The Annual Report on the World's Most Valuable Banking Brands February
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Banking 500 2016The annual report on the world’s most valuable banking brands February 2016 Foreword. Contents Taking Apple as an example, it is quite possible Foreword 2 for one serious valuer to take the view that Methodology 4 Apple’s dominance in smart phones is coming to an end, that volumes and margins will start Sector Analysis - Banking 6 dropping, that there is higher risk and therefore lower expected income, over a shorter life, with a About Brand Finance 14 higher cost of capital. This would tend to result in a lower brand valuation. Understand Your Brand’s Value 15 How We Can Help 16 By contrast another valuer might believe the opposite. Some take the view that Apple will go Contact Details 17 from strength to strength in watches, televisions, finance and the auto industry and believe that it Full Table 18 will shape all our lives for generations. This would obviously tend to result in a higher brand valuation. David Haigh, CEO Brand Finance There is now a widely accepted global brand valuation standard (ISO 10668) and the In recent years there has been a growing International Valuation Standards Council has controversy over the validity of brand valuations produced a broader standard on the valuation of in general and brand valuation league tables in Intangible Assets including brands. Brand particular, so with my foreword this year I want to valuations are regularly relied upon by address the issue head-on. accountants, auditors, tax specialists, lawyers, licensing managers, lenders and investors who The primary point of contention rests on the are always financially literate and enquiring. significant variation in the published values of brands by the major brand valuation agencies. Based on the results of this year’s Brand Finance However, we view these variations as a sign of Global 500, 18% of all quoted company healthy debate rather than as a source of enterprise value, is made up of brands. What this weakness. points to is a renewed need to educate and explain how brand valuations are conducted and Just as equity analysts differ significantly in their how critical an understanding of brand value is target share prices for companies, so too can to marketers, finance teams and CEOs alike. At those in our industry differ in valuations of Brand Finance, we pride ourselves on our brands. The main reasons for differences of independence of thought, clarity and opinion are: brand asset definition, date of the transparency and welcome the chance to valuation, approach adopted, financial forecasts, explain how we produce our valuations to you, income attributed to the brand, weighted so please get in touch! average cost of capital applied, growth, tax and inflation rates and the expected useful life of the brand. 2. Brand Finance BankingGlobalAirlines 500 30 500 30February February February 2016 2016 2015 Brand Finance Banking 500 February 2016 3. Methodology What do we mean by ‘brand’? Brand strength Brand Brand revenues Brand value index ‘Royalty rate’ (BSI) E.g. Definitions Lloyds + Enterprise Value – the value of Banking the entire enterprise, made up Brand Strong brand ‘Branded Group of multiple branded businesses investment Enterprise’ + Branded Business Value – the ‘Branded E.g. value of a single branded Brand Business’ Lloyds business operating under the equity Bank subject brand ‘Brand’ Brand Contribution’ Weak brand E.g. Lloyds + Brand Contribution– The total performance Forecast revenues Bank Trademark economic benefit derived by a business from its brand ‘Brand’ Contribution Brand strength BSI score applied to an Royalty rate applied to Post-tax brand expressed as a BSI appropriate sector forecast revenues to revenues are + Brand Value – the value of the score out of 100. royalty rate range. derive brand values. discounted to a net E.g. Lloyds trade marks (and relating present value (NPV) Bank marketing IP and ‘goodwill’ Trademark which equals the attached to it) within the brand value. branded business Definition of ‘Brand’ Brand Strength Brand Finance calculates the values of the sourced from Brand Finance’s extensive brands in its league tables using the database of license agreements and other Brand Finance helped to craft the internationally Brand Strength is the part of our analysis most ‘Royalty Relief approach’. This approach online databases. recognised standard on Brand Valuation, ISO directly and easily influenced by those involves estimating the likely future sales that are 3 Calculate royalty rate. The brand strength score 10668. That defines a brand as “a marketing- responsible for marketing and brand attributable to a brand and calculating a royalty is applied to the royalty rate range to arrive at a related intangible asset including, but not limited management. In order to determine the strength rate that would be charged for the use of the royalty rate. For example, if the royalty rate to, names, terms, signs, symbols, logos and of a brand we have developed the Brand brand, i.e. what the owner would have to pay for range in a brand’s sector is 1-5% and a brand designs, or a combination of these, intended to Strength Index (BSI). We analyse marketing the use of the brand—assuming it were not has a brand strength score of 80 out of 100, identify goods, services or entities, or a investment, brand equity (the goodwill already owned. then an appropriate royalty rate for the use of combination of these, creating distinctive images accumulated with customers, staff and other this brand in the given sector will be 4.2%. and associations in the minds of stakeholders, stakeholders) and finally the impact of those on The steps in this process are as follows: 4 Determine brand specific revenues estimating a thereby generating economic benefits/value.” business performance. Following this analysis, proportion of parent company revenues each brand is assigned a BSI score out of 100, 1 Calculate brand strength on a scale of 0 to 100 attributable to a specific brand. However, a brand makes a contribution to a which is fed into the brand value calculation. based on a number of attributes such as 5 Determine forecast brand specific revenues company beyond that which can be sold to a Based on the score, each brand in the league emotional connection, financial performance using a function of historic revenues, equity third party. ‘Brand Contribution’ refers to the total table is assigned a rating between AAA+ and D and sustainability, among others. This score is analyst forecasts and economic growth rates. economic benefit that a business derives from its in a format similar to a credit rating. AAA+ known as the Brand Strength Index. 6 Apply the royalty rate to the forecast revenues brand, from volume and price premiums over brands are exceptionally strong and well 2 Determine the royalty rate range for the to derive brand revenues. generic products to cost savings over less well- managed while a failing brand would be respective brand sectors. This is done by 7 Brand revenues are discounted post tax to a branded competitors. assigned a D grade. reviewing comparable licensing agreements net present value which equals the brand value. 4. Brand Finance Banking 500 February 2016 Brand Finance Banking 500 February 2016 5. Sector Analysis – Banking Rank 2016: 1 2015: 1 Rank 2016: 6 2015: 9 BV 2016: $ 44,170m BV 2016: $ 27,735m 1 +26% 6 +36% BV 2015: $ 34,925m BV 2015: $ 20,392m Brand Rating: AAA- Brand Rating: AAA Banking Rank 2016: 2 2015: 2 Rank 2016: 7 2015: 6 BV 2016: $ 36,334m BV 2016: $ 26,928m 2 +32% 7 +5% BV 2015: $ 27,459m BV 2015: $ 25,713m Brand Rating: AA+ Brand Rating: AA Rank 2016: 3 2015: 4 Rank 2016: 8 2015: 5 BV 2016: $ 35,394m BV 2016: $ 26,031m 3 +34% 8 -1% BV 2015: $ 26,417m BV 2015: $ 26,210m 500 Brand Rating: AAA Brand Rating: AA+ Rank 2016: 4 2015: 8 Rank 2016: 9 2015: 3 BV 2016: $ 32,264m BV 2016: $ 24,174m 4 +42% 9 -11% BV 2015: $ 22,714m BV 2015: $ 27,280m Brand Rating: AAA Brand Rating: AAA- Rank 2016: 5 2015: 7 Rank 2016: 10 2015:13 BV 2016: $ 30,603m BV 2016: $ 16,236m 5 +31% 10 +14% BV 2015: $ 23,392m BV 2015: $ 14,206m Brand Rating: AAA- Brand Rating: AA Wells Fargo is the world’s most valuable banking than from the US. ICBC is second, China measures such as familiarity, consideration, Chinese consumers that means China’s brands brand once more. Wells Fargo has held onto the Construction Bank third and Agricultural Bank of preference, satisfaction and recommendation, have been able to cultivate brand strength scores top spot for the fourth year in succession, thanks China is fourth. The total value of Chinese banks leading to some of the highest scores in Brand far higher than their western competitors. to an impressive 26% rise in brand value to in the table grew 41.4% to US$206.9 billion. Eight Finance’s Brand Strength Index.” Whether that demeanour lasts or is eroded as the US$44.2 billion. It is also the most valuable brand of the top ten climbers by brand value are Chinese market matures (or if Chinese banks within retail banking, second place in asset Chinese, with Agricultural Bank of China growing Another remarkable statistic is that when ranking suffer severe reputational damage) will be closely management (up from fifth last year) and retains more than any other brand. It has added US$9.6 the brands by their brand strength alone, monitored. its fifth place position in commercial banking. Its billion to its brand value to jump from 8th to 4th Chinese brands occupy six of the top ten places master-brand strategy allows all business lines to this year, overtaking both Chase and Bank of including the top three.