Financial Analysis LVMH 2013 & 2014

LVMH MOËT HENNESY LOUIS VUITTON

FINANCIAL ANALYSIS by

GROUP C – Master in Management 2015

Company Profile

•  French luxury conglomerate

•  Founded in Paris in 1987

•  Merger between Moët Hennessy & Louis Vuitton

•  3708 stores worldwide

10.09.15 LMVH Financial Analysis – Group C

•  Highly dependent on consumer preferences & short-living fashion trends

•  Difficulty to establish long-term brand loyalty

•  Relatively unaffected by macroeconomic trends

•  Group of „portfolio companies“ dominating the market:

Industry Overview


Corporate Strategy

•  Conglomerate of luxury companies

•  Diverse brand portfolio through M&A activity

•  Mother company set values for different companies but leave autonomy to fashion designers

•  Owning stores (prime CRE) & land (Champagne)


•  1984 acquired and became CEO of Christian Dior

•  1987 helped mediate a conflict at LVMH

•  1988 gained control at LVMH as a large stakeholder preventing dismantlement

•  90‘s - present: Made LVMH what it is today through long list of acquisitions


Le Chef – Bernard Arnault


Corporate Structure

Complex Holding Structure


Geographical Presence


Wines & Spirits


Revenues and Investments of LVMH in 2014

Fashion & Leather Goods



Perfumes & Cosmetics



Watches & Jewelry



Selective Retailing & Other Activities



Assets Consolidated Balance Sheet (EUR millions, except for earnings per share) ASSETS 2012 % of TA 2013 % of TA 2014 % of TA (EUR millions) Brands and other intangible fixed assets 11.322 23% 12.596 22% 13.031 24% Goodwill 7.709 15% 9.058 16% 8.810 17% Property, plant and equipment 8.694 17% 9.621 17% 10.387 19% Investments in joint ventures and associates 483 1% 480 1% 519 1% Non-‐current available for sale financial assets 6.004 12% 7.080 13% 580 1% Other non-‐current assets 519 1% 457 1% 489 1% Deferred tax 952 2% 913 2% 1.436 3% Non-‐current assets 35.683 72% 40.205 72% 35.252 66% Inventories andwork in progress 7.994 16% 8.492 15% 9.475 18% Trade accounts receivable 1.972 4% 2.174 4% 2.274 4% Income taxes 201 0% 223 0% 354 1% Other current assets 1.813 4% 1.856 3% 1.916 4% Cash and cash equivalents 2.187 4% 3.226 6% 4.091 8% Current assets 14.167 28% 15.971 28% 18.110 34% Total assets 49.850 56.176 53.362


Liabilities LIABILITIES AND EQUITY 2012 % of TA 2013 % of TA 2014 % of TA (EUR millions) Share capital 152 0% 152 0% 152 0% Share premium account 3.848 5% 3.849 7% 2.655 8% Treasury shares and LVMH-‐share se[led deriva\ves -‐414 -‐1% -‐451 -‐1% -‐374 -‐1% Cumula\ve transla\on adjustment 342 1% -‐8 0% 492 1% Revalua\on reserves 2.731 2% 3.900 7% 1.019 5% Other reserves 14.340 23% 16.001 28% 12.171 29% Net profit, Group share 3.425 11% 3.436 6% 5.648 7% Equity, Group share 24.424 41% 26.879 48% 21.763 49% Minority interests 1.084 2% 1.028 2% 1.240 2% Total equity 25.508 43% 27.907 50% 23.003 51% Long-‐term borrowings 3.825 9% 4.149 7% 5.054 8% Non-‐current provisions 1.772 4% 1.797 3% 2.291 4% Deferred tax 3.884 8% 4.280 8% 4.392 8% Other non-‐current liabili\es 5.456 12% 6.404 11% 6.447 11% Non-‐current liabiliVes 14.937 34% 16.630 30% 18.184 30% Short-‐term borrowings 2.950 8% 4.674 8% 4.189 6% Trade accounts payable 3.118 7% 3.297 6% 3.606 6% Income taxes 442 1% 357 1% 549 1% Current provisions 335 1% 324 1% 332 1% Other current liabili\es 2.560 7% 2.987 5% 3.499 5% Current liabiliVes 9.405 23% 11.639 21% 12.175 19% Total liabiliVes and equity 49.850 56.176 53.362


Income Statement Consolidated Income Statement

(EUR millions, except for earnings per share) 2012 2013 2014 CAGR in %

Revenue 27.970 100% 29.016 100% 30.638 100% 3% Cost of sales 9.863 35% 9.997 34% 10.801 35% 3% Gross margin 18.107 65% 19.019 66% 19.837 65% 3% Marke\ng and selling expenses 10.013 36% 10.767 37% 11.744 38% 5% General and administra\ve expenses 2.151 8% 2.212 8% 2.373 8% 3% Income (loss) from joint ventures and associates -‐19 0% -‐23 0% -‐5 0% -‐36% Profit from recurring operaVons 5.924 21% 6.017 21% 5.715 19% -‐1% Other opera\ng income and expenses 182 1% 119 0% 284 1% 16% OperaVng profit 5.742 21% 5.898 20% 5.431 18% -‐2% Cost of net financial debt 138 0% 101 0% 115 0% -‐6% Other financial income and expenses 126 0% -‐97 0% 3.062 10% 190% Net financial income (expense) -‐12 0% -‐198 -‐1% 2.947 10% -‐726% Income taxes 1.821 7% 1.753 6% 2.273 7% 8% Net profit before minority interests 3.909 14% 3.947 14% 6.105 20% 16% Minority interests 484 2% 511 2% 457 1% -‐2% Net profit, Group share 3.425 12% 3.436 12% 5.648 18% 18%


Cash Flow Statement l Consolidated Cash Flow Statement in m€ 2012 2013 2014 OPERATING ACTIVITIES AND OPERATING INVESTMENTS Opera\ng profit 5.742 5.898 5.431 Income/(loss) and dividends from joint ventures and associates 37 49 26 Net increase in deprecia\on, amor\za\on and provisions 1.289 1.435 1.895 Other computed expenses -‐59 -‐29 -‐188 Other adjustments -‐52 -‐76 -‐84 Cashfrom operaVons before changes in working capital 6.957 7.277 7.080 Cost of net financial debt: interest paid -‐152 -‐111 -‐116 Income taxes paid -‐1.880 -‐1.832 -‐1.639 Net cash from operaVng acVviVes before changes in working capital 4.925 5.334 5.325

Change in working capital -‐810 -‐620 -‐718 Net cash from operaVng acVviVes 4.115 4.714 4.607 Opera\ng investments -‐1.694 -‐1.657 -‐1.775 Net cash from operaVng acVviVes and operaVng investments(free cash flow) 2.421 3.057 2.832


Cash Flow Statement ll FINANCIAL INVESTMENTS 2012 2013 2014 Purchase of non-‐current available for sale financial assets -‐131 -‐197 -‐57 Proceeds from sale of non-‐current available for sale financial assets 36 38 160

Dividends received 179 71 69 Income tax related to financial investments -‐21 -‐11 -‐237 Impact of purchase and sale of consolidated investments -‐59 -‐2.161 -‐167 Net cash from (used in) financial investments 4 -‐2.260 -‐232 TRANSACTIONS RELARING TO EQUITY Capital increases of LVMH SE 95 66 59 Capital increases of subsidiaries subscribed by minority interests 8 7 3

Acquisi\on and disposals of treasury shares and LVMH-‐share se[led deriva\ves 5 -‐113 1

Interim and final dividends paid by LVMH SE -‐1.447 -‐1.501 -‐1.619 Income taxes paid related to interim and final dividends paid -‐73 -‐137 -‐79 Interim and final dividends paid to minority interests in consolidated subsidiaries -‐314 -‐220 -‐336

Purchase and proceeds from sale of minority interests -‐206 -‐150 10 Net cash from (used in) transacVons relaVng to equity -‐1.932 -‐2.048 -‐1.961 Change in cash before financing acVviVes 493 -‐1.251 639


Cash Flow Statement lll

FINANCING ACTIVITIES 2012 2013 2014

Proceeds from borrowings 1.028 3.095 2.407 Repayment of borrowings -‐1.494 -‐1.057 -‐2.100 Purchase and proceeds from sale of current available for sale financial assets -‐67 101 -‐106

Net cash from (used in) financing acVviVes -‐533 2.139 201 EFFECT OF EXCHANGE RATE CHANGES -‐43 47 27 NET INCREASE(DECREASE) INCASH AND CASH EQUIVALENTS (I+II+III+IV+V) -‐83 935 867

CASH AND CASH EQUIVALENTS AT BEGINNINGOF PERIOD 2.064 1.981 2.916 CASH AND CASH EQUIVALENTS AT END OF PERIOD 1.981 2.916 3.783 TOTAL INCOME TAXES PAID -‐1.974 -‐1.980 -‐1.955


Liquidity

2013 2014 2013 2014 2013 2014 Test of liquidity Current ra\o 1,37 1,49 2,07 1,70 1,08 0,91 Receivables turnover ra\o 14,0 13,8 11,6 10,9 10,2 10,1 Inventory turnover ra\o 3,5 3,4 8,0 6,4 5,3 5,0

•  Robust liquidity figures from LVMH

•  Especially efficient receivables turnover ratio

•  Biased by Wine & Spirits division


Solvency

•  Robust solvency figures from LVMH

•  Operating cash flow covers interest expense better than competitors

•  Debt-to-equity higher than competitors (due to high M&A activity)

2013 2014 2013 2014 2013 2014 Test of Solvency Times interest earned 13,2 24,4 12,7 5,3 8,9 7,5 Cash coverage ra\o 20,5 15,2 8,4 3,6 8,5 5,8 Debt-‐to-‐equity ra\o 1,01 1,32 0,44 0,57 0,96 1,06


Fixed Asset Analysis

•  Efficient use of fixed asset by LVMH

•  Good Depreciation/CAPEX ratio compared to Prada

•  Average remaining life of fixed assets is similar

2013 2014 2013 2014 2013 2014 Fixed asset analysis: Fixed asset turnover 3,2 3,1 2,9 2,6 5,8 5,6 Deprecia\on / Capex 54,9% 60,9% 281,7% 213,0% 25,0% 38,7% Years to depreciate exis\ng net fixed assets 8,6 years 7,8 years 6,4 years 6,1 years 8,7 years 7,8 years


Operating Ratios

•  Slight decrease due to higher marketing expense

•  Similar EBIT margin with competitors

2013 2014 2013 2014 2013 2014 OperaVng raVos: EBITDA margin 20,7% 18,7% 26,2% 19,8% 13,6% 15,5% EBIT margin 16,5% 13,4% 20,8% 13,0% 11,6% 13,1%


ROA Analysis

•  ROA analysis is complicated for LVMH due to bias from Hermès share distribution

•  ROA seems to be constant over time leaving out Hermès effect

•  Bias by high value of CRE & brands in assets

•  Prada seems to have the most effective ROA (possible divestment)

2013 2014 2013 2014 2013 2014 ROA analysis (EBI/Total Assets) EBI margin 12,3% 18,9% 19,7% 17,0% 14,7% 14,0% Turnover ra\o (over total assets) 0,55 0,56 0,92 0,82 0,42 0,44 ROA (%) 6,7% 10,6% 18,2% 14,0% 6,2% 6,1%


ROE Analysis

•  ROE analysis is complicated for LVMH due to bias from Hermès share distribution

•  ROE seems to be constant over time leaving out Hermès effect •  Higher financial leverage due to high M&A activity financed by LT

borrowing (low interest environment)

2013 2014 2013 2014 2013 2014 Decomposing ROE EBI margin 12,3% 18,9% 19,7% 17,0% 14,7% 14,0% Turnover ra\o (over total assets) 0,55 0,56 0,92 0,82 0,42 0,44 Financial Leverage 2,98 3,23 1,45 1,52 2,04 2,05 ROE (%) 20,1% 34,1% 26,3% 21,2% 12,7% 12,6%


Market Tests

•  Growth in dividend yield

•  Cheap P/E ratio compared to competition (Hermès distribution bias)

2013 2014 2013 2014 2013 2014 Market tests Price /earnings ra\o 19,7 12,0 28,9 55,0 17,0 16,6 Dividend yield ra\o 2,5% 2,9% 1,3% 1,1% 2,2% 2,4%


Conclusion

•  Strong liquidity & solvency

•  Clear effect on FS of M&A activity

•  Highly profitable business

•  Impressive numbers for a steadily growing luxury conglomerate of that size


Business

Financial Analysis LVMH 2013 & 2014