The Annual Report on the World's Most Valuable Brands February 2016
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Global 500 2016The annual report on the world’s most valuable brands February 2016 Foreword. Contents dropping, that there is higher risk and therefore Foreword 2 lower expected income, over a shorter life, with a higher cost of capital. This would tend to result Methodology 4 in a lower brand valuation. Executive Summary - Brand Value 6 By contrast another valuer might believe the Executive Summary - Brand Strength 11 opposite. Some take the view that Apple will go from strength to strength in watches, televisions, Brand Value and Share Price 14 finance and the auto industry and believe that it will shape all our lives for generations. This About Brand Finance and Contact Details 15 would obviously tend to result in a higher brand Understand Your Brand’s Value 16 valuation. How We Can Help 17 There is now a widely accepted global brand valuation standard (ISO 10668) and the Full Table 18 International Valuation Standards Council has David Haigh, CEO, Brand Finance produced a broader standard on the valuation of In recent years there has been a growing Intangible Assets including brands. Brand controversy over the validity of brand valuations valuations are regularly relied upon by in general and brand valuation league tables in accountants, auditors, tax specialists, lawyers, particular, so with my foreword this year I want to licensing managers, lenders and investors who address the issue head-on. are always financially literate and enquiring. The primary point of contention rests on the Based on the results of this year’s Brand Finance significant variation in the published values of Global 500, 18% of all quoted company brands by the major brand valuation agencies. enterprise value, is made up of brands. What this However, we view these variations as a sign of points to is a renewed need to educate and healthy debate rather than as a source of explain how brand valuations are conducted and weakness. how critical an understanding of brand value is to marketers, finance teams and CEOs alike. At Just as equity analysts differ significantly in their Brand Finance, we pride ourselves on our target share prices for companies, so too can independence of thought, clarity and those in our industry differ in valuations of transparency and welcome the chance to brands. The main reasons for differences of explain how we produce our valuations to you, opinion are: brand asset definition, date of the so please get in touch! valuation, approach adopted, financial forecasts, income attributed to the brand, weighted average cost of capital applied, growth, tax and inflation rates and the expected useful life of the brand. Taking Apple as an example, it is quite possible for one serious valuer to take the view that Apple’s dominance in smart phones is coming to an end, that volumes and margins will start 2. Brand Finance GlobalAirlines 500 30 30February February 2016 2015 Brand Finance Global 500 February 2016 3. Methodology What do we mean by ‘brand’? Brand strength Brand Brand revenues Brand value index ‘Royalty rate’ (BSI) Definitions E.g. + Enterprise Value – the value of Volkswagen the entire enterprise, made up Strong brand AG Brand ‘Branded of multiple branded businesses investment Enterprise’ + Branded Business Value – the ‘Branded E.g. value of a single branded Brand Business’ Bentley business operating under the equity subject brand ‘Brand’ Brand Contribution’ Weak brand E.g. Bentley + Brand Contribution– The total performance Forecast revenues Trademark economic benefit derived by a Contribution business from its brand ‘Brand’ 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. Bentley trade marks (and relating present value (NPV) Trademark marketing IP and ‘goodwill’ 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 0-5% 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%. 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 Global 500 February 2016 Brand Finance Global 500 February 2016 5. Executive Summary - Brand Value Executive Summary - Brand Value Rank 2016: 1 2015: 1 Rank 2016: 6 2015: 5 BV 2016: $145,918m BV 2016: $63,116m 1 +14% 6 +5% BV 2015: $128,303m BV 2015: $59,843m Brand Rating: AAA Brand Rating: AAA- Global Rank 2016: 2 2015: 3 Rank 2016: 7 2015: 6 BV 2016: $94,184m BV 2016: $59,904m 2 +27% 7 +2% BV 2015: $76,683m BV 2015: $58,820m Brand Rating: AAA+ Brand Rating: AA+ Rank 2016: 3 2015: 2 Rank 2016: 8 2015: 7 BV 2016: $83,185m BV 2016: $ 53,657m 3 +2% 8 -5% BV 2015: $81,716m BV 2015: $56,705m 500 Brand Rating: AAA Brand Rating: AA Rank 2016: 4 2015: 8 Rank 2016: 9 2015: 11 BV 2016: $69,642m BV 2016: $49,810m 4 +24% 9 +4% BV 2015: $56,124m BV 2015: $47,916m Brand Rating: AA+ Brand Rating: AAA- Rank 2016: 5 2015: 4 Rank 2016: 10 2015: 15 BV 2016: $67,258m BV 2016: $44,170m 5 +0% 10 +26% BV 2015: $67,060m BV 2015: $34,925m Brand Rating: AAA Brand Rating: AAA- Apple maintains its dominance at the summit of The most notable changes in the top ten are the this year, having risen 51%) Amazon is winning harnessing the potential of mobile advertising. the Brand Finance Global 500. Despite annual jumps in rank of Google and Amazon. Google plaudits for the quality and popularity of Revenue in Q3 2015 was up 41% on the previous predictions of a plateau or fall from grace, it has had been held down in 3rd place by Samsung programs such as Mozart in the Jungle and The year, driven almost entirely by mobile advertising proved a continuous source of success with since 2012. New parent company Alphabet Man in the High Castle. Amazon’s Fire growth. 2015/16 proving no exception. Brand value is up announced revenue growth of 13% this year, due smartphone was far less successful than Amazon 14%, thanks to the huge success of the iPhone 6 to increasing mobile search revenue. There has would have hoped, however the tablet version Tech brands as a whole have performed well and and recently released iPhone 6s. Revenue for Q4 also been a 3 point improvement in brand has been much better received. those from China in particular. Many of these of the fiscal year 2015 was a record-breaking strength which together have seen brand value Chinese tech titans were virtually unknown just a US$51.5 billion with profits at US$11.1 billion rise 27% to US$88.2 billion.