Financial analysis assignment for the Financial Accounting course of the 2015 Master in Management at IE Business School.

1. LVMH
MOËT HENNESY LOUIS VUITTON
FINANCIAL ANALYSIS
by
GROUP C – Master in Management 2015

2. 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

3. • 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
10.09.15
LMVH
Financial
Analysis
–
Group
C

4. 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)
10.09.15
LMVH
Financial
Analysis
–
Group
C

5. • 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
10.09.15
LMVH
Financial
Analysis
–
Group
C
Le Chef – Bernard Arnault

6. 10.09.15
LMVH
Financial
Analysis
–
Group
C
Corporate Structure

7. Complex Holding Structure
10.09.15
LMVH
Financial
Analysis
–
Group
C

8. Geographical Presence
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LMVH
Financial
Analysis
–
Group
C

9. Wines & Spirits
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LMVH
Financial
Analysis
–
Group
C
Revenues and Investments of LVMH in 2014

10. Fashion & Leather Goods
10.09.15
LMVH
Financial
Analysis
–
Group
C
Revenues and Investments of LVMH in 2014

11. Perfumes & Cosmetics
10.09.15
LMVH
Financial
Analysis
–
Group
C
Revenues and Investments of LVMH in 2014

12. Watches & Jewelry
10.09.15
LMVH
Financial
Analysis
–
Group
C
Revenues and Investments of LVMH in 2014

13. Selective Retailing & Other Activities
10.09.15
LMVH
Financial
Analysis
–
Group
C
Revenues and Investments of LVMH in 2014

14. 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
10.09.15
LMVH
Financial
Analysis
–
Group
C

15. 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
derivaves
-­‐414
-­‐1%
-­‐451
-­‐1%
-­‐374
-­‐1%
Cumulave
translaon
adjustment
342
1%
-­‐8
0%
492
1%
Revaluaon
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
liabilies
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
liabilies
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
10.09.15
LMVH
Financial
Analysis
–
Group
C

16. 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%
Markeng
and
selling
expenses
10.013
36%
10.767
37%
11.744
38%
5%
General
and
administrave
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
operang
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%
10.09.15
LMVH
Financial
Analysis
–
Group
C

17. Cash Flow Statement l
Consolidated
Cash
Flow
Statement
in
m€
2012
2013
2014
OPERATING
ACTIVITIES
AND
OPERATING
INVESTMENTS
Operang
profit
5.742
5.898
5.431
Income/(loss)
and
dividends
from
joint
ventures
and
associates
37
49
26
Net
increase
in
depreciaon,
amorzaon
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
Operang
investments
-­‐1.694
-­‐1.657
-­‐1.775
Net
cash
from
operaVng
acVviVes
and
operaVng
investments(free
cash
flow)
2.421
3.057
2.832
10.09.15
LMVH
Financial
Analysis
–
Group
C

18. 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
Acquision
and
disposals
of
treasury
shares
and
LVMH-­‐share
se[led
derivaves
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
10.09.15
LMVH
Financial
Analysis
–
Group
C

19. 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
10.09.15
LMVH
Financial
Analysis
–
Group
C

20. Liquidity
2013
2014
2013
2014
2013
2014
Test
of
liquidity
Current
rao
1,37
1,49
2,07
1,70
1,08
0,91
Receivables
turnover
rao
14,0
13,8
11,6
10,9
10,2
10,1
Inventory
turnover
rao
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
10.09.15
LMVH
Financial
Analysis
–
Group
C

21. 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
rao
20,5
15,2
8,4
3,6
8,5
5,8
Debt-­‐to-­‐equity
rao
1,01
1,32
0,44
0,57
0,96
1,06
10.09.15
LMVH
Financial
Analysis
–
Group
C

22. 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
Depreciaon
/
Capex
54,9%
60,9%
281,7%
213,0%
25,0%
38,7%
Years
to
depreciate
exisng
net
fixed
assets
8,6
years
7,8
years
6,4
years
6,1
years
8,7
years
7,8
years
10.09.15
LMVH
Financial
Analysis
–
Group
C

23. 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%
10.09.15
LMVH
Financial
Analysis
–
Group
C

24. 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
rao
(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%
10.09.15
LMVH
Financial
Analysis
–
Group
C

25. 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
rao
(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%
10.09.15
LMVH
Financial
Analysis
–
Group
C

26. 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
rao
19,7
12,0
28,9
55,0
17,0
16,6
Dividend
yield
rao
2,5%
2,9%
1,3%
1,1%
2,2%
2,4%
10.09.15
LMVH
Financial
Analysis
–
Group
C

27. 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
10.09.15
LMVH
Financial
Analysis
–
Group
C