character, such as private aircrafts,
may be newly included into the CT scope. In
addition, the taxation or not on certain luxury
merchandises (based, for instance, on a threshold
determined on the retail value of the product) is
clearly under review and may be implemented in
the following months.
Finally, the point of taxation may also be shifted to
a later stage of the supply chain/value chain
rather than the stage of production/importation
(having of course an impact on the taxable basis)
and may also necessitate a consideration of an
output/input taxation model.
2. China value-added tax (VAT) reform into the
real estate industry:
Luxury groups usually run their businesses by
renting stores/flagship stores in prime locations
that usually command higher rental. With the VAT
reform to come involving the real estate industry,
including purchase and rental in the late 2015,
landlords will pay VAT rather than Business Tax
(BT) going forward.
Under the BT regime, leasing of immovable
property is subject to BT at a rate of 5%, this being
often embedded into the overall rental charges
and constituting a final cost for the landlord and
an indirect cost for the tenant.
Under the new VAT regime, landlords should
collect from its tenants VAT at a rate of 11% on
their rent. This VAT should be however
recoverable as input VAT (i.e., input VAT could be
used to offset the subsequent output VAT due on
sales).
Ivan Chan
Partner, Tax — Shanghai
Stephane Rinkin
Partner, Tax — Shanghai

The above VAT development could represent a
substantial VAT and cost saving opportunity for
the luxury groups — part of the payments made
becoming input VAT. Hence, the rental costs could
therefore be reduced. For instance, if the overall
annual rental charge for a store is RMB1.11m
now, the rental charges would be brought down to
RMB1m if the lease becomes subject to VAT at
11%. RMB110k could be used as input VAT to
offset the output VAT charged on sales, and this
would reduce the overall VAT payable. An
adequate and proactive preparation to re-
negotiate the leasehold contracts with the
landlords should be therefore a top priority for the
luxury groups active in China.
3. Transfer pricing (TP) documentation
requirements:
As a member of G20, China has been very active
in the Base Erosion and Profit Shifting (BEPS)
project. The Chinese State Administration of
Taxation (SAT) is likely to welcome the actions to
improve transparency and disclosure, and to
obtain information regarding taxpayers’ global
value chains and financial and tax positions.
Although the current transfer pricing
documentation circular in China contains the
requirement for certain global information, in
practice, it still focuses largely on China
operations.
The SAT has however taken action to amend the
documentation regulations. It remains to be seen
whether the new requirements will replicate those
under Action 13 transfer pricing documentation
of BEPS, or escalate to another level of detail and
complexity.
Nonetheless, companies will need to strike a
balance in complying with regulatory
requirements and protecting trade secrets and
confidential information.
4. Stock management — related VAT and customs
costs:
Overstocking and slow moving products are
ongoing operation issues for some luxury brands
ever since the luxury goods market in China
slowed down, especially after the anti-gifting
initiative in 2014.
In general, moving imported goods back overseas
is not easy and potentially not at all tax efficient
due to the customs and VAT regulations in place in
China. In addition, the destruction of products
(seasonal products) could lead, in certain
circumstances, to significant amount of VAT
corrections if not properly handled.
One reason, then, why luxury goods companies
explore the option of free trade zones is to
facilitate selling products overseas and to suspend
the payment of import duty and taxes.
Bonded arrangements should operationally work
for luxury goods companies that sell on wholesale
basis such as wines. Compulsory commodities
inspection has been in addition removed for the
export of ready-to-wear and shoes effective 2014
and 2015 respectively. Theoretically, luxury
goods companies may now sell back imported
merchandise overseas with less governmental
bureaucracy. Nonetheless, it is still costly due to
import duty and VAT leakage if a proper tax
regime has not been implemented. Finally,
positive VAT outcomes have been obtained lately
in relation with the destruction of products.
Luxury groups shall clearly take initiative to
review their trading models and current tax
treatment in relation with these overstocking and
slow moving products in order to optimize as
much as possible their tax position in China.
On the other hand, in recent years, we have
frequently heard voices from SAT that the luxury
business is one of key industries that the SAT usually
keeps an eye on its new development while the other
key industries include automobiles, pharmaceuticals,
etc.
As examples, please find below two main challenges
coming from the China tax authorities that we have
seen real cases incur recently:
1. Overseas intercompany charges:
We understand China tax authorities have
recently reinforced the review on outbound
intercompany royalty and service payments in
selected luxury good companies and requested
Industryoverview

Industry overview
such information from 2004 to 2013, with
stringent criteria being proposed to substantiate
the deduction. This may be particularly relevant
to many companies in the luxury sector that have
been charging royalty and/or service fees to their
Chinese distribution subsidiaries and leaving
routine returns to the Chinese entities.
The aforesaid review may call for transactional
transfer pricing analysis on outbound royalty and
service payments; it may also bring up the
question of whether these transactions are closely
linked to the importation of goods and whether
the payment should be included in the dutiable
value if not taxed before. In case any deduction
claim for the outbound payment is denied by the
tax authority, there may be limited means to
reconcile the adjustment with customs duty and
import VAT already paid, resulting in double
taxation.
In addition, the Chinese tax authority has been
keen on examining location-specific advantages
due to local regulatory, demographic, economic
and other characteristics and taxing on the profits
associated.
This development may also place significant
curbing implications to intercompany charges.
2. Deductibility of advertising and promotion
expenses:
We have also seen China tax authorities challenge
a deduction claim for expenses incurred in a mega
advertising and promotion campaign in China
arguing that it represents brand building that
benefits the brand owner at least partly, and
some expenses should be borne by the brand
owner and charged out from China.
There has been a rising trend that Chinese
tourists purchase luxury goods while traveling
overseas. In the meantime, luxury brands may
have continued their investment in China, along
with the cost in advertising, marketing, store
decoration, etc. that can enhance the brand
awareness to Chinese consumers.
If any of the direct or indirect brand building cost
in China is deemed to benefit overseas affiliates
due to the purchase by Chinese tourists overseas,
the Chinese tax authorities may demand that
arm’s-length compensation should be received by
the Chinese entities or that the relevant cost be
disallowed for deduction in China.
As you see, tax challenges have to be properly
handled in order to comply with the Chinese tax
requirements.
At the same time, China is however also really
concerned by the development of its internal
economy and very strong and good messages have
been delivered at multiple levels during the last
weeks. We cannot avoid mentioning for instance the
decrease of the customs duty on some very specific
luxury products by the Customs Tariff Commission
(CTC) effective from June 1, 2015, mainly aiming to
bring the Chinese tourists back to the local market
and to promote domestic consumption.
As you can see, we are in a very complex
environment where good news contrasts with a lot of
tax/regulatory doubts and risks for the luxury sector
in China. The right approach to have is certainly then
to accept, understand and share broadly that it is
inevitable to encounter tax challenges in China and to
always have a proactive and opened approach
allowing the journey into the Chinese market to
remain full of great success and opportunities.

Ernst&Young Luxury factbook-2015

Ernst&Young Luxury factbook-2015

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