CFA Institute Research Challenge Hosted in CFA Society Italy
The Anonymous Quokkas
The Anonymous Quokkas
CFA Italian Research Challenge A warm winter st We initiate coverage on Moncler (MONC) stock with a BUY recommendation Initial Coverage | January 31 2018 and a € 32.3 target price, implying a 21.7% upside from the current price. Moncler is an high growth Italy-based company operating in the fashion luxury industry. We see a significant upside potential for Moncler based on the following drivers: BUY a) Revenues are expected to grow at an accelerated 3Y CAGR of 16.97%, and then at a 6.06% 2021E-2023E. This can be achieved thanks to: the upgrade of its Price: €26.5 retail network and execution of the “retail excellence project”; a product expansion Target Price: €32.3 with an estimated outperformance of complementary categories; the exploiting of Upside: 21.7% opportunities in the online business, generated by both moncler.com and from multi-brand retailers. b) the Company is on track to achieve excellent returns and cash generations that Listed on: Borsa Italiana could also allow a re-leveraging. Bloomberg: MONC IM c) Moncler is expected to benefit from opportunities arising from Personal Luxury Reuters: MONC.MI Goods Market (PLGM) market expected to grow at a 3Y CAGR 2017E-2020E of 4.54%. Market Data Moncler Genius Main shareholders On February 27th Moncler will host its second Capital Market day since its Ruffini Partecipazioni 26.3% listing, where is going to present its new industrial project, expected to ECIP M S.A 5.3% represent a new course for the Group, i.e. the product, the collection and the Treasury Shares 0.8% time to market. The week before, the Company plans to unveil the Moncler Market Cap €6.762 B Genius Building for the opening of Milan Fashion Week. The project will replace the partnerships for Gamme Bleu and Rouge runaway lines with new collaboration Shares outstanding 254.8 M and consequent introduction of new gamme collections. Free Float 67.6% The communication of the FY2017 results and the presentation of its new business plan are likely to represent positive catalysts for Moncler. In particular we expect Stock Data that the market perception of a well-run company will be strengthen, the brand will continue to benefit from a strong momentum with further space for 52-week range €17.8 – 26.54 diversification and opportunity to capture latest market trends in terms of customer tastes and distribution channel. Average Vol. (3m) 893,516 Financials Highlights: a warm welcome Our assessments on Moncler business potential lead to a promising growth of revenues and profitability. Organic revenues, mainly driven by retail channel, are estimated to grow at a 3Y 2018E-2020E CAGR of 17%, reaching €1.985B in 2020. The high profitability of revenues, with EBIT margin improving ca. 156bps among 2018E-2020E, is expected to drive strong cash generation in the medium long-term.
Valuation The target price of EUR 32.3 is the result of the DCF model considering as TV a multiple of 11.1x EV/EBITDA. We think this is the best estimate we can provide of the value of the company, since it takes into account: 1) a long explicit forecasting period in which the company’s competitive advantages will generate extra returns and a superior growth vs. the market; 2) a fading phase in which the company will revert its returns to the mean; 3) an exit multiple obtained as long term average valuation of the sector. Other estimates of the value provided in this report are: 1) DCF with perpetuity of 3%; 2) multiples, in which we observed great dispersion depending on the panel group considered (especially Hermes); 3) a theoretical value obtainable via an optimization of the TR from IPO 165.5% (ann. 26.6%) financial structure to a 2.9x Net Debt to EBITDA leverage, from the which we estimate a further upside of ca. 10% with a target price of €35.5. €M FY2016 FY2017E FY2018E FY2019E FY2020E FY2021E FY2022E FY2023E MONC FTSE MIB Revenues 1,040 1,222 1,451 1,704 1,985 2,159 2,327 2,429 EBIT 357 442 541 636 693 749 782 200,00 298 Margin 29% 29% 31% 32% 32% 32% 32% 32% 150,00 Net Income 198 261 316 382 443 483 522 545 Margin 19% 21% 22% 22% 22% 22% 22% 22% 100,00 EPS 0.78 1.03 1.24 1.5 1.74 1.9 2.05 2.14 50,00 P/BV 5.9x 7.6x 6.2x 4.9x 4.0x 3.3x 2.8x 2.4x P/Sales 6.5x 5.5x 4.7x 4.0x 3.4x 3.1x 2.9x 2.8x 0,00 EV/Sales 6.2x 5.3x 4.5x 3.8x 3.3x 3.0x 2.8x 2.7x Net Financial Position 106 275 491 750 1,067 1,402 1,770 2,147 20/12/13 20/03/14 20/06/14 20/09/14 20/12/14 20/03/15 20/06/15 20/09/15 20/12/15 20/03/16 20/06/16 20/09/16 20/12/16 20/03/17 20/06/17 20/09/17 20/12/17 Source: Team Estimates Moncler (MONC:IM) 1 ______INVESTMENT SUMMARY
Moncler’s openings – Exhibit 1 COMPANY PRESENTATION With a Market Cap of € 6.76B and more than 1B in revenues, Moncler is active in more than 70 countries as an outstanding player in the “ready-to-wear” Luxury Market. The core business for Moncler is retail market. Moncler has achieved an organic growth of a 4Y CAGR 2013-2017E of 28.2% against a 6.6 CAGR for the PLGM market. After the IPO on the Italian stock exchange in 2013, company’s growth started to reaccelerate, fostered by successful retail openings and relocations. The growth has been achieved delivering strong margins (29.2% 2017E EBIT margin) and free cash flows generation (97.1% 2017E FCFF on Net Income).
COMPETITIVE ADVANTAGES Source: Team Estimates and Company Data We believe Moncler has impressive competitve advantages, summed up in: A strong brand leveraging on its heritage status: after Remo Ruffini’s takeover in 2003, Moncler developed its strategy around the global down-jacket, moving upscale and reaching new territories: the cities. This allowed the Company to enlarge its pricing power. An impressive management track record: in the 2016 the revenues exceed one billion (1.040B) (Source: Company Data), above management expectations. This is just the tip of the iceberg of the repositioning strategy carried out since 2003 by the visionary Remo Ruffini, as both Creative Director and CEO. Strong ability to execute: as the Company succeeded in brand repositioning, we strongly believe they have the credibility to execute the new business plan exceeding expectations, once again. Direct control on the value chain: Moncler is able to offer a superior quality product which combines high technology with luxury. Selective choice of the locations: many prime locations are already covered but there is still further place to grow in underpenetrated market expanding the DOS network worldwide. The choice falls under those locations that satisfy the Moncler’s standards in terms of exclusivity.
Source: Company Data RELEVANT RISKS Operational risk which exposes Moncler to external events potentially affecting the production process and the brand reputation. Key man risk and centralized management structure which derives from the Moncler’s collections – Exhibit 2 overdependence on the figure of Remo Ruffini, “the man behind the brand”, who is not only the CEO but also the creative director of collections. Access to good real estate and scalability where Moncler must compete with its large luxury peers to get best prime locations in worldwide fashion districts, accrued by its store expansion strategy. Changes in distribution of incomes since wellness distribution is a prime driver of luxury goods’ spending.
FINANCIAL HIGHLIGHTS Our assessments on Moncler business potential lead to a promising growth Source: Team Estimates and Company Data of revenues and profitability. Organic revenues, mainly driven by retail channel, are estimated to grow at a 3Y 2018E-2020E CAGR of 17%, reaching €1.985B in 2020. The high profitability of revenues, with EBIT margin improving ca. 156bps among 2018E-2020E, is expected to drive strong cash generation in the medium long term.
DCF Stage 1– Exhibit 3 VALUATION
€M FY2017E FY2018E FY2019E FY2020E The target price of 32.3 is the result of the DCF model considering as TV a REVENUES 1,221.7 1,450.9 1,704.2 1,985.3 multiple of 11.1x EV/EBITDA. We think this is the best estimate we can growth 17.4% 18.7% 17.4% 16.4% provide of the value of the company, since it takes into account: 1) a long NOPAT 263.9 318.1 384.0 444.9 explicit forecasting period in which the company’s competitive advantages + D&A 46.5 51.4 55.5 59.1 - Change in WC 7.3 9.5 4.6 17.5 will generate extra returns and a superior growth vs. the market; 2) a fading - Capex 64.1 66.0 68.0 70.1 phase in which the company will revert its returns to the mean; 3) an exit Free Cash Flows 253.6 313.0 376.1 451.7 multiple obtained as long term average of valuation of the sector. Other WACC 8.63% 8.63% 8.63% 8.63% estimates of the value provided in this report are: 1) DCF with perpetuity of 3%; Discount Factor 1.000 0.9270 0.8533 0.7855 2) multiples, in which we observed great dispersion depending on the panel Present Values 253.6 290.2 320.9 354.7 group considered (especially Hermes); 3) an optimization of the financial Source: Team Estimates structure to a 2.9x Net Debt to EBITDA leverage, from the which we estimate a further upside of ca. 10% with a target price of €35.53.
January 31st 2018 Moncler (MONC:IM) 2 ______BUSINESS DESCRIPTION
Born in the mountains, lives in the city Moncler S.p.A. (MONC:MI) is a leading player in the Luxury Outerwear market which has implemented a remarkable turnaround over the last decade, successfully expanding all over the world. The brand was founded in France in 1952, and in 1954 launched its first ever nylon down jacket. In the same year, Moncler products were chosen by the Italian expedition to K2, and in 1955 by the French one to Makalù. In 1968, Moncler gained additional visibility as it became the official supplier of the French Alpine skiing team at the Winter Olympics in Grenoble. In the 80s, Moncler products started to be used on a daily basis also in the cities, becoming a true fashion phenomenon among younger clients. The man behind the brand Born in France, Moncler is headquartered in Milan since the beginning of 2003, when Remo Ruffini invested in the Group and took over the firm. Since that event, a process of repositioning of the brand was Source: Company Data initiated, bringing Moncler products to take on an even more distinctive and exclusive aspect. Under the leadership of Mr. Ruffini, the Company has pursued a Retail Wholesale breakdown – Exhibit 4 clear but simple philosophy: to create unique products of the highest quality, Retail Wholesale 1183.8 “timeless”, versatile and innovative. 295.9 1040.3 7.2% 276.1 The down jacket is the undisputed iconic product of the Company. Over the years, 880.4 5.9% 260.7 887.8 Moncler has built its product offering around its famous duvet jacket, which still 694.2 16.2% 764.2 accounts 78% of the FY2017E total revenues. -1.1% 580.5 263.5 619.7 23.3% 246.9 6.7% Moncler in financial markets Listed on the Italian Stock Exchange (MTA segment) in
430.7 43.8% Q3 2013 with a starting price of €10.20 per share, Moncler trades now at a price of
333.6 29.1% €26.5. Ebit margin The growth of retail over the period 2013-2017E boosted Moncler’s EBIT
FY 2013 FY2014 FY2015 FY2016 FY2017E Margin, which shows an absolute growth of 279 b.p. (4Y EBIT CAGR of 20.32%) (source: Team Estimates). Source: Team Estimates Retail and Wholesale Born as a wholesale business built on multibrand stores and shop-in-shops, the Company worked to expand its retail exposure, continuously investing in DOS openings and online platform. In FY2016 Moncler’s worldwide business included 243 stores in 70 different countries: retail network Sales breakdown by Geography – Exhibit 5 counted 190 stores which contributed to 73% of consolidated revenues, while
Asia & Rest of the World Europe (excl. Italy) America Italy wholesale 53 contributing to the remaining 27%. In FY2017E we estimate Moncler to record a 78% exposure to retail (including online) and a consequent 22% one to
143 wholesale channel, with the latter still being a fundamental tool for the business to
137 175 explore new potential retail locations. Geographic location headquartered in Milan and still highly exposed to Italian market 141 303 131 (c.a. 14% of total revenues FY2017E), Moncler’s presence is spread worldwide, 131 268 96 allowing revenues to come from all major geographies. The company excels among its 68 233 419 200 334 Luxury peers in the fashion district of the main cities, but its manufacturing is partially 235 outsourced in Eastern Europe (internalized site in Romania). 182 Value Chain Moncler creates its value through a that which starts from product FY 2013 FY 2014 FY 2015 FY 2016 creative development, and arrives to final distribution, hence to the client. The team of Source: Company Data designers is subdivided by collection and works under the direct supervision of Remo Ruffini’s guidelines. Then it comes to the purchase of raw materials, which are mainly Down, Nylon and garments accessories. Production is partially outsourced and takes Retail and Wholesale vs Gross Margin – Exhibit 6 place in Eastern Europe (except for Haute Couture that is produced “at home”). During and after the process, all products are followed by a strict double inspection Retail Wholesale Gross Margin (%) in terms of quality and consistency with design specifications. Finally Moncler is ready 100,00% 80% 42.5% 37.9% 29.6% 26.5% 25.0% 90,00% 78% to deal with distribution orders (wholesale, retail and online) (Aappendix 1).
80,00% 76%
70,00% 74% th 73.5% 75.0% COMPANY STRATEGY On February 27 , Moncler will host its second Capital Market 70.4% 60,00% 72% 62.1% day since listing, to present its new industrial project, expected to represent a new 50,00% 57.4% 70%
40,00% 68% course for the group and expected to involve the group at 360 degrees, i.e. the
30,00% 66% product, the collection and time-to-market. MONC corporate strategy will rely on: 20,00% 64% Retail Upgrade Born as a wholesaler, MONC has executed a strong retail migration in 10,00% 62% the last years, where retail contribution rose from 57% FY2013 to 75% in FY2017E 0,00% 60% FY 2013 FY2014 FY2015 FY2016 FY2017E (Source: Team Estimates). The Company plans to keep this upgrade with Retail Source: Team Estimate Excellence project, through an increasing attention to customer experience in the Value Chain– Exhibit 7 shop itself and new target openings.
Collection Raw Materials Quality Production Distribution Design and Inspection Development Sourcing
January 31st 2018 Moncler (MONC:IM) 3 Product categories – Exhibit 8 Outerwear Knitwear and Accessories Product diversification The company states its non-outerwear products (knitwear, bags, shoes) are growing twice the jacket. For FY2017E we estimate the latter to still
22% account 78% of consolidated revenues, which MONC targets to reduce to 70% in the next 2/3 years. New target locations and relocations in key regions The Company declares a careful assessment of new/less developed markets as Australia, Nordic European countries and Mexico. 78% Digital Online business accounts 7% of retail revenues (Source: Company Data), and MONC plans a continuous improvement of digital, in terms of both e-commerce and social medias. The Company has its own mobile app and moncler.com is currently Source: Company Data, Team Estimate active in 35 markets with 5 different homepages (Italy, U.S., Int., APAC and Japan). Retail e-commerce is currently powered by YOOX Net-a-porter Group through an Travel Retail expansion – Exhibit 9 agreement expiring in 2020. Travel retail shows a good potential growth according to our tourism and airport analysis (Appendix 3). We expect the agreement with Dufry to capture opportunities mostly in Europe and Asia, the two leading markets for luxury touristic flows. Sustainability unit is active since 2015 to enhance transparency and accountability. Moncler publishes yearly a dedicated Sustainability Report to describe the main environmental, social and business initiatives, as well as disclosing related results achieved.
______INDUSTRY OVERVIEW & COMPETITIVE POSITIONING
Source: Company Data, Team Estimate ______Industry overview
LUXURY The sector is structurally attractive, urbanisation and globalization are driving wealth creation globally, resulting in a Worldwide Personal Luxury Goods Market Normalized PLGM History – Exhibit 10 (PLGM) CAGR +6% (1996-2017E). Our estimate of the Worldwide PLGM GROWTH is ASIA EUROPE USA WORLD a 3Y CAGR 2017E-2020E of 4.54%. Our estimates are based on a weighted combination of two different approaches: 200 a) A set of Ordinary Least Squares (OLS) regressions between the main region’s 180 PLGM growth and the change in their real GDP pro-capita; 160 b) A Vector Error Correction Model (VECM), a system of simultaneous equations 140 involving each regional PLGM growth explained by its past changes and the 120 contemporaneous ones linked to the other regions, together with an error 100 correction parameter exploiting the knowledge of the underlying common trend
80 between PLGM historical series. 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 We then weighted our results in each model and derived the growth as a weighted Source: Team Estimates geometric average of regional PLGM growths, with weights corresponding to the position each region detains in the market (refer to Appendix). We obtained statistically FOREX Normalized Returns – Exhibit 11 significant results based on the counterfactual that the models exploit different core EURUSD EURCHF EURCNY EURGBP EURHKD EURKRW EURJPY aspects of the growth, that is its correlation with the real GDP pro-capita and the auto 118 116 and contemporaneous correlation among the main luxury industry regions. 114 112 110 108 MACROECONOMICS 106 GDP is expected to grow by roughly 3.5% for FY2017E (Source: IMF), mainly driven by 104 102 Europe and Asia. This increase is reflected into a jump of income inequality: 1% of the 100 98 global population earned last year 83% of the global produced richness. This effect 96 94 exacerbates sales in the luxury industry at expense of other sectors. FX RATES A 2018 of strong growth in the Euro Area could push EUR/USD towards 01/06/17 01/20/17 02/03/17 02/17/17 03/03/17 03/17/17 03/31/17 04/14/17 04/28/17 05/12/17 05/26/17 06/09/17 06/23/17 07/07/17 07/21/17 08/04/17 08/18/17 09/01/17 09/15/17 09/29/17 10/13/17 10/27/17 11/10/17 11/24/17 12/08/17 12/22/17 01/05/18 01/19/18 1.30 (Source: ING FX Outlook 2018), even though the US economy may be growing. Source: Team Estimate Overall, we expect strong Euro in 2018 to negatively impact European luxury-goods companies' sales growth, that may suffer a decline in tourist spending.
______Competitive Positioning MONC Porter’s 5 Forces – Exhibit 12 Legend 0 No Threat 1 Very Low 2 Low COMPETITIVE DRIVERS We carried out Porter’s five force analysis to identify the 3 Moderate 4 High forces that shape the competitive landscape in which Moncler operates (Appendix 6) 5 Very High Luxury good market is characterized by the presence of few large players and a large numbers of small brand which compete in the same segment, both in terms of product and geographic location. Despite the high level competition, Moncler is perceived as a pure luxury player and is the leading brand in the down-jacket segment.
Source: Company Research
January 31st 2018 Moncler (MONC:IM) 4 COMPETITIVE ADVANTAGES We performed a Swot Analysis identifying the following competitive advantages (Appendix 5): [+] A strong brand leveraging on its heritage status : “born in the mountains, living in the city”- in particular after Remo Ruffini’s takeover in SWOT Analysis – Exhibit 13 2003, Moncler developed its strategy around the global down-jacket, moving upscale and reaching new territories: the cities. This allowed the Company to STRENGHTS enlarge its pricing power. Iconic brand with a strong heritage [+] An impressive management track record: in the 2016 the revenues Direct control on the value chain exceed one billion (1.040B) (Source: Company Data), above management High margins, solid returns expectations. This is just the tip of the iceberg of the repositioning strategy FCF generations carried out since 2003 by the visionary Remo Ruffini, as both Creative Director Strong ability to execute and CEO. Entrepreneurial CEO [+] Strong ability to execute: as the Company succeeded in brand Strict quality and sustainability policies repositioning, we strongly believe they have the credibility to execute the new Selective choice of prime locations business plan exceeding expectations, once again. WEAKNESSES [+] Direct control on the value chain: despite the production process in Exposure to single product category Eastern Europe, Moncler is able to offer a superior quality product which Seasonality of sales combines high technology with luxury, adventure and an edgy style. Overexposure to the domestic Italian [+] Selective choice of the locations: many prime locations are already Centralized management structure covered but there is still further place to grow in underpenetrated market expanding the DOS network worldwide. The choice falls under those locations OPPORTUNITIES that satisfy the Moncler’s standards in terms of exclusivity. Emblematic is the M&A case of the Spain in which are present only in the wholesale channel and not Penetration in untapped markets the retail, because they have not found the appropriate window. Further expansion of luxury travel retail Online channel RELEVANT COMPETITORS THREATS We selected Moncler’s competitors from a group of similar peers in terms of Low barriers to entry product category business products, market exposure and financials (Appendix 7). The Currency risk company competes among big conglomerates (Kering, LVMH, Dior, Competition to acces good real estate in Richemont, Hermes) showing the highest Profit Margin in FY2016 (75.7%, see terms of geography and scalability Exhibit) (Source: Company Data). New entrants and increased competition
Source: Team Estimates GEOGRAPHICAL COMPETITION To identify Moncler’s main competitors per geography, among the selected Peers Overview – Exhibit 14 ones, we performed an overlap analysis based on luxury market share and relative revenues exposure per area. We computed the luxury market share as Ranking Company Profit Margin 2016 Market Cap (€B) 1 Moncler 75.7% 6.8 the ratio between company’s revenues in selected area over total luxury 2 Prada 71.9% 8.5 market revenues in the same (Appendix 8). 3 Burberry 69.9% 7.4 4 Hermes 67.7% 45.6 5 Ferragamo 67.1% 3.7 6 Hugo Boss 66.0% 5.1 Europe/EMEA We estimate MONC’s luxury market share equal to 0.54%, but 7 Dior 65.7% 55.3 the Company is ranked second among peers in terms of revenues exposure, 8 LVMH 65.3% 124.2 9 Richemont 63.9% 42.4 with a 42.92% over the total (Source: Team Estimates). Historically Moncler 10 Kering 62.9% 49.1 11 Michael Kors 59.2% 8.1 has always been overexposed to this market (14% of total revenues only in Italy for the FY2016), but in this area there are still untapped markets in which Source: Team Estimates the company can enhance its penetration: Western Europe ( UK and Germany), Russia, Sweden.
Moncler Geographical Exposure – Exhibit 15 America In this area Moncler’s market share is ranked last in the group in America (0.21%), thus showing only a 16.85% revenues exposure for such a big market. In fact, all the other competitors show at least a 20% exposure in this area. On the other side, Michael Kors is at the top of our ranking, confirming to be Moncler main luxury competitor in America. Despite the presence of 19 DOS and two Sky Resort in Canada (one in Toronto and one in Vancouver), this market remains underpenetrated given its expansion, and we see great growth potential. To conclude, we cannot neglect the important role of Canada Goose in this geography, even if we did not include it in our relative
Source: Team Estimates valuation. (Appendix 9)
Asia/Asia Pacific Moncler results to be currently underexposed to this market in relation to its competitors, with a 0.49% market share and 40.24% revenues exposure (Source: Team Estimates). We see a strong potential for Moncler in this area, characterized by the rise of a new rich up-middle class, and by a class of Millenials set to become the dominant force in consumer market. For this geography we estimate PLGM 4Y CAGR 2017E-2021E of 4.73%.
January 31st 2018 Moncler (MONC:IM) 5 Revenues Geographical Breakdown – Exhibit 16 ______FINANCIAL ANALYSIS Italy Euro Area (excl. Italy) Asia&RoW Americas ______An historical outlook
1400
1200 REVENUES 201 1000 175 MONC Revenues have grown since FY2013 at a 4Y CAGR of 20.44% to estimated 800 141 526 96 419 €1.2B in 2017E. This was possible thanks to: 1) A business model which moved 600 68 334 235 400 182 from Wholesale to Retail (Retail 4Y CAGR 2013-2017E of 27.7%), with continuous 303 347 200 233 268 200 worldwide openings and relocations operated by the Company after the IPO 2) 131 131 137 143 148 0 FY2013 FY2014 FY2015 FY2016 FY2017E Penetration in growing and underserved markets: despite revenues mainly come
Source: Team Estimates from the Euro Area, especially from the Italian market, during the last years’ growths in revenues were particularly high in Asia, where the shares of revenues Gross Margin – Exhibit 17 reached 43.1% in 2017E 3) Online market consolidation, which reached ca. 7% of MONCLER AVERAGE PEER'S GROUP
35% the retail market and it is equally divided between wholesale and retail.
30% 28.7% 29% 28.7% 28.6% 29.2% 25% MARGINS 20% : Over 2013-2017E Moncler’s gross margin has increased by 580 15% Gross Margin
10% bps, from 71.3 to 77.1, outperforming the sector average absolute growth of the 5% same period. In our opinion this is mainly due to: 1) The strong pricing power and 0% FY 2013 FY 2014 FY 2015 FY 2016 FY 2017E the strictly “no markdown policy” even during sales period 2) Low cost of raw Source: Team Estimates materials (nylon, cotton, feather) and low labour costs in Eastern Europe. The result Ebit Margin – Exhibit 18 is a gross margin boosted by the high revenues level together with a less than MONCLER AVERAGE PEER'S GROUP
78% proportional increase of COGS.
76% 77.1% 75.7% 74% 74.4% 72% 72.3% RETURNS 70% 71.3%
68% Over the period 2013-2017E Moncler’s ROE fluctuated over the range and 66% stabilizes to 29.5% in 2017E, lying in a range outperforming the sector average. 64% 62% Asset Turnover (ASSETS/SALES) recent fluctuations of ROE are mainly 60% FY 2013 FY 2014 FY 2015 FY 2016 FY 2017E attributable to changes in the Asset Turnover, which grew from 70.3% in 2013 to Source: Team Estimates 90.5% 2017E. This is mainly due to: 1) The Company’s asset-light kind of business, Ebit Margin – Exhibit 19 where the most relevant investments are in intangible assets. Hence, Revenues’ MONCLER AVERAGE PEER'S GROUP growth makes the Asset Turnover grow more than proportionally 2) Boosted 40
35 revenues driven by retail. 35.1% 35.1 30 29.3% 29.5% Operating Profit Margin (EBIT/SALES) remained flat and witnessed a change 25 27.9%
20 from 28.7% in 2013 to 29.2% in 2017E. 15 Tax Burden Ratio (Net Income/EBT) The Tax Burden Ratio raised by 1170 b.p. 10
5 from 2013 (55.3%) to 2016 (67.0%) and gave therefore no great contributions to 0 performance variations. For 2017E instead we expect a further boost of 700 b.p. in FY 2013 FY 2014 FY 2015 FY 2016 FY 2017E the ratio, reaching 74.0%, due to the patent box agreement. Source: Team Estimates Interest Burden Ratio (EBT/EBIT) The Interest Burden Ratio remained stable and Returns Analysis – Exhibit 20 ranged from 98.8% in 2013 to 99.0% in 2017E, mainly due to the company’s attitude to keep leverage low. Given the current low level of debt, the incidence of 2013 2014 2015 2016 2017E this component on performance is low, especially since 2014, as well and cannot 100,0% be much higher than it is, as the Interest Burden Ratio close to 100% (99% in 80,0% 2017E) suggests. 60,0%
40,0% CASH FLOWS 20,0% In the last years Moncler’s business was able to convert on average 88.3% of its
0,0% NI/EBT EBT/EBIT EBIT/SALES SALES/ASSET Net Income in FCFF between 2013-2017E, reaching 97.1% in 2017E, generating Source: Team Estimates strong increasing Cash Flows over time. This is mainly due to: 1) High profitability CASH FLOWS – Exhibit 21 on Revenues, given that luxury goods are highly priced compared to the very low FCFO NFP CAPEX Net Cash 400 material and labour costs 2) Low investments in Fixed Capital (CAPEX of 6.0% in
300 317.8 2016), since most of its investment are devoted to the brand itself 3) Collection 275.4 246.4 200 203.4 Period (DSO) below 35 days and Average Payable Days (DPO) above 176 days 158.3 168.4 100 130.4 105.8 99.5 (resulting in a 186% current ratio) in 2016, not surprising in the retail business. The 66.2 62.3 64.2 59 50.2 59.9 61.6 0 -34.3 -11.2 -49.6 cash exceedance allowed MONC to progressively lower leverage and to evaluate -100 range of options like: 1) Increase the Dividend Payout, as already done between -171.1
-200 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017E 2015 and 2016 (from 18.2% to 22.9%) 2) M&As 3) Buy Back. Source: Team Estimates Exhibit 22
CONSOLIDATED STATEMENT OF CF FY2013 FY2014 FY2015 FY2016 FY2017E FY2018E FY2019E FY2020E FY2021E FY2022E FY2023E EBIT(1-T) 108.16 134.2 169.0 202.1 263.9 318.2 384.1 445.0 485.3 524.3 547.3 D&A 19.2 26.3 36.0 41.6 46.6 51.4 55.6 59.2 62.4 65.4 68.2 Change in Net Working Capital 10.4 -50.4 -13.8 2.8 -7.3 9.6 4.6 17.6 6.6 11 4.4 FCFO 130.4 158.3 203.4 246.4 317.8 379.2 444.2 521.7 554.3 600.8 619.9 CAPEX 34.3 50.2 66.2 62.3 64.2 66.1 68.1 70.1 72.2 74.4 76.6 FCFF 96.1 108.1 137.2 184.2 253.6 313.1 376.2 451.64 482.1 526.4 543.2 Change in Debt 48.4 41.8 36.4 36.7 42.2 40.9 39.7 38.5 37.3 36.2 35.1 Interest Expenses 21.1 6.1 1.7 4.6 3.6 3.5 3.4 3.3 3.2 3.1 3 (Interest Expenses)*(Tax Rate %) 7.4 2 5.6 1.5 0.9 1 1 1 1 1 1 FCFE 58.4 86.8 118.6 184.2 246.8 306.5 369.9 445.5 476.2 520.7 537.7 Dividends 25.0 30.0 35.0 44.9 78.4 94.7 114.5 132.8 144.9 156.7 163.5 CASH FLOWS 59.0 59.9 61.6 99.5 168.4 211.8 255.3 312.7 331.3 364.0 374.1 January 31st 2018 Moncler (MONC:IM) Source: Team Estimates 6 ______ASSUMPTION AND FORECAST
Relocations and expansions, product diversification, progressive market penetration and online diffusion, leads us to foresee an high double-digit growth until FY2020, with a normalization in the growth rate from FY2021 to FY2023. We expect revenues to grow at a CAGR 2017E-2027E of c.a. 12.3% to €2.43B, mainly driven by the increasing exposure of retail (CAGR 201E-2020E of ca. 19% and CAGR 2020E-2023E of ca. 7%, respectively) and online channel (CAGR 2017E-2020E of ca. 17% and CAGR 2020E-2023E of ca. 12%, respectively). The EBITDA margin will improve by 200 bps thanks to the positive impact of the "retail excellence” points with strong cash generation.
METHODOLOGY In order to build our model we estimated separately the sales respectively coming from retail, wholesale and online, focusing on two periods: FY2017-FY2020 and FY2021-FY2023. According to our assumptions the online channel has an higher impact as a wholesaler with respect to a retailer, because Moncler sales are significantly higher on third parties online platforms (such as Yoox Net-a-Porter and My Theresa) than the ones coming from Moncler’s website. This leads the revenues coming from third parties platform to grow at higher digits than online retail portions. The different impact suggested us to model the three channels separately, obtaining a different sales density compared to the one disclosed by the Company, adding the whole online to the retail. 2017E-2020E: our short-term estimates are based on the analysis and assessment of company stated strategic and commercial actions: a) the “retail excellence project” with an average of 15 DOS openings per year for the next 4 years, reaching the guidance target of 250 stores in FY2020E and 200m^2 per shop the following year. b) the online selling expansions which is foreseen at c.a. 9% in FY2020E; c) a slightly increase of the sales density from current €28K/m^2 (actual retail value, keeping apart online sales) to €31.6K/m^2 mainly due to the impact of the expansion in complementary products which we estimate to be c.a 30% as from company’s target of turnover in FY2023E (from the current 23%), with a consequent positive impact on seasonality reduction. The model also considers the market penetration of the new Gamme collections, coming from “Genius” also increasing sales density. 2021E-2023E: our mid term estimates have been carried out thorough a consideration on the possible next business model, covering 2021E-2023E period. Our assumption is an upgrade of DOS target to 270 stores in FY2020 which takes in consideration a 10% gap compared to the current 300 stores of the comparables, mainly due to the excellent location selection run by MONC both in terms of prime location in fashion districts and optimal marginalities.
MARGINS CASH FLOWS AND RETURNS Gross Margin we expect it to remain stable close to the current level of 77.5% balancing growth in higher profit products such as the new Gamme collections with the impact of the new diversified products that we expect to have a slight inferior profitability. Net Earnings due to the patent box agreement we expect a Tax rate of 26% in FY2017E with a tax benefit of about 34M estimated for the 2015-2017 period. The tax rate is foreseen to be back at 30% after the expiration of the agreement in FY2020E. Capex we foresee Capex to be around €64M in FY2017E mainly due to the retail expansion. The Capex on sales is expected to diminish of by 200 bps in FY2023E due to an inferior amount of investments for openings and relocations. Cash flows MONC’s free cash flow to firm is expected to grow from €253M to €543M in FY2023, improving cash conversion cycle (FCFF on EBITDA form 54% in FY2016 to 64% in FY2023E) due to the more intensive use of the retail and online channels. To support our case, the company presents optimal competitive differentials which lead MONC to grow Exhibit 23 more then the market with higher margins on the long run.
€M FY2017E % FY2018E % FY2019E % FY2020E % FY2021E % FY2022E % FY2023E % WHOLESALE 267 26% 300 25% 335 24% 369 23% 399 23% 418 23% 435 23% YoY % 13% 13% 12% 10% 8% 5% 4% ONLINE WHOLESALE 47 61 76 91 110 127 140 YoY % 30% 30% 25% 20% 20% 15% 10% RETAIL 868 74% 1,046 75% 1,246 76% 1,475 77% 1,597 77% 1,726 77% 1,795 77% YoY % 19% 20% 19% 18% 8% 8% 4% ONLINE RETAIL 40 44 47 50 53 56 59 YoY % 10% 10% 8% 6% 6% 5% 5% MONC Revenues 1,222 1,451 1,704 1,985 2,159 2,327 2,429
EUROPE 495 41% 585 40% 690 40% 794 40% 852 39% 896 38% 928 38% YoY % 16% 18% 18% 15% 7% 5% 4% AMERICAS 201 16% 236 16% 273 16% 317 16% 346 16% 361 16% 374 16% YoY % 17% 17% 16% 16% 9% 4% 4% ASIA&ROW 526 43% 630 44% 741 44% 874 44% 961 45% 1,070 46% 1,127 46% YoY % 19% 20% 18% 18% 10% 11% 5% MONC Revenues 1,222 1,451 1,704 1,985 2,159 2,327 2,429 YoY % 17% 19% 17% 16% 9% 8% 4%
Source: Team Estimates January 31st 2018 Moncler (MONC:IM) 7 ______VALUATION Model assumptions– Exhibit 24
Openings of New Store Growth Relocation's growth The target price of € 32.3 is the result of a three stage DCF model considering Product diversification Growth Online's Growth as TV a multiple of 11.1x EV/EBITDA, implying a 21.7% upside from the 25% current price. We think this is the best estimate we can provide of the value of the
20% company, since it takes into account: 1) a long explicit forecasting period in which the company’s competitive advantages will generate extra returns and a superior 15% growth vs. the market; 2) a fading phase in which the company will revert its 10% returns to the mean; 3) an exit multiple obtained as long term average of valuation of the sector. Considering the negative net financial position of Moncler, we 5% believe there is space for a high investment optionality, hence we think that a fair
0% 2017E 2018E 2019E 2020E 2021E 2022E 2023E valuation should take this into account but the market is not. We evaluated an Source: Team Estimates optimization of Moncler’s financial structure to catch the premium of this Revenues vs FCFF Growth– Exhibit 25 optionality, leading to a target price of €35.3, with a further 10.27% upside. FCFF Grotwth Revenues Growth To validate our result in a relative terms, we run a multiple analysis on Moncler 40% multiples and a Montecarlo simulation on fundamental model assumption to 35% assess the reliability of our result in different market scenarios. 30%
25% Details of the three stage DCF 20%
15% A three stage DCF model that allows us to incorporate a faster revenue growth
10% over the period 2018/20 and a terminal growth in line with the long term trend. the
5% We assumed a medium-term average revenues’ growth of 18.5%, fading to 7%, a
0% medium term tax rate of 28% and 30%, and a WACC of 8.63%. 2017E 2018E 2019E 2020E 2021E 2022E 2023E Upcoming Business Plan considers the FCFF generated up to 2020, which are | Stage 1 | Stage 2 | based on the detailed forecasts explained in the future analysis. According to our Source: Team Estimates estimates along 2018E-2020E MONC revenues exhibits a 3Y CAGR of 16.97%. DCF Stage 1– Exhibit 26 Fading Stage goes from 2021E until 2023E. During this period, revenues growth is €M FY2017E FY2018E FY2019E FY2020E estimated to slow to a 3YCAGR of 6.06%.This smoothing was estimated taking REVENUES 1,221.7 1,450.9 1,704.2 1,985.3 growth 17.4% 18.7% 17.4% 16.4% into account the eventual change of future market conditions and slow down of NOPAT 263.9 318.1 384.0 444.9 competitive advantages. + D&A 46.5 51.4 55.5 59.1 Third Stage Terminal value is computed with two methods: - Change in WC 7.3 9.5 4.6 17.5 - Capex 64.1 66.0 68.0 70.1 a) the perpetuity formula, considering today’s WACC at market value and terminal Free Cash Flows 253.6 313.0 376.1 451.7 FCFF growth of 3%, leading to a target price of 32.80. WACC 8.63% 8.63% 8.63% 8.63% b) the exit multiple method using 10 year average market EV/EBITDA 1YF equal to Discount Factor 1.000 0.9270 0.8533 0.7855 Present Values 253.6 290.2 320.9 354.7 11.1x (Source: Bloomberg “Global luxury goods top peers”), leading to a target
Source: Team Estimates price of 32.3. WACC assumptions– Exhibit 27 WACC = 8.63% Source: Team Estimates Risk Free Rate 1.95% 90-days average of 10-years Italian government bond yields. Equity Risk Premium (ERP) 7.27% Italian ERP which takes into account the Italian CRP (2.19%) (Source: Damodaran, Jan 2018).
Beta estimation based on bottom up peers average Unlevered Beta (averaging during and post crisis Beta 0.92 period), since Beta against FTSE MIB is unreliable.
Cost of Equity (Ke) 8.63% Capital Asset Pricing Model: Rf + β Equity Risk Premium Cost of Debt (Kd) 2.55% Computed as Risk Free Rate + 0.6% spread (Source: Damodaran ratings). Leverage 0.00% Moncler is currently in a net cash position. Tax rate 26% Company's guidance taking into account Patent Box benefits (Source: Company Data) Re-leveraging Opportunity In our opinion the company has time to value its WACC vs Net Debt/EBITDA– Exhibit 28 optionality and it’s not exposed to a takeover in the immediate term, since: 1) the control holding of Mr. Ruffini 2)The very high multiples at which the stock is trading 9,20%
9,00% that obstacle a value extraction from MONC assets. We strongly believe that
8,80% Moncler’s excellent management shouldn’t avoid to spend the cash to invest in
8,60% the firm, but since the Company’s guidance states it is not in their intentions to
8,40% consider M&A scenarios for the upcoming business plan, we evaluated a re-
8,20%
WACC engineering of the financial structure. We tried to assess which level of leverage 8,00% would minimize the WACC. The result leads to a 2.9x Net Debt/EBITDA or a 7,80% WACC of 8.20% leading us to a target price €35.5 which represents the financial 7,60% engineering value of the company, and add a 10.27% upside to our valuation.
7,40% -0,5 0,5 1,5 2,5 3,5 4,5 5,5 6,5 7,5 8,5 (Refer to Appendix). Net Debt/EBITDA Sensitivity Analysis Exhibit below shows the sensitivity analysis of DCF Target Source: Team Estimates Price on terminal growth: WACC Exhibit 29 8.2% 8.4% 8.6% 8.8% 9% 2.0% € 31.01 € 30.01 € 29.01 € 28.34 € 27.58 2.5% € 33.07 € 31.91 € 30.75 € 29.99 € 29.12 3.0% € 35.53 € 34.16 € 32.80 € 31.91 € 30.91 3.5% € 38.51 € 36.87 € 35.26 € 34.20 € 33.02 4.0% € 42.21 € 40.20 € 38.24 € 36.97 € 35.56
Terminal Growth 4.5% € 46.91 € 44.37 € 41.94 € 40.38 € 38.66 January 31st 2018 Moncler (MONC:IM) Source: Team Estimates 8 Multiple valuation We conducted a relative valuation with the main purpose of validating our DCF result.
Exhibit 30 Peer group - we consider a group of comparable companies, similar to MONC in terms of profit margin, geographical exposure and business segments (for peers full selection P/BV 2018 Full model No outlier criteria refer to the Appendix). LVMH 3.7x 3.7x The search for the perfect multiple We found that P/BV 2018 regressed by Kering 3.6x 3.6x ln(ROIC/WACC) is the best one, since it best describes the value that the market assigns Dior 3.3x 3.3x to these companies, moreover it makes economic sense for us that companies that Ferragamo 4.4x 4.4x achieve superior profit trades at premium. Another reason that support the choice of this Hugo Boss 4.9x 4.9x Burberry 4.1x 4.1x multiple is the fact that it incorporates the value of the intangible assets (brand, human Richemont 2.4x 2.4x capital). We ran two different Ordinary Least Squares Linear regression: the first one Michael Kors 3.7x 3.7x including all the peers and MONC and the second excluding the outliers (Hermes and Prada 2.7x 2.7x Moncler) obtaining two statistically significant models and a range of values in which the Hermes 7.6x final target price can fall. (For more detail about the regression refer to the Appendix). Weighted avg 4x 3.5x MODEL EXCLUDING OUTLIERS MONC trades at 6.2x P/B, while the multiple inferred Moncler (consensus) 6.2x 6.2x by our estimations (6.1x) set a target price for MONC of €26,45 (floor), with a downside of Moncler (Team est.) 8.2x 6.1x -0.34%. Target price € 35,96 € 26,45 FULL MODEL the P/B 2018 which comes from our estimation (8.2x), lead a target price Upside/downside 35% -0,34% of €35,97 with an upside of 35%. This result endorses our DCF valuation and reflects the
Source: Team Estimates, BLOOMBERG Market Premium for Moncler.
Montecarlo Simulation – Exhibit 31 Scenario Analysis In order to further assess the impact of our model’s assumption on the target price we performed a Montecarlo simulation on Ebit Margin, assuming a Normal distribution around a mean of 0.35 and a standard deviation of 10%. Due to the margin stability, we want to study the case when margin drops. Under this hypothesis we obtain cases with a downside higher than 20% which would mean that our assets are mispriced, leading us to a sell. This percentage is low also in this model, which consideres high volatility. For this reason we do not go into further investigation of this case.
______CORPORATE GOVERNACE & OTHER HEADINGS Source: Team Estimates Corporate Governance Since December 2011 Moncler joins the framework of “Codice di Autodisciplina”, the general corporate governance disposals for Italian listed companies, suggested by Borsa Italiana. The Board of Directors is composed by eleven members with three different committees: 1) Nomination and Remuneration; 2) Control Risk and Sustainability; 3) Related Parties. Moncler does not comply with the Code concerning the no separation between Chairman and CEO, Remo Ruffini. This is offset by the presence of a Lead Independent Director, Marco De Benedetti.
Corporate Management Remo Ruffini can rely on a valuable management and team of directors, which is diverse Shareholder Structure– Exhibit 32 regarding experience in fashion luxury industry. To mention: Luciano Santel, Chief Corporate Officer and CEO of MONC sub-holding company, who has a wide experience from Rossignol to Luxottica Group; Roberto Eggs was hired by Louis Vuitton in 2009 before joining Moncler in 2015 as Chief Marketing and Operating Officer.
Social Responsibility • The company adopted its own Code of Ethics in 2014 (refer to the Appendix), which is being issued to all Moncler Group worldwide. Source: Company Data • Since 2016, MONC publishes a Sustainability Report which describes the main environmental, social and business initiatives undertaken, and the results achieved in relation to Sustainability Plan Objectives. • The Group belongs to the Standard Ethics Italian Index, which measures stock market confidence, concerning OECD, EU and UN voluntary guidelines and indications on CSR and CG, of the 40 major Italian listed companies. Moncler’s rating has been recently upgraded from E (low) to a E+ (non compliant), meaning there is still room for an improvement in the Company’s CG compliance.
January 31st 2018 Moncler (MONC:IM) 9 ______INVESTMENT RISKS
FINANCIAL RISKS Market Risks can be summed up in:
Impact 1) Exchange rate risk Moncler reports Euro, but since its revenues are also generated in foreign currencies (mainly USD, GBP, CNY, YEN, HKD, KRW and CHF) there is an exposition to a Likelihood devaluation of these against the Euro. Since 2014 Moncler enters in derivative contracts to hedge this risk, but remains exposed to a transactional risk and to a consequent translational risk.
Impact 2) Interest rate risk Being denominated in Euro, Moncler’s cash and bank loans are subjected to potential Euribor fluctuations, which may lead to an increase of the Company’s borrowing Likelihood costs. The consequent threat of a negative impact on results, is usually offset using Interest Rate Swaps (IRS). (APPENDIX) Credit Risk The Company doesn’t report a significant concentration of financial assets with a Impact high credit risk, but is exposed to the non-solvency of its wholesale customers. According to its
Likelihood strategy, Moncler states it selects accurately its third parties with a preliminary in-depth analysis of their reliability based also on eventual insurance coverage and/or guaranteed from payment. Liquidity/Seasonality Risk makes Moncler’s profitability highly weighted in H2 of FY (Wholesale in Q3 and Retail in Q4). The Company states to have centralized its treasury functions to monitor and maintain the availability of credit lines, but the risk mitigation comes mostly from product Impact diversification strategy and internationalization of sales. These factors help also to offset the Likelihood weather condition risk, i.e. the risk consumers may decide to delay by a year the purchase of a down jacket in case of a mild fall/late arrive of cold temperatures.
MACRO RISKS Moncler is exposed to the Italian macroeconomic environment as well as to the economic risk of the various countries in which operates. Changes in distribution of incomes Even though luxury market tends to be correlated with GDP levels, it is more correct to refer to wellness distribution as the driver of personal luxury Impact goods spending. The higher the number of families belonging to the upper classes and the Likelihood higher becomes the number of Moncler potential clients. Changes in tourist flows Being such an increasing growth driver, changes in the travel retail flows due to an increasing fear of terroristic attacks could negatively affect future revenues from this channel. Currently the impact is low, therefore we don’t change our valuation. Impact VALUATION RISKS Likelihood Methodology Risk Main risk is not being able to correctly assess the LT future outcomes in terms of market potential, company’s expansion and company’s margin. We believe that MONC must be valued using a valuation field approach among four different
Impact DCFs and a multiple valuation.
Likelihood BUSINESS RISKS Operational risk mainly regards the exposure of the production site and of the brand reputation
Impact to external events. Key man risk and centralized management structure which derives from the overdependence Likelihood on the figure of Remo Ruffini, “the man behind the brand”, who is not only the CEO but also the creative director of collections.
Impact Fashion risk Exposure on a single main product may be seen as an increasing factor of fashion risk, but we don’t think so. The down jacket proved to be a solid masterpiece surviving years of Likelihood trends, hence it is very unlikely it will suddenly fall out of fashion. On the other hand, the increasing product diversification and importance of complementary categories may increase
Impact this exposure in absolute terms, but a good product rotation is likely to mitigate this risk as well. Access to good real estate and scalability is fundamental in luxury retail, and comes at high Likelihood fixed costs in terms of rent agreements. Moreover, Moncler must compete with its large luxury peers to get best prime locations in worldwide fashion districts, and its expansion strategy in terms of store space clearly increases the exposure to this risk. Impact Risk of counterfeiting is highly expected in the sector, therefore Moncler invested in adequate Likelihood technologies aimed to track its product along the value chain to partially mitigate this exposure.
January 31st 2018 Moncler (MONC:IM) 10 TABLEAPPEND OFIX – CONTENTSTABLE OF CONTENTS
Appendix – Table Of Contents 11
1. Value Chain 12
2. Social Media Analysis 13
3. Travel Retail 14
4. Personal Luxury Goods MArket Estimation 15
5. Swot Analysis 16
6. Porter's Five Forces Analysis 17
7. Peers Selection 18
8. Peers Geographical Exposure 19
9. Canada Goose 20
10. Altman Z-Score 21
11. Cost Analysis 21
12. Balance Scheet 22
13. Income Statement 23
14. Consolidated Statement of Cash Flows 23
15. WACC Computation 24
16. Discounted Cash Flows 25
17. Financial Structure Reengineering 26
18. Relative Valuation 27
19. Code of Ethics 28
20. Standard Ethics Italian Index 29
21. Forex Sensitivity Analysis 30
January 31st 2018 Moncler (MONC:IM) 11 APPENDIX 1 - VALUE CHAIN
“Born in the mountains, living in the city” shows how the Company has evolved from a line of products used purely for sport purposes to versatile lines that clients of all gender, age, and culture can wear on any occasion. This is a value achievable through a chain which starts from product creative development, and arrives to final distribution, hence to the client.
COLLECTION DEVELOPMENT Moncler’s success is based on a unique brand strategy which aims to develop innovative products from an engineering point of view, but always “anchored” to the history of the brand. The team of designers is subdivided by collection and works under the direct supervision of Remo Ruffini, who sets guidelines and ensures they are implemented uniformly across all collections and product categories. The design department is then assisted and supported by the merchandising and product development teams. The range of Moncler products has expanded over the years and now spans in the following areas: High fashion with Gamme Rouge and Bleu lines, whose distribution was limited to most prestigious world boutiques and which are going to be dropped at the end of H12018, leaving space to new Haute Couture linese. “Grenoble”: technical/outdoor sports collection created in 2010 and inspired by few ski products, available for both men and women. Its aim is strengthening the link between Moncler and its “mountain roots”, and represents the highest level of technology value for the brand. Special Projects, which are the result of ad hoc collaborations with cutting edge designers; Main collection: which offers urban products spread among several lines, starting from the central Archive line which represents the entry point of the Brand. The selection also offers a line dedicated to accessories, shoes (“A Marcher”) and bags (“A porter”), a line of eyewear and sunglasses (“Moncler Lunettes”) and the “Enfant” line dedicated to child segment (0-14).
RAW MATERIALS Origin: Nylon, other textiles and garments accessories (e.g. buttons and zips) are purchased mainly from Japan and Italy, while down and the other fabrics are purchased in Eastern Europe and Asia. Quality: Moncler states it buys directly all the raw materials used in production, selecting them according to high quality standards and strict-sustainability policies (i.e. the DIST protocol for Down). Regarding “down products” they contain at least 90% goose down clusters and only 10% feathers/small feathers. This high percentage of down cluster is a guarantee of a high fill power, or the ability of the down to occupy volume. Each batch of down is subjected to a two-step checking procedure to assess its compliance with 11 key quality parameters (including health and cleanness), set in accordance with international standards and the requirements imposed by the Company.
PRODUCTION The factor that most differentiates Moncler from its pure luxury peers is that it outsources part of its distribution to third manufacturers in Eastern Europe, while only haute couture lines are produced in Italy. The Company reports it has a solid control over the whole production process, strengthen by the internalization of two manufacturing units in Romania through its sub-holding company Industries S.p.A., one in FY2015 and the second in FY2016 (now merged). To underline that this specific choice represents the key driver of Moncler’s low cost structure, which combined with its high sales density and pricing power, boosts margins and generate solid returns and cash flows.
QUALITY INSPECTION Moncler’s quality control policy accounts a team of internal inspectors acting both in the Company’s own facilities and at third parties’ production sites. Quality experts first verify that the prospective supplier owes the technological capacity adequately equipped to produce quality standardized garments and then perform weekly checks on the progressive supply process to enhance the compliance with these quality standards. Ex-ante production process, every model undergoes a series of fittings to verify the consistency with design and model specifications. Ex post, all products undergo a final inspection about aesthetic, size and proper labels. At this point the anti-counterfeiting protocol is checked and activated.
DISTRIBUTION Moncler’s strategy is aimed at the full control of the distribution channels (wholesale, retail and online) through its direct organization (Industries S.p.A). In FY2015 the Company established a joint venture in Korea with the retail partner Shinsegae International, to enhance the supervision of the huge Asiatic market. We remind at FY2017E 205 DOS plus 57 wholesale locations.
January 31st 2018 Moncler (MONC:IM) 12 APPENDIX 2 - SOCIAL MEDIA ANALYSIS
We analysed the presence of Moncler in the social media environment in order to grab unexploited opportunities for the company on social platforms.
Facebook Like Counts Twitter Follower Counts Instagram Follower counts
FACEBOOK From 2013 to 2017 TWITTER Moncler’s presence on INSTAGRAM followers on this Moncler has experienced an Twitter burst from 2014 to 2017, increased persistently between exceptional growth in Facebook with a growth of 11,898.6% (4Y 2013-2017 with a growth of popularity, reaching almost 3B likes CAGR 231%), reaching 1,24B 3,332.5% (4Y CAGR 142%) and with a growth of 1,702.6% (4Y followers. As in the Facebook case, being 858K in 2017. Unlike before, CAGR 106.1%). The raise was Twitter followers mostly increased followers increased steeply even particularly sharp in 2014-2015 and between 2014-2015 and then levels during the last years. then flattened. out. Source: Team Research
Starting from 2014 to the end of 2017 the growth of MONC on Facebook, Twitter, Instagram has been extraordinary, the company is more present on Facebook (58%), secondly on Twitter (25%) and less on Instagram (17%). This last social platform is considered the hub of future growth for many luxury brand which use Instagram Stories to immerge followers in the brand experience, and to appeal Millennials and Members of Generation Z, the two next key generations visiting luxury sites. Also Moncler is shifting its focus online, exploiting the “storytelling power” of social networks, in particular of Instagram, to command the attention of the young generation and to launch its new project “Moncler Genius” (Source: Company Data).
Source: Team Estimates
January 31st 2018 Moncler (MONC:IM) 13 APPENDIX 3 – TRAVEL RETAIL
Our main consideration about travel flows are based on regional market share, outbound flows and expenditure, focusing on renowned travel spenders (Chinese, Russians and Arabs) and seeking for potentials. We noticed Asia-Pacific Outbound Tourism Expenditure (OTE) extraordinary growth (CAGR 2014-2017E ca. 11%) while the European one looks smoother and mainly driven by low-cost travels. Chinese “frenzy travel shopping” slowdown and declining of Russian travel expenditure are not so alarming, the former are mostly changing their destinations and the latter are being replaced by re-emerging or rising travel spenders (Japanese, Arabs, Indians, Koreans). Chinese actually are more into short-medium haul destinations and their OTE is not growing as in the past, probably because of CNY depreciation; same for Russians whose OTE is even decreasing. Arabs are looking at EU with more interest and they are coming back to previous expenditure level, (together with Japanese travelers), Indians are extending their hauls while incrementing their Asian journeys, travels within Asia region are consistently growing. Moreover, India could be the next source of travel spenders: OTE growth (CAGR 14-17E c5%) and high receipt per traveller (c1300€ in 2016). Finally considering FX effects we expect a strong Euro for 2018 which does not support European travel destination, for this reason Asian and American destinations may be preferable, RUB might keep its depreciation trend while JPY and KRW will be probably more stable.
Number of International Passengers - Exhibit Exhibit Outbound tourism expenditure (€B) 2013 2014 2015 2016 2017E Share 2017E Trend CAGR 14-17E Europe 342 354 437 446 445 34.77% 4.63% Asia-Pacific 255 294 405 457 485 37.89% 10.58% Americas 180 187 234 240 241 18.83% 5.07% Africa 25 26 31 25 26 2.03% 0.10% Middle East 56 67 79 81 83 6.48% 4.28% World 858 928 1186 1249 1280 100% 11.32%
International tourist arrivals (M) 2013 2014 2015 2016 2017E Share 2017E Trend CAGR 14-17E Europe 566 580 604 616 666 50.51% 2.85% Asia-Pacific 250 264 284 308 328 24.92% 7.28% Americas 168 182 193 199 205 15.58% 5.97% Source: Team Estimates Africa 54 55 53 58 62 4.69% 2.04% Middle East 48 52 56 54 56 4.27% 3.46% World 1087 1134 1189 1235 1317 100.00% 5.12%
Source: Team Estimates Traffic level and development programs of the airports where there is a Moncler boutique lead us to feel good perspective for airport retail, but the Company is still pretty far from its peers and we believe that this channel is quite untapped. Previous openings gave us a track of Moncler decision strategy, then potential cities and airports have been selected also following these guides. We built a rank crossing statistics of the to variables above excluding airports with a low level of international traffic and those without a luxury “environment”. Furthermore, we focused on airports with high traffic growth rate (Kuala Lumpur is included for this reason) and intercontinental connections. To each airport is given a score which comes from a weighted sum of different coefficients.
Source: Team Estimates Coefficients and weights LTD: Luxury travel destination (“consolidated”-”emerging”-”not so relevant”-”not relevant”); W: 1,5 MVC: Most visited city (# of intl visitors CAGR 14-17E); W: 1,2 MVC2: Most visited city 2 (# of intl visitors 2017E); W: 1 IPG: International passengers growth (yoy 16-17E and CAGR 14-17E); W: 1,5 HS: Hub or strategic (dummy, if the airport is a hub or located in a strategic area); W: 0,4 CA: Country arrival factor (dummy, if it is in top 10 countries for intl arrivals); W: 0,8 CR: Country receipt factor (dummy, if it is in top 10 countries for tourism receipts); W: 0,8 ZR: € per arrival expenditure zone ranking (high-med-low share); W: 0,6
Besides these scores we cannot exclude other crucial airports in those cities where Moncler is already present (with DFS and DOS) such as Los Angeles, Miami, Frankfurt and Sydney.
January 31st 2018 Moncler (MONC:IM) 14 APPENDIX 4 – PERSONAL LUXURY GOODS MARKET ESTIMATION
We provide an estimation of the Worldwide Personal Luxury Goods Market (PLGM) for the years 2017E- 2020E through a weighted combination of two models: • The first model consists of a set of OLS regressions to estimate the total PLGM growth for three crucial geographic areas (United States, Euro Area, Asia and Pacific) using as regressors their own change in GDP pro-capita. • The second model is based on a multivariate time series approach capturing two fundamental aspects of the PLGM.
Firstly, using a system of simultaneous equations of the Vector Autoregressive (VAR) type we have been able take into account not only the serial correlation but also the instantaneous correlation existing among the variables. In other words, we estimate the future regional PLGM regressing it on its past values and the current ones for the other regions. Secondly, we refine the VAR model with a Vector Error Correction Model (VECM). The VECM improves the VAR since it is able to model and capture the effect of the common trend affecting luxury market, providing more reliable estimates.
We perform the VECM model on the PLGM time series of each region and use them to balance the estimates of the set of OLS models. The logic is that since the models exploit two different core aspects of the PLGM growth, that is its correlation with key variables like the region GDP pro-capita and the auto and contemporaneous correlation among the key regions in the Luxury industry, they should both be used and weighted according to our confidence. We attributed a 80% weight to the first approach and 20% to the second one since we believe the future real GDP pro-capita changes to be already good predictors for the PLGM growth, but they need to be smoothed for the historical and contemporaneous relationship existing between the PLGM time series. After having obtained our consistent estimates for the 2017-2020 PLGM growth per region, we derive the World PLGM growth as their weighted geometric average with weights corresponding to the position each region has in the PLGM. Estimation results are robust. Coefficients are meaningful, significant and show very low p-values, R- squares are far acceptable (see Table X).
EURO AREA USA
0,2 0,2
0,15 0,15
0,1 0,1 0,05
0,05 PLGM GROWTH
PLGM GROWTH 0 0 0,01 0,02 0,03 0,04 0,05 0,06 0 -0,04 -0,03 -0,02 -0,01 -0,06 -0,04 -0,02 0 0,02 0,04 0,06 0,08 -0,05 -0,05 -0,1
-0,1 -0,15
-0,15 -0,2 GDP GROWTH GDP GROWTH
The figures illustrate the OLS regression results. APAC In order to estimate the APAC PLGM growth, we did 0,2 not consider the change in the GDP pro-capita of the
0,15 whole APAC, since it comprises many countries which do not arguably drive the PLGM growth. We 0,1 then regressed it against the average GDP pro-capita growth of relevant countries in this sense, in particular 0,05 PLGM GROWTH China, Japan, India and South Korea. This improves 0 significance and reliability of future estimates. -0,04 -0,02 0 0,02 0,04 0,06 0,08
-0,05
-0,1 GDP GROWTH
January 31st 2018 Moncler (MONC:IM) 15 APPENDIX 5 – SWOT ANALYSIS
We implemented a SWOT analysis assigning to each driver a score between 1 (very low) and 5 (very high) considering strengths and weaknesses internal to Moncler, and the relative opportunities and threats coming from the market. The grade system used to analyse the overall position of MONC and the aspects considered for each category are summarized by the charts below.
STRENGHTS SCORE
Iconic brand with a Iconic brand with a strong heritage 5 strong heritage 5 4,5 Direct control on the value chain 4 Selective choice of 4 Direct control on the prime locations 3,5 the value chain 3 2,5 High margins, solid returns 5 2 1,5 Strict quality and 1 FCF generations 4 0,5 High margins, solid sustainability 0 returns policies Strong ability to execute 5
Entrepreneurial CEO 4 Entrepreneurial FCF generations CEO Strict quality and sustainability policies 4 Strong ability to Selective choice of the prime locations 3 execute
TOTAL 34
Exposure to single product category 5 WEAKNESESS SCORE 4,5 4 3,5 Exposure to single product category 3 5 2,5 2 Centralized 1,5 Seasonality of sales 1 4 management 0,5 Seasonality of structure 0 sales Overexposure to the Italian domestic market 3 overdependent on CEO Centralized management structure 2 overdependent on CEO TOTAL 14 Overexposure to the Italian domestic market
M&A 4 OPPORTUNITIES SCORE 3,5 3 2,5 M&A 3 2 1,5 Penetration in untapped markets 4 1 0,5 Penetration in Online channel 0 Further expansion of luxury traveil retail 3 untapped markets Online channel 3
TOTAL 13
Further expansion of luxury traveil retail
New entrants and increased THREATS SCORE competition 4 Low barriers to entry product category 3,5 3 3 2,5 Currency risk 4 2 1,5 1 Competition to acces real good estate and Competition to 0,5 Low barriers to 3 acces real good 0 entry product scalability estate and category scalability New entrants and increased competition 3
TOTAL 13
Currency risk
January 31st 2018 Moncler (MONC:IM) 16 APPENDIX 6 - PORTER’S FIVE FORCES ANALYSIS Legend 0 No threat 1 Very low RIVALRY WITHIN THE 2 Low INDUSTRY 5 3 Moderate 4 High 4 5 Very high 3
BARGAINING POWER OF 2 THREAT OF NEW SUPPLIER ENTRANTS 1 0
THREAT OF BARGAINING POWER OF SUBSTITUTES CUSTOMERS
THREATS OF NEW ENTRANTS – MODERATE (3) The threat of new entrants for Moncler is evaluated as moderate, there are several considerations to make. Even if barriers to entry are high in Luxury Industry, they result to be very low in Ready-to-Wear segment. New entrants are attracted by the high profitability levels outerwear enjoys with Apparel – sales margins are boosted by the low costs of outsourced production – and face fewer difficulties to come to market and quickly grow. We view the threat of new entrants as most acute in North America, a market historically more focused on value and technology. On the other side there is a recurring factor that stands in favour of Moncler: the brand perception and the specific product proposal, with the whom potential new entrants may find hard to compete.
BARGAINING POWER OF CUSTOMERS – LOW (2) Moncler customers are its wholesale and retail clients and we consider this threat very low in both cases. For what concerns the firsts, Moncler built solid relationships in the years and has more than 1500 selected doors for the sole Main collection. In the second case, the reason is that luxury consumption demand is characterized by low elasticity to prices.
THREAT OF SUBSTITUTES – VERY LOW (1) Moncler produces in the Apparel&Outerwear sector, with a very high exposure to ready-to-wear, and where there already exist different jackets that potentially could be seen as a threat. Anyway this is very limited due to characteristic of iconic product conquered by Moncler’s down jacket. We can state: the brand image protects the Company from this risk.
BARGAINING POWER OF SUPPLIERS – LOW (2) The influence of suppliers in the sector is critical, as most products aren’t manufactured by the firms themselves. These are usually outsourced to third-party producers in foreign countries. So, ensuring good relations with suppliers and eliminating bottlenecks in the supply chain are critical factors for all players. In our opinion Moncler dealt properly with this aspect building long-term relationships with suppliers, and internalizing the property of the production site in Romania.
RIVALRY AMONG EXISTING COMPETITORS – VERY HIGH (5) The industry in which Moncler plays is highly fragmented and characterized by the presence of a few large global players, and a large number of small brands. These compete in different segments both in terms of category and geographic location. Rivalry in this market is therefore very intense. A key factor to underline in this context is the significant competition in real estate market to get prime locations.
January 31st 2018 Moncler (MONC:IM) 17 APPENDIX 7 – PEERS’ SELECTION
We compare Moncler with the pure players in the luxury arena, and we focused on similar peers in terms of size, sector and global brand recognition in the medium-high and high-end segment of the fashion market. We followed a 3 stage-selection method to select Moncler’s competitors (all exhibits are expressed in EUR).
Criteria 1 In the first stage we collected companies which belongs to the sector Consumer Discretionary, and to the sub industry Apparel, Accessories & Luxury Goods according to GICS Standards, ranking them by market cap size:
Ranking Company Market Cap Ranking Company Market Cap Ranking Company Market Cap 1 LVMH 124.21B 21 VAN DE VELDE 572.92M 41 ELUMEO SE 53.4M 2 CHRISTIAN DIOR 55.34B 22 BIJOU BRIGITTE 404.19M 42 ADOLFO DOMINGUEZ 47.39M 3 KERING 49.06B 23 GERRY WEBER 395.71M 43 COVER 50 43.90M 4 HERMES INTERNATIONAL 45.62B 24 NEW WAVE 361.62M 44 WESC 42.10M 5 CIE FINANCIERE RICHEMONT 42.48B 25 IC GROUP 333.85M 45 DR BOCK INDUSTRIES 41.60M 6 ADIDAS 38.31B 26 SAFILO 278.84M 46 CSP INTERNATIONAL FASHION 34.30M 7 LUXOTTICA 23.91B 27 JOULES GROUP 276.5M 47 FOPE 30.40M 8 SWATCH 19.13B 28 CALIDA 269.9M 48 LE TANNEUR & CIE 27.00M 9 PANDORA 8.99B 29 DAMARTEX 266.58M 49 ITALIA INDEPENDENT 26.80M 10 PRADA 8.56B 30 AEFFE 248.5M 50 LIWE ESPANOLA 20.00M 11 MICHAEL KORS 8.11B 31 FNG 199.5M 51 SOSANDAR 17.60M 12 BURBERRY 7.44B 32 QUIZ PLC 177.7M 52 STEFANEL 14.40M 13 MONCLER 6.85B 33 ODD MOLLY INTERNATIONAL 114.5M 53 ELVE 9.10M 14 HUGO BOSS 5.09B 34 MARIMEKKO OYJ 95.5M 54 GROUPE 7.50M 15 SALVATORE FERRAGAMO 3.78B 35 PIQUADRO 87.5M 55 BARBARA BUI 5.50M 16 CANADA GOOSE 2.97B 36 S.T. DUPONT 84.7M 56 MING LE SPORTS 4.40M 17 TED BAKER PLC 1.51B 37 DAMIANI 82.16M 57 MINERVA KNITWEAR 1.80M 18 OVIESSE 1.29B 38 AHLERS 72.3M 58 SMALTO-REGR 1.50M 19 BJORN BORG 676.5M 39 WOLFORD 68.5M 59 FINANCIERE MARJOS 0.41M 20 MULBERRY 588.2M 40 ORCHESTRA-PREMAMAN 64.5M 60 LOT78 INC 0.05M
PEERS Market Cap (€B) Ranking Criteria 2 In the second stage, we excluded those companies with a LVMH 124.21 1 Market Cap less than 3.5B in order to ensure a major comparability CHRISTIAN DIOR 55.34 2 in terms of business size. In our ranking Moncler is positioned at the KERING 49.06 3 thirteen position in these terms. HERMES 45.62 4 RICHEMONT 42.48 5 ADIDAS 38.31 6 LUXOTTICA 23.91 7 SWATCH 19.13 8 PANDORA 8.99 9 PRADA 8.56 10 MICHAEL KORS 8.11 11 BURBERRY 7.44 12 MONCLER 6.85 13 HUGO BOSS 5.09 14 SALVATORE FERRAGAMO 3.78 15
PEERS PROFIT MARGIN 2016 RANKING SECTOR SELECTION Criteria 3 In the third stage we focused MONCLER 75.70% 1 LUXURY on companies with a similar business PANDORA 75.10% 2 PREMIUM model (LUXURY), and with a Profit PRADA 71.90% 3 LUXURY Margin greater than 50%. Furthermore BURBERRY 69.90% 4 LUXURY we excluded from our analysis Luxottica HERMES 67.70% 5 LUXURY Group Spa, even if it has a 65.10% Profit FERRAGAMO 67.10% 6 LUXURY HUGO BOSS 66.00% 7 LUXURY Margin, given the differences in terms of CHRISTIAN DIOR 65.70% 8 LUXURY business products, but on the other hand LVMH 65.30% 9 LUXURY we decided to include Richemont LUXOTTICA 65.30% 10 LUXURY because in our opinion it is a pure luxury RICHEMONT 63.90% 11 LUXURY player and it attracts the same customer KERING 62.90% 12 LUXURY target of Moncler. MICHAEL KORS 59.20% 13 LUXURY ADIDAS 48.60% 14 SPORT SWATCH 42.18% 15 PREMIUM
January 31st 2018 Moncler (MONC:IM) 18 APPENDIX 8 – PEERS’ GEOGRAPHICAL EXPOSURE To analyze more in depth Moncler’s competitive positioning, we performed an overlap analysis for the FY2016 based on geographical revenues exposure (%) and on market share per macro-area focusing on the peers overtaking our previous selection. We obtained a clearer image of what are the main competitors for the following geo-areas : Europe/Emea, America, Asia&RoW.
Europe/EMEA Americas Asia&RoW Mkt Share Revenues ($M) Mkt Share Revenues ($M) Mkt Share Revenues ($M) Ranking LVMH 12.81% 12,684 LVMH 12.13% 12,005 LVMH 20.03% 20,431 1 CHRISTIAN DIOR 12.31% 12,184 CHRISTIAN DIOR 10.10% 10,020 CHRISTIAN DIOR 19.52% 19,913 2 KERING 5.70% 5,640 MICHAEL KORS 4.25% 4,207 RICHEMONT 5.84% 5,962 3 RICHEMONT 5.29% 5,235 KERING 3.95% 3,906 KERING 5.21% 5,315 4 HUGO BOSS 2.07% 2,044 RICHEMONT 2.12% 2,094 PRADA 3.21% 3,278 5 HERMES 2.04% 2,019 HERMES 1.14% 1,129 HERMES 3.03% 3,095 6 PRADA 1.83% 1,812 BURBERRY 0.81% 806 BURBERRY 1.12% 1,139 7 MICHAEL KORS 1.20% 1,188 HUGO BOSS 0.72% 716 FERRAGAMO 0.85% 871 8 BURBERRY 1.08% 1,072 PRADA 0.64% 630 MONCLER 0.49% 503 9 MONCLER 0.54% 536 FERRAGAMO 0.42% 418 HUGO BOSS 0.46% 470 10 FERRAGAMO 0.44% 437 MONCLER 0.21% 210 MICHAEL KORS 0.25% 258 11
Europe/EMEA Americas Asia&RoW Revenues exposure FY 2016 Ranking HUGO BOSS 63.28% MICHAEL KORS 74.42% FERRAGAMO 50.49% 1 MONCLER 42.92% BURBERRY 26.73% HERMES 49.57% 2 PRADA 40.17% LVMH 26.61% CHRISTIAN DIOR 47.30% 3 RICHEMONT 39.39% KERING 26.28% LVMH 45.28% 4 KERING 37.95% FERRAGAMO 24.20% RICHEMONT 44.85% 5 BURBERRY 35.53% CHRISTIAN DIOR 23.76% PRADA 44.84% 6 HERMES 32.35% HUGO BOSS 22.18% MONCLER 40.23% 7 CHRISTIAN DIOR 28.94% HERMES 18.08% BURBERRY 37.73% 8 LVMH 28.11% MONCLER 16.85% KERING 35.77% 9 FERRAGAMO 25.31% RICHEMONT 15.75% HUGO BOSS 14.54% 10 MICHAEL KORS 21.02% PRADA 14.99% MICHAEL KORS 4.57% 11
January 31st 2018 Moncler (MONC:IM) 19 APPENDIX 9 - GOOGLE TREND: Moncler vs Canada Goose
Founded in Toronto and listed on Nasdaq, GOOS CN is growing into the world’s leading makers of artic luxury apparel, showing a market cap of 2.97B EUR, and FY2017E revenues of 221.68M EUR. Beside this, we did not include Canada Goose in our peers selection because its market cap is inferior to our 3.5B EUR treshold. However, we believe that, given the strong product similarity between the two in terms of product segment and technology features, it is interesting to explore further this comparison. In particular, we decided to investigate whether there is further room to grow, or some unexploited market opportunities, for the Italian-French brand. Using Google Trends tools we analysed in which countries Moncler and Canada Goose recently achieved a high level of popularity. Then we investigated how often the two companies have been queried, globally and with a specific focus on USA and Canada. GEOGRAPHICAL CLICKS ANALYSIS Moncler vs Canada Goose - Exhibit In order to discover where Moncler and Canada Goose recorded the highest volume of queries in 2017, we considered the normalized number of clicks . This metric is calculated on a scale between 0 and 100, where 100 indicates the region associated to the greater number of queries, in this case Canada Goose in Canada, over the total in the same region. Canada Goose is mostly clicked in Canada (100), Netherlands (57) and UK (50), while Moncler in Denmark (72), UK (69) and Luxembourg (48). Despite Italy being Moncler’s reference market, here the company recorded a relatively low number (42), unlike Canada Goose, who Source: Google Trends and Team Research reached a peak in its domestic market, i.e. Canada (100). Exhibit Canada Denmark UK Netherlands Switzerland Luxembourg Sweden Belgium Italy RoW Moncler 15 72 69 46 33 48 35 42 42 13 Canada Goose 100 20 55 57 50 < 1 43 15 3 11
Source: Google Trends and Team Research World Normalized Number of Clicks - Exhibit
World both Moncler and Canada Goose show a seasonal pattern in clicks, reaching peaks in December and gradually dropping until june, month in which the trend steadily reverts. Despite that, Canada Goose is clearly more sensitive to seasonality, likely due to the few product diversification. It is interesting to notice that the gap between clicks over winter periods is becoming wider over time, meaning that there is room to grow in untapped markets. Source: Google Trends USA Normalized Number of Clicks - Exhibit
USA Both firms show an increasing trend in google queries. However, Canada Goose is more clicked than Moncler and strongly overcomes it during peak season. The huge difference during the last period highlights the growing interest in the duvet-jacket category. This suggests that the penetration in the USA market can potentially yield to a take over of Canada Goose market share.
- Exhibit Canada Normalized Number of Clicks Source: Google Trends Canada The picture of clicks radically changes when Moncler Canada Goose considering Canada. This is due to the scarce presence of 120 100 Moncler in Canadian market, with only two Ski Resort 80 Projects, one in Vancouver and the other in Toronto. In this 60 area we also see a potential space for the Italian duvet- 40 20 jacket to push its expansion further ahead. 0
01/15 02/15 03/15 03/15 04/15 05/15 06/15 07/15 08/15 09/15 10/15 11/15 12/15 01/16 01/16 02/16 03/16 04/16 05/16 06/16 07/16 08/16 09/16 10/16 11/16 12/16 01/17 01/17 02/17 03/17 04/17 05/17 06/17 07/17 08/17 09/17 10/17 11/17 12/17 12/17
January 31st 2018 Moncler (MONC:IM) 20 APPENDIX 10 - ALTMAN Z-SCORE ANALYSIS
The Altman Z-Score Analysis indicates a company's financial health and, consequently, the probability of default for bankruptcy. With the specified formula, the indicator shows a score that below of 1.80 indicates an high probability of bankruptcy. According to our analysis Moncler presents an average score for the period 2014-2016 of approximately 6.25. This indicates that the firm has a low likelyhood of default. The formula is (1.2*WCTA) + (1.4*RETA) + (3.3*EBTA) + (0.6*MCTL) + (1.0*RVTA).
The Altman Z-Score 2014 2015 2016 WCTA=Working Capital to Total Assets 0.1 0.11 0.09 RETA=Retained Earnings to Total Assets 0.16 0.19 0.19 EBTA=EBIT to Total Assets 0.22 0.25 0.26 MCTL=Market Cap to Total Liabilities 5.49 6.94 9.23 RVTA=Revenues to Total Assets 0.75 0.87 0.90 Z-Score 5.10 6.25 7.67 Average Z-Score 6.34
APPENDIX 11 - Cost Analysis:
According to the Company’s data the Duvet Jacket represents 78% of total cost of sales. We performed an analysis to determine the total cost to product a single jacket, to forecast the future expected COGS. According to our analysis the Down Value is c.a. 164€ per Kg. Based on our estimates of an average of 250g padding per duvet, we obtained a company’s cost for the Down equal to 41€ per piece. Furthermore, we estimated that for each duvet Moncler uses c.a. 2m of Nylon (at a cost of 6 euro per meter), for a total cost of Nylon is c.a. 12€ per item. Moreover we performed a workmanship cost analysis considering the fact that the guarantee medium salary in Romania was raised at the beginning of the current year to c.a. 2.5€ per hour. According to us, to properly estimate the workmanship cost per duvet, we had to add other costs such as the distribution and purchase-of-raw-materials personnel, raising our cost estimates for the personnel to 4.5 Euro per hour considering a total of 5 hours for each duvet. All this costs have been multiplied for a coefficient of 2.5 disclosed by the company in 2014, as an un-direct coverage coefficient for managing and distribution, obtaining as result a total cost per Duvet Jacket of c.a. 188.75€.
€ Value Unit of Measure Market Down Value 164 €/Kg Average Down in a Duvet Jacket 250 g Moncler's Down cost per duvet 41 € Average Nylon Price per meter 6 €/m Moncler's Nylon cost 12 € Workmanship hours of work 5 h UndirectMoncler's coverage workmenship coeff. cost for managing per duvet and 22.5 € distributing *2.5 € Total 188.8 € *as disclosed by the company
Finally, based on our production growth estimates and supposing the estimated cost to stay constant over period, we foresaw a COGS CAGR from FY2017E to FY2023E of 14.35%. The analysis was run with the same assumptions presented above. The higher double digit growth of the Online explains the expected number of duvet jacket sold in the next future. Results are presented here below:
€M FY2017E % FY2018E % FY2019E % FY2020E % FY2021E % FY2022E % FY2023E % MONC:IM Cost of Sales 279 318 383 447 486 523 546 Total Duvet Costs 218 78% 238 75% 282 73% 327 73% 346 72% 373 71% 385 70% #Duvet Jacket sold Retail+Online (K-unit) 3,684 3,795 4,450 5,073 5,560 5,949 6,050 Total Complementary Costs 61 22% 80 25% 101 27% 120 27% 140 28% 150 29% 161 30%
January 31st 2018 Moncler (MONC:IM) 21 APPENDIX 12 – BALANCE SHEET
BALANCE SHEET FY2013 FY2014 FY2015 FY2016 FY2017E FY2018E FY2019E FY2020E FY2021E FY2022E FY2023E ASSETS Goodwill 155.6 155.6 155.6 155.6 155.6 155.6 155.6 155.6 155.6 155.6 155.6 Capex 34.3 50.2 66.2 62.3 64.2 66.1 68.1 70.1 72.2 74.4 76.6 % of revenues 5.9% 7.2% 7.5% 6.0% 5.3% 4.6% 4.0% 3.5% 3.3% 3.2% 3.2% D&A 19.2 26.3 36.0 41.6 46.6 51.4 55.6 59.2 62.4 65.4 68.2 Net PP&E 58.2 77.2 102.2 123.9 141.5 156.2 168.7 179.6 189.4 198.4 206.8 % of revenues 10.0% 11.1% 11.6% 11.9% 11.6% 10.8% 9.9% 9.0% 8.8% 8.5% 8.5% Brands and other intanglible assets-net 252.7 258.8 268.0 266.9 266.9 266.9 266.9 266.9 266.9 266.9 266.9 Deferred Tax assets 25.1 46.0 66.0 74.7 74.7 74.7 74.7 74.7 74.7 74.7 74.7 % of revenues 4.3% 6.6% 7.5% 7.2% 6.1% 5.1% 4.4% 3.8% 3.5% 3.2% 3.1% Other non current assets 11.7 17.2 22.7 24.7 24.7 24.7 24.7 24.7 24.7 24.7 24.7 Non Current Assets 503.4 554.8 614.5 645.8 663.4 678.0 690.5 701.4 711.2 720.2 728.6 cash and cash equivalent 105.3 123.4 148.6 243.4 411.8 623.6 878.9 1,191.6 1,522.8 1,886.8 2,260.9 % of revenues 18.1% 17.8% 16.9% 23.4% 33.7% 43.0% 51.6% 60.0% 70.5% 81.1% 93.1% Income Taxes 21.3 5.9 4.2 5.6 5.6 5.6 5.6 5.6 5.6 5.6 5.6 Financial Current Assets 0 0 0 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0 Accounts receivable 76.5 86.6 89.8 104.9 116.6 131.3 146.6 161.3 174.6 182.9 190.2 Days of revenues 48.1 45.5 37.2 36.8 34.8 33.0 31.4 29.6 29.5 28.7 28.6 Inventory 77.2 122.8 134.1 135.8 135.8 135.8 135.8 135.8 135.8 135.8 135.8 % of revenues 13.3% 17.7% 15.2% 13.1% 11.1% 9.4% 8.0% 6.8% 6.3% 5.8% 5.6% Days of COGS 169.3 232.8 217.0 196.5 177.4 156.0 129.3 111.0 102.1 94.7 90.7 Turnover ratio of inventory 2.2 1.6 1.6 1.8 2.1 2.3 2.8 3.3 3.6 3.8 4.0 Other current assets 41.9 33.5 21.0 13.4 13.4 13.4 13.4 13.4 13.4 13.4 13.4 % of revenues 7% 5% 2% 1% 1% 1% 1% 1% 1% 1% 1% Current assets 322.3 372.3 397.6 506.0 686.2 912.7 1,183.3 1,510.7 1,855.3 2,227.5 2,608.9 Total assets 825.6 927.1 1,012.1 1,151.8 1,349.5 1,590.7 1,873.8 2,212.1 2,566.5 2,947.7 3,337.5 LIABILITIES Short term debt 116.2 80.3 71.2 64.8 62.8 60.9 59.1 57.3 55.6 54.0 52.3 %growth -31.0% -11.4% -9.0% -3.0% -3.0% -3.0% -3.0% -3.0% -3.0% -3.0% Income tax payable 13.9 43.5 36.6 24.6 24.6 24.6 24.6 24.6 24.6 24.6 24.6 % of revenues Accounts payable 107.1 112.3 113.0 132.6 151.7 176.0 195.8 228.1 248.1 267.4 279.1 Other current liabilities 33.6 30.0 32.2 50.3 50.3 50.3 50.3 50.3 50.3 50.3 50.3 Current liabilities 270.9 266.2 253.0 272.3 289.4 311.8 329.9 360.4 378.6 396.3 406.3 Net working capital 46.7 97.1 110.9 108.1 100.8 91.2 86.6 69.0 62.4 51.3 47.0 Long Term Borrowongs 160.1 154.2 127.0 75.8 73.6 71.3 69.2 67.1 65.1 63.2 61.3 % of revenues 27.6% 22.2% 14.4% 7.2% 6.0% 4.9% 4.1% 3.4% 3.0% 2.7% 2.5% Deferred Tax Liabilities 72.5 74.4 68.7 70.9 70.9 70.9 70.9 70.9 70.9 70.9 70.9 % of revenues 12.5% 10.7% 7.8% 6.8% 5.8% 4.9% 4.2% 3.6% 3.2% 3.0% 2.9% Pension funds and agent living indemnities 6.4 5.1 4.6 5.3 5.3 5.3 5.3 5.3 5.3 5.3 5.3 Other non current liabilities 1.9 3.5 6.2 12.0 12.0 12.0 12.0 12.0 12.0 12.0 12.0 % of revenues 0.3% 0.5% 0.7% 1.1% 0.9% 0.8% 0.7% 0.6% 0.5% 0.5% 0.5% Provision non current 3.2 3.1 5.7 11.9 11.9 11.9 11.9 11.9 11.9 11.9 11.9 Non-current liabilities 244.1 240.4 212.3 176.0 173.7 171.5 169.3 167.3 165.2 163.3 161.4 Total liabilities 515.0 506.6 465.3 448.2 463.1 483.3 499.2 527.7 543.9 559.6 567.7 EQUITY Common stock at par value 50 50 50 50 50 50 50 50 50 50 50 Retained earnings 90.9 147.6 192.0 196.3 261.3 315.7 381.6 442.7 483.0 522.2 545.2 Total SH equity 310.6 420.6 546.8 703.6 886.4 1,107.4 1,374.6 1,684.4 2,022.6 2,388.1 2,769.7 Total liabs & SH equity 825.6 927.1 1,012.1 1,151.8 1,349.5 1,590.7 1,873.8 2,212.1 2,566.5 2,947.7 3,337.5 Balance check 0 0 0 0 0 0 0 0 0 0 0
February 21st 2018 Moncler (MONC:IM) 22 APPENDIX 13 – INCOME STATEMENT
INCOME STATEMENT FY2013 FY2014 FY2015 FY2016 FY2017E FY2018E FY2019E FY2020E FY2021E FY2022E FY2023E
Revenues 580.6 694.2 880.4 1,040.3 1,221.8 1,450.9 1,704.2 1,985.3 2,159.1 2,327.1 2,428.6 %growth 19.6% 26.8% 18.2% 17.4% 18.8% 17.5% 16.5% 8.8% 7.8% 4.4% Cost of Sales 166.5 192.5 225.5 252.3 279.5 317.7 383.5 446.7 485.8 523.6 546.4 % of revenus 28.7% 27.7% 25.6% 24.3% 22.9% 21.9% 22.5% 22.5% 22.5% 22.5% 22.5% Gross income 414.1 501.7 654.9 788.0 942.3 1,133.2 1,320.8 1,538.6 1,673.3 1,803.5 1,882.2 Margin 71.3% 72.3% 74.4% 75.7% 77.1% 78.1% 77.5% 77.5% 77.5% 77.5% 77.5% Selling Expenses (No D&A) 147.6 183.0 253.4 312.4 560.9 650.7 724.3 843.8 917.6 989.0 1,032.1 % of revenues 25.4% 26.4% 28.8% 30.0% 45.9% 44.9% 42.5% 42.5% 42.5% 42.5% 42.5% G&A 57.9 66.0 79.5 94.1 110.0 130.6 153.4 178.7 194.3 209.4 218.6 % of revenues 10.0% 9.5% 9.0% 9.0% 9.0% 9.0% 9.0% 9.0% 9.0% 9.0% 9.0% Advertising and promotional expenses 36.0 46.1 57.8 68.1 73.3 87.1 102.2 119.1 129.5 139.6 145.7 % of revenues 6.2% 6.6% 6.6% 6.6% 6.0% 6.0% 6.0% 6.0% 6.0% 6.0% 6.0% Non-recurring income/(Expenses) 6.1 5.0 11.4 15.7 15.9 18.9 22.1 25.8 28.1 30.2 31.6 % of revenues 1.1% 0.7% 1.3% 1.5% 1.3% 1.3% 1.3% 1.3% 1.3% 1.3% 1.3% D&A 19.2 26.3 36.0 41.6 46.6 51.4 55.6 59.2 62.4 65.4 68.2 % of revenues 3.3% 3.8% 4.1% 4.0% 3.8% 3.5% 3.3% 3.0% 0.0% 0.0% 0.0% EBITDA 185.6 227.8 288.6 339.3 403.2 493.3 596.5 694.9 755.7 814.5 850.0 Margin 32.0% 32.8% 32.8% 32.6% 33.0% 34.0% 35.0% 35.0% 35.0% 35.0% 35.0% Amortization of intangibles 5.4 5.9 8.2 8.9 10.9 12.9 15.2 17.7 19.2 20.7 21.7 % of revenues 0.9% 0.8% 0.9% 0.9% 0.9% 0.9% 0.9% 0.9% 0.9% 0.9% 0.9% EBIT 166.4 201.5 252.7 297.7 356.7 441.9 540.9 635.7 693.2 749.1 781.8 Margin 28.7% 29.0% 28.7% 28.6% 29.2% 30.5% 31.7% 32.0% 32.1% 32.2% 32.2% Net Interest Expense 21.1 6.1 1.7 4.6 3.6 3.5 3.4 3.3 3.2 3.1 3.0 EBT 164.4 221.8 286.9 293.1 353.0 438.4 537.5 632.4 690.1 746.0 778.8 Margin 28.3% 31.9% 32.6% 28.2% 28.9% 30.2% 31.5% 31.9% 32.0% 32.1% 32.1% Tax rate % 35.0% 33.4% 33.1% 33.0% 26.0% 28.0% 29.0% 30.0% 30.0% 30.0% 30.0% Provisions for taxes 57.5 74.2 95.0 96.8 91.8 122.8 155.9 189.7 207.0 223.8 233.6 Net income From OP Act 106.9 147.6 192.0 196.3 261.3 315.7 381.6 442.7 483.0 522.2 545.2 Net Income from Old Activities 16.0 0 0 0 0 0 0 0 0 0 0 NET INCOME 90.9 147.6 192.0 196.3 261.3 315.7 381.6 442.7 483.0 522.2 545.2 Net margin 18.4% 21.3% 21.8% 18.9% 21.4% 21.8% 22.4% 22.3% 22.4% 22.4% 22.4% EPS diluted 0.36 0.59 0.76 0.78 1.02 1.24 1.50 1.74 1.90 2.05 2.14 Dividends per share 0.10 0.12 0.14 0.18 0.30 0.24 0.26 0.30 0.30 0.30 0.30 Payout ratio% 27.5% 20.3% 18.2% 22.9% 30.0% 30.0% 30.0% 30.0% 30.0% 30.0% 30.0% Dividend expense 25.0 30.0 35.0 44.9 78.4 94.7 114.5 132.8 144.9 156.7 163.5 Net to retained earnings 65.9 117.6 156.9 151.5 182.9 221.0 267.2 309.9 338.1 365.5 381.6 Outstanding shares - diluted average 250.0 250.0 250.9 250.2 254.8 254.8 254.8 254.8 254.8 254.8 254.8 DPS 0.10 0.12 0.14 0.18 0.31 0.37 0.45 0.52 0.57 0.61 0.64
APPENDIX 14 – CONSOLIDATED STATEMENT OF CASH FLOWS
CONSOLIDATED STATEMENT OF CF FY2013 FY2014 FY2015 FY2016 FY2017E FY2018E FY2019E FY2020E FY2021E FY2022E FY2023E EBIT(1-T) 108.16 134.2 169.0 202.1 263.9 318.2 384.1 445.0 485.3 524.3 547.3 D&A 19.2 26.3 36.0 41.6 46.6 51.4 55.6 59.2 62.4 65.4 68.2 Change in Net Working Capital 10.4 -50.4 -13.8 2.8 -7.3 9.6 4.6 17.6 6.6 11 4.4 FCFO 130.4 158.3 203.4 246.4 317.8 379.2 444.2 521.7 554.3 600.8 619.9 CAPEX 34.3 50.2 66.2 62.3 64.2 66.1 68.1 70.1 72.2 74.4 76.6 FCFF 96.1 108.1 137.2 184.2 253.6 313.1 376.2 451.64 482.1 526.4 543.2 Change in Debt 48.4 41.8 36.4 36.7 42.2 40.9 39.7 38.5 37.3 36.2 35.1 Interest Expenses 21.1 6.1 1.7 4.6 3.6 3.5 3.4 3.3 3.2 3.1 3 (Interest Expenses)*(Tax Rate %) 7.4 2 5.6 1.5 0.9 1 1 1 1 1 1 FCFE 58.4 86.8 118.6 184.2 246.8 306.5 369.9 445.5 476.2 520.7 537.7 Dividends 25.0 30.0 35.0 44.9 78.4 94.7 114.5 132.8 144.9 156.7 163.5 CASH FLOWS 59.0 59.9 61.6 99.5 168.4 211.8 255.3 312.7 331.3 364.0 374.1
February 21st 2018 Moncler (MONC:IM) 23 APPENDIX 15 – WACC COMPUTATION
3) Market risk 1)Risk-free 2)Beta 4)WACC premium computation computation computation computation
Starting from data at market values we performed our WACC computations. The cost of debt has been obtained as the sum of the-risk free rate and the spread, derived by the implicit rating related to the value of interest coverage ratio in accordance to Damodaran. Computations and estimations are illustrated below: RISK FREE RATE ESTIMATION Given the considerable exposure of the company on the Italian market, in order to obtain a risk-free rate that would have been reliable fort the Company, we considered a 90-days average of the 10-years Italian government bond yields. BETA Since MONC is an extremely unlevered company, we consider unreliable the levered beta obtained regressing price changes against FTSE MIB for the purpose of valuation. As a consequence we computed a re-levered beta following a bottom up approach. Practically, we computed the average of two unlevered betas related to: - The average unlevered beta of our 10 peers on the last 104-week window. Results are obtained by delevering the beta obtained by regressing the peers weekly price changes on their reference Index changes. - The average unlevered beta of the 6 peers already listed during the Crisis considering 104-week timeframe, i.e. 29/06/2007-26/06/2009. The range allows us to be prudent and to englobe in the scenario the effects of a shock in the market (e.g. the crisis period) on the Luxury companies.
Market Cap (€M) Tax Rate Raw Beta D/E Beta Unlevered Beta Unlevered (Crisis) LVMH 124,417 29.2% 0.95 0.05 0.92 0.87 HERMES 47,124 33.7% 0.69 0.00 0.69 0.73 KERING 49,635 24.0% 1.02 0.04 0.99 1.34 DIOR 54,971 29.5% 0.85 0.07 0.81 0.96 FERRAGAMO 3,738 19.3% 0.82 0.00 0.82 - HUGO BOSS 4,994 24.3% 0.86 0.00 0.86 - BURBERRY 8,478 27.1% 1.16 0.00 1.16 1.09 CIE FINANCIERE RICHEMONT-REG 46,093 23.4% 0.78 0.00 0.78 0.87 MICHAEL KORS HOLDINGS LTD 7,964 19.9% 0.91 0.02 0.90 - PRADA S.P.A. 7,833 31.6% 0.74 0.03 0.73 - Average 26.2% 0.88 0.02 0.86 0.98
EQUITY MARKET RISK PREMIUM We considered the Italian Equity Market Risk Premium, which takes into account the Italian Country Risk Premium of 2.19% (Source: Damodaran, 2018) . COST OF EQUITY We employed the CAPM model according to our previous considerations about the Risk-free rate, the beta coefficient and the equity market risk premium. LEVERAGE Provided the Net Financial Position of Moncler, the leverage of the company is null. COST OF DEBT We estimated the Cost of Debt as the sum of the risk-free rate and the additional spread (0.6%) linked to the size and the interest coverage ratio level of the company, according to Damodaran.
Interest coverage ratio > Rating Spread 8.50 AAA 0.60% 6.50 AAA 0.80% 5.50 A+ 1.00% 4.25 A 1.10% 3.00 A- 1.25% 2.50 BBB 1.60% 2.25 BB+ 2.50% 2.00 BB 3.00% 1.75 B+ 3.75% 1.50 B 4.50% 1.25 B- 5.50% 0.80 CCC 6.50% 0.65 CC 8.00% 0.20 C 10.50% -1.00 D 14.00%
TAX RATE is at a level of 26% and provided by the company guidelines as a result of the tax benefit associated to the Patent Box agreement.
January 31st 2018 Moncler (MONC:IM) 24 APPENDIX 16 – DISCOUNTED CASH FLOWS
I Stage II Stage III Stage Exit Multiple DCF FY2016A FY2017E FY2018E FY2019E FY2020E FY2021E FY2022E FY2023E TV TV2 Revenues 1,040.3 1,221.8 1,450.9 1,704.2 1,985.3 2,159.1 2,327.1 2,428.6 %growth 18,2% 17,4% 18,8% 17,5% 16,5% 8,8% 7,8% 4,4% 3,0% 3,0% EBIT(1-T) 202.1 263.9 318.2 384.1 445.0 485.3 524.3 547.3 +D&A 41.6 46.6 51.4 55.6 59.2 62.4 65.4 68.2 - WC 2.8 -7.3 9.6 4.6 17.6 6.6 11.0 4.4 -CAPEX 62.3 64.2 66.1 68.1 70.1 72.2 74.4 76.6 FCFF 184.2 253.6 313.1 376.2 451.64 482.1 526.4 543.2 559.5 875.5 WACC 8.63 8.63 8.63 8.63 8.63 8.63 8.63 8.63 Discounting period (daily) 0.91 1.91 2.91 3.91 4.91 5.91 5.91 5.91 Discount factor WACC 1,08 1,17 1,27 1,38 1,5 1,63 #shares in Millions 254.8 254.8 254.8 254.8 254.8 254.8 Discounted FCFF 290.2 321.0 354.8 348.6 350.4 332.9
Perpetuity Exit Multiple Risk-free rate 1.95% PV of Stage I 966.0 PV of Stage I 966.0 Beta 0.92 PV of Stage II 1,031.8 PV of Stage II 1,031.8 ERP 7.27% TV 6,085.0 TV 5,954.4 Cost of Equity 8.63% EV 8,082.9 EV 7,952.2 Cost of debt 2.55% Value of Net Debt -275.4 Multiple EV/EBITDA 11.1 Capital Sructure, D/E 0.00% Market Cap 8,358.3 Value of Net Debt -275.4 Base Wacc 8.63% Intrinsic Share Price 32.80 Market Cap 8,227.6 LTGrowth 3.00% Intrinsic Share Price 32.29
January 31st 2018 Moncler (MONC:IM) 25 APPENDIX 17 – FINANCIAL STRUCTURE REENGINEERING
Given Moncler’s Net Cash Position, and the great optionality that we see behind it, we performed a study of a potential reengineering of the financial structure and we derived the value that could arise from it. We computed the optimal financial structure of the company, which minimizes the WACC, in order to obtain an optimal enterprise value and a new company valuation. The difference incurring between the enterprise values, obtained by the actual and optimal financial structure, is the present value of the premium given by a potential debt restructuration. In order to obtain the optimal D/E we consider the following inputs:
TAX RATE We used the France Corporate Marginal Tax Rate 33%, because we estimate France to be a selectable country to raise new debt.
OPTIMAL FINANCIAL STRUCTURE We used the following table, applying the cost of capital approach to find the optimal Debt to Equity ratio, which minimizes the WACC.
Initial coverage ratio Net Debt/EBITDA Risk-free rate Spread Tax rate Net cost of Debt Ke WACC - 0 1.95% 0.54% 33.3% 1.66% 8.64% 8.64% 102.327 0.4 1.95% 0.54% 33.3% 1.66% 8.75% 8.58% 49.852 0.7 1.95% 0.54% 33.3% 1.66% 8.87% 8.51% 32.360 1.1 1.95% 0.54% 33.3% 1.66% 9.00% 8.45% 23.614 1.5 1.95% 0.54% 33.3% 1.66% 9.13% 8.39% 18.366 2.0 1.95% 0.54% 33.3% 1.66% 9.28% 8.32% 14.868 2.4 1.95% 0.54% 33.3% 1.66% 9.43% 8.26% 12.369 2.9 1.95% 0.54% 33.3% 1.66% 9.58% 8.20% 10.495 3.4 1.95% 0.54% 33.3% 1.66% 9.75% 8.14% 8.586 3.9 1.95% 0.72% 33.3% 1.78% 9.91% 8.08% 6.991 4.8 1.95% 0.72% 33.3% 1.78% 10.20% 8.10% 5.458 5.8 1.95% 0.90% 33.3% 1.90% 10.51% 8.14% 4.273 7.1 1.95% 0.99% 33.3% 1.96% 10.96% 8.26% 3.419 8.9 1.95% 0.99% 33.3% 1.96% 11.54% 8.43% 2.828 10.3 1.95% 1.13% 33.3% 2.05% 11.98% 8.51%
WACC dependence on the financial leverage shows a minimum in 8.20% corresponding to a Net Debt/EBITDA=2.9. Current MONC’s WACC is 8.63%. Therefore, according to a purely financial analysis, Moncler has the potential to further increase its enterprise value and the return for the shareholders just by changing its financial structure.
January 31st 2018 Moncler (MONC:IM) 26 APPENDIX 18 – RELATIVE VALUATION
We performed a relative analysis focusing on P/BV implementing OLS model using the natural logarithm of ROIC/WACC as a regressor. We approached the regression in this way since the market is exponentially rewarding firms which yields are greater than the cost of capital.
Multiple Regressor Equation P-value t-stat F-stat R2 Implied multiple Target Price U/D const: 0.0004 const: 5.342 Full Model P/B 2018E ln(ROIC/WACC) y = 3.2505 x + 2.4075 0.0008 0.73 8.2x 35.97 35.53% coeff: 0.0008 coeff: 4.922 const: 0.00003 const: 2.846 No Outliers P/B 2018E ln(ROIC/WACC) y = 1.7917 x + 2.8460 0.0141 0.60 6.1x 26.45 -0.34% coeff: 0.0141 coeff: 1.791
From our computations we see that P/B is the best multiple obtainable in this framework while other metrics do not provide statistically consistent results. As reported in the Exhibit results are significant and we get two different target prices. The first one obtained with the full model reflects the situation in which Moncler and Hermes exceptional ROIC is priced by the market, so that MONC would trade at a higher multiple being even more rewarded, for this reason we consider it a deep bullish target (upside 35.5%) in line with our DCF evaluation; on the other side, if we were to build a model without MONC and RMS, and considering only lower returns peers, we get a price that indicates a fair actual pricing (downside -0.34%) which can be seen as a bearish support of our DCF. It still makes sense since it comes from an environment in which firms are less rewarded from the market for their investment profitability, hence the model outcome knocks down Moncler multiple estimate. Considering both we get a price range for our football field.
January 31st 2018 Moncler (MONC:IM) 27 APPENDIX 19 - CODE OF ETHICS
The Code of Ethics was adopted by Moncler Group with the approval of the Board of Directors on January 24, 2014. The Code expresses the commitments and the ethical responsibilities in the conduction of the business of company’s activities to which any receiver, defined thereafter, shall comply while performing its working duties. The Code of Ethics introduces and makes binding also the principles and the rules of conduct that included in the Italian Legislative Decree n. 231 endorsed on June 8, 2001 relating to entity’s administrative liability. In this regard the code represents a fundamental support of the “Organizational, Business conduct and Control Model” adopted by Moncler Group to prevent the offences included in the aforementioned decree to occur.
Article 1: General Principle The Company recognizes the value the protection, and the integrity of human Article 2: Relation with Employees resources which must be loyal and shall act in good faith, and diligence, aiming the
GENERAL GENERAL Article 3: Conduct of Business actions at mutual cooperation, in the interests of the Company. PRINCIPLES
Article 4: Protection of intellectual and industries The Company acts in full respect of the rights of industrial and intellectual property in Properties accordance to laws applicable in the EU and/or internationally. The financial Article 5: Financial Reporting and information statements and any other type of accounting records comply with the generally management accepted accounting principles and standards based on transparency authenticity INTELLECTUAL INTELLECTUAL
INFORMATION and truthfulness. & REPORTING
Article 6: Relation with suppliers Objectivity, competence, cost effectiveness, transparency and quality of the goods Article 7: Relation with customers are principles of suppliers’ selection. Article 8: Intercompany relations Suppliers must ensure compliance with the principles for the protection of the Article 9: Relations with the public Administration environment and striving for the animals to be reared by experienced staff and Article 10: Relation with Shareholders ensuring (1) adequate quantities of food and water; (2) accommodations clean Article 11: Privacy and dry that allow for movement; (3) minimize dangers preventing injury; (4) good state of health (5) comfortable transport, and ventilation; (6) trained and qualified personnel in accordance with applicable law. (7) Transparency and traceability providing, documents upon request, and permitting to the Company (or appointed third parties) to perform inspections.
EXTERNAL EXTERNAL RELATIONS Customer must be satisfied in their needs creating a solid relationship. The company COMPANY’S INTERNAL & is committed to ensure the highest quality standards. Advertising shall be inspired by simplicity, clarity and transparency avoiding any misleading. Moncler S.p.A. requires to Group Companies to adhere to the values expressed in the Code of Ethics and to collaborate in compliance with the law and regulations in force.
Article 12: Donation and Sponsorship The Company commits to promote a culture of safety, being aware of the risk and of Article 13: Health, Environment and the overall compliance in regards to prevention and protection legislation, currently in force, and promoting responsible behavior from any person involved. The Group's Companies shall act to preserve and improve working conditions, health and safety of Employees and Associates with the aim of protecting human resources and seeking synergies with Suppliers, Contractors and customers. Group Companies SUSTAINABILITY adopt an environmental management system that complies with the applicable standards containing and reducing emissions, optimizing the use of resources and developing products and services compatible with the environment.
Article 14: Use of corporate assets Each Employee and Associate shall act with due care and protect Company’s assets Article 15: Prohibition of transactions involved in and equipment. It is forbidden the use of the information systems that may violate money laundering any applicable laws and cause undue intrusion or damage to computer systems of Article 16: Confidential information and external others.
LIMITATIONS communication The Company and each Group Company must always comply with anti-money laundering laws in force and any other laws in regard to combating organized crime.
OPPORTUNITIES AND AND OPPORTUNITIES Any information, data, news known by the Addresses during the job or professional activities are strictly confidential and exclusive property of Moncler Group.
Article 17: Application of Enforcement of Code of Application and enforcement of Code of Ethics are monitored by the Compliance Ethics Supervisory Board. the violation of the Code may entail action by the Board of Article 18: Sanctions Directors and Board of Statutory Auditors respectively, proportionate to the severity Article 19: Final Provisions of the violation SANCTIONS APPLICATION &
January 31st 2018 Moncler (MONC:IM) 28 APPENDIX 20 - STANDARD ETHICS ITALIAN INDEX
Moncler is joining the framework of “Codice di Autodisciplina”, the Italian Corporate Governance code for listed companies, suggested by Borsa Italiana. Moreover, the Group belongs to the Standard Ethics Italian Index, launched in FY2014 by the independent rating agency “Standard Ethics”. This index’s purpose is to measure, over time, the stock market confidence concerning OECD, EU and UN voluntary guidelines and indications on Corporate Social Responsibility and Corporate Governance. It is composed by the 40 major Italian listed companies, weighting them according to the Standard Ethics Rating (SER) sustainability score and rebalanced monthly. On 23rd November 2017, the Agency upgraded its rating:
“Standard Ethics has upgraded Moncler’s Rating from “E” to “E+”. The Italian company is component of the SE Italian Index. Moncler has Ruffini Partecipazioni Holding S.r.l. as largest shareholder and floating shares above 60%. The Company has recently improved its LT sustainability strategy in line with internal indications with references to UN Global Compact, GRI-G4 Sustainability Reporting Guidelines and OECD Guidelines for Multinational Enterprises. The Suppliers Code of Conduct is also based on the Internal Labour Organization (ILO)’s Declaration on Fundamental Principles and Rights at Work.”
The agency states that Moncler has a good CG system which can be further improved in terms of Board of Directors’ composition in relation to its independence, gender equality and internationality. Even though the score remains quite low, in our opinion this upgrade represents an added value for the Company, and anticipate potentials for a better compliance in the future.
Index Constituents from 29th September 2017 Price Return Since Inception
RATING COMPANY EEE ENI EE+ UNICREDIT EE+ ENEL EE UNIPOLSAI EE FINECOBANK EE GENERALI EE INTESA SAN PAOLO EE PRYSMIAN EE ST MICROELECTRONICS EE UBI BANCA EE UNIPOL EE- LEONARDO EE- A2A EE- BANCA GENERALI EE- BPERBANCA EE- BANCO BPM EE- BREMBO Source: Standard Ethics EE- MEDIOBANCA EE- SAIPEM EE- SNAM RETE GAS EE- YOOX NET-A-PORTER EE- POSTE ITALIANE E+ AZIMUT E+ CAMPARI E+ ITALGAS E+ LUXOTTICA E+ RECORDATI E+ TENARIS E BUZZI UNICEM E ATLANTIA E CNH INDUSTRIAL E EXOR E FCA E FERRARI E MONCLER E SALVATORE FERRAGAMO E TELECOM ITALIA E TERNA E- MEDIASET E- MEDIOLANUM
January 31st 2018 Moncler (MONC:IM) 29 APPENDIX 21 - FOREX SENSITIVITY ANALYSIS
Even though a weak Euro attracted tourist spending in 2015, the strengthening of the EURUSD brought to a reversion of this trend in 2016 and 2017. Since this may negatively affect luxury goods companies based in the Euro Zone, we decided to perform a sensibility analysis considering the four major exposures of Moncler: CNY, USD, JPY, GBP, and their impact on Moncler’s total revenues and gross profit. We started analysing each currency at the closing level dated 29th December 2017. Then we supposed ±2%, ±4%, ±6%, ±8% variation scenarios and we computed the impact on the revenues expressed in Euro of such change mainly due to both Transactional and Translational currency risk. The different scenarios for-8%the 2017 impact-6% are described-4% in the-2%following 0%table: +2% +4% +6% +8% EURCNY 7.1992 7.3461 7.4960 7.6490 7.8051 7.9612 8.1204 8.2828 8.4485 Revenues EUR 1,239.8 1,235.2 1,230.6 1,226.2 1,221.8 1,217.6 1,213.5 1,209.5 1,205.5 Local revenues EUR 231.8 227.2 222.6 218.2 213.8 209.6 205.5 201.5 197.5 Local revenues CNY 1,668.8 1,668.8 1,668.8 1,668.8 1,668.8 1,668.8 1,668.8 1,668.8 1,668.8 COGS EUR 279.5 279.5 279.5 279.5 279.5 279.5 279.5 279.5 279.5 Gross Profit 959.4 954.8 950.2 945.8 942.3 938.1 934.0 930.0 926.0
-8% -6% -4% -2% 0% +2% +4% +6% +8% EURUSD 1.1068 1.1294 1.1525 1.1760 1.2000 1.2240 1.2485 1.2734 1.2989 Revenues EUR 1,239.0 1,234.5 1,230.2 1,226.9 1,221.8 1,217.8 1,213.9 1,209.0 1,206.3 Local revenues EUR 221.1 216.6 212.3 208.0 203.9 199.9 196,0 192.1 188.4 Local revenues USD 244.7 244.7 244.7 244.7 244.7 244.7 244.7 244.7 244.7 COGS EUR 279.5 279.5 279.5 279.5 279.5 279.5 279.5 279.5 279.5 Gross Profit 959.5 955.0 950.7 946.5 942.3 938.3 934.4 930.5 925.8
-8% -6% -4% -2% 0% +2% +4% +6% +8% EURJPY 124.7872 127.3300 129.9325 132.5842 135.2900 137.9958 140.7557 143.5708 146.4422 Revenues EUR 1,230.0 1,227.9 1,225.8 1,223.8 1,221.8 1,219.9 1,218.0 1,216.2 1,214.4 Local revenues EUR 106.0 103.9 101.8 99.7 97.7 95.8 93.9 92.1 90.3 Local revenues JPY 13,223.8 13,223.8 13,223.8 13,223.8 13,223.8 13,223.8 13,223.8 13,223.8 13,223.8 COGS EUR 279.5 279.5 279.5 279.5 279.5 279.5 279.5 279.5 279.5 Gross Profit 949.7 947.5 945.5 943.4 942.3 940.4 938.5 936.7 934.9
-8% -6% -4% -2% 0% +2% +4% +6% +8% EURGBP 0.8194 0.8362 0.8532 0.8706 0.8884 0.9062 0.9243 0.9428 0.9616 Revenues EUR 1,225.3 1,224.4 1,223.5 1,222.6 1,221.8 1,221.0 1,220.2 1,219.4 1,218.6 Local revenues EUR 44.9 44.0 43.1 42.2 41.4 40.6 39.80 39.0 38.3 Local revenues GBP 36.8 36.8 36.8 36.8 36.8 36.8 36.8 36.8 36.8 COGS EUR 279.5 279.5 279.5 279.5 279.5 279.5 279.5 279.5 279.5 Gross Profit 944.9 944.0 943.1 942.3 942.3 941.5 940.7 939.9 939.1
To better understand the likelihood of each scenario, we performed a discrete frequency analysis assigning probabilities to the cases presented above. Our analysis suggests that Moncler would mainly suffer for transactional risk deriving from deltas of ±2%, specifically with a 75% probability. On tales, trigger events are strictly linked to downturn shocks.
January 31st 2018 Moncler (MONC:IM) 30
Disclosures: Ownership and material conflicts of interest: The author(s), or a member of their household, of this report does not hold a financial interest in the securities of this company. The author(s), or a member of their household, of this report does not know of the existence of any conflicts of interest that might bias the content or publication of this report. Receipt of compensation: Compensation of the author(s) of this report is not based on investment banking revenue. Position as a officer or director: The author(s), or a member of their household, does not serve as an officer, director or advisory board member of the subject company. Market making: The author(s) does not act as a market maker in the subject company’s securities. Disclaimer: The information set forth herein has been obtained or derived from sources generally available to the public and believed by the author(s) to be reliable, but the author(s) does not make any representation or warranty, express or implied, as to its accuracy or completeness. The information is not intended to be used as the basis of any investment decisions by any person or entity. This information does not constitute investment advice, nor is it an offer or a solicitation of an offer to buy or sell any security. This report should not be considered to be a recommendation by any individual affiliated with CFA Italian Society, CFA Institute or the CFA Institute Research Challenge with regard to this company’s stock.
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