NOIR / ILLUMINATI II (A): DEFINING SOCIALLY RESPONSIBLE AFFORDABLE LUXURY CLOTHING Case study Competition - Neoma (Rouen) Business School 2013

1. International Case Competition
The ConsulTeam

2. Slide 2 of 20
The
ConsulTeam
Edouard
JAMES
Jean
LEMERCIER
Maï-thi
VAN CONG
TRANG
Cécilia
COSNARD DES
CLOSETS
Beiping
OU
Salimath
ASSANI
Ilham
EL FARSI

3. Slide 3 of 20
Agenda
 Current Situation
 Key Issues
 Strategic Key Achievements
 Strategic Plan
 Timeline
 Financial Forecast
 Exit Plan
 Conclusion

4. Slide 4 of 20
• Opportunity : Increasing buying power in emerging markets
• China, Middle East and Russia
• Tendency for responsible consumerism
• From a “me-me-me” to a “me-me… and others” world.
• Fashion industry lacks CSR
• No real competitors
• Company response: “Socially responsible Affordable luxury clothing”
CURRENT SITUATION

5. Slide 5 of 20
Luxury + Affordable = oxymoron
1. Positioning is ineffective
• Company products150% cheaper than competitors (Price
insensitive industry)
• Forgoes value underlying in sustainability
• The affordability is not compatible with the positioning
2. Company struggles to finance its operations
• Three rounds of financing in three years
KEY ISSUES

6. Slide 6 of 20
Financial
• Increase EBIT by 11% on average
• Raise by four times the company value (80M DKK)
Marketing
• Become a leading CSR company in the fashion industry
• A strong and clarified market positioning
Strategic Key Achievements

7. Slide 7 of 20
STRATEGIC PLAN
POSITIONING ISSUE
« Show customers the added value of sustainability»

8. Slide 8 of 20
• •Noir: luxurious image
• •Separate uniforms from Noir
• •Blue , new brand for uniforms
PRODUCT
« Show customers the added value of sustainability»

9. Slide 9 of 20
• « Show customers the added value of sustainability»
• Hire models that vehicle an appropriate brand
image
•Younger employees
•Leading Scandinavian agency
PEOPLE

10. Slide 10 of 20
•Visual communication
•Online strategy: Annual reports & Website content
•Correct consumer perception
•Public relations strategy
Promotion
« Show customers the added value of sustainability»

11. Slide 11 of 20
• New slogan: “Noir - How to make chic ethic”
• New mission statement: “Design & create modern and luxury
collections in a highly sustainable production chain.”
• New vision statement : “Noir/Illuminati II’s aim is to create a new
image for the fashion industry by combining luxury and
sustainability. We want to prove that high quality clothes can be
made in a socially responsible and ethical way.”
• CSR is the « fuel » of the company
Promotion (2)
« Show customers the added value of sustainability»

12. Slide 12 of 20
LABEL

13. Slide 13 of 20

14. Slide 14 of 20
Increase prices by 35% (ex : $ 2,700/suit)
• Better costs coverage
• Products still cheaper than competitors’ (-10%)
• Inelasticity to the price in the luxurious sector
Pricing
« Show customers the added value of sustainability»

15. Slide 15 of 20
TIMELINE
2006-2008
• Creation of the
new brand for the
uniforms
• Promotion
(webdesign)
• Repositioning
2008-2015
• Launch a flagship
store in
Copenhagen
• Entering the
emerging markets
2015-2016
• Create an
affordable brand
• IPO in stock
exchange

16. Slide 16 of 20
Financial Forecasts
Set of assumptions:
• 2006-2008: 10% additional turnover
• 2009-2016: 15% additional turnover
• 2009-2016: WACC reduced to 20%
• Other data remain unchanged
Financial achievements:
• Gross Margin: +7% on average
• EBIT: +11% on average
• Company’s value 4 times higher

17. Slide 17 of 20
Evolution of Discounted Cash Flows (in DKK)
Entering
emerging
countries
and Denmark
New
pricing
strategy
-5000000
0
5000000
10000000
15000000
20000000
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
NPV of FCF
NPV of FCF - New Strategy

18. Slide 18 of 20
Cumulative Discounted Cash Flows (in DKK)
-20000000
-10000000
0
10000000
20000000
30000000
40000000
50000000
60000000
70000000
80000000
90000000
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Cumulative NPV of FCF
Cumulative NPV of FCF - New
Strategy
Original strategy New strategy
Cumulative
Discounted Cash
Flows >0
5.9 years 3.6 years

19. Slide 19 of 20
Short-Term Involvement
•Sell the uniform division
• To generate cash (DKK 7,800,00) for further development
• Focus on Noir business and development
Long-Term Involvement
•Sell company’s shares to the remaining investors or to the
Balder Group
• Bigger volume of sales
• Give up on the luxury brand: Loss of the brand entity
EXIT PLAN

20. Slide 20 of 20
Conclusion
1
• A new positioning based on
sustainability and prestige
2
• Additional perceived value
(customers)
3
• Better financial results
4
• Improved financing capacity
Thank you for your attention !

21. Slide 21 of 20
• Sensitivity analysis : The cost of capital is jeopardizing the company profit’s
• DCF Valuation of Noir (Before our plan of action)
• DCF Valuation of Noir (After our plan of action)
• Forecasted Income statement after our action plan
• Payback Time: Cumulative Discounted Cash Flows > 0
• ROCE – ROE & EVA
Appendix

22. Slide 22 of 20
Sensitivity analysis : The cost of capital is
jeopardizing the company profit’s
Sensitivity Analysis
(+) 1% WACC (-16%) FCF
(-1%) Growth in
Terminal Period
(-0,67%) FCF
(-1%) Sales (-3%) FCF
The company profitability is 6 times more sensitive to the cost of
capital than to Sales.
The cost of capital must be lowered.

23. Slide 23 of 20
DCF Valuation of Noir (Before our plan of action)
NPV of FCF
2 005 2 006 2 007 2 008 2 009 2 010 2011-2015
- 3 214 142,00
DKK
- 3 668 039,00
DKK
- 2 737 255,00
DKK
1 160 935,00
DKK
3 584 162,00
DKK
5 221 126,00
DKK
22 253 565,00
DKK
Sum of
2005-2015
FCF Net
present
Value
22 600 352 DKK
Perpetuity
cash flow
(2015 FCF) 13 953 749 DKK
@ 25%
WACC –
Future
value of
perpetuity 55 814 996 DKK
PV of
perpetuity
(FV/1,25^1
2) 3 835 577 DKK
VALUE OF
THE
COMPANY
(DCF) 26 435 929 DKK
The value of the company before our action plan & based on DCF is DKK 26M

24. Slide 24 of 20
DCF Valuation of Noir (After our plan of action)
NPV of FCF
2 005 2 006 2 007 2 008 2 009 2 010 2011-2015
- 3 214 142,00
DKK
- 2 451 123,00
DKK
- 232 482,00
DKK
10 104 071,00
DKK
10 380 787,00
DKK
16 168 863,00
DKK
49 392 412,00
DKK
Sum of
2005-2015
FCF Net
present
Value
80 613 350 DKK
Perpetuity
cash flow
(2015 FCF) 4 078 718 DKK
@ 20%
WACC –
Future
value of
perpetuity 20 393 590 DKK
PV of
perpetuity
(FV/1,25^1
2) 2 287 276 DKK
VALUE OF
THE
COMPANY
(DCF) 82 900 626 DKK
The value of the company after our action plan & based on DCF is DKK 82M

25. Slide 25 of 20
Forecasted Income statement after our action plan
Assumptions
• Additionnal growth of 10% per annum for the 2005-2007 period
• Additionnal growth of 15% per annum from 2008 until 2010 (due to sales in the Middle East market)
• WACC at 20% from 2008 (due to a third round of financing)
Forecast
Terminal
Period
(DKK) 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
EBIT -4 991 000 -5 433 200 -2 224 100 16 758 000 26 667 500 47 840 700 52 624 770 51 994 668 50 512 648 48 214 277 42 090 581 42 090 581
Adjust tax -1 397 480 -1 521 296 -622 748 4 692 240 7 466 900 13 395 396 14 734 936 14 558 507 14 143 541 13 499 998 11 785 363 11 785 363
EBIT after
tax -3 593 520 -3 911 904 -1 601 352 12 065 760 19 200 600 34 445 304 37 889 834 37 436 161 36 369 106 34 714 279 30 305 218 30 305 218
Write offs - - - - - - - - - - - -
Gross
cash flow -3 593 520 -3 911 904 -1 601 352 12 065 760 19 200 600 34 445 304 37 889 834 37 436 161 36 369 106 34 714 279 30 305 218 30 305 218
Changes
in
working
capital - -848 000 -1 965 167 -5 806 833 -2 325 000 -5 788 000 -1 673 300 -1 840 630 -2 024 693 -2 227 162 -740 010 -
Changes
in Fixed
Assets - - - - - - - - - - - -
Free cash
flow -3 593 520 -3 063 904 363 815 17 872 593 21 525 600 40 233 304 39 563 134 39 276 791 38 393 799 36 941 441 31 045 228 30 305 218
Discount
factor,W
ACC 1 1 1 1 0 0 0 0 0 0 0 0
NPV of
FCF -
New
Strategy -3 214 142 -2 451 123 232 841 9 150 767 10 380 787 16 168 862 13 249 613 10 961 431 8 929 171 7 159 499 5 013 978 4 078 718
NPV of
FCF -3 214 142 -3 668 039 -2 737 266 1 160 935 3 584 162 5 221 126 5 695 070 4 215 845 2 988 055 1 994 226 1 269 026 1 198 617

26. Slide 26 of 20
Payback Time: Cumulative Discounted
Cash Flows > 0
Original strategy New strategy
Cumulative
Discounted Cash
Flows > 0
5.9 years 3.6 years

27. Slide 27 of 20
ROCE – ROE & EVA
Year 2008
ROCE 46.5%
ROE 25.9%
EVA DKK 182 900 000