Manhattan Project. LUXOTTICA Group

Transcription

1 LUXOTTICA Group Global Investment Reasearch Challenge 2012

2 World's leading manufacturer and distributor of mid to premium priced prescription and sun frames Producer of frames components 1961 Optical retail distribution 1995 Glasses are more than medical devices: they are fashion accessories Sun retail distribution 1997 Sport and performance 2007

3 Matrix Structure Sales breakdown Retail Sun Retail Prescription Luxottica Group Wholesale Sun Global Focus Sales 60,05% Wholesale Prescription 20,1% 4,74% 2,61% 12,05% (including Australia)

4 Vertical integration Recommendation: BUY Target Price: 27.9 Focus on Innovation High-quality services Focus on Internationalization model client-centered

5 Vertical Integration Design Production Distribution through global network -High Profitability and efficiency -ROA +2.18% higher than the industry -Economies of scales (raw materials are 5% of COGS) Focus on Innovation More than 600 patents worldwide Advanced logistics centers More than 900 laboratories -LUX outsources just the production of lenses: it works to enhance lenses characteristics through its labs -23 logistics centers, high integration with point of sales (SAP system)

6 High quality services Focus on Internationalization model client-centered Launch of Stars, 2002 High quality add ins Boost sales in Big emerging markets Strategic partnerships and acquisitions in New Emerging Markets Launch of Stars, 2002 High grow in the retail segment -Automatic replenishment -Management of products in the points of sale -Worldwide shipping in less than 48 hours -Exploitation of the HNWIs growth -Ob: remain ahead of competitors attracting new potential clients -Creation of brand awareness -Creation of sound relations

7 LUX unrivelled global distribution network and focus on quality attract major designer brands Well-Diversified Portfolio of over 20 licensed designer brands (including Armani from 2013)...

8 combined with the stability of house brands House brands accounted for over 70% of all units sold in 2010 Ray-Ban is the world s best selling brand of sun eyewear industry Oakley is a leader in the sport/performance category

9 Strong results in 2011 Euro M FY2011 Growth Total 6, % Wholesale 2, % Retail 3, % (at constant exchange rates) 2011 rule of thumb achieved: high single digit growth in sales Net sales reached the highest level in the history of the Group Positive outlook for 2012 Sales in emerging markets boosted by significant investments in Latin America Launch of Coach brand collection Improvements of consumer confidence in US (LUX main market)

10 Retail vs Wholesale Acquisition of optical retailer Multiopticas in 2011 will boost sales in Mexico Sunglass Hut development plans in China, India and Latin America Positive outlook in US (key retail market) Further expansion in Brazil thanks to local production capacity acquired in 2011 Positive growth in sales expected in all geographic areas including Europe despite the threat of economic recession 7.4% Expected growth % LUX plans to invest more in Retail distribution in the following years

11 Sun&Luxury vs Prescription Cyclical business: high single-digit growth in sales expected for next years (US and emerging markets won t experience recession) LUX is attracting new prestigious licensed brands (Coach, Armani) Expansion of Oakley activities in India, China, Brazil and Europe Growth driver: growth in HNWI Stable business (growth in sales never higher than mid-single digit) High potential for penetration in emerging markets Increase in age-related vision defects in developed markets Growth drivers: growth in GDP, growth in population above 65 years, growth in health expenditure over GDP 8.1% Expected growth %

12 Growth in Sales Sales Growth Beyond Sun Retail 7.7% 5.2% 2.6% Prescription Retail 6.2% 4.1% 2.1% Sun Wholesale 6.7% 4.5% 2.2% Prescription Wholesale 5.2% 3.5% 1.7% CAGR 6.6% 4.4% 2.15% Decrease of CapEx/Sales From huge investments to maintenance expenditure

13 Decrease in CapEx/Sales Growth in Sales Improvements in Efficiency Growth in EBIT CAGR % 10,00% 8,00% 6,00% 4,00% 2,00% Sun Retail Prescription Retail Sun Wholesale Prescription Wholesale

14 30 28 Target price: Target LUX /11 02/11 03/11 04/11 05/11 06/11 07/11 08/11 09/11 10/11 11/11 12/11

15 : Sum of the Parts, 4 divisions 24% 38% 17% Sun Retail Prescription Retail Sun Wholesale Prescription Wholesale 21% Sun Prescription free 2.20% Tax rate 34% Beta ERP 6.5% Cost of debt 5.5% Net D/(E+NetD) 38% E/(E+Net D) 62% Cost of equity 13.15% 11.40% Country risk premium 1.97% WACC Beyond Sun 9.20% 8.92% 8.28% Prescription 8.47% 7.90% 7.34%

16 Total Value 15.7 B Wholesale Sun 5.9 B Wholesale Prescription 3.9 B Prescription Sun Retail Sun 3.3 B 2.6 B

17 : Multiple We performed a multiple analysis using two group of peers to take into account all the business segment of the company in the best way possible. We selected a group of luxury firms as comparable of the Sun segment and a group of optical firms for the Prescription Segment. Ticker Name Country Market Cap (000) Sales (000) EBITDA Margin Net Profit Margin Growth Estimate First Group: Global Optical LUXOTTICA LUX IM Equity GROUP Italy % 8% 11,25% EI FP Equity ESSILOR INT. France % 13% 11,58% SFL IM Equity SAFILO SPA Italy % 3% 130% FIE GR Equity FIELMANN AG Germany % 12% 11,575% MCL IM Equity MARCOLIN SPA Italy % 9% N/A Second Group: Luxury Goods LUX IM Equity LUXOTTICA GROUP Italy % 8% 11,25% MC FP Equity LVMH France % 13% 12,50% PP FP Equity PPR France % 7% 11,74% 1913 HK Equity PRADA SPA Italy % 16% N/A SFER IM Equity FERRAGAMO Italy % 8% 27,00% BRBY LN Equity BURBERRY GROUP UK % 14% 19,63%

18 : Multiple As regards the valuation we used the EV/EBITDA forward multiple as base multiple: Luxury Firms EV/EBITDA Optical Firms EV/EBITDA 9,6x 9,1x 8,6x 10,95x 11,6x 8,5x 9,7x 9,6x 11,8x 11,7x 11,75x 4,9x 5,7x Average EV/EBITDA:10,7x Multiple EV: 13,95 B Multiple target price: 24,20

19 : Multiple The results of the relative valuation are in our opinion not so reliable for the following reasons: LUX is a global player with an unique positioning and business model, relative valuation does not embed a proper premium for the absolute leadership. The current market downturn affects the estimates for the next year. Besides during market momentums the volatility is particularly high. A multiple valuation does not reflect the potential growth in profitability that, in our opinion, LUX is going to experience in the next years. We used the multiple as a floor valuation to double check the fundamental valuation

20 Investment s Substitute Products Imitation and Plagiarism Contact lens market has grown 4,5% (Baird &Co), in 2011 Laser eye surgeries expected to growth 7,65% per year until 2015 (Optics.org) According to WTO s estimates 8% of luxury products traded every year are copies of original items Barriers in Emerging Markets Exchange Rates Lower Growth Duties could be a significant part of the price Unknown market reaction to new products ± 1% move in $/ exchange rate determines a 0.9%-1% absolute change in the company NI Global GDP expected was expected to grow 3,8% compared to 2010 Cyclicality of Demand High correlation with local economic trends (sunglass segment) Investment s

21 Investment s: What LUX has been doing Efficiency in managing the inventory Strategic partnerships and acquisitions Low risk of obsolescence Low lead time and high quality service Overcome legal entry barriers (no duties) Decreasing costs and boosting margins Creation of brand awareness Fight against counterfeiting Anti-counterfeiting program Strong investigative network (China) Attract ALL potential customers Development of ad hoc products OneSight Foundation Diffusion of the awareness of sight health Investment s

22 BUY Luxottica because Unique market position with a global distribution network Double digit EBIT growth for the next 5 years Unrivalled portfolio of licensed and proprietary brands Vertical and Horizontal integration Great Potential Growth in the Sun Belt Strong track record of accretive acquisition Focus on innovation Good mix of defensive and high potential growth businesses First class and experienced Management Team Exposition to emerging markets and growing economies

23 Q&A Thank you for your time

24 Make up slides (1), Sensitivity Share Price Total long run growth EBIT Sun Lev Beta 2.05% 2.17% 2.29% 2.41% 2.54% 2.65% 2.78%

25 Make up slides (2), Scenario Growth Sun Probability Description Optimistic scenario 13.0% 0.2 Immediate recovery from 2012 Neutral scenario 8.0% 0.6 Deterioration in economic outlook in 2012 with fast recovery Pessimistic scenario 3.5% 0.2 Deterioration in economic outlook in 2012 with slow recovery Expected growth Sun ( ) 8.12%

26 Make up slides (3a), DCF Retail EUR mn E 2012E 2013E 2014E 2015E 2016E 2017E Terminal value Retail Sun Sales 1.567, , , , , , , ,7 % growth 3,1% 7,7% 7,7% 7,7% 7,7% 7,7% 5,2% EBIT 186,7 182,5 200,3 219,8 241,2 264,7 290,5 304,7 % growth -2% 10% 9,7% 9,7% 9,7% 9,7% 4,9% D&A 61,3 63,0 69,1 75,8 83,2 91,3 100,2 105,1 Change in WC 11,6 (1,5) (1,6) (1,8) (2,0) (2,2) (2,4) (2,5) CAPEX (57,9) (79,2) (84,6) (90,4) (96,6) (103,2) (110,2) (113,4) FCFF 138,2 264,2 112,7 123,7 135,7 149,0 163,5 171,4 Discounted FCFF 102,7 102,9 103,1 103,2 103,4 103,6 102,7 WACC 9,56% 9,56% 9,56% 9,56% 9,56% 8,92% 8,28% Terminal growth rate 2,58% Discounted terminal value 1.545,7 EV 2.641,1 Retail Prescription Sales 1.994, , , , , , , ,3 % growth 3,1% 6,2% 6,2% 6,2% 6,2% 6,2% 4,1% EBIT 237,7 232,3 251,4 272,0 294,3 318,5 344,7 358,8 % growth -2% 8% 8% 8% 8% 8% 4% D&A 78,0 80,1 86,7 93,8 101,6 109,9 118,9 123,8 Change in WC (1,1) (1,9) (2,1) (2,2) (2,4) (2,6) (2,8) (2,9) CAPEX (73,7) (100,8) (106,6) (112,8) (119,2) (126,1) (133,3) (136,6) FCFF 160,0 130,7 141,4 153,1 165,6 179,2 193,9 201,9 Discounted FCFF 130,7 129,1 127,5 126,0 124,4 122,9 120,9 WACC 8,47% 8,47% 8,47% 8,47% 8,47% 7,90% 7,34% Terminal growth rate 2,05% Discounted terminal value 1.948,4 EV 3.262,5

27 Make up slides (3b), DCF Wholesale EUR mn E 2012E 2013E 2014E 2015E 2016E 2017E Terminal value Wholesale Sun Sales 1.319, , , , , , , ,9 % growth 8,6% 6,7% 6,7% 6,7% 6,7% 6,7% 4,5% EBIT 272,5 314,9 357,1 405,0 459,3 521,0 590,9 630,5 % growth 15,5% 13,4% 13,4% 13,4% 13,4% 13,4% 6,7% D&A 46,6 49,3 55,9 63,4 71,9 81,6 92,5 98,7 Change in WC 6,7 (10,3) (11,7) (13,2) (15,0) (17,0) (19,3) (20,6) CAPEX (58,2) (65,7) (71,9) (78,6) (86,0) (94,1) (103,0) (107,1) FCFF 174,9 181,1 205,4 233,0 264,2 299,7 339,9 362,7 Discounted FCFF 181,1 187,5 194,1 200,9 208,0 215,3 217,2 WACC 9,56% 9,56% 9,56% 9,56% 9,56% 8,92% 8,28% Terminal growth rate 2,24% Discounted terminal value 3.715,8 EV 5.945,5 Wholesale Prescription Sales 916,9 996, , , , , , ,4 % growth 8,6% 5,2% 5,2% 5,2% 5,2% 5,2% 3,5% EBIT 189,4 218,8 241,5 266,5 294,0 324,5 358,1 376,6 % growth 15,5% 10,4% 10,4% 10,4% 10,4% 10,4% 5,2% D&A 32,4 34,3 37,8 41,7 46,1 50,8 56,1 59,0 Change in WC 4,7 (7,1) (7,9) (8,7) (9,6) (10,6) (11,7) (12,3) CAPEX (45,7) (45,7) (49,0) (52,5) (56,3) (60,4) (64,8) (66,8) FCFF 116,4 125,9 138,9 153,3 169,1 186,6 206,0 216,6 Discounted FCFF 125,9 126,8 127,7 128,6 129,6 130,5 129,8 WACC 8,47% 8,47% 8,47% 8,47% 8,47% 7,90% 7,34% Terminal growth rate 1,73% Discounted terminal value 2.436,9 EV 3.811,6

28 Make up slides (4), Sales by geographic area EUR ' E 2012E 2013E Total Sales Retail Wholesale North America Retail (76% of total retail sales) % growth 0,96% 13,46% 3,10% 7% 7% Wholesale (35% of total wholesale sales) % growth -21% 14% 9% 5% 5% Europe Retail (3% of total retail sales) % growth 0,96% 13,46% 3,10% 0,20% 0,20% Wholesale (47% of total wholesale sales) % growth -21% 14% 9% 4% 4% Asia-Pacific Retail (19% of total retail sales) % growth 1% 13% 3% 8% 8% Wholesale (4% of total wholesale sales) % growth -21% 14% 9% 2% 2% Rest of the world Retail (2% of total retail sales) % growth 1% 13% 3% 20% 20% Wholesale (14% of total wholesale sales) % growth -21% 14% 9% 12% 12%

29 Mar-01 Aug-01 Jan-02 Jun-02 Nov-02 Apr-03 Sep-03 Feb-04 Jul-04 Dec-04 May-05 Oct-05 Mar-06 Aug-06 Jan-07 Jun-07 Nov-07 Apr-08 Sep-08 Feb-09 Jul-09 Dec-09 May-10 Oct-10 Mar-11 Aug-11 Make up slides (5), Acquisitions track record 1,6 1,4 1,2 1 0,8 0,6 0,4 0,2 Sep-03: OPSM Mar-01: SunGlass Hut Nov-07:Oakley 0 Basic EPS