MASTER IN FINANCE
FIELMANN AG COMPANY REPORT
EUROPEAN EYEWEAR RETAIL 4 JANUARY 2021
STUDENT: JAN-PHILIP JANSEN [email protected]
Fashionable Glasses for Everyone Recommendation: BUY
Fielmann Strengthens its Position in the Industry Price Target FY21: 79.01 €
Price (as of 3-Jan-21) 66.45 € Our recommendation is to BUY Fielmann AG considering a Bloomberg: FIE target price of €79.01 as of 31.12.2021 reflected in an upside potential of 20.69% (thereof €1.19 expected dividend) to the current 52-week range (€) 41.90-76.25 Market Cap (€m) 5,581 share price of €66.45. Outstanding Shares (m) 84,000 Source: Thomson Reuters EIKON Market trends like an ever aging population, digitalization and industry consolidation set a solid foundation for further sustainable growth.
We think Fielmann will be able to re-accelerate top-line growth back to 5%, achieved by a consistent realization of
Fielmann’s corporate strategy “Vision 2025”.
High Liquidity and strong Free Cash Flows provide sufficient funding for the renovation and internationalization Source: Yahoo Finance strategy. (Values in € millions) 2019 2020E 2021F The COVID-19 pandemic is currently the biggest threat for Revenues 1,524 1,385 1,556 the eyewear industry but at the same time a huge opportunity for EBITDA 410 328 382 EBIT 281 178 244 Fielmann due to its strong financial position. In contrast to other Capex 185 155 215 analysts, we expect Fielmann to be one of the post-crisis winners. FCF 126 118 68 Source: Annual Report 2019, Analyst Estimation We believe that the broad market might underestimate future profitabilty arising from further market consolidation.
Company Description Fielmann AG is a manufacturer, distributor and retailer of visual aids and other optical products, as well as hearing aids and accessories. The family business was founded in 1972 and is headquartered in Hamburg, Germany. As of September 2020, Fielmann operated 783 stores in 14 European countries and employed about 21,000 workers.
THIS REPORT WAS PREPARED EXCLUSIVELY FOR ACADEMIC PURPOSES BY JAN-PHILIP JANSEN, A MASTER IN FINANCE STUDENT OF THE NOVA SCHOOL OF BUSINESS AND ECONOMICS. THE REPORT WAS SUPERVISED BY A NOVA SBE FACULTY MEMBER, ACTING IN A MERE ACADEMIC CAPACITY, WHO REVIEWED THE VALUATION METHODOLOGY AND THE FINANCIAL MODEL. (PLEASE REFER TO THE DISCLOSURES AND DISCLAIMERS AT END OF THE DOCUMENT)
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Table of Contents
COMPANY OVERVIEW ...... 3 COMPANY DESCRIPTION ...... 3 FIELMANN SHARES ...... 4 INDUSTRY OVERVIEW ...... 5 MACROECONOMIC ANALYSIS ...... 5 MARKET ANALYSIS ...... 6 Germany ...... 7 Austria ...... 8 Switzerland ...... 9 COMPETETIVE LANDSCAPE...... 10 MARKET TRENDS ...... 12 Digitalisation (e-commerce & digital health) ...... 12 Increasing demand ...... 13 Consolidation ...... 14 FIELMANN IN FISCAL YEAR 2020 ...... 15 KEY RISKS ...... 16 VALUE DRIVERS AND FORECASTS ...... 17 STORE GROWTH ...... 18 Germany ...... 19 Austria ...... 19 Switzerland ...... 19 Rest of Europe (Growth and Expansion markets) ...... 20 UNITS SOLD PER STORE...... 20 PRICE ...... 21 OPERATING PERFORMANCE AND MARGIN DEVELOPMENT ...... 21 CAPITAL EXPENDITURES...... 23 WORKING CAPITAL MANAGEMENT ...... 24 CAPITAL STRUCTURE AND DIVIDEND STRATEGY ...... 25 VALUATION ...... 26 THE WEIGHTED AVERAGE COST OF CAPITAL (“WACC”)...... 27 The cost of equity ...... 27 The cost of debt ...... 28 SENSITIVITY ANALYSIS...... 28 RELATIVE VALUATION – TRADING COMPARABLES ...... 29 SCENARIO ANALYSIS INDUSTRY CONSOLIDATION ...... 31 RECOMMENDATION ...... 32
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Company Overview
Company Description
Fielmann AG is a manufacturer, distributor and retailer of visual aids and other optical products, as well as hearing aids and accessories with more than 25 million people wearing Fielmann glasses. The listed family business was founded in 1972 and is headquartered in Hamburg, Germany. As of September 2020, Fielmann operated 783 stores in 14 European countries and employed about 21,000 workers.
As a designer, manufacturer, and wholesaler, Fielmann covers the entire value chain of the eyewear industry. While the family business solely started with the sale of glasses, additional revenue is generated nowadays by the sale of contact lenses and hearing-aids. However, glasses constitute the largest revenue stream in 2019 (83% of consolidated net sales) while contact lenses (8%), sunglasses (3%) and hearing-aids (5%) supplement the product offering.
One major reason for Fielmann’s success are the affordable prices in line with
Figure 1: Fielmann Revenue Split fashionable design being offered to its customers. This can be ensured due to 2019 highly productive stores, the purchasing of large quantities, the inhouse production, and an international supply chain. In their production and logistic facility in Rathenow, millions of lenses as well as glasses and frames are produced every year. The manufactured products can be shipped directly to the nearly 800 stores in Europe. This highly integrated value chain enables Fielmann to cut off any intermediary which finally results in a significant cost advantage compared to competitors in a highly fragmented industry. Consequently, Fielmann is able to offer some glasses at no cost (“Nulltarif”) only earning money on the spectacle lenses. Additionally, Fielmann provides a best price guarantee for branded eyewear and designer frames.
In 2019, the 602 stores in Germany represented a 5% market share of all optical stores. Nevertheless, Fielmann obtained a 22% market share in terms of sales and even a 53% market share in terms of units sold. These figures are the result of Fielmann’s highly productive stores and show that Fielmann stores are able to generate significantly more sales than other optician’s in Germany. While an average optician sells less than two pairs of glasses per day, a typical Fielmann store sells about 35 glasses per day. In order to further increase the productivity per store, the management recently launched a service which enables customers Figure 2: Market Share in Terms to make an appointment online before entering the store. Fielmann aims to of Number of Stores Germany 2019 significantly reduce waiting times with this new service potentially leading to higher consumer satisfaction and increasing sales.
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Fielmann’s operations are divided into core markets (Germany, Austria, Switzerland and Luxembourg), growth markets (Italy and Poland) and expansion markets (Slovenia, Rest of Europe). In its core markets, Fielmann fosters growth by opening new stores, but primarily by developing existing ones and moving to more attractive locations.
Furthermore, Fielmann not only relies on sales through their stores but applies an omnichannel strategy. While customers nowadays tend to order contact lenses online, current market trends indicate that people prefer buying glasses purely offline (89% of all sales in Germany 2019) or use both, offline and online channels (9%)1. With its corporate strategy “Vision 2025”, Fielmann focusses on Figure 3: Fielmann Revenue by the multichannel platform and plans to launch new digital services such as online Geography 2019 eye tests, 3D try-ons and 3D lens fittings in the near future which is in line with current market trends.
In November 2019, the family business undertook a major event and completed the change of generation. Günther Fielmann, the founder and long-term CEO of the company, retired and his son, Marc Fielmann, succeeded as the new CEO. The succession was planned for a long time and Günther Fielmann had prepared his son who have been with Fielmann for nine years to lead the company. While Günther Fielmann can be seen as one of Germany’s most successful retailers, new skills will be needed in the future to transform the retail company into a multichannel company.
Figure 4: Sector Revenue by For the purpose of developing key technologies and business models with a Sales Channel 2019 disruptive potential Fielmann Ventures was founded in 2012 as a 100% subsidiary of Fielmann AG. Fielmann Ventures is a research unit which can operate as a strategic partner of third-party firms but also as a venture capitalist. One successful example is the strategic partnership with FittingBox, one of the world leaders of augmented reality technology that finally led to an investment in FittingBox. This partnership also plays a key role for Fielmann’s expanding omnichannel platform. Fielmann Shares
Fielmann has been listed on the Frankfurt stock exchange since 1994. The initial listing took place in Frankfurt with the issuance of Fielmann shares for a price of 5.00 Deutsche Mark. Currently, the stock is part of the German SDax representing the 81st – 150th largest publicly traded companies in Germany.
Fielmann’s current market Fielmann’s market capitalisation as of December 2020 amounts to €5.6bn capitalisation equals to €5.6bn compared to €6.0bn in December 2019. The main reason for the declining value
1 Source: ZVA - “Branchenbericht Augenoptik 2019/2020”
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is the impact of the COVID-19 pandemic on Fielmann and the whole eyewear industry. Comparing Fielmann’s historic stock performance to the German DAX over the past ten years, we find that the overall performance was very similar (Fielmann: 88.7% increase; DAX: 96.3% increase). Fielmann payed out most of its profits in form of dividends during the last years with the exception of the year 2020. Due to the pandemic, the management board and the supervisory board proposed not to pay out dividends in 2020 to keep liquidity in the company and remain flexible.
Figure 5: Fielmann Stock Performance vs. DAX The Fielmann family still holds the majority of shares (71.64%), while Credit Suisse Group AG holds 2.41% of Fielmann. The remaining 25.95% are Figure 6: Fielmann's considered as free float. Shareholder Structure
Industry Overview
Macroeconomic Analysis
In early 2020 the COVID-19 pandemic broke out in Europe and the number of reported cases grew significantly. Most countries announced lockdown measures and people were instructed to stay at home and to reduce social contacts resulting in a huge economic downturn in the first half of 2020. It took until May for economic parameters such as real-time high frequency indicators to increase for the first time after the outbreak of the virus. The first small rebound can be explained by the relaxation of strict lockdown measures as well as a change in behavior of people in the euro area. The rebound from the economic downturn
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continued until the second wave of the COVID-19 pandemic hit the euro area severely by October 2020. In order to reduce the number of infections, most governments reintroduced strict lockdown measures. In contrast to the situation in March when the weather was good and people spent time outside, it will be challenging for governments to reduce the number of cases during winter
The COVID-19 pandemic has months. Therefore, the probability that certain lockdown measures will keep in led to an economic downturn place after January is relatively high. Even though two COVID-19 vaccines were approved in December 2020, analysts expect the vaccination process to take at least several months. However, a potential vaccine is from great benefit to reduce market volatility and to give market participants greater security in terms of planning. Further risks arise whatsoever from recently explored mutations of COVID-19.
In order to lessen the negative impact of lockdown measures on the economy, governments as well as central banks announced certain fiscal and monetary stimulus. With its €1,350bn pandemic emergency purchase programme (PEPP), the ECB have aimed to lower the borrowing costs of capital and increase lending
The ECB announced a €1,850bn in the euro area. It can be seen as a complementary programme to its asset aid package purchase programme which was implemented in 2014. In December 2020, the ECB decided to further expand the PEPP by another €500bn to a total of €1,850bn. Furthermore, the ECB have kept the interest rates at historically low levels. Germany, the biggest economy of the euro area, announced a temporary reduction in the VAT rate, short time working allowance and billions of euros of additional stimulus.
Real Inflation The IMF predicts the real GDP of the euro area to decrease by 8.3% in 2020 and Year GDP Growth Rate to only partly rebound in 2021 with an increase of 5.2%. The real GDP growth 2020 -8.3% 0.4% rates are expected to adapt to pre-crisis figures in the next years (1.4% in 2025). 2021 5.2% 0.9% However, the forecast highly depends on the further development of the COVID- 2022 3.1% 1.2% 19 pandemic and therefore comes with high risks. 2023 2.2% 1.4% 2024 1.7% 1.6% In terms of inflation, the IMF expects rates of 0.4% in 2020 and 0.9% in 2021 2025 1.4% 1.7% within the euro area. Main drivers of the low inflation rate in 2020 are the oil price Figure 7: IMF Predictions Euro collapse, the appreciation of the euro as well as the VAT rate reduction in Area - Real GDP and Inflation Germany. The inflation rates in the years 2022 to 2025 in the euro area are expected to align to the goal of the ECB of an inflation rate of up to 2.0%. Market Analysis
The European eyewear market generated sales in the amount of €36bn in 20192. During the last years, continuous growth (CAGR of 1.8% between 2012 and
2 Source Market Data: Statista – Eyewear market Europe
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2019) could be observed. However, the COVID-19 pandemic will lead to a sharp decline in 2020 (-15.9% expected) and is predicted to fully recover by 2022. From 2022 to 2025, a CAGR of 2.4% is currently expected by analysts.
Germany
The German optician market is a highly fragmented market with only two players owning more than 200 branches (Fielmann and Apollo Optik). However, the market is in a consolidation process. While the ten major players generated 34% of sector’s sales in 2008, they already generated 48% in 20193. Due to recent acquisitions of optical stores by private equity firms, we expect further consolidation.
In recent years, German opticians were able to increase the sector’s sales Figure 8: Sector's Sales by Retailer Germany 2019 significantly with a CAGR of 2.3% from 2012 to 20194. The overall revenue of €6.6bn in 2019 is divisible into sales from spectacle lenses (€3.9bn), sales from sunglasses (€0.7bn), sales from eyewear frames (€1.5bn) and sales from contact lenses (€0.6bn). By further analyzing the development of the past sector revenues, one finds that the increase in number of units of glasses sold (CAGR of 1.8% from 2012 to 2019) was the main driver of growing sector sales.
In addition to the sales figures, we analysed the different sales channels which led to these numbers since we expect multiple sales channels as crucial for the future success. A few years ago, pure offline opticians faced new competition from pure online stores. However, recent market studies show that neither the pure offline model nor the pure online model will succeed in the long-term. It is expected that a multichannel platform is needed to grow further in the future. Major players of the industry reacted to this trend and it can be found that former pure offline retailers improved their online presence while former pure online
Figure 9: Sector's Sales by stores have started to cooperate with offline opticians or have opened their own Category Germany 2019 stores. In 2019, 89% of all glasses in Germany were bought purely offline, 9% were bought using multiple channels (offline and online) while only 2% were purely online. The growth of multichannel sales will highly depend on the technological progress in key technologies such as online eye tests or 3D lens fitting.
While most researchers expected continous growth in 2020, the COVID-19 outbreak led to a strong decline of expected sales in the eyewear industry. During the first lockdown, opticians were only allowed to During the first outbreak in Germany in March 2020, the German government operate emergency services undertook certain measures such as travel bans, stay-at-home notices and the
3 Source: ZVA - “Branchenbericht Augenoptik 2019/2020” 4 Source Market Data: Statista – Eyewear market Germany
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temporary closure of non-essential stores in order to reduce the number of cases. Most optical stores only provided emergency services or shut down during the first phase of the outbreak. In order to reopen stores, certain hygienic measures had to be implemented such as wearing facial masks inside the stores, restricted number of people allowed to enter a store or providing disinfectants at the entry of the store. The measures implemented resulted in decreasing numbers of COVID-19 cases and therefore also non-essential stores were allowed to reopen by the end of April 2020. Due to the remaining travel restrictions most Germans cancelled their vacation plans which resulted in a low demand for sunglasses. The number of COVID-19 cases in Germany remained low until end of September when cases started to grow exponentially again. New measures were implemented by beginning of November including the closure of restaurants, cinemas and bars as well as the restriction in number of households meeting each other. Retail stores were allowed to continue their operations. However, the expected decrease in frequency in the city centers will probably have a huge impact on retail stores such as optical stores.
The resulting implications from COVID-19 restrictions led to a pessimistic market outlook for the eyewear market in 2020. Analysts expect a decline in sector’s sales of 13.2% in 2020 to a total market revenue of €5.8bn. In 2021, the predicted market volumes amount to €6.5bn which is still below the 2019 level of Figure 10: Sector's Sales Growth p.a. in Germany €6.6bn. From 2022 to 2025, analysts expect the market to grow steadily with a CAGR of 2.6%.
Austria
In Austria, the optical retail market is mainly dominated by the three major players Hartlauer Optik (161 stores as of November 2020), Pearle (130 stores) and Fielmann (38 stores).
The Austrian eyewear market grew with a CAGR of 0.9% between 2012 and 2019 resulting in sector sales of €1,024m in 20195. The sector represents the four categories spectacle lenses (€428m in 2019), sunglasses (€245m), eyewear frames (€166m) and contact lenses (€186m). While the prices per unit for spectacle lenses, sunglasses as well as eyewear frames increased steadily in the past, prices for contact lenses decreased slightly.
As the Austrian skiing resorts (especially Ischgl) are seen as one of the initial Figure 11: Sector's Sales by contributors for the fast distribution of COVID-19 in Europe, the Austrian Category Austria 2019 government announced several lockdown measures from 10 March 2020 onwards. From 16 March, all non-essential stores (also optical stores) were
5 Source Market Data: Statista – Eyewear market Austria
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forced to close until 14 April. After the implementation of first measures, the amount of COVID-19 cases declined and with certain hygienic measures in place, most stores operated normally until the second lockdown from 3 November 2020 onwards was announced by the Austrian government. The second lockdown can be seen as huge threat for retailers which will face lower demand.
Analysts expect the Austrian eyewear market to decrease sharply by 14.7% in 2020 amounting to sector’s sales of €874m. Due to an expected normalisation of the COVID-19 pandemic, a rebound effect is expected in 2021 resulting in sector Figure 12: Sector's Sales Growth sales of €970m. Furthermore, market forecasts predict that the sector’s sales will p.a. in Austria reach pre-COVID level in 2022 with revenues in the eyewear industry of €1,028m. From 2022 to 2025 researches expect the market to grow with a CAGR of 1.4%. This results in an expected market size of €1,071m in 2025.
Switzerland
In contrast to the German optician market, the Swiss market is much more concentrated with the two main players, Visilab and Fielmann, generating nearly 50% of the sector’s sales in 2019. Recent M&A activities such as Visilab’s acquisition of McOptic led to a further market consolidation.
The Swiss eyewear industry grew with a CAGR of 1.0% between 2012 and 2019 amounting to an industry revenue of €1,036m in 20196. The sector’s revenue in 2019 is divisible into spectacle lenses (€530m), sunglasses (€113m), eyewear frames (€223m) and contact lenses (€169m). When further analysing the sector’s sales one can find that the prices per unit increased for spectacle lenses and sunglasses while prices for eyewear frames and contact lenses decreased during the last years. Figure 13: Sector's Sales by Category Switzerland 2019 In March 2020, the Swiss government introduced several lockdown measures including the closure of non-essential stores such as optical stores which restricted the public life dramatically. The strict measures were in place until 11 May 2020. First market studies show that most offline optical stores were hit severely during the lockdown, while online retailers benefited. Due to increasing number of COVID-19 cases from beginning of October 2020, the Swiss government introduced further restrictions by the end of October. This will once again reduce the frequency of city centres and therefore have a negative impact on the eyewear industry.
The eyewear market in Switzerland is expected to reach the 2019 level in terms Figure 14: Sector's Sales Growth p.a. in Switzerland of revenues (€1,036m) by 2022. Due to the implemented lockdown measures in
6 Source Market Data: Statista – Eyewear market Switzerland
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2020, the market is expected to decline by 13.8% (to €893m). Analysts expect a rebound by 10.6% in 2021 to total sector’s sales of €988m. Reasons for the expected rebound are regained purchasing power of consumers, less traveling bans and a backlog effect of previously postponed sales. In 2022, analysts expect sector’s sales of €1,045m which is slightly above the 2019 level. From 2022 to 2025, the market is expected to regain pre-COVID growth rates with an expected CAGR of 1.4%. Competetive Landscape
GrandVision is the largest optical retailer among Europe with more than 5,500 stores as of 2019. Started in 1989 as a regional optician in France, the company achieved significant growth rates due to a high amount of M&A activities. Especially noteworthy is the merger with Pearle Europe B.V. which was announced in July 2010. Pearle Europe B.V. brought established retail chains such as the German subsidiary Apollo Optik or the Austrian chain Revue Optik (later Pearle Optik) to the combined firm. From 2011 onwards the merged firm have aimed to provide high quality and affordable eye care around the world. To further expand their market leadership, they recently acquired additional optical chains especially in Europe such as Visilab in Switzerland.
Apollo Optik, a subsidiary of GrandVision, is Fielmann’s main competitor on the German optical retail market. Although Apollo Optik operates the most optical stores in Germany by far (c. 900 stores vs. Fielmann: c. 600), Fielmann was able to generate significant more revenue than Apollo Optik in Germany in 2019. Similar to Fielmann, Apollo Optik mainly sells eyewear products, also operates a production facility in Germany and offers their products to affordable prices. However, Fielmann is able to operate their stores much more efficient than Apollo does. Two main reason for the higher efficiency of Fielmann are the high brand awareness of Fielmann and the association with high quality products. In contrast to Fielmann, Apollo Optik does not operate all stores by themselves but also uses franchisees.
In Austria, GrandVision mainly operates through its retail chain Pearle (former Revue Optik) which owns 130 stores and employs more than 600 employees as of December 2020. Pearle aims to offer the best supply of glasses, contact lenses and sunglasses to Austrian citizens. Part of their growth strategy is the possibility for opticians to work as a franchisee of Pearle.
The market leader in Switzerland, Visilab, is also part of the GrandVision group. Visilab was founded in 1988 and acquired several competitors such as Kochoptik and McOptic during the last years resulting in 167 operating stores as of
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December 2020. Their business model is to offer glasses and contact lenses in the easiest and fastest way possible to its customers.
EssilorLuxottica is the global leader in the eyewear industry – from designing, to manufacturing and distributing eyewear products. The firm arose from the merger of the two complementary companies Essilor and Luxottica in 2018. While Essilor focussed on innovative lenses, Luxottica was well-known for its premium eyewear brands such as Ray-Ban or Persol. The combination of the two firms led to an integrated player which generated a revenue of €17.4bn in 2019. In July 2019, EssilorLuxottica announced the planned acquisition of GrandVision for €7.1bn. The combination of the two firms would have a huge impact on the eyewear market as the distribution network of GrandVision would complement the existing EssilorLuxottica group. However, as of December 2020 the planned acquisition is halted.
Mister Spex is a German start-up founded in 2007 and is the self-proclaimed leading omnichannel optician in Europe. Started as a pure online retailer, they realized that most customers do not buy glasses solely from an online website. As they realized this, they started to open retail stores and cooperated with independent opticians. Nowadays, one can order glasses from the online shop and try them on in a retail store with professional advice. As Mister Spex showed that a pure online sales strategy is not successful in the current market environment, it is also from great value for Fielmann to see that an omnichannel strategy is the most promising strategy from today’s point of view.
The third largest German optical retail chain is pro optik which aims to provide cheap glasses for everyone. With more than 140 stores (thereof 50 opened during 2015-2020), pro optic is a fast-growing competitor in the German market. However, there is a huge gap in terms of number of stores as well as brand awareness after the two market leaders Fielmann and Apollo Optik. While the two market leaders operate Germany-wide, pro optic has a clear focus on the Southern part of Germany. Pro optic partly operates stores by themselves while others are operated by franchisees.
The Dutch company Eyes and more expanded to Germany in 2006 and has established itself as the fourth biggest optical retailer in Germany with more than 130 stores as of December 2019. Eyes and more plans to open more than 40 stores in 2020 in Germany and can therefore be considered as the fastest growing optical retailer in Germany. Similar to the business models of Apollo Optik and pro optik, Eyes and more partly operates its stores through franchisees. Due to the fact that the company was acquired by the Dutch optical
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retailer Hans Anders (owned by the private equity investor 3i), we expect further growth ambitions in the next years. Market Trends
Three main market trends will shape the future of the eyewear industry: Main trends of the eyewear industry: digitalization, digitalization (e-commerce as well as digital health), increasing demand (ageing increasing demand, market population and growing need for visual impairments), and a further market consolidation consolidation, both vertically and horizontally.
Digitalisation (e-commerce & digital health)
Digitalisation has become one of the main topics for the eyewear industry during the last years. However, in comparison to other industries there is still much room for improvement as most processes in the eyewear industry did not change during the last decades. When COVID-19 broke out in the beginning of 2020 and first lockdown measures were implemented, the sector’s sales decreased dramatically which made it even clearer for traditional opticians to not rely on a pure offline strategy anymore.
A recently published survey conducted by the German sector association for opticians “ZVA” and the market research institute “Kanta” gives meaningful insights about the different sales channels used by customers in the purchase process of spectacles with dioptre compensation in Germany. The survey differentiates between pure online purchases, pure offline purchases and A multichannel strategy is multichannel purchases (usage of both offline and online channels). The survey expected to be necessary for optical retailers reveals that 89% of all purchases can be classified as pure offline purchases, 9% as multichannel purchases, and only 2% as pure online purchases. It is worth noticing that the results differ between glasses with single vision lenses and glasses with multifocal lenses. While glasses with single vision lenses were more frequently purchased online, multifocal lenses were nearly always bought offline due to the high degree of consultation and measurement. Most optical retailers have recognized and adapted to the trend of multichannel purchases which is expected to grow further in the next years. We observe that former online retailers such as Mister Spex have started to cooperate with offline opticians or have opened their own stores, while former offline retailers expanded their online presence dramatically. We expect that mostly the major optical retailers will benefit from the multichannel trend in the eyewear industry as they can provide an existing infrastructure and have enough budget to invest to further expand their online presence. This will finally result in a further market consolidation.
In addition to e-commerce, digital health plays an important role for the future of opticians. Especially COVID-19 have showed the industry that innovation
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regarding digital health and remote eye care is much needed and should be implemented as soon as possible. The pandemic led to closures of stores and Digital health will remain a main social distancing measures. Companies which adapted fast or already had digital trend for the eyewear industry tools implemented suffered less while traditional companies suffered more under the restrictions. Examples for digital health tools are 3D-try on technologies, 3D lens fitting and online eye tests. We expect that even after the pandemic, digital health tools will remain in place and can be a sustainable competitive advantage to attract customers.
Increasing demand
One of the main factors for an increasing demand for eyewear is the demographic change. In most major eyewear markets such as US, Japan, or Germany the share of population which is aged 45 (age at which most people lose near focusing ability) or older exceeds 42% of the total population as of today. This share is expected to grow even further in the future and as ageing is considered as the main risk factor for many eye problems it will rapidly increase the demand for eyewear products. In Germany, one of the eldest markets by mean age, 67% of the adult population needed eyewear products in 2019 (63% in 2014). It is worth noticing that 91% of Germans aged 60 or older needed an
Figure 15: % of Germans Aged 7 60+ in Need for Eyewear eyewear product. As this age group will further increase, the German eyewear Products industry will face increasing demand in the next decades.
Another positive fact for the eyewear industry is that its biggest target group, elderly people, are also the people with the highest spending power among developed markets. This age group is also highly concerned about eye issues Elderly people spend most and takes potential diseases very seriously. Furthermore, most elderly people money for optical solutions need multifocal and progressive solutions which are significantly more expensive than normal spectacle lenses. These lenses are one of the main revenue and profit drivers for optical stores. The combination of the need for eyewear products and high purchasing power will lead to increasing revenues in the eyewear industry in the next years.
As progressive and multifocal lenses are an important value driver for the eyewear industry and are also considered as technologically advanced, further innovation is expected to arise. One example for innovative solutions aiming to replace progressive and multifocal lenses is “TouchFocus”. “TouchFocus” are prescription lenses that are able to change focus by pressing a sensor on the frame. The technology behind is the usage of liquid crystals which are set into the lower half of the glasses. It therefore enables users to control the specific focus
7 Source: ZVA - “Branchenbericht Augenoptik 2019/2020”
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of the lenses without the disadvantages as experiencing blur vision which is typical for progressive and multifocal lenses.
Another demand driver is the fact that more and more younger people tend to need eyewear solutions which is especially driven by the high amount of screen time young people are facing. A recent market study from Mister Spex and Statista shows that in 1952 only 13% of the people aged 20 to 29 needed Increasing share of younger glasses compared to 32% in 2014. The usage of smartphones and computer people need eyewear solutions screens does not only increase the number of people who need glasses, it also developed the demand for a new kind of spectacle lenses: Glasses with an integrated blue light filter which makes the usage of screens more convenient and less harmful for the eyes. In developed markets, one can observe a new trend which is currently arising due to the relevance of this topic: workplace glasses. Workplace glasses with integrated blue light filters are a great trend for the eyewear industry since most employers financially support the purchase of these glasses and partnerships between employers and optical stores will further drive the demand.
Consolidation
The eyewear market is a highly fragmented market with lots of opticians operating their own store. While in most other industries economies of scale makes it very hard to compete with bigger competitors, the smaller optical stores have managed to sell glasses for a higher price than bigger retailers and most of them are part of a purchasing association to reduce purchasing prices. However, there are still high enough economies of scale such as less fixed costs per sold unit for bigger retailers which is a significant competitive advantage. Therefore, we have seen a strong trend to a concentration of the market with lots of recent M&A activities. Furthermore, the need to follow an omnichannel strategy in the future makes it even more difficult for small stores to compete with their big competitors.
A suitable example for consolidation in the eyewear industry is the German market. While in 2008 the ten biggest players generated 34% of sector’s sales, they already generated 48% by 2019.8 Also, in terms of number of stores, we find that the overall number of stores decreased from 11,820 in 2008 to 11,550 in 2019. At the same time, the number of stores operated by the ten biggest players increased from 1,650 in 2008 to 2,230 in 2019. Recently, private equity investors discovered the German eyewear market and have aimed to buy small optical Figure 16: Sector's Sales by Retailer Germany 2008 stores and combine them to a bigger group. One example is the private equity investor Beyond Capital which owns 90% of the optician chain Ounda focused on
8 Source: ZVA - “Branchenbericht Augenoptik 2019/2020”
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premium stores. Ounda currently operates 20 stores in Germany (as of December 2020) and aims to acquire 60 to 80 additional stores within the next two years.
In 2018, the two major players Essilor and Luxottica merged resulting in the largest firm in the eyewear industry with revenues in the amount of €17.4bn in 2019. Globally, the merged firm accounted for 18% of the eyewear industry in terms of value by 2019. Just one year after the merger, they announced the planned acquisition of GrandVision, the main optical retailer in Europe. However, Figure 17: Sector's Sales by the acquisition is halted due to ongoing court investigations. GrandVision has Retailer Germany 2019 also been an active M&A player during the last years as they drove the consolidation of the European optician retail market with the merger with Pearle Europe B.V. and smaller acquisitions such as the purchase of Visilab in Switzerland. We expect that an acquisition of GrandVision by EssilorLuxottica would have a huge impact on the European eyewear industry as they would form the biggest player by far. As Fielmann manufactures lots of glasses and lenses by themselves they are not as exposed to these price risks as other competitors.
Since the industry will further expand to an omnichannel sales strategy, we expect the market to continue its consolidation. Smaller optician stores will not be We expect further market able to invest in an online infrastructure which can compete with the consolidation in the next years infrastructure of big retailers such as Fielmann, Visilab or Apollo Optik. Furthermore, we do not only expect strategic M&A deals to happen but also further private equity involvement. In our opinion, the optical retail market provides private equity investors with the opportunity to successfully pursue a buy-and-build strategy.
Fielmann in Fiscal Year 2020
While non-essential stores had to close from mid of March onwards, Fielmann was able to continue to operate emergency services. However, revenues fell by up to 80% when European countries were situated in a lockdown. During the first quarter of 2020, Fielmann’s revenue only decreased by 4.4% to €355.3m since the revenue development in January and February was very strong. It took Fielmann until April 27 to offer all usual services and to normal opening hours. Nevertheless, Fielmann had to implement certain hygienic measures which reduced efficiency. The firm aimed to reduce efficiency losses by the quick Figure 18: Fielmann's Revenue implementation of an appointment management tool. The strict measures as well Growth per Quarter compared to 2019 as the restraint behavior of European citizens led to a revenue decrease of 33.8% to €255.6m and a decrease in EBT of 67.1% to €19.9m during Q2 2020.
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However, the announcement of positive net results during the first two quarters of 2020 can be seen as a huge achievement of Fielmann. Finally, Fielmann was able to strongly rebound in Q3 2020: The revenue increased by 5.2% to €421.0m and EBT increased by 3.7% to €81.4m compared to Q3 2019. In order to maintain its good financial position, Fielmann decided not to pay out dividends in 2020, had a temporary recruitment freeze in place, postponed wage increases, and reduced the budgets for marketing and external consulting firms.
As of beginning of November 2020, the management announced its updated Fielmann will remain profitable outlook on the annual 2020 figures. In terms of revenue, the management expect in the difficult year 2020 Fielmann to generate more than €1.4bn (€1.52bn in 2019) and an EBT of more than €140m (€254m in 2019).
Key Risks
Currently, the biggest risk factor for Fielmann is the COVID-19 pandemic and the great uncertainty that comes with the virus. As the global economic development in the next years will highly depend on the future spread of the virus as well as the restrictions and stimulus announced by governments, Fielmann’s business COVID-19 represents the single figures are also highly dependent on these developments. During the first biggest risk for Fielmann lockdown measures, one could observe that people tend to avoid city centres when the number of cases is high. Furthermore, in times of high uncertainty people tend to postpone expensive purchases such as new glasses. However, one could also observe that Fielmann got through the first months of the pandemic in a much better condition than most of its competitors. A big advantage for Fielmann is the high amount of liquid funds (€217m as of September 2020) and the very low debt-to-equity ratio. Fielmann’s healthy financial situation is one of its main advantages in comparison to its peer group.
As the eyewear markets quickly adapts to a multichannel strategy, another risk factor arises from Fielmann’s transition to the multiple sales channels. Even We classify the risk of the though Fielmann can be considered as one of the market leaders in terms of transition to a multichannel strategy as low digitalisation in the eyewear industry, it will be a main success factor to attract potential customers to its website and to make the customer experience as convenient as possible. Due to its good market position and its ongoing high commitment to digitalization, we classify the risks from the multichannel strategy as low.
Fielmann faces competition from traditional optical retailers as well as online retailers such as Mister Spex. In comparison to traditional optical retailers, Fielmann is able to operate its stores much more efficient and has therefore
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established itself as the market leader in Germany. Compared to pure online retailers, Fielmann provides a strong infrastructure of stores which could be a main advantage over online retailers as the trend goes to an omnichannel Fielmann faces traditional as strategy. One potential risk factor is the recent merger of Essilor and Luxottica as well as new competitors which we classify as a medium risk well as their planned acquisition of GrandVison. EssilorLuxottica is the main player in the eyewear industry and operates in every part of the value chain. Although, Fielmann manufactures their own products, they also sell branded products owned by EssilorLuxottica (e.g. Ray-Ban). We therefore classify the risks from the competitive situation as medium.
Fielmann partly designs and manufactures frames as well as prescription lenses by themselves and therefore controls the complete value chain. One risk factor is We classify the risks arising from production as low the maintenance of high-quality products and the adaption to innovative solutions. We classify the risks from production as low and rather see a competitive advantage due to the low level of dependency of a non-controllable supply chain especially in times of high uncertainty.
Finally, as a company with an international focus Fielmann also faces currency There are no significant risks. However, as 85% of all group payment flows are in Euro and Fielmann currency risks aims to hedge the remaining currency risks, we classify the currency risks as low.
Value Drivers and Forecasts
To be able to build a reliable revenue forecast for Fielmann we use a comprehensive bottom up approach identifying the company’s most important revenue drivers. These can be divided into the total number of stores, the average number of units sold per store and the price per unit sold.
Fielmann came up in early 2019 with a new corporate strategy called “Vision Vision 2025 includes expansion 2025”. With this plan Fielmann aims to follow an omnichannel strategy and and digitization plans in order to re-accelerate top-line growth therefore plans to further expand their store network as well as increase their online presence and to adapt quickly to innovations in the eyewear industry.
This plan is about re-accelerating top-line growth back to 4-6% annually by store openings, modernizations and the entrance into new markets either through the opening of new stores or M&A transactions. It includes defined long-term amounts of stores per region and the entrance in five new markets until 2025. In its core markets (Germany, Austria, Switzerland and Luxembourg), Fielmann sees potential in opening new stores, developing existing stores and moving to more attractive locations. Past financial data revealed that the modernization and the increase of floor space led to double-digit improvement in terms of revenue
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and is therefore considered as one of the main value drivers in its core markets where Fielmann already operates lots of stores. Further growth is expected from the expansion of growth markets (Italy and Poland) as well as from the development of expansion markets. The development of expansion markets including the entering of new countries is planned through organic growth and through strategic acquisitions. Due to the huge decline in the eyewear industry and Fielmann’s stable financial position, we see huge opportunities for Fielmann to acquire optical retailers in expansion markets. In the following part regarding our forecast we will comment specifically on Fielmanns goals and what we believe is realistic during the current market circumstances.
In terms of digitalization, Fielmann aims to integrate three main technologies into its omnichannel strategy: 3D try-on of glasses, 3D fitting and online eye tests. Its subsidiary Fielmann Ventures develops these key technologies either independently or in partnership with technology companies. It is especially noteworthy that Fielmann plans to launch a new app by the end of 2020 aiming to (at least partly) integrate these key technologies and to improve the customer experience. As Fielmann seems to be fully aware of all these changes concerning the eyewear industry in terms of digitalization and omnichannel platforms we believe the company is positioned very well in order to keep up with their competitors and will not miss on innovation activitiy in any of the important areas. Store Growth
In its core markets (Germany, Austria and Switzerland) Fielmann maintains Main drivers for revenue growth are openings of new strong organic growth through the opening of new stores, developing existing stores, smaller M&A ones and moving to more attractive locations. As part of their internationalization transactions and existing store modernization and strategy, smaller M&A transactions like the acquisition of Slovenian optical chain refurbishments Optika Clarus in 2019 have helped Fielmann to enter new markets. With its “Vision 2025” growth plan, Fielmann wants to enhance top-line growth with store openings, modernizations, international expansion in existing and new markets.
Modernization and increasing floor space refurbishments have led to double digit improvements of a single Fielmann store in terms of revenue. To proxy this development we do not only forecast the opening of new stores but also include a variable to display the sales increase coming from existing store modifications. Conservatively, we model that development as a 10% increase in sales per store renovation, which means 10 refurbished stores equal the opening of a single newly opened store.
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Germany
Fielmann’s main market is Germany where it operated 602 stores at the end of 2019 achieving a market share of 22% in terms of sales and even 53% in terms of units sold. These numbers display the strong market position in its home country. In the long-term, Fielmann plans to operate 630 stores in Germany. Since Fielmann only opened 16 new stores in the five-year period from 2015- 2019 and is very prudent to have its stores in the most attractive locations, we
Figure 19: Fielmann, Number of expect them more conservatively to open 12 new stores until 2025. Additionally, Stores Germany we think the number of refurbished stores per year until 2025 will be around 20, roughly 50% of the total planned 40 renovations and expansions of existing stores. During the second forecast period from 2026 to 2032 the company should have reached its long-term goals in terms of total stores, which means no more new stores will be opened as modernization and increasing floor space will be the main drivers of growth in Germany. We expect no impact of COVID-19 on the future openings and renovations of stores in Fielmann’s core markets because Fielmann was able to fund investments in PP&E and rights of usufruct from leases with available liquidity. The total number of stores at the end of September 2020 was 783, showing a development that strengthens our view of Fielmanns core markets organic expansion strategy.
Austria
Fielmann operated 38 of its stores in Austria at the end of the fiscal year 2019. With the small number of only 3% of total optical stores in Austria they managed to achieve a unit sales market share of 23%. The management’s long-term plan includes a total of 45 stores which in our opinion should be feasible despite the current market conditions. Looking back at past store openings we expect one store opening per year until 2025, leaving the company with a total amount of 43 stores operated in Austria. Refurbishments during that particular period should Figure 20: Fielmann, Number of amount to about five per year, displaying a resuming trend also through the Stores Austria second forecast period until 2032. During that time we do not expect any significant further store openings because Fielmann already reached a number slightly below its long-term intended number of total stores in Austria.
Switzerland
In Switzerland Fielmann operated 43 stores as per December 31st 2019. With only 4% of all optical stores in the country Fielmann achieved impressive numbers of 17% of market share in terms of sales and 46% market share in Figure 21: Fielmann, Number of terms of units sold, even more than in Austria with almost the same number of Stores Switzerland stores. In the long-term the company plans to operate 50 stores in Switzerland.
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Looking at the past development of store openings we expect one store opening per year, leaving Fielmann with a total number of 48 stores, a quite similar development like in Austria with no further store openings expected after 2025. Refurbishments also amount to 5 stores per year during the whole period.
Rest of Europe (Growth and Expansion markets)
Apart from Fielmann’s core markets the company also operates and expands in growth and expansion markets in the rest of Europe. By the end of the fiscal year 2019 the company operated 27 stores in Italy, 20 stores in Poland (growth markets), 28 stores in Slovenia, 3 stores in Luxembourg and 15 stores in the rest of Europe which leaves us with a total number of 93 stores. The significant increase in stores in Slowenia occurred following the acquisition of the Slowenian market leader Optika Clarus. Fielmann plans to operate 80 stores in Poland and Figure 22: Fielmann, Number of 50 stores in Italy. Considering the current economic situation we believe the Stores Rest of Europe entrance in five new markets until 2025 is too optimistic. We assume that Fielmann will be able to enter at least two new markets until 2025, which leaves
us with a total amount of stores for the rest of Europe of 197. We assume smaller M&A transactions in new markets comparable to Optika Claurus in size will increase the number of stores in the respective country by around 25 locations. Refurbishments in the next five years will amount to around ten stores per anno. During the second forecast period we expect further but lessening store openings until 2031 and Fielmann to keep its renovation activities like in its core markets. Due to COVID-19 we expect no more store openings in the fourth quarter of 2020 after they already opened four new stores in the rest of Europe during the year. Starting 2021, with conditions reverting slowly back to normal, we expect Fielmann to continue its 2025 growth strategy by opening new stores and expanding in further markets. Units sold per store
As already illustrated earlier in our report the total number of glasses sold for Fielmann is highly driven by the demographic development in Europe with an ever aging population and the number of stores. The total number of glasses sold grew in the last five years with a CAGR of 1.47%. On an average per store level we observed slowly rising quantities in Germany and slowly declining numbers in Austria and Switzerland. Due to the high store growth in the rest of Europe Fielmann reported, despite growing total amounts of glasses sold, quickly declining numbers on a per store level. In Fielmann’s core markets units sold per store stabilized at around 11.1k to 11.4k per anno. We expect the amounts in
Figure 23: Fielmann, Historical these geographies to stay relatively constant as we believe this displays a Average Glasses Sold per Store sustainable long-term development. Regarding the rest of Europe, as markets
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mature over time, we expect units sold per store to reach the level of Fielmann’s core markets until 2028. To reflect the COVID-19 impact for the Fiscal year 2020 we adjusted, in line with the reported Q3 financials by the company showing total amounts of sold glasses to be around 1m less than in the previous year, the units sold per store by 1.5k glasses less than in the previous year. For the fiscal year 2021 we expect in accordance with total market size forecasts ongoing impact of COVID-19 with a slow but steady recovery of about 1k glasses per store more than in 2020. In 2022 we expect activities getting back to normal and from there on amounts are expected to stay constant. Price
To be able to forecast unit prices for Fielmann we mainly focus on glasses sold because this represents the company’s main business with more than 84% of total sales coming from glasses. Contact lenses, sunglasses and hearing aids are and will stay more of a secondary business. This means average historical prices calculated based on the total number of glasses sold also include the prices of all other sold products which leads to slightly higher unit prices. Owed to the highly fragmented eyewear retail industry Fielmann as a market leader and manufacturer is able to offer glasses at lower prices than their competitors. In the Figure 24: Fielmann, Historical Average Price per Unit Sold period from 2015 to 2019 average unit prices showed moderate growth with a 5- year CAGR of 2.38%. In contrast global eyewear unit prices slightly increased in the past. Having this fact in mind we forecast Fielmann’s unit prices to grow with the ECB HICP long-term inflation rate forecast at 1.6%. Considering the current economic crisis and expected declining unit prices in the whole eyewear industry we think for Fielmann with its competitive advantage it will be very likely to keep the trend of rising unit prices throughout the next years, but at a slightly lower growth rate. Operating Performance and Margin Development
Throughout the years 2015 to 2018 Fielmann’s sales grew with a CAGR of about 3%. As already explained more in detail earlier in the report, the company introduced its vision 2025 corporate strategy to re-accelerate top-line growth back to 4-6%. We believe even when considering the current market situation this goal is accomplishable for Fielmann. According to our forecast with the new expansion strategy, the CAGR for sales growth during the years 2019 to 2025 in our first forecast period will be around 4%. Total sales in the fiscal year 2025 are expected to amount to €1.93bn and up to €2.29bn in 2032 with slower growth during the second forecast period. After the change of generations in April 2018 from Günther Fielmann to his son Marc as the new CEO of the company, one
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could observe strong sales growth in 2019 and successful crisis management during the COVID-19 crisis to date. We believe the management will be able to drive growth in the future and reach target amounts and growth rates on schedule.
In 2019 around 96% of sales were generated in Fielmanns core markets with Germany being the most important market with sales shares of 78% and only 4% in the rest of Europe. Due to the expansion strategy of the company we expect the relative amount of sales of Fielmann’s growth and expansion markets to rise Figure 25: Fielmann, Sales Split significantly until the end of the second forecast period. According to our forecast 2019 this manifests itself in a sales split of about 86% in core markets and 14% in the rest of Europe.
Historically Fielmann showed pretty stable gross-, EBITDA and EBIT margins. The first time implementation of IFRS 16 in 2019 led to a slight shift in EBITDA margin from 22.4% in 2018 to 26.9%. Following this new accounting rule we expect the EBITDA margin to stabilize at around 25.8% in the future. Based on the substantial store growth owed to Fielmann’s expansion strategy and the resulting increase in tangible assets and rights of usufruct from leases we see Figure 26: Fielmann, Sales Split slightly decreasing operating income margins to about 15% in the long-term 2032 compared to 18% in 2019 due to growing depreciation and amortization relative to sales.
Figure 27: Fielmann, Overview Revenue (in €m) and Margins Compared to other eyewear retailers Fielmann has by far the highest gross-, EBITDA and operating income margins. With a gross margin of more than 79%, only Grand Vision has an almost comparable margin with 71.6% and the other
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peers show significantly lower margins between 50% and 60%9. A similar picture
79.7% 71.6% is obtained when looking at EBITDA and EBIT margins. In every case Fielmann
58.8% 52.7% shows higher margins than its competitors, which reflects the operational efficiency of the business. 26.9%
18.5% 15.5% 9.6% 3.9% 4.9% 4.6% Historically, Fielmann’s liquidity always remained high. Liquidity of the Fielmann 0.5%
Fielmann National Vision Holdings, EssilorLuxottica Société GrandVision N .V. Aktiengesellschaft Inc. anonyme group is managed centrally on a daily basis to guarantee all minimum capital Gross Margin EBITDA Margin EBIT Margin requirements and provides room for further expansion. With high cash balances Figure 28: Margin Overview Eyewear Retailer ranging from €130m to €216m together with lean short-term revolving credit facilities that are solely used for sureties the company always finds itself in a healthy financial situation. Apart from providing further organic expansion the high level of liquidity in line with several cost cutting actions also led to a comfortable position even during a financial crisis like the corona crisis. The fact that yearly free cash flows throughout the last five years were never negative and even despite rising capital expenditures not expected to get negative in the future provides even more cushion for economic downturns.
Further, it is important to take a look at Fielmann’s value creation. When looking at the company’s return on invested capital (“ROIC”) we see pretty high but Fielmann outperforms its competitors in terms of slightly decreasing values during the last five years of more than 40%. The drop efficiency and profitability in sales in 2020 due to the corona crisis also leads to a heavy drop in ROIC to 14.39%. From 2021 onwards, we expect ROIC to recover, but because revenues need time to recover on the one hand and on the other hand due to rising tangible assets and leases following Fielmann’s expansion strategy to continue its declining trend. Moreover, we expect ROIC to decrease further in the next years with a final ROIC figure of 15.1%. Relative to its peer group these numbers
are pretty high, which shows once again Fielmann’s operational efficiency. In addition to that, the company’s WACC is 4.21% and the ROIC stays constantly far above this threshold, and followingly the company is creating value for its shareholders. Capital Expenditures
Historically, capital expenditures of Fielmann ranged about 4-6% of revenues with an increasing trend. In 2019 the company more than doubled this amount after the introduction of the Vision 2025 corporate strategy and the implementation of the first steps of the new plan. The main drivers for Fielmann’s capital expenditures are the expected M&A transactions following the company’s expansion plans and the openings of new stores, the renovation and refurbishments of existing stores and the group’s investments in digitization as
9 Source: CapitalIQ
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part of the development of the omnichannel platform. Almost the whole amount of capital expenditures is financed by Fielmann’s own liquid funds. Beside the
Capital expenditures are company’s expansion and renovation strategy, Fielmann’s management sees a mainly driven by expected lot of potential in the smart connection of digital services and personnel M&A transactions, store openings and refurbishments consulting in the stores. With increasing digitization of the eyewear industry and digitization activities Fielmann already invested in FittingBox, a world market leader in the field of 3D virtual try-ons for glasses with 13 patents. Additionally Fielmann Ventures already submitted six patent applications.
When looking at tangible assets, intangible assets and lease liabilities we see a clear trend during the last years of rising total amounts. In line with the Vision 2025 expansion strategy we expect this trend to continue. With new store openings and continuing investments into digitization, with respective continuing patent creation, we expect capital expenditures to further increase until the end of the first forecast period. During the second forecast period and for the long-term we expect capital expenditures slowly to approach a sustainable maintenance capex level.
Figure 29: Fielmann, Overview Capital Expenditures
Working Capital Management
Net Working Capital (“NWC”) as a measure of liquidity and operational performance of Fielmann shows the typical characteristics of retail companies.10 With high Days of Inventory Outstanding (“DIO”) and relatively low Days of Sales Oustanding (“DSO”), Fielmann’s Cash Conversion Cycle in the fiscal year 2019 amounted to 110.8 days. This means it takes Fielmann on average about 111 Figure 30: Cash Conversion Cycle days to convert its investments in inventory and other short-term resources into Comparison
10 Source: CapitalIQ
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cash flow. In order to forecast the working capital amounts with regards to optimizing operational performance we compared them to those of Fielmann’s main competitors. Fielmann shows on average slightly higher DIO than the competition. Therefore, we use an average DIO of the past five years of 175.5 days to forecast inventories which is still above average of the peer group, but in our opinion a quite sustainable assumption considering Fielmann is not only a retailer but also manufactures glasses and frames itself. On the other hand, Figure 31: DIO Comparison Fielmann is very efficient in collecting money from its customers. An average collection period of 8.2 days in the last five years compared to DSO of 45 to 49 of the peer group shows more efficient payment and cash flow management and minimizes payment risk. Further, we believe Fielmann will be able to sustain the observed significantly lower DPO compared to its peer group. With an average of 81 days in the last four years Fielmann’s DPO are well below its competitors with values of around 130 days. Therefore, we see room for operational improvement by exploiting the company’s strong market position. In an industry continuing to consolidate and by retaining its competitive positioning we believe Fielmann will Figure 32: DSO Comparison make use of its strong negotiation power to suppliers and increases its DPO to 102 days by 2024. All this will lead to an improved cash conversion cycle for the company of approximately 81.2 days due to better working capital management.
Figure 33: DPO Comparison
Figure 34: Fielmann, Overview Net Working Capital
Capital Structure and Dividend Strategy
When looking at Fielmann’s historical capital structure we observe extremely low levels of debt/equity ratio based on market values. D/E ratios based on book values historically are around from 3.14% to 3.93% and based on market values even lower from 0.37% to 0.51%. Comparing these numbers to debt-to-equity Figure 35: Fielmann, Equity, Debt and Net Debt Development ratios of Fielmann’s peer group you can see generally much more levered
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Balance Sheets11. Debt/equity ratios based on market values of other optical 32.6% retailers range from 9% to 35%. Fielmann’s investment strategy is quite
18.2% defensive and focused on safeguarding the assets of the company. Investments are mostly solely funded by Fielmann’s own funds. Therefore, long-term financial 8.1% 3.8% liabilities are low and the company has only lean short-term revolving credit
Fielmann National Vision EssilorLuxottica GrandVision N.V. Aktiengesellschaft Holdings, Inc. Société anonyme facilities that are solely used for sureties. Management guidance does not include Figure 36: Total Debt-to-Capital any changes to this strategy in the future which strengthens our opinion that we Ratio Comparison will not see any major changes in capital structure in the future.
Fielmann follows a “shareholder friendly” dividend policy and in fiscal year 2019 they raised their dividend for the 14th time back to back to €2.05 per share which equals a dividend payout ratio of 94.5%. As the Fielmann Family Foundation owns 71.64% of the company as of 31.12.2019 and therefore is the major shareholder we do not expect future changes for their dividend policy. To strengthen liquidity, independence and ability to act during the corona crisis, the shareholder’s meeting agreed to Management- and Supervisory Board’s Figure 37: Fielmann, Historical proposal to pay no dividend in 2020. As soon as the company has overcome the EPS and DPS most severe times of the corona crisis, Fielmann would continue its old dividend policy as we also expect them to do so.
Valuation
For valuation purposes of Fielmann AG we choose the Discounted Cash-Flow method as we do not expect major changes in capital structure as already explained in the previous chapters. Our forecast periods are split into Forecast Period 1 ranging from 2020 to 2025 and Forecast Period 2 from 2026 to 2032. We choose to differentiate between Fielmann’s corporate strategy until 2025 and a fading period to approach stable terminal growth. Accordingly, using the year 2033 cash flow we calculate the Terminal Value applying a terminal growth rate of 1.33% which stabilizes towards the end of our second forecast period and is calculated using the reinvestment rate and the company’s RONIC. This growth rate is slightly below the forecasted long-term inflation rate. Following our separation of Fielmann into its operating and non-operating business we add the value of the non-operating business and subtract the value of the company’s financial debt which leaves us with the final equity value.
11 Source: CapitalIQ
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The weighted average cost of capital (“WACC”)
In order to be able to correctly derive a value for Fielmann we discount its cash flows with the appropriate discount rate which is mainly based on the company’s cost of equity and cost of debt. As these measures have significant impact on the valuation outcome we calculate them carefully and explain our thoughts and assumptions in the following.
The cost of equity
To calculate the cost of equity we use the Capital Asset Pricing Model (“CAPM”). We estimate Fielmann’s Beta based on a regression of the company’s historical closing stock prices against a relevant market index, in our case the Stoxx Europe 600. We chose to regress a relatively short period of five years because Beta is time-varying and not constant. Therefore, using a relatively short period of time is common practice. Another important argument is the comparability as the Betas obtained from Capital IQ are also 5-year Betas. We strongly believe, as Fielmann is a mature company with observable historical stock returns, the estimated historical stock beta to be more precise than an estimation based on the peer group. Especially with comparability issues due to huge outliers in terms of size. We unlever the result with Fielmann’s current capital structure just to re- lever it with our respective target capital structure for the company. We base our target capital structure of 0.5% D/E on current and historical values as we think Fielmann is already a mature company that historically showed no major Figure 38: Fielmann, Debt/Equity changes in its capital structure and based on our estimates and management Ratios guidance this will also not be the case in the future. Following these calculations we observe a levered Beta of 0.71. Because the standard error in our regression proves to be relatively high we also derive the levered Beta for Fielmann based on its comparable companies. By unlevering the Betas of Fielmann’s peer group and re-levering the median of the unlevered betas with the target capital structure we arrive at a levered Beta of 0.72 which is close to the result of the regression, underpinning the plausibility of that result. For the risk-free rate we use the yield of German 10-year Government Bonds which is equal to -0.58% and for the equity market risk premium we use 6.75% recommended by a KPMG Equity Market Risk premium research study12 which includes effects of the corona crisis. After inserting all these inputs into the CAPM, our analysis results in an estimate for the cost of equity of 4.21%.
12 KPMG Equity Market Risk Premium Research Summary
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The cost of debt
Due to the fact that Fielmann only has very little debt outstanding and we believe these loans are not a good proxy to calculate the cost of debt we use the 10-year Yield to maturity of a European composite BBB+ rated bond. This corresponds exactly to Fielmanns credit rating of BBB+ observed from Reuthers EIKON. We adjust the Yield to maturity with the corresponding default- and recovery rates to account for the possibility of default, even for a company with investment grade rating, which results in an effective cost of debt for the company of 0.76%. For Figure 39: Fielmann, Distribution of the tax rate we use the German statutory tax rate of 30%. Enterprise Value To conclude, our forecast leads to an Enterprise Value for Fielmann AG of €6.51bn and an Equity Value of €6.64bn. Fielmann’s high amount of cash combined with its capital structure leads to negative net debt and followingly to a higher Equity Value than Enterprise Value. Considering the 84m shares outstanding the target share price according to our valuation is €79.01. Sensitivity Analysis
As certain already presented variables have substantial effects on final value considerations we are performing several sensitivity analysis to get an impression which impact changes in input variables can have on the final outcome of our valuation.
First of all, we test the influence of different values of beta and cost of debt on the WACC. For a reasonable range of beta values we use the upper and lower bound of our beta regression analysis. Regarding the lower bound of our range for cost of debt we chose the risk free rate and for the upper bound our calculated cost of debt.
Beta levered 0.45 0.56 0.68 0.80 0.92 Cost of Equity 2.43% 3.23% 4.03% 4.83% 5.63% WACC 2.42% 3.22% 4.01% 4.81% 5.61%
Cost of debt -0.58% -0.28% 0.01% 0.31% 0.61% WACC 4.21% 4.21% 4.21% 4.21% 4.21% Figure 40: Impact Beta and Cost of Debt on WACC Another impactful variable is the terminal growth rate. We derive the growth rate Sensitivity Analysis respective to terminal growth and WACC by multiplying the reinvestment rate with the Return on New Invested Capital yields in a median price of (“RONIC”). For a meaningful range of testing values for the terminal growth rate €79.39 we vary different reinvestment rates and RONICs based on the observed values according to our forecast.
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After careful considerations of these fundamental inputs we perform a sensitivity analysis of Fielmann’s share price relative to different WACCs and terminal growth rates.
WACC x 2.42% 3.21% 4.01% 4.81% 5.61%
0.69% 141.03 95.62 72.10 57.74 48.07
0.98% 165.60 105.65 77.32 60.83 50.06 1.27% 202.53 118.64 83.62 64.43 52.32
Terminal Terminal 1.56% 264.26 136.15 91.41 68.66 54.90 Growth rate Growth 1.85% 388.38 161.04 101.27 73.72 57.88 Figure 41: Sensitivity Table Growth rate vs. WACC This analysis provides a wide range of prices for Fielmann’s stock price. If we take a closer look on these values, the median value is equal to €79.38 with the lower quartile at €58.89 and the upper quartile at €121.87. This reinforces our price recommendation as the median value is only slightly above our target price.
Furthermore, the cash flow we use to calculate the terminal value also has a significant impact on the final value of the company. This is why we also perform a sensitivity analysis with regards to the final cash flow and the terminal growth rate.
Figure 42: Sensitivity Analysis relative to Growth
Relative Valuation – Trading Comparables
Fielmann is a designer, manufacturer and retailer in the eyewear industry. In order to perform a relative valuation, we decided to split comparable firms into Due to significant outliers in terms of size and other the two categories “Optical retailers” and “Optical manufacturers”. Finally, we comparability issues we focus weight the “Optical retailers” with 70% and the “Optical manufacturers” with 30%. on the intrinsic valuation of Fielmann The reasoning behind is that Fielmann’s main competence is the sale of eyewear products. Although Fielmann partly manufactures glasses and contact lenses by themselves, optical retailers are the more suitable comparables.
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The peer group “Optical retailers” includes Grand Vision, EssilorLuxottica, and National Vision. While the first two firms are direct competitors of Fielmann among Europe, National Vision operates a similar business model to Fielmann in the US. When comparing the indicated firms to Fielmann, one has to consider that they are bigger in terms of revenue. However, when it comes to profitability Fielmann shows that they are the most profitable firm despite its smaller size.
Optical manufacturers chosen for the multiple valuation are Hoya, Carl Zeiss
16.0 30.0% 25.3% Meditec, and Safilo. All three firms manufacture optical products and are 14.0 25.0% 12.0 20.0% considered as high-quality manufacturers. The German firm Carl Zeiss Meditec is 10.0 15.5% 8.0 15.0% one of the largest suppliers of Fielmann as Fielmann sells Carl Zeiss spectacle 6.0 9.6% 10.0% 4.0 4.6% lenses as a high-quality variant. However, Carl Zeiss Meditec is not only a 5.0% 2.0 14.8 3.5 1.3 1.5 - 0.0% supplier for Fielmann but as well a competitor to Fielmann’s inhouse EssilorLuxottica GrandVision National Vision Fielmann
Revenue (in €bn) EBITDA Margin (in %) manufactured spectacle lenses. In terms of revenue, Carl Zeiss Meditec
Figure 43: Peer Group - Optical (Revenue 2018/2019: €1.5bn) and Safilo (Revenue 2019: €0.9bn) are very Retailers similar to Fielmann while Hoya is a much bigger competitor (Revenue 2018/2019:
4.5 32.9% 35.0% €4.4bn). Comparing the profitability of the firms, we find that HOYA is the most 4.0 30.0% 25.3% 3.5 25.0% profitable firm followed by Fielmann. 3.0 20.0% 15.0% 2.5 15.0% EV/EBITDA multiples imply a share price of €113.82 and Price/Earnings 2.0 10.0% 1.5 5.0% multiples a share price of €132.03. Due to the large outliers in terms of size, 1.0 -3.4% 0.0% 0.5 -5.0% 4.2 1.3 0.8 1.5 different business models and an unusually high difference in multiples the - -10.0% HOYA Carl Zeiss Safilo Fielmann Meditec relative valuation does not lead to a meaningful result. Revenue (in €bn) EBITDA Margin (in %)
in €m Share Price Nosh Market Cap EV EV/Sales EV/EBITDA EV/EBIT Price/Earnings Figure 44: Peer Group - Optical Optical Retailers
Manufacturers 37.1 81.0 3,003.8 3,550.0 2.70x 16.90x 69.80x NM
25.5 253.7 6,470.6 8,660.4 2.50x 16.60x NM NM
127.6 436.3 55,649.1 60,704.1 4.10x 21.20x 82.90x NM
Optical Manufacturers
113.2 373.2 42,246.2 39,601.7 9.40x 28.70x 35.90x 50.10x
108.9 89.4 9,740.1 9,822.3 7.40x 45.70x 55.50x 79.60x 0.8 275.7 219.7 452.7 0.60x NM NM NM
Figure 45: Fielmann, Comparable Companies Overview
Figure 46: Fielmann, Results Relative Valuation
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FIELMANN AG COMPANY REPORT
Scenario Analysis Industry Consolidation
As we already stated earlier in the report, the European eyewear market is currently subject of a continuing consolidation process. Such a change of the industry also has important implications on the remaining players in the market. Companies in a consolidating We want to measure the impact of further consolidation on Fielmann’s share industry tend to become more profitable price. Li et. al evaluate in their paper “Industry Consolidation and Price-Cost Margins – Evidence from the Pulp and Paper industry” the impact of market consolidation on gross margins of the companies left in the market. To measure market concentration they use the CR4 measure which is defined as the share of the top four producers in the industry. They found that an increase in market concentration of one percentage point increases prices-cost margins by 0.5 – 0.6 percentage points with a pro cyclical pattern (Expansion: 0.69%, Recession 0.19%). The eyewear industry currently finds itself at a CR4 value of 31.17% which is almost the same level of the Pulp and Paper industry at the beginning of the period examined by Li et al.
Firstly, we calculate historical CR4 levels for the eyewear industry using total European eyewear market size data from Euromonitor International and the officially reported revenues of the four biggest players in the european eyewear market. CR4 in 2018 was 24.64% and in 2019 already 31.17%. This significant We believe the effect of jump can easily be explained by the merger of Essilor and Luxxotica at the end of industry consolidation might be more significant than what 2018. To be able to forecast market concentration we forecast both, the the market expects European eyewear market and the revenues of the four major optical retailers. For Fielmann, we use our own revenue forecast and for the other three companies we used the forecast of several broker reports. We forecast their revenues at the CAGR of the respective analysts estimation during forecast period 1 and after that during the second period we let them grow by only half of that CAGR which is more in line with total market growth. For the eyewear market, we use data obtained from Euromonitor International. We forecast the Western- and Eastern European eyewear market, because they are in different states in terms of market growth as the western market is much more mature. After calculating the forecasted CR4 measure we determine the effect of rising market concentration on Fielmanns gross margin. As the Pulp and Paper industry is in terms of margins a quite different industry than the eyewear industry with As one of the biggest Eyewear gross margins around 30-35% (Fielmann 79.59%) we expect the margin effect on retailers among Europe, Fielmanns share price might Fielmann to be significantly lower than in the Pulp and Paper industry. rise above expectations due to Followingly, we cut the margin effects found by Li et al. in half and weight consolidation developments in the industry expansion and recession equally to account for all states of the business cycle.
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The accumulated effect we observe according to our projections on Fielmann’s gross margin until 2032 is 2.6% percentage points which is reflected in a higher share price of €93.8. Due to high uncertainty, we do not reflect these potential effects into our target share price of €79.01.
Expansion PCM increase
9376.05% 0.59% 0.64% 0.69% 0.74% 0.79%
0.09% 90.41 91.25 92.08 92.92 93.76 0.14% 91.25 92.08 92.92 93.76 94.60 0.19% 92.08 92.92 93.76 94.60 95.44
0.24% 92.92 93.76 94.60 95.44 96.27 Recession Recession
PCMincrease 0.29% 93.76 94.60 95.44 96.27 97.11 Figure 47: Sensitivity Table for Different Gross Margin Impacts
Recommendation
With our target price of €79.01, an expected dividend in 2021 of €1.19 and a current share price of €66.45 we see significant upside potential for Fielmann AG Recommendation – BUY (20.69%). With a proven business model and as the market leader for eyewear products in Germany Fielmann finds itself in a comfortable situation for further
growth. Stable margins and cash flows in line with a low amount of debt and high overall liquidity put the company in a healthy situation even in a financial crisis
like a global pandemic. Market drivers like an ever aging population, digitization and industry consolidation will further drive Fielmann’s revenues throughout the Our Target Share Price for Fielmann of €79.0 and the next years. As demonstrated in our consolidation analysis, we believe that the expected Dividend of €1.19 broad market might underestimate future profitability of Fielmann. We think provide an upside potential for the stock of 20.69% Fielmann is forearmed for most potential risks that might arise during the next few years and in a strong position to maintain and even improve its strong market position.
Our recommendation for the stock is Buy.
Figure 48: Valuation Overview
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Financial Statements
Consolidated Income Statement
Reformulated Consolidated Income Statement 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 (in €'000) Historical Forecast Period 1 Operating Total consolidated sales 1,300,954.0 1,336,472.0 1,386,329.0 1,425,174.0 1,524,476.0 1,385,326.2 1,555,517.7 1,692,065.2 1,769,099.6 1,847,242.9 1,925,421.4 Cost of materials (270,765.0) (279,796.0) (277,205.0) (285,269.0) (309,382.0) (282,873.8) (317,495.4) (345,366.0) (361,089.4) (377,039.2) (392,996.2) Gross Result 1,030,189.0 1,056,676.0 1,109,124.0 1,139,905.0 1,215,094.0 1,102,452.3 1,238,022.3 1,346,699.2 1,408,010.1 1,470,203.6 1,532,425.3 Gross Margin 79.19% 79.06% 80.00% 79.98% 79.71% 79.58% 79.59% 79.59% 79.59% 79.59% 79.59% Personnel costs (481,828.0) (500,088.0) (526,786.0) (547,244.0) (585,613.0) (573,115.1) (630,988.5) (663,245.2) (700,393.3) (734,475.3) (765,318.4) Other operating expenses (251,414.0) (250,859.0) (263,259.0) (274,046.0) (219,073.0) (200,884.0) (224,818.1) (244,553.2) (255,687.0) (266,981.0) (278,280.1) EBITDA 296,947.0 305,729.0 319,079.0 318,615.0 410,408.0 328,453.2 382,215.7 438,900.7 451,929.8 468,747.3 488,826.8 EBITDA Margin 22.83% 22.88% 23.02% 22.36% 26.92% 23.71% 24.57% 25.94% 25.55% 25.38% 25.39% Depreciation (38,832.0) (39,992.0) (42,272.0) (45,110.0) (50,858.0) (72,009.9) (53,200.2) (61,728.9) (69,387.8) (74,967.1) (80,890.0) Write-downs on rights of usufruct from leases - - - - (78,056.0) (78,024.6) (85,048.3) (95,600.5) (103,287.5) (111,447.9) (120,040.1) Operating Result before Taxes 258,115.0 265,737.0 276,807.0 273,505.0 281,494.0 178,418.7 243,967.2 281,571.3 279,254.6 282,332.3 287,896.7 EBIT Margin 19.84% 19.88% 19.97% 19.19% 18.46% 12.88% 15.68% 16.64% 15.79% 15.28% 14.95% Taxes (74,948.4) (77,537.7) (84,239.2) (84,052.9) (84,820.4) (53,351.3) (72,951.9) (84,196.4) (83,503.6) (84,423.9) (86,087.8) Operating Result 183,166.6 188,199.3 192,567.8 189,452.1 196,673.6 125,067.3 171,015.4 197,374.9 195,750.9 197,908.4 201,808.9
Tax Breakdown Statutory tax rate 30.00% 30.00% 30.00% 30.00% 30.00% 30.00% 30.00% 30.00% 30.00% 30.00% 30.00% Effective tax rate (Operating activities) 29.04% 29.18% 30.43% 30.73% 30.13% 29.90% 29.90% 29.90% 29.90% 29.90% 29.90% Operating result before taxes 258,115.0 265,737.0 276,807.0 273,505.0 281,494.0 178,418.7 243,967.2 281,571.3 279,254.6 282,332.3 287,896.7 Reported taxes (69,531.0) (70,260.0) (75,790.0) (77,272.0) (76,514.0) (44,654.2) (67,555.1) (79,334.9) (78,817.6) (79,698.2) (81,432.7) Taxes on operating activities (74,948.4) (77,537.7) (84,239.2) (84,052.9) (84,820.4) (53,351.3) (72,951.9) (84,196.4) (83,503.6) (84,423.9) (86,087.8) Taxes on non-operating activities 5,036.4 6,738.9 7,963.8 6,507.0 7,161.6 7,317.6 4,608.9 4,009.1 3,797.2 3,800.0 3,692.4 Tax shield 381.0 538.8 485.4 273.9 1,144.8 1,379.5 787.8 852.4 888.8 925.8 962.7
Non-operating Other operating income 19,303.0 15,611.0 14,188.0 21,353.0 22,108.0 23,274.7 34,227.5 38,703.2 42,344.2 45,019.3 47,799.8 Pension scheme contributions (37,737.0) (39,767.0) (41,947.0) (44,102.0) (47,513.0) (48,587.1) (51,194.5) (53,811.6) (56,825.6) (59,590.8) (62,093.2) Income in the financial result 1,646.0 1,693.0 1,213.0 1,059.0 1,533.0 920.3 1,603.9 1,744.7 1,824.2 1,904.7 1,985.4 Non-operating Result before Taxes (16,788.0) (22,463.0) (26,546.0) (21,690.0) (23,872.0) (24,392.1) (15,363.0) (13,363.7) (12,657.2) (12,666.7) (12,308.0) Taxes 5,036.4 6,738.9 7,963.8 6,507.0 7,161.6 7,317.6 4,608.9 4,009.1 3,797.2 3,800.0 3,692.4 Other comprehensive income 8,012.0 (754.0) (4,361.0) 1,913.0 1,276.0 4,888.2 1,439.8 1,566.2 1,637.5 1,709.8 1,782.2 Non-operating Result (3,739.6) (16,478.1) (22,943.2) (13,270.0) (15,434.4) (12,186.2) (9,314.3) (7,788.4) (7,222.6) (7,156.9) (6,833.5)
Financial Expenses in the financial result (1,270.0) (1,796.0) (1,618.0) (913.0) (1,426.0) (2,406.1) (187.5) (188.6) (189.2) (189.9) (190.5) Interest expenditure from leases - - - - (2,390.0) (2,192.3) (2,438.7) (2,652.7) (2,773.5) (2,896.0) (3,018.6) Financial Result before Taxes (1,270.0) (1,796.0) (1,618.0) (913.0) (3,816.0) (4,598.4) (2,626.1) (2,841.3) (2,962.7) (3,085.9) (3,209.1) Taxes 381.0 538.8 485.4 273.9 1,144.8 1,379.5 787.8 852.4 888.8 925.8 962.7 Income attributable to minority interests (4,994.0) (4,910.0) (5,226.0) (4,741.0) (5,089.0) (4,269.8) (6,465.1) (7,238.0) (7,951.6) (8,411.8) (8,932.5) Financial Result (5,883.0) (6,167.2) (6,358.6) (5,380.1) (7,760.2) (7,488.7) (8,303.4) (9,226.9) (10,025.5) (10,571.9) (11,178.9)
Total comprehensive income 173,544.0 165,554.0 163,266.0 170,802.0 173,479.0 105,392.4 153,397.6 180,359.6 178,502.8 180,179.6 183,796.6
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Reformulated Consolidated Income Statement 2026 2027 2028 2029 2030 2031 2032 (in €'000) Forecast Period 2 Operating Total consolidated sales 1,988,488.5 2,052,338.5 2,115,239.1 2,160,462.4 2,205,271.5 2,250,961.3 2,294,823.5 Cost of materials (405,868.7) (418,901.1) (431,739.7) (440,970.2) (450,116.1) (459,441.8) (468,394.5) Gross Result 1,582,619.7 1,633,437.4 1,683,499.4 1,719,492.2 1,755,155.3 1,791,519.4 1,826,429.0 Gross Margin 79.59% 79.59% 79.59% 79.59% 79.59% 79.59% 79.59% Personnel costs (788,527.0) (810,568.6) (830,502.1) (849,097.0) (867,175.7) (885,615.5) (902,568.2) Other operating expenses (287,395.1) (296,623.3) (305,714.3) (312,250.4) (318,726.7) (325,330.2) (331,669.6) EBITDA 506,697.6 526,245.4 547,283.0 558,144.8 569,253.0 580,573.7 592,191.2 EBITDA Margin 25.48% 25.64% 25.87% 25.83% 25.81% 25.79% 25.81% Depreciation (87,126.3) (89,980.1) (92,869.3) (95,715.6) (97,762.0) (99,789.6) (101,857.1) Write-downs on rights of usufruct from leases (123,972.0) (127,952.7) (131,874.2) (134,693.7) (137,487.3) (140,335.8) (143,070.4) Operating Result before Taxes 295,599.4 308,312.7 322,539.4 327,735.6 334,003.7 340,448.3 347,263.7 EBIT Margin 14.87% 15.02% 15.25% 15.17% 15.15% 15.12% 15.13% Taxes (88,391.1) (92,192.7) (96,446.8) (98,000.6) (99,874.9) (101,802.0) (103,839.9) Operating Result 207,208.3 216,120.0 226,092.6 229,735.0 234,128.8 238,646.4 243,423.8
Tax Breakdown Statutory tax rate 30.00% 30.00% 30.00% 30.00% 30.00% 30.00% 30.00% Effective tax rate (Operating activities) 29.90% 29.90% 29.90% 29.90% 29.90% 29.90% 29.90% Operating result before taxes 295,599.4 308,312.7 322,539.4 327,735.6 334,003.7 340,448.3 347,263.7 Reported taxes (83,614.8) (87,329.1) (91,540.7) (92,960.0) (94,709.6) (96,509.3) (98,443.3) Taxes on operating activities (88,391.1) (92,192.7) (96,446.8) (98,000.6) (99,874.9) (101,802.0) (103,839.9) Taxes on non-operating activities 3,783.7 3,840.8 3,853.7 3,966.7 4,070.2 4,176.0 4,259.3 Tax shield 992.6 1,022.7 1,052.5 1,073.9 1,095.1 1,116.7 1,137.4
Non-operating Other operating income 49,313.3 50,845.7 52,355.2 53,440.5 54,515.8 55,612.3 56,665.0 Pension scheme contributions (63,976.2) (65,764.5) (67,381.8) (68,890.5) (70,357.2) (71,853.3) (73,228.8) Income in the financial result 2,050.4 2,116.2 2,181.1 2,227.7 2,273.9 2,321.0 2,366.2 Non-operating Result before Taxes (12,612.5) (12,802.6) (12,845.5) (13,222.3) (13,567.5) (13,920.0) (14,197.5) Taxes 3,783.7 3,840.8 3,853.7 3,966.7 4,070.2 4,176.0 4,259.3 Other comprehensive income 1,840.5 1,899.6 1,957.9 1,999.7 2,041.2 2,083.5 2,124.1 Non-operating Result (6,988.2) (7,062.2) (7,034.0) (7,255.9) (7,456.1) (7,660.5) (7,814.2)
Financial Expenses in the financial result (191.1) (191.6) (192.1) (192.5) (192.9) (193.2) (193.6) Interest expenditure from leases (3,117.5) (3,217.6) (3,316.2) (3,387.1) (3,457.3) (3,528.9) (3,597.7) Financial Result before Taxes (3,308.5) (3,409.1) (3,508.3) (3,579.6) (3,650.2) (3,722.2) (3,791.3) Taxes 992.6 1,022.7 1,052.5 1,073.9 1,095.1 1,116.7 1,137.4 Income attributable to minority interests (9,166.0) (9,400.5) (9,630.6) (9,798.6) (9,964.7) (10,134.0) (10,296.2) Financial Result (11,481.9) (11,786.9) (12,086.3) (12,304.3) (12,519.8) (12,739.6) (12,950.1)
Total comprehensive income 188,738.2 197,270.9 206,972.3 210,174.8 214,153.0 218,246.3 222,659.5
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Consolidated Balance Sheet
Reformulated Consolidated Balance Sheet 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 (in €'000) Historical Forecast Period 1 Operating Assets Intangible assets 11,442.0 18,379.0 24,771.0 33,987.0 63,720.0 73,427.4 104,551.9 144,219.8 191,210.2 199,656.2 208,106.0 Goodwill 45,652.0 45,704.0 46,032.0 47,509.0 54,562.0 56,437.0 56,437.0 56,437.0 56,437.0 56,437.0 56,437.0 Tangible assets 223,197.0 224,389.0 239,731.0 262,253.0 288,999.0 283,862.3 329,369.3 370,235.2 400,004.9 431,608.1 464,883.1 Rights of usufruct from leases - - - - 370,630.0 348,036.2 403,831.2 453,935.8 490,435.7 529,183.4 569,981.1 Tax assets (non-current) 439.0 ------Total non-current operating assets 280,730.0 288,472.0 310,534.0 343,749.0 777,911.0 761,763.0 894,189.4 1,024,827.8 1,138,087.8 1,216,884.7 1,299,407.3 Inventories 133,108.0 128,136.0 128,673.0 136,307.0 158,724.0 136,039.5 152,689.7 166,093.2 173,654.9 181,325.5 188,999.5 Trade debtors 22,747.0 26,733.0 31,158.0 38,579.0 38,910.0 31,185.3 35,016.5 38,090.4 39,824.5 41,583.6 43,343.5 Other financial assets (current) 46,052.0 46,416.0 51,810.0 55,473.0 55,608.0 50,675.6 56,901.3 61,896.2 64,714.2 67,572.7 70,432.5 Tax assets (current) 11,691.0 9,725.0 10,748.0 8,062.0 14,678.0 10,888.9 12,226.7 13,300.0 13,905.5 14,519.7 15,134.2 Operating cash 52,038.2 53,458.9 55,453.2 57,007.0 60,979.0 55,413.0 62,220.7 67,682.6 70,764.0 73,889.7 77,016.9 Total current operating assets 265,636.2 264,468.9 277,842.2 295,428.0 328,899.0 284,202.5 319,054.9 347,062.4 362,863.1 378,891.2 394,926.5 Total operating assets 546,366.2 552,940.9 588,376.2 639,177.0 1,106,810.0 1,045,965.4 1,213,244.3 1,371,890.2 1,500,950.9 1,595,775.8 1,694,333.8
Liabilities Accruals (non-current) 15,653.0 15,519.0 16,000.0 17,808.0 22,123.0 14,096.7 15,776.2 17,161.1 17,942.4 18,734.9 19,527.8 Liabilities from leases (non-current) - - - - 296,001.0 268,982.9 302,028.2 328,541.1 343,498.5 358,671.3 373,850.9 Total non-current operating liabilities 15,653.0 15,519.0 16,000.0 17,808.0 318,124.0 283,079.6 317,804.5 345,702.2 361,440.9 377,406.2 393,378.7 Accruals (current) 11,875.0 10,688.0 11,330.0 15,021.0 14,970.0 10,286.1 11,511.6 12,522.2 13,092.3 13,670.6 14,249.1 Liabilities from leases (current) - - - - 76,074.0 69,130.2 77,623.0 84,437.0 88,281.1 92,180.6 96,081.9 Trade creditors 65,832.0 63,035.0 63,820.0 56,337.0 72,722.0 63,996.9 76,178.9 87,597.2 96,531.6 105,960.4 110,444.9 Non-financial liabilities 46,331.0 50,730.0 50,090.0 58,544.0 64,744.0 53,543.1 60,121.0 65,398.6 68,376.0 71,396.2 74,417.8 Income tax liabilities 17,374.0 18,057.0 13,408.0 10,974.0 9,263.0 8,417.5 9,451.6 10,281.3 10,749.4 11,224.2 11,699.2 Total current operating liabilities 141,412.0 142,510.0 138,648.0 140,876.0 237,773.0 205,373.8 234,886.2 260,236.2 277,030.4 294,432.1 306,892.9 Total operating liabilities 157,065.0 158,029.0 154,648.0 158,684.0 555,897.0 488,453.4 552,690.7 605,938.4 638,471.3 671,838.3 700,271.6
Operating Invested Capital 389,301.2 394,911.9 433,728.2 480,493.0 550,913.0 557,512.1 660,553.6 765,951.9 862,479.6 923,937.6 994,062.1
Non-operating Assets Investment property 16,900.0 16,404.0 16,089.0 13,639.0 11,649.0 11,649.0 11,649.0 11,649.0 11,649.0 11,649.0 11,649.0 Shares in associates - - - 5,218.0 4,945.0 4,945.0 4,945.0 4,945.0 4,945.0 4,945.0 4,945.0 Other financial assets (non-current) 664.0 1,313.0 2,706.0 2,315.0 2,033.0 2,033.0 2,033.0 2,033.0 2,033.0 2,033.0 2,033.0 Deferred tax assets 9,083.0 9,224.0 12,686.0 12,276.0 10,911.0 6,526.4 9,873.4 11,595.1 11,519.5 11,648.2 11,901.7 Other financial assets (non-current) 58,768.0 87,000.0 57,822.0 61,574.0 28,966.0 58,768.0 58,768.0 58,768.0 58,768.0 58,768.0 58,768.0 Receivables from leases - - - - 894.0 894.0 894.0 894.0 894.0 894.0 894.0 Total non-current non-operating assets 85,415.0 113,941.0 89,303.0 95,022.0 59,398.0 84,815.4 88,162.4 89,884.1 89,808.5 89,937.2 90,190.7 Non-financial assets 13,956.0 20,314.0 13,924.0 19,241.0 24,796.0 19,889.3 21,897.7 23,017.2 24,306.4 25,489.1 26,559.5 Financial assets 201,759.0 165,765.0 117,399.0 109,803.0 105,837.0 140,112.6 140,112.6 140,112.6 140,112.6 140,112.6 140,112.6 Total current non-operating assets 215,715.0 186,079.0 131,323.0 129,044.0 130,633.0 160,001.9 162,010.3 163,129.8 164,419.0 165,601.7 166,672.1 Total non-operating assets 301,130.0 300,020.0 220,626.0 224,066.0 190,031.0 244,817.3 250,172.8 253,013.9 254,227.4 255,538.9 256,862.8
Liabilities Accruals (non-current) 6,723.0 7,806.0 7,776.0 7,674.0 8,519.0 6,198.7 6,937.2 7,546.2 7,889.7 8,238.2 8,586.9 Deferred tax liabilities 6,310.0 8,430.0 9,463.0 12,135.0 17,601.0 12,749.9 19,288.7 22,652.2 22,504.5 22,755.9 23,251.1 Total non-current non-operating liabilities 13,033.0 16,236.0 17,239.0 19,809.0 26,120.0 18,948.6 26,225.9 30,198.3 30,394.2 30,994.1 31,838.0 Accruals (current) 32,256.0 30,807.0 31,498.0 33,763.0 31,693.0 36,129.9 40,551.9 44,111.6 46,119.9 48,157.1 50,195.2 Total current non-operating liabilities 32,256.0 30,807.0 31,498.0 33,763.0 31,693.0 36,129.9 40,551.9 44,111.6 46,119.9 48,157.1 50,195.2 Total non-operating liabilities 45,289.0 47,043.0 48,737.0 53,572.0 57,813.0 55,078.4 66,777.8 74,309.9 76,514.1 79,151.2 82,033.2
Non-Operating Invested Capital 255,841.0 252,977.0 171,889.0 170,494.0 132,218.0 189,738.8 183,395.0 178,703.9 177,713.4 176,387.8 174,829.6
Financial Excess Cash 43,610.8 60,573.1 116,677.8 81,550.0 69,744.0 73,693.6 82,747.0 90,010.8 94,108.7 98,265.6 102,424.4 Consolidated equity of the parent company 667,555.0 686,019.0 694,815.0 709,009.0 722,613.0 792,082.2 897,646.6 1,005,467.7 1,105,018.3 1,169,221.9 1,241,861.3 Non-controlling interests 238.0 246.0 195.0 207.0 4,037.0 4,282.0 4,282.0 4,282.0 4,282.0 4,282.0 4,282.0 Non-current financial liabilities 1,553.0 1,605.0 1,858.0 1,363.0 1,211.0 1,519.9 1,706.6 1,856.4 1,940.9 2,026.7 2,112.4 Current financial liabilities 102.0 166.0 151.0 115.0 83.0 123.4 123.4 123.4 123.4 123.4 123.4 Other financial liabilities 19,305.0 20,426.0 25,276.0 21,843.0 24,931.0 22,937.0 22,937.0 22,937.0 22,937.0 22,937.0 22,937.0 Total funds 645,142.2 647,888.9 605,617.2 650,987.0 683,131.0 747,250.9 843,948.6 944,655.8 1,040,193.0 1,100,325.3 1,168,891.8
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FIELMANN AG COMPANY REPORT
Reformulated Consolidated Balance Sheet 2026 2027 2028 2029 2030 2031 2032 (in €'000) Forecast Period 2 Operating Assets Intangible assets 214,922.5 221,823.6 228,622.1 233,510.0 238,353.1 243,291.4 248,032.2 Goodwill 56,437.0 56,437.0 56,437.0 56,437.0 56,437.0 56,437.0 56,437.0 Tangible assets 480,110.3 495,526.6 510,713.6 521,632.6 532,451.5 543,483.1 554,073.4 Rights of usufruct from leases 588,650.8 607,552.3 626,172.7 639,560.2 652,824.9 666,350.5 679,335.0 Tax assets (non-current) ------Total non-current operating assets 1,340,120.6 1,381,339.5 1,421,945.5 1,451,139.8 1,480,066.5 1,509,561.9 1,537,877.6 Inventories 195,190.1 201,457.7 207,632.0 212,071.1 216,469.6 220,954.5 225,260.0 Trade debtors 44,763.2 46,200.6 47,616.5 48,634.6 49,643.3 50,671.8 51,659.2 Other financial assets (current) 72,739.5 75,075.1 77,376.1 79,030.3 80,669.5 82,340.8 83,945.3 Tax assets (current) 15,629.9 16,131.8 16,626.2 16,981.7 17,333.9 17,693.0 18,037.8 Operating cash 79,539.5 82,093.5 84,609.6 86,418.5 88,210.9 90,038.5 91,792.9 Total current operating assets 407,862.3 420,958.7 433,860.3 443,136.2 452,327.0 461,698.5 470,695.2 Total operating assets 1,747,982.9 1,802,298.2 1,855,805.8 1,894,275.9 1,932,393.6 1,971,260.5 2,008,572.8
Liabilities Accruals (non-current) 20,167.5 20,815.0 21,453.0 21,911.6 22,366.1 22,829.5 23,274.3 Liabilities from leases (non-current) 386,096.3 398,493.8 410,707.0 419,487.8 428,188.1 437,059.5 445,576.1 Total non-current operating liabilities 406,263.8 419,308.8 432,159.9 441,399.4 450,554.2 459,889.0 468,850.4 Accruals (current) 14,715.9 15,188.4 15,653.9 15,988.6 16,320.2 16,658.3 16,982.9 Liabilities from leases (current) 99,229.0 102,415.3 105,554.1 107,810.8 110,046.9 112,326.9 114,515.7 Trade creditors 114,062.5 117,725.0 121,333.1 123,927.2 126,497.5 129,118.3 131,634.3 Non-financial liabilities 76,855.4 79,323.2 81,754.3 83,502.2 85,234.1 87,000.0 88,695.3 Income tax liabilities 12,082.4 12,470.4 12,852.6 13,127.4 13,399.6 13,677.3 13,943.8 Total current operating liabilities 316,945.2 327,122.3 337,148.0 344,356.1 351,498.2 358,780.7 365,771.9 Total operating liabilities 723,209.0 746,431.1 769,307.9 785,755.5 802,052.5 818,669.8 834,622.4
Operating Invested Capital 1,024,774.0 1,055,867.1 1,086,497.9 1,108,520.4 1,130,341.1 1,152,590.7 1,173,950.4
Non-operating Assets Investment property 11,649.0 11,649.0 11,649.0 11,649.0 11,649.0 11,649.0 11,649.0 Shares in associates 4,945.0 4,945.0 4,945.0 4,945.0 4,945.0 4,945.0 4,945.0 Other financial assets (non-current) 2,033.0 2,033.0 2,033.0 2,033.0 2,033.0 2,033.0 2,033.0 Deferred tax assets 12,220.6 12,763.5 13,379.0 13,586.4 13,842.2 14,105.2 14,387.8 Other financial assets (non-current) 58,768.0 58,768.0 58,768.0 58,768.0 58,768.0 58,768.0 58,768.0 Receivables from leases 894.0 894.0 894.0 894.0 894.0 894.0 894.0 Total non-current non-operating assets 90,509.6 91,052.5 91,668.0 91,875.4 92,131.2 92,394.2 92,676.8 Non-financial assets 27,364.9 28,129.9 28,821.6 29,466.9 30,094.3 30,734.3 31,322.6 Financial assets 140,112.6 140,112.6 140,112.6 140,112.6 140,112.6 140,112.6 140,112.6 Total current non-operating assets 167,477.5 168,242.5 168,934.2 169,579.5 170,206.9 170,846.9 171,435.2 Total non-operating assets 257,987.1 259,294.9 260,602.2 261,455.0 262,338.1 263,241.1 264,112.1
Liabilities Accruals (non-current) 8,868.1 9,152.9 9,433.4 9,635.1 9,834.9 10,038.7 10,234.3 Deferred tax liabilities 23,874.2 24,934.7 26,137.2 26,542.5 27,042.0 27,555.9 28,108.1 Total non-current non-operating liabilities 32,742.3 34,087.6 35,570.6 36,177.6 36,877.0 37,594.6 38,342.4 Accruals (current) 51,839.3 53,503.8 55,143.6 56,322.6 57,490.8 58,681.9 59,825.4 Total current non-operating liabilities 51,839.3 53,503.8 55,143.6 56,322.6 57,490.8 58,681.9 59,825.4 Total non-operating liabilities 84,581.6 87,591.5 90,714.3 92,500.2 94,367.7 96,276.5 98,167.8
Non-Operating Invested Capital 173,405.5 171,703.5 169,888.0 168,954.8 167,970.4 166,964.6 165,944.3
Financial Excess Cash 105,779.3 109,175.8 112,521.9 114,927.6 117,311.2 119,741.7 122,075.0 Consolidated equity of the parent company 1,274,434.8 1,307,152.4 1,339,244.7 1,362,690.1 1,385,860.8 1,409,485.1 1,432,109.6 Non-controlling interests 4,282.0 4,282.0 4,282.0 4,282.0 4,282.0 4,282.0 4,282.0 Non-current financial liabilities 2,181.6 2,251.7 2,320.7 2,370.3 2,419.5 2,469.6 2,517.7 Current financial liabilities 123.4 123.4 123.4 123.4 123.4 123.4 123.4 Other financial liabilities 22,937.0 22,937.0 22,937.0 22,937.0 22,937.0 22,937.0 22,937.0 Total funds 1,198,179.5 1,227,570.6 1,256,385.9 1,277,475.2 1,298,311.5 1,319,555.3 1,339,894.7
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FIELMANN AG COMPANY REPORT
Consolidated Statement of Cash Flows
Free Cash Flow Map 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 (in €'000) Historical Forecast Period 1 Operating EBIT 258,115.0 265,737.0 276,807.0 273,505.0 281,494.0 178,418.7 243,967.2 281,571.3 279,254.6 282,332.3 287,896.7 Notional taxes (77,434.5) (79,721.1) (83,042.1) (82,051.5) (84,448.2) (53,525.6) (73,190.2) (84,471.4) (83,776.4) (84,699.7) (86,369.0) Adjusted taxes 2,486.1 2,183.4 (1,197.1) (2,001.4) (372.2) 174.3 238.3 275.0 272.8 275.8 281.2 Noplat 183,166.6 188,199.3 192,567.8 189,452.1 196,673.6 125,067.3 171,015.4 197,374.9 195,750.9 197,908.4 201,808.9 Depreciation 38,832.0 39,992.0 42,272.0 45,110.0 50,858.0 72,009.9 53,200.2 61,728.9 69,387.8 74,967.1 80,890.0 Write-downs on rights of usufruct from leases - - - - 78,056.0 78,024.6 85,048.3 95,600.5 103,287.5 111,447.9 120,040.1 Gross Free Cash Flow 221,998.6 228,191.3 234,839.8 234,562.1 325,587.6 275,101.9 309,263.8 354,704.3 368,426.2 384,323.4 402,738.9 - Capital Expenditures - (48,121.0) (64,006.0) (76,848.0) (185,393.0) (154,605.3) (214,880.0) (237,863.2) (249,435.4) (226,464.1) (242,654.9) - Change in NWC - 2,265.3 (17,235.3) (15,357.8) 63,425.9 12,297.4 (5,340.0) (2,657.5) 993.5 1,373.6 (3,574.5) + Change in other non-current operating liabilities - (134.0) 481.0 1,808.0 300,316.0 (35,044.4) 34,724.9 27,897.7 15,738.7 15,965.3 15,972.5 - Change in other non-current operating assets 387.0 (328.0) (1,477.0) (377,683.0) 20,718.8 (55,794.9) (50,104.6) (36,499.9) (38,747.7) (40,797.7) Operating Free Cash Flow - 182,588.6 153,751.5 142,687.3 126,253.5 118,468.3 67,973.8 91,976.7 99,223.2 136,450.4 131,684.3 3.60% 4.62% 5.39% 12.16% Non-operating Non-operating Result before Taxes (16,788.0) (22,463.0) (26,546.0) (21,690.0) (23,872.0) (24,392.1) (15,363.0) (13,363.7) (12,657.2) (12,666.7) (12,308.0) Taxes on non-operating activities 5,036.4 6,738.9 7,963.8 6,507.0 7,161.6 7,317.6 4,608.9 4,009.1 3,797.2 3,800.0 3,692.4 Other comprehensive income 8,012.0 (754.0) (4,361.0) 1,913.0 1,276.0 4,888.2 1,439.8 1,566.2 1,637.5 1,709.8 1,782.2 Non-operating Result (3,739.6) (16,478.1) (22,943.2) (13,270.0) (15,434.4) (12,186.2) (9,314.3) (7,788.4) (7,222.6) (7,156.9) (6,833.5) - Change in non-current non-operating assets - (28,526.0) 24,638.0 (5,719.0) 35,624.0 (25,417.4) (3,347.1) (1,721.7) 75.6 (128.7) (253.5) + Change in non-current non-operating liabilities - 3,203.0 1,003.0 2,570.0 6,311.0 (7,171.4) 7,277.4 3,972.4 195.9 599.9 843.9 - Change in current non-operating assets - 29,636.0 54,756.0 2,279.0 (1,589.0) (29,368.9) (2,008.4) (1,119.4) (1,289.2) (1,182.8) (1,070.4) + Change in current non-operating liabilities - (1,449.0) 691.0 2,265.0 (2,070.0) 4,436.9 4,422.0 3,559.8 2,008.3 2,037.2 2,038.1 Non-operating Free Cash Flow - (13,614.1) 58,144.8 (11,875.0) 22,841.6 (69,707.1) (2,970.5) (3,097.4) (6,232.0) (5,831.3) (5,275.3)
Unlevered Free Cash Flow - 168,974.5 211,896.3 130,812.3 149,095.1 48,761.2 65,003.3 88,879.3 92,991.2 130,619.1 126,409.0
Tax shield 381.0 538.8 485.4 273.9 1,144.8 1,379.5 787.8 852.4 888.8 925.8 962.7
Levered Free Cash Flow - 169,513.3 212,381.7 131,086.2 150,239.9 50,140.8 65,791.2 89,731.7 93,880.0 131,544.9 127,371.7
Financial Financial Result before Taxes (1,270.0) (1,796.0) (1,618.0) (913.0) (3,816.0) (4,598.4) (2,626.1) (2,841.3) (2,962.7) (3,085.9) (3,209.1) Income attributable to minority interests (4,994.0) (4,910.0) (5,226.0) (4,741.0) (5,089.0) (4,269.8) (6,465.1) (7,238.0) (7,951.6) (8,411.8) (8,932.5) - Change in excess cash - (16,962.3) (56,104.7) 35,127.8 11,806.1 (3,949.6) (9,053.5) (7,263.8) (4,097.9) (4,156.9) (4,158.8) + Change in Total Equity - (147,082.0) (154,521.0) (156,596.0) (156,045.0) (35,678.2) (47,833.1) (72,538.5) (78,952.3) (115,976.0) (111,157.1) + Change in financial liabilities - 1,237.0 5,088.0 (3,964.0) 2,904.0 (1,644.7) 186.7 149.8 84.5 85.7 85.8 Financing Free Cash Flow - (168,974.5) (211,896.3) (130,812.3) (149,095.1) (48,761.2) (65,003.3) (88,879.3) (92,991.2) (130,619.1) (126,409.0)
Free Cash Flow Map 2026 2027 2028 2029 2030 2031 2032 (in €'000) Forecast Period 2 Operating EBIT 295,599.4 308,312.7 322,539.4 327,735.6 334,003.7 340,448.3 347,263.7 Notional taxes (88,679.8) (92,493.8) (96,761.8) (98,320.7) (100,201.1) (102,134.5) (104,179.1) Adjusted taxes 288.7 301.1 315.0 320.1 326.2 332.5 339.2 Noplat 207,208.3 216,120.0 226,092.6 229,735.0 234,128.8 238,646.4 243,423.8 Depreciation 87,126.3 89,980.1 92,869.3 95,715.6 97,762.0 99,789.6 101,857.1 Write-downs on rights of usufruct from leases 123,972.0 127,952.7 131,874.2 134,693.7 137,487.3 140,335.8 143,070.4 Gross Free Cash Flow 418,306.5 434,052.8 450,836.2 460,144.3 469,378.1 478,771.8 488,351.3 - Capital Expenditures (233,141.9) (240,250.2) (246,729.1) (246,216.1) (250,911.3) (256,095.3) (260,258.6) - Change in NWC (2,883.5) (2,919.3) (2,875.9) (2,067.7) (2,048.7) (2,089.0) (2,005.5) + Change in other non-current operating liabilities 12,885.1 13,045.1 12,851.1 9,239.5 9,154.8 9,334.8 8,961.4 - Change in other non-current operating assets (18,669.7) (18,901.5) (18,620.4) (13,387.4) (13,264.8) (13,525.5) (12,984.5) Operating Free Cash Flow 176,496.5 185,026.9 195,461.9 207,712.5 212,308.1 216,396.7 222,064.1
Non-operating Non-operating Result before Taxes (12,612.5) (12,802.6) (12,845.5) (13,222.3) (13,567.5) (13,920.0) (14,197.5) Taxes on non-operating activities 3,783.7 3,840.8 3,853.7 3,966.7 4,070.2 4,176.0 4,259.3 Other comprehensive income 1,840.5 1,899.6 1,957.9 1,999.7 2,041.2 2,083.5 2,124.1 Non-operating Result (6,988.2) (7,062.2) (7,034.0) (7,255.9) (7,456.1) (7,660.5) (7,814.2) - Change in non-current non-operating assets (318.9) (542.9) (615.5) (207.4) (255.7) (263.0) (282.7) + Change in non-current non-operating liabilities 904.3 1,345.3 1,483.0 606.9 699.4 717.6 747.8 - Change in current non-operating assets (805.4) (764.9) (691.8) (645.3) (627.4) (639.9) (588.3) + Change in current non-operating liabilities 1,644.1 1,664.6 1,639.8 1,179.0 1,168.2 1,191.1 1,143.5 Non-operating Free Cash Flow (5,564.1) (5,360.2) (5,218.5) (6,322.7) (6,471.6) (6,654.7) (6,793.9)
Unlevered Free Cash Flow 170,932.4 179,666.7 190,243.4 201,389.8 205,836.5 209,742.0 215,270.2
Tax shield 992.6 1,022.7 1,052.5 1,073.9 1,095.1 1,116.7 1,137.4
Levered Free Cash Flow 171,924.9 180,689.4 191,295.9 202,463.7 206,931.6 210,858.7 216,407.6
Financial Financial Result before Taxes (3,308.5) (3,409.1) (3,508.3) (3,579.6) (3,650.2) (3,722.2) (3,791.3) Income attributable to minority interests (9,166.0) (9,400.5) (9,630.6) (9,798.6) (9,964.7) (10,134.0) (10,296.2) - Change in excess cash (3,354.9) (3,396.6) (3,346.0) (2,405.7) (2,383.7) (2,430.5) (2,333.3) + Change in Total Equity (156,164.7) (164,553.3) (174,880.0) (186,729.4) (190,982.2) (194,622.0) (200,034.9) + Change in financial liabilities 69.2 70.1 69.0 49.6 49.2 50.1 48.1 Financing Free Cash Flow (170,932.4) (179,666.7) (190,243.4) (201,389.8) (205,836.5) (209,742.0) (215,270.2)
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Sources
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- Fielmann. “Annual and quarterly reports“. Retrieved from https://corporate.fielmann.com/de/investor-relations/veroeffentlichungen/weitere- veroeffentlichungen/ on November 15
- ECB. ”ECB staff macroeconomic projections for the euro area”. Retrieved from https://www.ecb.europa.eu/pub/projections/html/ecb.projections202009_ecbstaff~0940bca288.en.html#toc1 on 12 October 2020
- IMF. “World Economic Outlook Database”. Retrieved from https://www.imf.org/en/Publications/WEO/weo-database/2020/October on 28 October 2020
- Welt. “Wegen Handynutzung braucht schon jeder dritte Jugendliche eine Brille“. Retrieved from https://www.google.de/amp/s/amp.welt.de/wirtschaft/article181723864/Wegen-Handynutzung-braucht-schon-jeder-dritte-Jugendliche-eine- Brille.html on 16 November 2020 on 26 October 2020
- GrandVision. “Corporate Website”. Retrieved from https://www.grandvision.com on 16 October 2020
- Apollo Optik. “Corporate Website”. Retrieved from https://www.apollo.de on 16 October
- Pearle. “Corporate Website”. Retrieved from https://www.pearle.at on 16 October 2020
- Visilab. “Corporate Website”. Retrieved from https://www.visilab.ch/de/ on 16 October
- EssilorLuxottica. “Corporate Website”. Retrieved from https://www.essilorluxottica.com on 16 October
- Mister Spex. “Corporate Website”. Retrieved from https://www.misterspex.de on October 16 2020
- Pro optik. “Corporate Website”. Retrieved from https://www.prooptik.de/augenoptik/ on October 16 2020
- Eyes and more. “Corporate Website”. Retrieved from https://www.eyesandmore.de on October 16 2020
- Carl Zeiss Meditec. “Corporate Website”. Retrieved from https://www.zeiss.de/meditec-ag on 16 October 2020
- National Vision. “Corporate Website”. Retrieved from https://www.nationalvision.com/ on 16 October 2020
- Hoya Corporation. “Corporate Website”. Retrieved from https://www.hoya.co.jp/ on 16 October 2020
- Safilo Group. “Corporate Website”. Retrieved from http://www.safilogroup.com/en/ on 16 October 2020
- Euromonitor International Data Eyewear Industry. Retrieved on 12 October 2020
- Li, Haizheng, McCarthy, Patrick, Urmanbetova, Aselia, 2004, “Industry Consolidation and Price-Cost Margins – Evidence from the Pulp and Paper industry”
- Itaya, Masashi, Nakamura, Mizuki, Moriyama, Hisashi, 2020, JP Morgan Hoya Equity Research Report
- Abbott, Craig, 2020, Kepler Cheuvreux GrandVision Equity Research Report
- Baccaglio, Marco, 2020, Kepler Cheuvreux EssilorLuxottica Equity Research Report
- KPMG, 2020, “Equity Market Risk Premium Research Summary”, https://assets.kpmg/content/dam/kpmg/nl/pdf/2020/services/equitiy-market-risk- premium-research-summary-march-2020.pdf
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Disclosures and Disclaimers
Report Recommendations
Buy Expected total return (including expected capital gains and expected dividend yield) of more than 10% over a 12-month period.
Hold Expected total return (including expected capital gains and expected dividend yield) between 0% and 10% over a 12-month period.
Sell Expected negative total return (including expected capital gains and expected dividend yield) over a 12-month period.
This report was prepared by Jan-Philip Jansen, a Master in Finance student of Nova School of Business and Economics (“Nova SBE”), within the context of the Field Lab – Equity Research.
This report is issued and published exclusively for academic purposes, namely for academic evaluation and master graduation purposes, within the context of said Field Lab – Equity Research. It is not to be construed as an offer or a solicitation of an offer to buy or sell any security or financial instrument.
This report was supervised by a Nova SBE faculty member, acting merely in an academic capacity, who revised the valuation methodology and the financial model.
Given the exclusive academic purpose of the reports produced by Nova SBE students, it is Nova SBE understanding that Nova SBE, the author, the present report and its publishing, are excluded from the persons and activities requiring previous registration from local regulatory authorities. As such, Nova SBE, its faculty and the author of this report have not sought or obtained registration with or certification as financial analyst by any local regulator, in any jurisdiction. In Portugal, neither the author of this report nor his/her academic supervisor is registered with or qualified under COMISSÃO DO MERCADO DE VALORES MOBILIÁRIOS (“CMVM”, the Portuguese Securities Market Authority) as a financial analyst. No approval for publication or distribution of this report was required and/or obtained from any local authority, given the exclusive academic nature of the report.
The additional disclaimers also apply:
USA: Pursuant to Section 202 (a) (11) of the Investment Advisers Act of 1940, neither Nova SBE nor the author of this report are to be qualified as an investment adviser and, thus, registration with the Securities and Exchange Commission (“SEC”, United States of America’s securities market authority) is not necessary. Neither the author nor Nova SBE receive any compensation of any kind for the preparation of the reports.
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Germany: Pursuant to §34c of the WpHG (Wertpapierhandelsgesetz, i.e., the German Securities Trading Act), this entity is not required to register with or otherwise notify the Bundesanstalt für Finanzdienstleistungsaufsicht (“BaFin”, the German Federal Financial Supervisory Authority). It should be noted that Nova SBE is a fully-owned state university and there is no relation between the student’s equity reports and any fund raising programme.
UK: Pursuant to section 22 of the Financial Services and Markets Act 2000 (the “FSMA”), for an activity to be a regulated activity, it must be carried on “by way of business”. All regulated activities are subject to prior authorization by the Financial Conduct Authority (“FCA”). However, this report serves an exclusively academic purpose and, as such, was not prepared by way of business. The author - a Master’s student - is the sole and exclusive responsible for the information, estimates and forecasts contained herein, and for the opinions expressed, which exclusively reflect his/her own judgment at the date of the report. Nova SBE and its faculty have no single and formal position in relation to the most appropriate valuation method, estimates or projections used in the report and may not be held liable by the author’s choice of the latter.
The information contained in this report was compiled by students from public sources believed to be reliable, but Nova SBE, its faculty, or the students make no representation that it is accurate or complete, and accept no liability whatsoever for any direct or indirect loss resulting from the use of this report or of its content.
Students are free to choose the target companies of the reports. Therefore, Nova SBE may start covering and/or suspend the coverage of any listed company, at any time, without prior notice. The students or Nova SBE are not responsible for updating this report, and the opinions and recommendations expressed herein may change without further notice.
The target company or security of this report may be simultaneously covered by more than one student. Because each student is free to choose the valuation method, and make his/her own assumptions and estimates, the resulting projections, price target and recommendations may differ widely, even when referring to the same security. Moreover, changing market conditions and/or changing subjective opinions may lead to significantly different valuation results. Other students’ opinions, estimates and recommendations, as well as the advisor and other faculty members’ opinions may be inconsistent with the views expressed in this report. Any recipient of this report should understand that statements regarding future prospects and performance are, by nature, subjective, and may be fallible.
This report does not necessarily mention and/or analyze all possible risks arising from the investment in the target company and/or security, namely the possible exchange rate risk resulting from the security being denominated in a currency either than the investor’s currency, among many other risks.
The purpose of publishing this report is merely academic and it is not intended for distribution among private investors. The information and opinions expressed in this report are not intended to be available to any person other than Portuguese natural or legal persons or persons domiciled in Portugal. While preparing this report, students did not have in consideration the specific investment objectives, financial situation or
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particular needs of any specific person. Investors should seek financial advice regarding the appropriateness of investing in any security, namely in the security covered by this report.
The author hereby certifies that the views expressed in this report accurately reflect his/her personal opinion about the target company and its securities. He/ She has not received or been promised any direct or indirect compensation for expressing the opinions or recommendation included in this report.
The content of each report has been shown or made public to restricted parties prior to its publication in Nova SBE’s website or in Bloomberg Professional, for academic purposes such as its distribution among faculty members for students’ academic evaluation.
Nova SBE is a state-owned university, mainly financed by state subsidies, students tuition fees and companies, through donations, or indirectly by hiring educational programs, among other possibilities. Thus, Nova SBE may have received compensation from the target company during the last 12 months, related to its fundraising programs, or indirectly through the sale of educational, consulting or research services. Nevertheless, no compensation eventually received by Nova SBE is in any way related to or dependent on the opinions expressed in this report. The Nova School of Business and Economics does not deal for or otherwise offer any investment or intermediation services to market counterparties, private or intermediate customers.
This report may not be reproduced, distributed or published, in whole or in part, without the explicit previous consent of its author, unless when used by Nova SBE for academic purposes only. At any time, Nova SBE may decide to suspend this report reproduction or distribution without further notice. Neither this document nor any copy of it may be taken, transmitted or distributed, directly or indirectly, in any country either than Portugal or to any resident outside this country. The dissemination of this document other than in Portugal or to Portuguese citizens is therefore prohibited and unlawful.
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