INTER PARFUMS (IPAR)

INTER PARFUMS (IPAR)(April/19/2012)

Ryo-Seob (Joseph) Kim

Po-Chieh Shih

Jionghan Dai

Varinthorn (Build) Saengpanyarak

Pattharaporn (Pauline) Lertphaiboonsiri

Agenda

Introduction Stock Market Prospect Industry Inter Parfum Business Financial Analysis Multiples DCF Recommendation

Introduction

• GICS: 30 Consumer Staple• 30302010 Personal Products• “Inter Parfums, Inc. is a worldwide marketer of

prestige and mass-market perfumes, cosmetics, and personal care products that specializes in perfumes with a focus on licensed designer brands.”

• Nasdaq Small Cap - 492.53M

• History• 1985: Formed as Jean Philippe Fragrances. Began

acquisition of license and distribution channel in 1986.

• 1999: adopted Inter-Parfums subsidiary name• Successful track record in marketing and

outsourcing processes

Introduction

Last Price $16.12

EPS 1.05

52 week high 24.80 P/E 15.35 Div. Yld

2.00%

52 week low 13.75 Imp. EPS g

27.6%

PEG 1.117-10 growth

Graham 3.5%

EBIT/Tang

EBIT/EV

Total

Greenblatt

30% 13% 43%

Stock Market Prospect

Source: CapitalIQ

Last Price

$16.12

External Market Drivers

US Consumer Sentiment EU Consumer Sentiment

Source: US and EU Consumer Sentiment

Index, Thomson Reuters

External Market Drivers

US Real Median Household Income EU Real Median Household Income

Source: US and EU Real Median

Household Income, Thomson Reuters

Industry Overview

• Chinese Luxury Purchases• Men Product Segment

Source: IBISWorld, InterParfums’ Annual

Report

Industry Overview

• Distribution Channels

Source: Datamonitor

Global Cosmetics Industry

Current Market Size 12 Annual Growth 07-12 Annual Growth 12-17

Source: Global Cosmetic,

IBISWorld; Global Fragrances, Data

Monitor

Global Cosmetics Industry

Fragmented Market

Source: Global Fragrances, Data

Monitor

Business Structure

Brands

Inter Parfums

Supplier

Supplier

Supplier

Licenses

Goods

Goods

Goods

Retailers

Final Goods

<Bargaining Power>-80 out of 150 suppliers

<Brand Value Matters> -Exclusive License Agreement with 19 Brands-Most of companies are relatively small (Incentive to work with Inter Parfums)-but high-end & luxury brands (Customers care)

<Inter Parfums Knows What It Does>-26 years experience in the field-Specialized in Product Development & Brand Building (Customers care)-Strong global distribution system with 11 subsidiaries around the world

Brand and Product lines

Source: Inter Parfums http://www.interparfumsinc.com/ir_investor_presentation.html

Brand and Product lines

Brand Number of Products

Type Starting Expiration

Burberry 8 License 1993 2017

S.T. Dupont 9 License 1997 2016

Paul Smith 8 License 1998 2017

Van Cleef 10 License 2006 2018

Lanvin 9 Acquisition 2007 -

Jimmy Choo 1 License 2009 2021

Montblanc 8 License 2010 2020

Boucheron 3 License 2010 2025

Balmain 0 License 2011 2023

Repetto 0 License 2011 2024

- Expansion through license agreement with new brands

-> Licensed with 5 new brands in 2010 & 4 new brands in 2011

-> Managing operational risk by diversified brand portfolio

- Expansion by increasing the number of product lines -> Typically one new product line every 2 years

Business Overview

Source: Inter Parfums http://www.interparfumsinc.com/ir_investor_presentation.html

Revenue by Region

- Sales Growth in North America and Asia shows the effect of diversification

Financial Analysis - Sales

• Lower cost of sales• Interparfums Luxury Brands, Inc. as a distribution subsidiary in the

US

• Higher SG & A• More brands introduced in 2010 increased marketing expense

• Improving margin in the long run

• Intangible assets• 20% ~ 25% of assets• Basically include trademarks and licenses

• Account receivable & inventories• 47% of assets in 2010, 65% in 2011• Company stated that it is needed to support high sales growth

Financial Analysis - Asset

Financial Analysis – Cash Conversion

Cash conversion cycle has been decreasing• By extending their payment to suppliers

2008 2009 2010 2011days sales outstanding 99 99 79 81days payable outstanding 147 119 99 132days in inventory 218 218 191 219Cash conversion cycle 170 197 171 168

Financial Analysis – Cash Flow

2009 2010 2011

Operating CF

84,640 37,845 (23,721)

Investing CF

(6,301) (77,279) 36,737

Financing CF

(23,457) (15,943) (13,797)

Total Cash Flow

58,063 (62,919) (1,692)• 2009• Decreased in sales• Liquidated inventories• Tightened extended payment terms

• 2010• Increased short-term investment• Increased acquisition of intangible assets

• 2011• Increased inventories and account receivable• Sold short-term investment

Financial Analysis – Cash Flow

Short term solvency

• Company’s ability to control their cash flow would be very critical

2007 2008 2009 2010 2011Current ratio 2.18 2.34 2.88 2.45 2.11Cash ratio 60% 33% 96% 69% 19%

Financial Analysis - DuPont

2007 2008 2009 2010 2011Operating Margin 12% 11% 11% 12% 11%Interest Burden 100% 91% 103% 95% 101%Tax Burden 65% 65% 65% 66% 64%Asset Turnover 0.87 1.05 0.98 1.05 1.19Financial Leverage ratio 2.32 1.66 1.46 1.46 1.59ROE 15.88% 11.79% 10.49% 11.89% 13.24%

Financial Analysis - Conclusion

Operating margin is likely to improve Company’s expanding strategy may

increase its financial risk in the near future

Company’s ability to utilize asset is improving

Competitors

Inter Parfums

Product Segment

Source: Bloomberg

Competitors’ Financial Figure

Company Name Market Capitalization($mill)Gross Margin % EBIT Margin % EBITDA Margin % Net Income Margin %Interperfum 494.99 54.5% 11.0% 13.1% 5.3% Avon Products Inc. (AVP) 9,923.67 63.4% 10.3% 12.4% 4.5% Elizabeth Arden, Inc. (RDEN) 1,104.42 49.2% 7.7% 10.3% 4.4% Revlon, Inc. (REV) 928.34 64.3% 14.0% 15.9% 3.9% Parlux Fragrances Inc. (PARL) 117.36 46.4% (1.7%) (0.1%) (2.1%) Estee Lauder Companies Inc. (EL) 24,300.45 78.9% 14.7% 17.9% 8.9% International Flavors & Fragrances Inc. (IFF) 4,720.89 39.6% 17.0% 19.7% 9.6% L'Oreal SA (OR)- Listed in France 72,533.84 71.2% 16.2% 19.2% 12.0%

Source: Bloomberg

Comparable Multiples

Price range : $22.23 - $42.78

Company Name EV/EBITDA P/E P/TangBV

Avon Products Inc. (AVP) 8.6x 19.2x 15.5xElizabeth Arden, Inc. (RDEN) 10.3x 21.4x 4.9x

Estee Lauder Companies Inc. (EL) 14.5x 29.8x 15.8xInternational Flavors & Fragrances Inc.

(IFF)10.1x 17.9x 11.9x

Revlon, Inc. (REV) 9.4x 17.6x -   

Mean 10.6x 21.2x 12.0xMedian 10.1x 19.2x 13.7x

Multiplier 80.8 1.05 3.6 Implied Share Price $27.27 $22.23 $42.78

Tangible BV

Tangible BV

Financial Projections – Growth Rate Assumption

IPAR acquired four new brands in 2011, we assume that company need more time to promote its business.

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Growth Rate 14.52% -8.22% 12.44% 33.62% 5.86% 15.32% 12.43% 9.69% 5.78%

Average Growth Rate 13.09% 9.82%

Growth Rate in North America -5.89% -10.87% -5.79% 64.47% 2.76% 4.68% 3.39% 2.10% 1.10%

Growth Rate in Europe 17.84% -9.41% 14.55% 16.15% 2.10% 4.24% 3.65% 1.32% 1.01%

Growth Rate in Central and South America 34.75% -22.89% 43.00% 45.58% 10.21% 35.65% 27.24% 15.20% 5.10%

Growth Rate in Middle East 50.19% 7.91% 7.57% 25.27% 10.21% 22.32% 15.21% 13.20% 8.20%

Growth Rate in Asia 20.73% 1.13% 24.07% 42.86% 15.15% 39.87% 27.14% 23.25% 14.05%

Growth Rate in Other 16.81% -20.47% 36.93% 77.16% 5.12% 4.92% 4.11% 3.17% 2.17%

North America % Total Sales 29.62% 24.34% 23.64% 19.81% 24.38% 23.67% 21.48% 19.76% 18.39% 17.57%

Europe % Total Sales 44.46% 45.75% 45.16% 46.00% 39.99% 38.56% 34.86% 32.14% 29.68% 28.34%

Central and South America % Total Sales 7.24% 8.52% 7.16% 9.10% 9.92% 10.32% 12.14% 13.74% 14.43% 14.34%

Middle East % Total Sales 6.70% 8.79% 10.33% 9.88% 9.26% 9.65% 10.23% 10.48% 10.82% 11.07%

Asia % Total Sales 11.27% 11.88% 13.09% 14.44% 15.44% 16.80% 20.37% 23.04% 25.88% 27.91%

Other % Total Sales 0.71% 0.72% 0.63% 0.76% 1.01% 1.00% 0.91% 0.85% 0.80% 0.77%

Financial Projections – Gross Profit Margin Assumption IPAR sell European prestige products in the U.S.

directly to retailers rather than through a third party distributor, which generates higher gross margins on our product sales. (10-K_2011)

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Gross Profit Margin 58.89% 56.98% 57.19% 59.51% 62.87% 62.12% 61.86% 61.32% 60.10% 59.98%

Average Gross Profit Margin 59.09% 61.08%

Financial Projections – Taxes Rate Assumption

The higher rate in 2011 is the result of a tax rate increase enacted by the French Government retroactive to 2011. The tax rate for French operations increased from 34.4% to 36.1%. (10-K_2011)

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Tax Rate 35.27% 35.13% 34.93% 33.74% 36.27% 36.27% 36.27% 36.27% 36.27% 36.27%

Average Tax Rate 35.07% 36.27%

Financial Projections – The risk of Burberry buy back Licenses Burberry has until July 31, 2012 to

determine whether it wishes to buy out the unexpired portion of the license as of December 31, 2012 or continue the existing contract which runs through December 31, 2017. (10-K_2011)

The purchase price will be the greater of the fair market value of the unexpired term of the license or 70% of 2010 net wholesale sales of Burberry products. As of the date of this report, discussions are continuing. (10-K_2011)

Financial Projections – Discount Rate

Financial Projections – Scenario Type

1. Basic Scenario 2. Burberry buy back the License

Scenario 3. Worst Scenario but Burberry does not

buy back the License

Financial Projections – Scenario Type

Financial Projections – Scenario Type

Financial Projections – Scenario Type

Financial Projections – DCF Model in Basic Scenario

Financial Projections – DCF Model in Burberry buy back Licenses Scenario

Financial Projections – DCF Model in Worst Scenario but Burberry do not buy back License

Recommendation

Put IPAR in the Watch List

Reason: The result in Multiples and DCF Model

are quite different. The risk of Burberry buying back license

exists.

Q & A

Thank you for your timeFeel free to ask any

question