Introduction to Brand Valuationipaware.org/wp-content/uploads/2018/10/David-Haigh... ·...

1.

Introduction to Brand ValuationCONNECTING MARKETING TO FINANCEDavid Haigh, CEO , Brand Finance plc

September 2018

2.

What do we mean by brand?A brand should be viewed in the context of the business in which it operates.

Brand Value

+ Uplift

3.

Trade marks (i.e. word mark, logo and strap line registrations), associated marketing IP (specifically domain names, trade dress, advertising copyrights, brand guidelines and manuals) together with the goodwill associated with those trade marks and marketing IP

• Trade Names, • Trade Marks, • Service Marks, • Symbols, • Logo

• Smells,• Sounds,• Slogans

• Product Design, • Packaging Design,• Trade Dress

• Coats of Arms, • Certification Marks, • Unique Accreditations

• Colours

• Websites,• Social Media Sites,• Publications

What do we mean by ‘brand’?

4.

Brand affects a wide range of stakeholdersEach can have a direct or indirect impact on the business

Customer

Brand Perceptions affect• Price• Volume• Repeat• Share of wallet• Cross sell

External Audiences

Brand Perceptions affect• Distribution terms• Channel access• Strategic alliances• Deal completion• Licensing• CSR

Staff

Brand Perceptions affect• Recruitment• Retention• Recommendation• Morale• Staff costs

Financial Audiences

Brand Perceptions affect• Interest spread• Share price• Debt/ Equity ratio• Risk appetite• Cost of borrowing

PotentialCustomers

ExistingCustomers

Influencerse.g. Media

TradeChannels

StrategicAllies &

SuppliersInvestors

Debt providers

Sales

Production

All OtherEmployees

MiddleManagers

Directors

Brand

5.

• Covering the world’s leading stock markets

• 58,000 companies

• 120+ Countries

• 69 Sectors

• Trend from 2001-2017

• $109 trillion of Enterprise Value (EV)

• $52 trillion or 48% is tangible assets

• $57 trillion or 52% is intangible assets

• $44 trillion or 40% is ‘undisclosed’ intangible assets

Understanding Intangible AssetsGlobal Intangible Finance Tracker (GIFT™) 2018

6.

Uncertainty about fair value is a major issueGlobal Enterprise Value 2001 – 2017 (USD trillion)

Source: 2018 BrandFinance® Global Intangible Finance Tracker (GIFT™)

Undisclosed Intangible Value

11.1 11.4 12.5 13.9 14.3 16.7 22.0 23.2 27.5 25.2 26.4 28.3 29.7 33.5 46.8 44.8

51.9

1.2 1.2 1.3 1.5 1.6 2.1 2.7 3.3

3.9 3.2 4.4 4.6 4.6 5.0

5.0 5.4 5.7

2.2 2.4 2.7 3.0 3.3 3.9 4.5 4.3

4.5 5.3 5.4 5.5 5.3 6.0

6.7 7.2 8.0

16.4 10.7 16.4 19.1 22.1

25.1

30.3

7.9

20.8 25.6 15.1 18.2

23.8 26.5

30.5 35.0

43.7

0

10

20

30

40

50

60

70

80

90

100

110

120

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017Tangible Net Assets Disclosed Intangible Assets (ex g/w) Disclosed Goodwill Undisclosed Value

7.

Understanding intangible assets

Goodwill

Literary worksMusical works

Trademarks and LogosDomain names

DepositorsCustomer lists

MortgagesCredit cardsInsurances

ITDatabases

Goodwill

Artistic

Marketing

Customer

Contract

Technology

Working Capital

Plant & Equipment

Land & Buildings

Intangible assets

Tangible assets

Illustrative Examples – this is not a complete list of all possible intangibles in these classes

8.

Public company disclosuresShould all acquired intangible assets be separately included in the balance sheet?

Should all internally generated brands be separately included in the balance sheet?

Should all intangible assets be revalued each year? Who do you think should prepare the valuations of intangible assets that are included in annual financial accounts?

Yes

NoDon’t Know

Yes

NoDon’t Know

Yes

NoDon’t Know

Independent third party intangible asset valuers

other

Staff and directors of the companies concerned

Intangible asset valuers working for the company’s auditors

9.

Brand Values in Annual ReportsLeading companies have started publishing Brand Finance’s results in their annual reports

“Burberry was ranked the sixth most powerful brand globally in the annual ‘Global 500’ report published by Brand Finance”

“Aeroflot continued to strengthen its leadership by promoting the brand of Aeroflot as an air carrier offering the highest safety and comfort on-board, new aircraft and a broad route network.”

“Valuation consultancy Brand Finance reported in February 2015 that the BT brand is now worth US$16.2bn. This is a 6% improvement on a year earlier and makes us the eighth most valuable telecoms brand in the world.”

“Emirates maintains its position as the world’s most valuable airline brand by being relevant, innovative and inspiring. This year, our estimated brand value grew to US$ 7.7 billion, up 17% from the year before, according to the 2016 Brand Finance Global 500 report.”

10.

What is Brand Valuation?

11.

ISO 10668 Represents global consensus on Brand ValuationGlobal Standard – ISO 10668

Brands are hugely valuable corporate assets

Brands affect all stakeholder groups

Brands create economic benefits

Brands need active strategic management

Brands are legal assets which can be bought, sold and transferred

Brands can be valued like any other assets

12.

ISO 10668‘Best Practice’ requirements for a brand valuation to be ISO compliant

1. State valuer’s credentials

2. Confirm Independence

3. Identify the party to whom the valuation opinion is directed

4. Define the asset

5. Specify valuer’s purpose

6. State the basis (e.g. Value in Use, Fair Value, Insolvency)

7. State the approach used

8. Describe the methodology (e.g. Price Premium, Income Split, Royalty Relief)

9. Indicate the Value Date

10. Indicate the Valuation Date

11. Disclose major assumptions

12. Provide a sensitivity analysis

13. Provide a written opinion

14. Provide list of data sources

ISO 10668 Requirements

Transparent ConsistentIndependent

Legal BehaviouralFinancial

13.

ISO:10668 Approaches

Income split Multi-period excess earnings

Incremental cash flow

Indirect Methods

Market ApproachCost Approach Income Approach

Price PremiumVolume PremiumRoyalty Relief

Direct Methods

Trademark / Brand Valuation

Brand Contribution

Alternative Brand Valuation Approaches

14.

Royalty Relief determines the value of the brand as a separable asset by valuing the cost savings resulting from owning the brand rather than licensing it from a third party.

1 2 3 4

Brand Strength Index (BSI)

Brand Royalty Rate Forecast Revenues Brand Value

A brand strength benchmarking process with a score expressed out of 100.

The BSI score is applied to a sector royalty rate range to identify an appropriate rate

The royalty rate is applied to forecast revenues to derive brand revenues

Post-tax brand revenues are discounted to a net present value which equals the brand value

Brand Valuation

®

Our most common approach is “Royalty Relief”

15.

World’s Most Valuable Brands 2018 – Brand Finance

RANK BRAND Country BRAND VALUE (USDm)

2018 2017 2018 2017

1 3 150,811 106,396

2 2 146,311 107,141

3 1 120,911 109,470

4 6 92,289 66,218

5 9 89,684 61,998

6 4 82,422 87,016

7 5 81,163 76,265

8 7 62,826 65,875

9 8 61,480 62,211

10 10 59,189 47,832

16.

Enterprise Value

Asset breakdown

Intangibles (split by type)

Disclosed Intangibles

$8bn

Enterprise Value

Tangible Assets

Intangible Value

Undisclosed Intangibles

* All values are in USDbn

Brand23%

Business Value Breakdown – As of 31st of Oct 2017

649

550 542

163 146

98

136

136

54

54

Brand Value

Customer25%

MarketingIntangibles

30%

Contract 10%

Technology25%

Goodwill 10%

Intangibles (split by

disclosure)

Enterprise Value

Intangible Value

Undisclosed Intangibles

17.

Brand Development Brand Strength & Brand Performance Monetary Value

INPUTS OUTPUTS

New ISO Standard ISO 20671

Brand Support

Brand Activities

Legal

Customer/ Stakeholders

Financial

Economic Political

Market

BRAND STRENGTH

BRAND PERFORMANCE

FINANCIAL RESULTS

BRAND VALUATION

1. Income Approach2. Cost Approach3. Market Approach

Continuous Improvement

Brand Evaluation Brand Valuation

18.

Why conduct Brand Valuations?There are many reasons to value trademarks

Commercial Reasons: Technical Reasons:

Internal Management

Internal Licensing

Portfolio Management

Brand Architecture

Brand Strategy

Budget Setting

Brand Scorecards

Balance Sheet

Taxation

Litigation Support & Dispute Resolution

Joint Ventures

Financing

M&A

Investor Relations

Bankruptcy

19.

Building branded business and brand valueB

rand

Impl

icat

ion

Scen

ario

s

Evaluate ongoing performance

Current brand and business

value

Target brand and business

value

Step by step approach to value creation

6 Co-branding, Licensing and Franchising

5 Market expansion

4 Product & Service Development

3 Portfolio Management & Rebranding

2 Optimise Brand Positioning and Marketing Spend

1 Brand and Business ROI modelling, Market Sizing, Brand Drivers benchmarking and tracker set-up

20.

Contact us

Brand Finance is the leading brand valuation and strategy firm, helping companies to manage their brands for improved business results.

www.brandfinance.com

Brand Exchange3 Birchin Lane London, EC3V 9BWUnited Kingdom

David Haigh CEO

Brand Finance plcE. d.haigh@brandfinance.comT. +44 207 389 9400