China / Hong Kong Company Focus

Prada
Bloomberg: 1913 HK Equity

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Reuters: 1913.HK

DBS Group Research . Equity

16 March 2012

BUY HK$47.80 HSI : 21,354
(Initiate coverage) Price Target : 12-Month HK$ 57.00 Potential Catalyst: New market penetrations DBSV vs Consensus: Our FY14F EPS is 8% above market as we believe demand for soft luxury goods could continue to outperform Analyst KOK Chiew Sia +852 2820 4918 cs_kok@hk.dbsvickers.com Mavis Hui +852 2863 8879 mavis_hui@hk.dbsvickers.com

Fashion powerhouse
• • • Premium status high fashion brand with good margin visibility Right market positioning and faster retail network growth to capitalise on the booming luxury market Initiating coverage with BUY for 19% upside to HK$57.00 TP

Price Relative
HK$ Relative Index 50.9 45.9 40.9 35.9 125 30.9 25.9 Jun-11 105 85 Sep-11 Dec-11

205 185 165 145

Premium branding with good margin visibility. The luxury goods industry has strong pricing power and good margin outlook as their selling prices normally sustain an uptrend to maintain prestige status. For Prada, better profitability could be achieved through (a) Expanding retail sales channels via Directly-Owned Stores (DOS) that offer higher margins, (b) Alternative material sourcing and rising economies of scale, (c) Adjustment in mark-down policy to reduce discounted items during sales period. Besides, the group’s strong pricing power allows store-wide price hikes, usually at low single-digit every year, on top of occasional price lifts by a larger magnitude for new and flash collections. Leveraging on booming luxury spending. Prada is a proxy to the booming luxury goods market in the far eastern countries, especially Greater China. Demand will come from: (a) growing middle class population, (b) increased buying power due to RMB appreciation, (c) looming demand for gift purchases, and (d) rising demand from younger consumers aged 18-35. To capture growth, Prada plans to add 240 new DOS in FY12-14F to hasten penetration and market coverage, while continues to focus on growing its more successful core brand PRADA and younger brand MIU MIU. We forecast FY12F-14F earnings CAGR of 28.7%, on 23% revenue CAGR. The key growth market will be Asia Pacific-ex Japan (+31% revenue CAGR to EUR1.5bn), which could be the largest revenue contributor (c.40%) to Prada by FY14F. Initiate with BUY and HK$57.00 TP. Prada’s valuation is attractive relative to some recently listed peers, i.e. Salvatore Ferragamo (SFER IM) and Michael Kors (KORS US). Its bigger market cap, better earnings quality and equally attractive growth prospects justify a premium valuation, in our view. In addition, HKD-denominated investment may attract investors with EURO funds given an expectation of a stronger HKD vs EUR (+13% in 2012). Pegging peers’ average of 27x PE multiple on Prada’s CY12F EPS of HK$2.11, we arrived at HK$57.00 TP. Initiating coverage with BUY.
At A Glance Issued Capital (m shrs) Mkt. Cap (HK$m/US$m) Major Shareholders Prada Holding B.V. (%) Free Float (%) Avg. Daily Vol.(‘000) 2,559 122,312 / 15,757 80.0 20.0 2,497

Prada (LHS)

Relative HSI INDEX (RHS)

Forecasts and Valuation FY Jan (EUR m) 2011A Turnover 2,047 EBITDA 527 Pre-tax Profit 388 Net Profit 251 Net Pft (Pre Ex.) 251 EPS (EUR) 0.10 EPS (HK$) 1.00 EPS Gth (%) 150.3 Diluted EPS (HK$) 1.00 DPS (HK$) 0.58 BV Per Share (HK$) 4.78 PE (X) 48.0 P/Cash Flow (X) 32.8 P/Free CF (X) 66.9 EV/EBITDA (X) 23.6 Net Div Yield (%) 1.2 P/Book Value (X) 10.0 Net Debt/Equity (X) 0.3 ROAE (%) 22.3 Earnings Rev (%): Consensus EPS (EUR): Other Broker Recs:

2012F 2,569 741 581 423 423 0.17 1.68 68.5 1.68 0.50 6.70 28.5 21.0 34.5 16.3 1.1 7.1 CASH 29.2 0.17 B: 10

2013F 3,122 933 760 542 542 0.21 2.15 28.2 2.15 0.65 8.34 22.2 17.2 27.0 12.6 1.4 5.7 CASH 28.6 0.21 S: 2

2014F 3,895 1,166 982 700 700 0.27 2.78 29.2 2.78 0.83 10.48 17.2 14.2 19.7 9.7 1.7 4.6 CASH 29.5 0.25 H: 7

ICB Industry: Consumer Goods ICB Sector: Personal Goods Principal Business: Designing, manufacturing, marketing and retailing of fashion and luxury goods under the brands of Prada, Miu Miu, Church's and Car Shoe

Source of all data: Company, DBSV, Bloomberg, HKEX

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Company Focus Prada

Table of Contents
SWOT Analysis A luxury powerhouse
Grabbing opportunities now Company Background Business Model Sales Analyses Costs Analyses Key management team

3 4
4 4 5 5 6 7

Competitive Strengths Growth Strategies
Where is Prada now? Playing catch up

8 8
8 10

Industry prospects
The power of Chinese luxury consumption Prospects for luxury goods’ operators could still be rosy

10
10 11

Financial estimates Valuation Key Risks

12 14 17

Page 2

Gulf Region and Russia Potential market share improvement from low base Sister brand MIU MIU could be the next leg of growth with more focus on marketing efforts Potential from brands acquired by Prada i. as well as new markets such as Latin America. These mainly relate to transfer pricing and tax residence issues given its international presence Competition from peers (who may get better store locations or gain popularity due to more effective marketing strategies) and counterfeits (tarnishing brand image) Potential brand dilution due to overly aggressive DOS expansion • • • • • • • Source: DBSV Page 3 . operating leverage and strong pricing power Opportunities in existing markets that are under-penetrated such as North America.e. and vice versa.Company Focus Prada SWOT Analysis Strengths • • • • • • Strong branding with a century-old track record Among leaders and creators of fashion trends Prudent and experienced management team headed by the founder’s ascendants and long-term partners Integrity of branding is preserved through direct control over the value chain Asset-light business model which allows speedier expansion of DOS network High bargaining power in securing retail space and leasing terms Weakness • Over reliance on limited brand portfolio • Brands under-utilised as only two out of four brands are performing well Opportunities • Growing middle class and rising demand for luxury goods among the younger population Margin expansion through sales network expansion of Directly-Owned Stores (DOS). CHURCH’S and CAR SHOE (about 10-12 years in the hands of Prada) are still untapped Threats • Economic downturn could lead to weaker demand for luxury goods • Lingering issues from taxation litigation or disputes could negatively affect bottomline if Prada loses. Northern Europe and China.

A. Via della Spiga Launch of the PRADA black nylon backpack Opening of the first PRADA stores abroad in Europe (Madrid) and the US (New York) Launch of PRADA women's ready-to-wear collection and first women's fashion show in Milan Launch of MIU MIU women's collection (ready-to-wear.I. Tokyo Agreement with Luxottica for the production and distribution of eyewear for PRADA and MIU MIU Launch of PRADA’s first fragrance Opening of the third Epicenter Store in Beverly Hills.A was merged into PRADA S. The store sold leather handbags. S.P. leather accessories and beauty cases.PRADA. launch of "PRADA Made in …" Project First PRADA fashion show in Beijing Source: Company.100 years to 1913 when Mr. MIU MIU.A. Prada’s history dates back c.p.p.P. identifiable by its "red stripe" Launch of the PRADA eyewear collection First Sponsorship of the Luna Rossa Challenge Opening of the first Epicenter Store in Soho. Ms.Company Focus Prada A LUXURY POWERHOUSE Grabbing opportunities now Company Background Prada’s business entered into a strong growth phase during the late 1970s when Mario's grand-daughter. obtained an exclusive license from Miuccia Prada to produce and distribute leather goods bearing the PRADA brand Design and launch of the "triangle" PRADA logo Launch of the first PRADA women's shoe collection Opening of the second PRADA store in Milan.A (Prada) designs. Patrizio Bertelli (current CEO) who operated a high-end leather goods business at that time. Miuccia took over the management and launched a partnership with Mr. New York IPI S. Los Angeles Launch of the first PRADA men's fragrance First MIU MIU fashion show in Paris Launch of the LG PRADA mobile phone Launch of the exclusive new "made to measure" and "made to order" services Prada-dressed hostesses and stewards in the Italian pavillion at the Shanghai World Expo.p. Key events Year 1913 1919 1977 1977 1980 1982 1983 1984 1986 1988 1993 1993 1997 2000 2000 2001 2003 2003 2003 2004 2004 2006 2006 2007 2009 2010 2011 Footwear Eyewear Fragrances * √ √ √ √ √ √ √ √ √ √ √ √ √ √ *MIU MIU offers products for female consumers only Source: Company Events Mario Prada opened first luxury store in the Galleria Vittorio Emanuele II in Milan Prada became an official supplier to the Italian Royal Family Patrizio Bertelli set up I. promotes and sells high-end luxury products ranging from leather goods to ready-to-wear (apparels) Leather goods and footwear under four key brands . S. leather goods and shoes) Launch of the PRADA men's collection (ready-to-wear and shoes) Launch of the PRADA leisure-time line. travelling trunks. DBSV Page 4 . luxury accessories and precious objects such as silverware and Bohemian crystal.I. opened a luxury store in the Galleria Vittorio Emanuele II in Milan. Miuccia Prada (current President of Prada). including those of Sir Robert and Granello I. It became the official supplier to the Italian Royal Family in 1919. the grandfather of Ms.A to consolidate the production resources that he had built up over the previous ten years. Prada S.p. Product offerings A prestige brand with a 100-year history.p. Ready-to-wear CHURCH’S and CAR SHOE. Opening of the second Epicenter Store in Aoyama. Mario Prada. manufactures.

e. At the same creation. It has a design team of c.3% in FY10. The balance was contributed by CHURCH’S and demand for core leather goods grew faster. If manufacturers (semi-finished and finished products) while Prada Family is counted as of the top 5 clients. it has c. DBSV Source: Company. CAR SHOE brands.400 wholesale clients that include reputable distribution as well as communications and public relations luxury department stores and upscale multi-brand stores with strategies.Company Focus Prada International brand with a global presence. as well as 33 mono-brand franchise stores (operated via 9 franchisees).480 external group sales (or 24. Prada owned a total of 319 an integrated business model encompassing design and Directly-Owned Stores (DOS) across 70 countries. collection of orders. sales keeping the balance 20% of processes in-house. where contribution next important product segment for Prada with revenue to revenue rose from 14.3% in FY11. It outsources c. Prada distributes its products through two main channels i. and contribution at 24% in FY11. This was followed by MIU MIU. travelling trunks.Prada’s core product type since 1913.e.3% to the wholesale segment) in FY11.79% of total product revenue (excluding royalty fee income) Clothing or Ready-to-Wear (RTW) and Footwear served as the in FY09-11. sourcing and production. shrinking from FY09’s 29% as 17.60 designers and graphic artists Top 5 wholesale clients (excluding the Prada Family – Ms.Marina Prada Bianchi and come up with new design concepts.80% of its her brother Mr. Prada has As at end-FY11. Managing business via an integrated business model. 1 in the UK mainly for CHURCH’S shoes). and PRADA remained the biggest revenue generator for the group leather accessories . sales time. hence ensuring at least one important phase of the production process contribution to the group would be 7. DBSV Page 5 .1. at c.Alberto Prada Bianchi) contributed 7. Product revenue breakdown by brand 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Prada Miu Miu F Y09 Church's F Y10 Car Shoe F Y11 Other 17% 15%16% 3%3%3% 2%1% 1% 1%0% 0% 79%79% 79% Product revenue breakdown by product type 60% 50% 40% 30% 20% 10% 1% 1% 1% 0% Clothing Leather goods F Y09 F Y10 F ootwear F Y11 Other 29% 26% 24% 40% 30% 27% 25% 50% 46% Source: Company. Business Model Business Model: Full Control of the Entire Value Chain Source: Company Sales Analyses By brand: By product type: Prada derived 50% of its product revenue in FY11 (from 40% in FY09) from Leather Goods i. Prada has a total of 11 in-house factories (10 in Italy.6% (or 26% to the wholesale segment) in FY11.7% in FY09 to 16. extensive experience in selling fashion and luxury goods. (including Ms. is performed internally. for retailing. Miuccia Prada as the stylist) as of end-FY11 to Miuccia Prada Bianchi. retail and wholesale. handbags.1% to product manufacturing processes to c. her sister Ms.

7% and 32.0b 29% Profits 12% Others 6% General & admin 7% 46% Raw material & manuf.4% of total FY sales.6% and FY10’s 12. with contribution at 51%.0%. There was a significant improvement in profitability as EBIT margin marched up to 20. Although Europe is still the dominant market. and 32% in FY11. with retail sales via DOS contributing 54% to product sales while wholesale was 46%. 12% 12% 11% F Y09 F Y10 F Y11 Source: Company. Sales are exposed to seasonal fluctuations. In FY09-11. these expenses made up 29% and 31% of total FY11 revenue. 46% and 42% in FY09. Product revenue breakdown by sales channel 120% EUR1. This was attributed to more DOS additions of 27 stores in FY10 and 54 in FY11. respectively. Contribution from the Asia Pacific region has been rising from 18% in FY09 to 26% in FY10. retail sales picked up faster during FY10-11 as sales contribution increased to 65% in FY10 and 71% in FY11 of total product sales. As a percentage of revenue. respectively. DBSV 18% 15% 15% Good improvement in profitability. Product revenue breakdown by geographical area 35% 30% 25% 20% 15% 10% 5% Europe America Asia Pacific 0% Italy Japan 1% 1% 1% countries North Other 27% 24% 24% 22% 22% 19% 18% 32% 26% Source: Company. The two biggest cost items for Prada are raw materials and selling expenses (includes sales staff salaries. and (b) adjustment in its mark-down policy as Prada reduced the number of products subject to mark-down and percentage of mark-down in product prices during the sales period. respectively. its contribution is declining as demand in the Asia Pacific grew at much faster pace (2-year sales CAGR of +51% vs European market’s +1%). compared to wholesale. DBSV Page 6 .7%. bringing total DOS to 265 and 319. Retail sales tend to peak in Dec. Prada has cut down price reduction rate for certain products from 50% to 30% and some from 20% to 10%. as well as expanded its network coverage to the Middle East via a joint-venture agreement with leading luxury retailer Al Tayer Insignia LLC. which was more profitable. FY10 and FY11. 32. exp 29% 54% 65% 71% F Y11 Transports 6% Product & dev 'ment 5% Source: Company.5% in FY11 vs FY09’s 11.6b 100% 80% 60% 40% 20% 0% F Y09 DOS F Y10 Wholesale ^ Selling expenses 31% A&P 4% Costs Analyses Cost structure dominated by raw materials and selling/marketing expenses. rental expenses. However. representing 30.Company Focus Prada By sales channel: Sales split between retail and wholesale was more or less in similar proportion in FY09. Cost structure in FY11 F Y11 total rev enue: EUR2. DBSV By geographical area: Prada’s sales are predominantly from Europe. Prada’s sales experience seasonal fluctuations as it is common in the fashion segment. This was lifted by: (a) the faster expansion in the retail segment. depreciation expenses and other expenses related to managing DOS).1b EUR1. Sales to wholesale clients usually peak between June and July in conjunction with delivery of the fall/winter collection. Since 4Q09. and between Dec and Jan for the spring/summer collection. in line with general consumer spending patterns during the festive season.5b 35% EUR2. sales in 4Q were the highest for the year. respectively. Prada added 54 new DOS in FY11 vs 27 in FY10.

The management team comprises a list of managers with vast experience in their respective area.0% 200 0. Zambernardi as which we believe should ease the risk of any product development disruptions.Commercial Area Group Human Resources Director Group Controlling Director Design Director the Design Director for MIU MIU and PRADA brands since Nov 2002. Miuccia Prada and Mr. Fabio Zambernardi has been collaborating with Prada since 1981.0% 5. Ms. He is Key management team Name Miuccia Prada Bianchi Patrizio Bertelli Carlo Mazzi Donatello Galli Brice Baudoin Stefano Cantino Maurizio Ciabatti Alessandra Cozzani Stephen Etheridge Giuliano Giannessi Francois Kress Lorenzo Panerai Gabriella Schnitzler Davide Sesia Sebastian Suhl Cinzia Tito Armando Tolomelli Fabio Zambernardi Age 63 65 64 49 45 45 45 48 52 48 44 43 53 43 43 55 45 48 Position President (Wife of Mr. Patrizio Bertelli. Miuccia Prada and Mr. Mr. As far as we understand. However. Fabio Zambernardi.000 1. Prada and Mr.0% 10. overseeing all the strategic activities as well as supporting the strategic brands image communication. In fact.500 2.0% 25.000 2.0% 20. DBSV Source: Company.0% 100 2010A Operating EBIT 2011A 2012F Pre tax Profit 2013F 2014F Net Profit Source: Company. Miuccia Prada Bianchi) Deputy Chairman Chief Financial Officer / Executive Director CEO Asia Pacific Group Communication and External Relations Director Group Engineering Directors Group Investor Relations Director CEO at Church & Co Group Corporate Finance Director CEO of Prada USA Leather Goods Industrial Division Director CEO of Prada Germany President of Prada Japan Group Chief Operating Officer . Ultimate direction is also being guided by the two co-founders. Bertelli have been working closely with Mr. plays an important role in the group.Company Focus Prada Sales Trend Profitability Trend EUR m EUR m 40.0% 15. Source: Prada’s prospectus Page 7 .0% 30.500 1. Mr. DBSV Key management team Management Composition. we think the succession risk is minimised given Prada Group’s established and capable management team as listed in the following table. In addition. one of the key management behind the brands. He is responsible for the collection concept development. Patrizio Bertelli.0% 3.500 3. Patrizio Bertelli) CEO (Husband of Ms. Ms. there are no immediate successors for Ms.000 500 0 2010A 2011A 2012F 2013F 2014F Total Revenue Revenue Growth (%) (YoY) 900 800 700 600 500 400 300 35.

Prada has direct control over production processes and value chains in order to maintain brand integrity and manage costs at the same time. This has helped to boost sales and margins between FY09 and FY11.Company Focus Prada Special collections to entice sales. Prada’s success as a prestigious. high-end leather goods brand owner is attributed to its focus and consistent effort in product innovation. Direct control to maintain brand integrity. DBSV Page 8 . in line with growing high-net-worth individuals and middle-class population especially in Greater China (disclosed under Asia Pacific). far behind some of the leading brands like Dior. Prada’s brand value has been building up since 1913 by founder Mr.1% vs European market’s 1. However. For monthly collections. Prada’s DOS network coverage . There remains room for further growth given its strong brand name and growing demand for luxury goods in Asia and the Middle East. Flash collections are supplementary products for the existing main collections with minor variations through a leaner production process. its second brand MIU MIU is under-penetrated with only 71 DOS currently. Its success has been supported by rising consumerism in luxury products. Apart from main product collections. Prada has key presence in Italy (37). The management team consists of a group of senior management with vast experience in the industry or related industries or in their own space of expertise. Prada has introduced “flash collections” and “monthly packages” in order to keep consumers’ interest and to entice sales. COMPETITIVE STRENGTHS Strong branding with a century-old track record. The two co-founders namely Ms. On a base of 319 DOS as of end-FY11. Prada’s sales from Asia Pacific grew at 2-year CAGR of 51. Patrizio Bertelli are actively involved in growing its existing brand portfolio.Total 319 DOS as of FY11 Source: Company.a over FY10-11. Mario Prada. Miuccia Prada and Mr. the grandfather of Ms. It normally takes 4-6 weeks from design to the placement of the flash collections in the DOS. (Please refer to charts on pages overleaf for Prada’s global presence and further breakdown of DOS by geographical area vs peers). Asia Pacific (99) and Japan (56). GROWTH STRATEGIES Where is Prada now? Prada’s global sales network for PRADA brand consists of 207 DOS.3% p. Europe (88). Bottega Veneta and Chanel. the third largest after LV (451) and Gucci (317) based on 2011 estimates. these are special collections produced for specific events (such as Christmas and Valentine’s Day) and are available in DOS for a limited period of one month only. Strong leadership from key management. North America (39). Miuccia Prada (current President of Prada Group).

Company Focus Prada PRADA and MIU MIU have fewer DOS than competitors Bigger market in Asia that is still growing 500 400 451 180 Asia 169 153 317 300 207 200 100 0 LV Hermes Prada Dior Bottega Veneta Miu Miu Chanel Gucci 71 193 175 150 120 116 89 49 148 145 90 60 30 0 Prada Miu Miu LV Gucci 38 Hermes Chanel Rooms for PRADA and MIU MIU to expand in mature market DOS presence still low in Mainland China Europe 120 105 79 65 60 26 10 0 Prada Miu Miu LV Gucci Hermes Chanel Prada Miu Miu 4 70 51 20 30 14 30 50 Mainland China 40 90 40 35 17 8 0 LV Gucci Hermes Chanel Significant untapped market in North America North America 150 129 120 90 64 60 30 0 Prada Miu Miu LV Gucci Hermes Chanel 26 7 33 31 Source: Company. DBSV (2011 estimates) Page 9 .

30 DOS for MIU MIU in Asia Pacific by FY14F. This would consist c. Growing younger brand MIU MIU. possible margin enhancement could also come from adjustment in its mark-down policy.20% of global luxury goods market’s estimate of US$135bn (EUR175bn) in 2015. we understand that Prada could have a net addition of nearly 70 new DOS. Prada plans to enter new markets in the Middle East including United Arab Emirates. As at 31 Oct 2011. For FY12F. Prada plans to open 70 in the Asia Pacific with China taking up more than 30 DOS. Prada’s DOS network growth (Unit) 600 500 400 300 200 100 0 FY09 FY10 Prada FY11 Miu Miu FY12E FY13F FY14F Church's Car Shoe 2 34 36 166 3 34 51 177 5 36 71 207 238 319 265 5 43 99 285 325 242 According to Almagamma Worldwide Markets Monitor. Hong Kong. and (b) Expanding retail sales channels through DOS. Macau and Taiwan) grew 23% y-o-y and comprised 10. especially the Greater China where sales grew 42% y-o-y to EUR359. The group is looking to add c. In our view. a less costly and mass-reaching channel.2% (or EUR17. We understand that out of the total 240 new DOS. Kuwait. Qatar and Saudi Arabia. which has higher margin than wholesale due to the differences between sell-in and sellout prices. MIU MIU derived 35% of sales from Asia Pacific in FY11. and Eastern Europe including Russia. This target is more than its previous net openings of about 30 stores a year. DBSV Entering new markets. where Prada has reduced the number of products subject to markdown and percentage of mark-down of product prices during sales period. is gaining popularity in the emerging markets as well as developed markets amid rising costs and preference for convenient shopping.3m in 9MFY12. McKinsey & Co also pointed to an expectation of strong growth in luxury goods demand in China.a. This is a new avenue for growth as online shopping. Prada started to offer its products through e-commerce in 2010.6bn) of global luxury goods sales in 2010E. Asia ex-Japan was the fastest growing region for luxury goods consumption in 2005-2010. Global luxury goods market by geographical region (EUR bn) 250 170 200 150 100 50 54 2010E 2005 2006 2007 2008 2009 2011F 2014F 61 147 6 15 21 51 160 6 16 21 56 7 19 20 58 FY11-14F +6.9% p. This channel generated maiden sales revenue of EUR1. According to its report in 2011. South America such as Brazil. Miuccia Prada in 1993 for young and fashion-forward female customers. slightly below the average target of 80 DOS p. Within the region. This was very close to Japan’s share of 10. However. we believe Prada would fill up the gap in FY13F.4% CAGR to EUR28bn vs other regions’ -1. We have not factored in any online sales estimates in our forecasts for now. The group is continuously exploring ways to increase margins through raising unit margin and cost efficiencies. E-commerce .Company Focus Prada Margin enhancement opportunities. Greater China (China. China would consume about US$27bn (or EUR35bn) annually in luxury goods in 4-5 years’ time. INDUSTRY PROSPECTS The power of Chinese luxury consumption 389 474 554 7 6 50 133 57 165 Playing catch up Adding new DOS. Prada intends to grow its sister brand MIU MIU which was founded by Ms. It continued to record strong demand from Asia Pacific.a. These are countries it currently has no presence in or only has wholesale distribution exposure.2% CAGR 221 11 185 166 172 9 44 153 9 8 8 33 18 28 20 23 17 20 18 18 67 57 53 53 46 65 58 64 68 80 Source: Company.5% of global luxury goods sales but recorded zero growth. growing 13.9m in FY11. This could be achieved via: (a) Alternative material sourcing and economies of scale. Prada has added 46 DOS (net of store closings).7% to 7.new growth dimension. DBSV Page 10 . RoW Asia ex J apan J apan Americas Europe 66 Source: Almagamma Worldwide Markets Monitor.a). Prada has set an aggressive expansion plan for FY12-14F to add a total of 240 DOS (net of store closings) by FY14F (average of 80 DOS p. A market study by the US consulting firm.

According to The New York Times.16 0. based on total sales value of luxury goods.8 Source: Almagamma Worldwide Markets Monitor.3% 7.4 11.18 0.cn). Our economists expect RMB to strengthen further vs EURO by 16.12 0. and vs USD by 3. We understand that industry-wide retail pricing for luxury goods tends to be adjusted upwards once or twice every year. DBSV RMB appreciated vs EUR and USD (unit/CNY) 0.2bn) partly due to RMB appreciation against EURO and USD.org.1% in 2012F and 6.2% in 2013F.0 62. increased retail sales and improved economies of scale. Pricing power of luxury brands stays strong as selling prices normally go up to maintain their prestige status.5 20.cnga. where luxury goods consumption is segregated into two main categories: (a) self-consumption.0 30. stronger purchasing power. According to a media report (from www. Prada: Margins on the uptrend (%) 80. Luxury goods sales in China (EURm) 10 31. Bulgari. Prada managed to achieve better margins due to higher pricing. with increases more apparent during the Spring season.2% in 2013F.0 - FY09 Gross margin F Y10 EBIT margin F Y11 Source: Bloomberg. Chanel and Dior raised prices between 5-15% during Jan-Feb 2012. and (b) gift-giving.0 10. DBSV Page 11 . RMB has appreciated 13% and 27% against the EURO and USD respectively. consumption split between self-consumption and gifts is 50:50 in China.2 35% 30% 25% 20% 15% 10% 5% 0% 2) New consumption patterns in China. Since the Chinese government ended the yuan-dollar peg and moved to a currency basket basis on 21 Jul 2005.4 67. DBSV Source: Company.6 12.0 60. 3) Privilege in pricing ability.10 0. we think retail pricing could continue to march up to maintain margins while keeping up with the “prestige” image.0 58. Against the backdrop of RMB appreciation.0 50.1% 8 6 4 2 0 2007 2008 2009 2010 % yoy (RHS) Chinese Luxury Goods V alue (EURm) (LHS) 5. The Chinese market has been the key growth driver for purchases of luxury goods between 2007 and 2010 (CAGR estimated at 27% to EUR9.Company Focus Prada Prospects for luxury goods’ operators could still be rosy 1) RMB appreciation. 4) Preservation of margins backed by pricing power. This trend of buying luxury goods as gifts for business or personal relationship reasons is rising. This is different vis-a-vis other industries where prices are stable or even show a downward trend in order to stay competitive.0 40.0 20.6% 9.14 0. Historically.08 0. which boosted purchasing power.1 29.0 70. Luxury goods industry in China has developed a very interesting trend.8% in 2012F and 1. This is in contrast with the spending pattern in Europe and North America whereby spending on luxury goods is based on practicality and necessity. DBS. key luxury brands like Hermes.06 2007 2008 2009 2010 2011 2012F 2013F CNY per EUR CNY per USD 20. The ideology behind this and brand owners’ pricing privilege is to maintain luxury brands’ high prestige status. Demand for luxury goods remains rosy despite price increases.9 4.

7 24.5 2.7%. Page 12 . World Bank. Prada’s strategy to add 240 DOS (c.9 2.0) 31. DBSV Source: Altagamma Worldwide Markets Monitor.9x on luxury goods sales growth as tabulated in the following table.4 7.5%-3.9bn. leather goods sales should continue to rise and dominate group sales. Sales breakdown by brands in percentage terms is expected to change slightly as we expect higher sales contribution from MIU MIU.5% and 24. We expect Prada to post 2year earnings CAGR of 28. We expect Prada’s EBIT margin to inch up 1. Prada’s sales increase by 2.5 8.3) 5.6 2.4 2. and 0.4 3.2%-1.0ppt to 24. Our sales growth assumptions on Prada of 21.7% for FY13-FY14F translate into a multiplier of 2.4%. in particular Greater China amid the rising middle class income group and increasing demand for luxury lifestyle from the younger population. Meanwhile. International Monetary Fund 2-year earnings CAGR of 28.2 2.a.0%-2.Company Focus Prada FINANCIAL ESTIMATES Multiplier effect from global economic growth.6% in FY13F.9 Prada's Sales Growth (5.) by FY14F should boost retail segment’s contribution vs wholesale.5% in recent years (20102011F).1 25.2 Luxury Goods Growth (7.9%.9 * Global financial crisis Source: IMF.6 Multiplier 0. but this multiplier has increased to 2. Meanwhile.0 2.80 p.2 2. for every 1% increase in global luxury goods sales. on the back of 2-year revenue CAGR of 23% to EUR3. based on 2010 and 2011E data. Global GDP to global luxury goods industry Growth Index (1995=100) Prada’s sales growth assumption Calendar Year 2009* 2010 2011E 2012F 2013F Global GDP Growth (1.4 21.6 7.0 3.5 3. every 1% increase in global GDP boosted global luxury goods sales by 1.8 3.2% in FY14F on better operating leverage and higher retail contribution. Margins could improve further as retail segment is more profitable. Based on historical trend in 2004-2007.2x on global GDP growth and 2.6ppt to 25.9 Multiplier 6.7% to EUR701m by FY14F. Key sales driver would mainly come from the Asia Pacific region.8) 12.

franchises and related parties Source: Company. franchises and related parties Source: Company.2% 90% 23.5b 20% EUR3.6% 871.0% 10.3% 0.4 30% 20% 10% 0% FY10 FY11 FY12E FY13F FY14F 24.427.0% 5.239. DBSV Leather goods sales remain the key product type 70% 60% 50% 40% 30% 24% 20% 17% 20% 15% 10% 0% Clothing Leather goods FY11 FY12F Footwear FY13F Other F Y14F 25% 23% 22% 20% 1%1%1% 1% 60% 64% 57% 50% Wholesale customers refer to independent customers.1b 18% EUR3.7 507.2% 23.9% 0.1 2.9% EBIT margin is expected to rise as DOS’ contribution increases (EBIT%) 30.3% 0.7% 80% 20.9b 16% 8% 1% 1% Other countries 40% 20% 0% 71% 80% 82% 84% FY11 FY12F DOS FY13F Wholesale ^ FY14F F Y11 F Y12F F Y13F F Y14F Source: Company.9% 78.0% 25.Company Focus Prada Asia Pacific’s contribution is expected to rise to 40% by FY14F 45% 40% 35% 30% 25% 20% 15% 10% 5% Europe North America 0% Italy Asia Pacific Japan 19% 22% 22% 17% 15% 13% 11% 32% 40% DOS sales’ contribution is expected to rise to 84% by FY14F 120% 100% 80% 60% EUR2.0% 20.3 732.0% FY09 11.1 589.4% 70% 60% 50% 12.531. DBSV Page 13 . DBSV Source: Company.7% 72.029.3 555.6 617. DBSV ^ Independent customers.0% 0.9 40% 991.0% 2.7% 0.6% 2.6% DOS Sales Wholesale Sales EBIT Margin 539.5 1.0% 15. DBSV MIU MIU’s sales contribution is expected to rise 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Prada F Y11 Miu Miu F Y12F Church's Car Shoe Other F Y13F F Y14F 17.5% 2.1 (Sales %) Source: Company.0 3.0b 29% EUR2.9 100% 25.

00 1. PEG and P/BV.5 41.3 32.2 0.7 27.EUR349m in FY12F. possibly reflecting its solid fundamentals underpinned by resilient demand for soft luxury goods.8 21.80 on 3 Oct 2011. we initiate coverage on Prada with BUY recommendation. 3.9 15.Company Focus Prada PE.1 31.3 0. Salvatore Ferragamo (SFER IM Equity) and Michael Kors (KORS US Equity). mainly driven by strong cash generation from operations assuming demand for luxury goods continues to flourish.0 n.4 22. FY12F= FY13F.3 48.6 1. it is the cheapest by Peer valuation Company FYE Price (local) 47.64 ^ FY10=FY11.3 0.2 1. Having said that. DBS Vickers Page 14 .a.40 136. in the absence of any major capex requirement.757 89.50).7 PE Div yield (%) FY13F 17.3x.2 FY11F 1.3 24.7 1.8 38.8 2.1%-1.3 12.4 2. FY11F=FY12F.93.540 10.20 Market cap (US$m) 15.2 37.5 22. Share price performance was resilient despite concerns on the global economy. and has the highest pretax margin.76.6 16.a. GBP/USD = 0. this would translate into 1.8 25.674 9.6 1.1 1. We think the group could be paying out more than 25-30% of earnings in the medium-term given its strong Free Cash Flow of c.0 1. Stronger financial position. 3.2 PEG (x) FY13F 0.77.365 3. With potential upside of 19%.9 3.0 0.0 Earnings CAGR (%) FY1113F 28.3 Share price is as of 15 Mar 2012 Currency: EUR/USD = 0. A neglected jewel? Compared to some recently listed peers i. VALUATION Initiating coverage with BUY. Meanwhile. and EUR611m in FY14F.00 for Prada.1 12.2 Cash 0.2 2. Yet.5 17.554.5 FY12F 1. EUR446m in FY13F.9x PEG. Post IPO debut (IPO price: HK$39.6 19.1 13. We think the valuation discrepancy is unjustified given Prada’s size and growth potential. based on a 30% prudent payout assumption. This is equivalent to 0.4 20.25 15.1 37.354 22. HKD/USD = 7. we derive a target price of HK$57.8 25.0 Net gearing (x) FY10 0.1 8.0 n.7 Cash 0.4 48.4 1.7 14.6 0. Prada’s share price has since rebounded and traded between HK$32 and HK$40 for 4. Prada is the largest by market cap and earnings. We understand there is no stated dividend policy but the group looks to pay 25-30% of earnings as dividends.7 18.3 Cash 0. an expectation of a strengthening HKD (pegged to USD) against EUR by 13% in 2012F presents another attractive investment opportunity for investors with EUR-denominated funds.6 1.1 Prada SpA^* LVMH Hermes Int’l PPR Burberry Grp PLC ^ Michael Kors ^* Tod's SpA Salvatore Ferragamo* Average Jan Dec Dec Dec Mar Mar Dec Dec FY12F 22. FY13F=FY14F * Listed within the last 12 months Source: Bloomberg.5 8. All of the three companies are positioned as luxury brand owners and operators with either a global presence or in the midst of establishing a global presence (i. which is relatively cheaper compared to its peers’ average PEG of 1.9 ROE (%) FY10 22.0 17.5 months before breaking above HK$40 in mid-Feb 2012.3 17.1 16.00 249. Potential higher dividend payout in the medium-term.2 17.5 32.e.2 19.e. This was mainly affected by looming concerns on the European sovereign debt risk which could have contagion effects on the global economy as well as demand for luxury goods. Prada’s share price hit a high of HK$49.3 14.2 28.8 0.2 1.0 65. By attaching a PE multiple of 27x (based on peers’ average PE of 27x) on Prada’s CY12 EPS of HK$2.80 135.7 0. CHF/USD = 0.3 1. We expect Prada’s balance sheet to have a net cash balance of EUR319m in FY13F from EUR 5m in FY12F. Michael Kors).455 34.7% net yield in FY12F-FY14F.9 19.091 3.6 17.340 FY11F 28.45 on 27 July 2011 before tumbling to the low of HK$28.4 57.5 25.65 84.00 47.11.

6 24.709 4.0 16. CHF/USD = 0.8 20.463 1.774 3.246 1.5 3.664 2.64 ^ FY10=FY11.353 4.0 26.0 12.314 3.870 34.0 Sep-11 Dec-11 Oct-11 Aug-11 Nov-11 Feb-12 Jun-11 Jan-12 Jul-11 -1 SD -2 SD +2 SD +1 SD Mean PBV (x) 7.055 1.281 1.768 1.7 30.915 3.Company Focus Prada Financial comparison FYE Prada SpA^* LVMH Hermes Int’l PPR Burberry Group PLC^ Michael Kors ^* Tod's SpA Salvatore Ferragamo* Jan Dec Dec Dec Mar Mar Dec Dec Revenue (USDm) FY11F FY12F FY13F 3.348 1.76.417 2.624 Pretax Margin (%) FY11F FY12F FY13F 22.162 4.770 588 242 209 203 Currency: EUR/USD = 0.0 22.074 5.8 21.6 24.205 925 1.93. DBS Vickers Page 15 .8 30.0 20.0 14.1 18. DBS Vickers Prada: PE band chart Prada: PB band chart PE (x) 28.2 20.0 6. FY12F= FY13F.6 19.954 17.577 716 832 1.0 4.4 25.2 20. FY11F=FY12F.2 12.5 19.5 5.761 37.3 30.0 18.77. GBP/USD = 0.5 13.5 Net Profit (USDm) FY11F FY12F 552 707 3.523 427 501 139 188 176 189 106 130 FY13F 914 5.5 18.082 30.310 18.5 4.8 20.6 21.562 15.6 11. HKD/USD = 7. DBS Vickers Source: Bloomberg.0 3.999 4.0 18.5 6.5 24.0 5.2 20. FY13F=FY14F * Listed within the last 12 months Source: Bloomberg.166 1.277 1.2 23.0 24.287 1.0 Sep-11 Dec-11 Jan-12 Aug-11 Nov-11 Feb-12 Oct-11 Jun-11 Jul-11 -1 SD -2 SD +1 SD Mean +2 SD Source: Bloomberg.

DBS Vickers Source: Bloomberg.0 Dec-11 Jan-12 Feb-12 -2 SD Source: Bloomberg.0 30.0 35.0 20.0 30.0 7.0 6.0 20. DBS Vickers Source: Bloomberg.0 Sep-11 Dec-11 Oct-11 Jan-12 Aug-11 Nov-11 Feb-12 Jun-11 Jul-11 +2 SD +1 SD Mean -1 SD -2 SD Source: Bloomberg.0 60.0 50.5 6.0 +1 SD Mean -1 SD -2 SD +1 SD Mean 13.0 +2 SD 17.5 4.0 5.0 -1 SD 9.0 7.0 15.0 25.0 40.0 25.0 5.0 15. DBS Vickers Michael Kors: PE band chart Michael Kors: PB band chart PE (x) 70.Company Focus Prada Salvatore: PE band chart Salvatore: PB band chart PE (x) 35.5 +2 SD +1 SD Mean -1 SD -2 SD 7.0 11.0 Dec-11 Feb-12 Jan-12 PBV (x) +2 SD 19.0 4.0 15.5 5.0 65.0 Sep-11 Dec-11 Aug-11 Nov-11 Feb-12 Oct-11 Jun-11 Jan-12 Jul-11 PBV (x) 8.0 10.0 45. DBS Vickers Page 16 .0 55.

which had helped to minimise currency fluctuations in the past. every 1% drop in the global luxury goods market will lead to a 0. Ongoing tax disputes. Out of the short-term loans. Thomas Pink. It could become too commercialised and easily obtainable as opposed to the perception that the products have a prestige value and are exclusive. 96% was represented by fixed interest rate loans. Meanwhile. EUR8m in FY10.1m for FY09-11. and Rossimoda are among the brands that form its fashion and leather goods franchise. We believe any fluctuation in benchmark interest rates will not affect Prada materially given that it has little exposure to floating rate loans. Forex exposure. Loewe. Givenchy and Kenzo are in the perfumes.Company Focus Prada KEY RISKS Economic downturns. respectively. As at 31 Jan 2011. we are less concerned on this matter as the group has adopted a hedging policy. Louis Vuitton. while Prada’s FY10 sales (for the year ended Jan10) contracted 5% y-o-y to EUR1. respectively. Pucci. As for Prada’s current expansion plans.7m in FY11. c. and EUR4.8m.1m in FY09. Based on our sensitivity analysis. However. Prada is exposed to various forex currencies due to its global presence. Kenzo. SA).6% decline in Prada’s sales. the value of global luxury goods market fell 7.8% y-o-y in 2009 to EUR153bn. Guerlain. Prada was involved in a total of 18 tax disputes during FY09-11. Marc Jacobs.4%. Take the case of LVMH (LVMH Moet Hennessy Louis Vuitton Page 17 . especially given its lower number of stores in various major consumer markets against close peers. Berluti. a leader in the luxury goods industry with an estimated market share of 18% in global luxury goods market in 2010. Givenchy. make-up and skincare sector. Prada incurred total exchange losses (net of gains) of EUR2.4% y-o-y to EUR172bn in 2010E. For example. believe that every brand has a growth ceiling in order to preserve its prestigious or premium status. every 1% growth in the global luxury goods market will raise Prada’s sales by c. while Prada’s revenue surged by 31. global demand for luxury goods rebounded strongly by 12.4m in FY09-11. and (c) transfer pricing. 80% of long-term loans was represented by fixed rate loans. during a downturn. LVMH has a stable of brands in each of its product segments. with the split between short-term and long-term debt standing at 39% and 61%. EUR7. Prada’s total debt amounted to EUR497. The company has also made provisions in respect of tax disputes of EUR6.9m. Fendi. We think there could be a risk of brand dilution if DOS expansion is too aggressive within a short period of time.5%-3. There could be a risk of disputes were mainly due to issues such as: (a) tax residence.3m. Céline. and EUR2. These tax Over reliance on existing brands. However. During the 2008/09 global economic crisis. Potential brand dilution from overly aggressive expansion.9m.6bn. the group has accelerated the pace of store additions while the scale still remains fairly reasonable. (b) insufficient brands to support Prada’s longer term growth as we permanent establishment.1% y-o-y to EUR2. exceeding 2008’s level. while Christian Dior. However.1bn for the year ended Jan11. It paid tax penalties of EUR5. respectively. Donna Karan. when the economy recovered. Prada could adopt a more pro-active strategy to widen its brand portfolio to increase its revenue base such as PRADA-liked or MIU MIU-liked brands.2. Interest rates exposure. EUR3. We think this boils down to brand communication and marketing strategies while striking a balance between expansion and maintaining its prestige status. A downturn in the global economy could adversely affect demand for luxury goods. and EUR40.6m.

4 9.0% 2010A 2011A 2012F 2013F 2014F Operating Margin % Net Income Margin % Main cost items are raw materials purchased and selling expenses related to retail operating expenses Gradual increase in margins reflecting its operating leverage and higher retail contribution Source: Company.5 40. of stores (unit) EBIT margin (%) 2009A n.0% 6.4 30.2 18.7 16.122 (893) 2.0% 11.569 (740) 1.0 29.734 (1.460) 769 0 0 (9) 0 760 (213) (5) 0 542 542 933 21.4 62.3 22.0 11.3 68.7 123.9 26.0 n.0 5.0% 21.569 2013F 2.3 2010A 1.561 (587) 975 (788) 187 (8) 0 (24) 0 155 (53) (3) 0 100 100 282 (5.7 25.6 17.6 30.0 19.122 2014F 2. of new stores (unit) Total no.3 67.7 150.291 693 74 22 43 3.5 19.1% Net Profit -/+ 1% Net Profit -/+ 1.9 2014F 3.5 28.3 21.5 2013F 3.2 25.1) 1.3% Segmental Breakdown (EUR m) FY Jan Revenues (EUR m) Prada Miu Miu Church's Car Shoe Others Total 2009A 1.7 9.0 2011A 2.0 2011A 59 319 20.222) 608 (9) 0 (18) 0 581 (154) (4) 0 423 423 741 25.895 (1.2 19.8 20.1 86.0 0.4 2012F 75 389 23.2 70.6 2012F 2.2 23.1 14.1 30.3 11.9 58.814 922 87 26 46 3.0 87.m. Margins Trend 26.161) 2.8 4.5 71. DBS Vickers Page 18 .829 (1.4 12.0 6.7 29.5 25.047 (659) 1.2 16.229 (1.166 24. EBITDA Growth Revenue Gth (%) EBITDA Gth (%) Opg Profit Gth (%) Net Profit Gth (%) Margins & Ratio Gross Margins (%) Opg Profit Margin (%) Net Profit Margin (%) ROAE (%) ROA (%) ROCE (%) Div Payout Ratio (%) Net Interest Cover (x) 2009A 1.a.266 240 50 34 54 1.0) 0.644 2010A 1.9 27.047 2012F 1.210 252 44 19 37 1.6 6.6 6.561 2011A 1.587 353 53 18 36 2.0 8.936 512 64 18 40 2.6 2010A 35 265 12. 238 11.752) 982 0 0 0 0 982 (275) (7) 0 700 700 1.4 28.0 33.9 0.7 2013F 85 474 24.388 (970) 418 (5) (4) (21) 0 388 (135) (3) 0 251 251 527 31.2 71.4 12.6 17.6 45.9 23.Company Focus Prada Key Assumptions FY Jan No.1 14.895 Key growth drivers remain PRADA and MIU MIU Income Statement (EUR m) FY Jan Revenue Cost of Goods Sold Gross Profit Other Opng (Exp)/Inc Operating Profit Other Non Opg (Exp)/Inc Associates & JV Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Pre-tax Profit Tax Minority Interest Preference Dividend Net Profit Net Profit before Except.6 2014F 80 554 25.0% 16.5 29.4 24.7 24.644 (691) 953 (762) 191 (2) 1 (36) 0 154 (53) (2) 0 99 99 282 N/A N/A N/A N/A 58.2 (2.2 Sensitivity Analysis FY13F Raw materials +/1% Selling exp +/.

048 9 2.0 NA 2014F 766 2 1. Non-Cash Wkg. Capital Net Cash/(Debt) Debtors Turn (avg days) Creditors Turn (avg days) Inventory Turn (avg days) Asset Turnover (x) Current Ratio (x) Quick Ratio (x) Net Debt/Equity (X) Net Debt/Equity ex MI (X) Capex to Debt (%) Z-Score (X) 2009A 379 10 1.3 1.5 161.5% Inventory 24.4 145.5 0.3 1.8 70.252 235 319 35.6 0.2 0.6 NA Asset Breakdown Debtors 16.6 1.366 194 465 303 193 1.7 0.9 219.3 182.003 9 2.5 23.1 2.809 214 5 38.6 0.058 97 280 274 119 2.0 162. & Liab.1 172.6 149.1 CASH (0.3 NA 2011A 537 2 1.176 367 386 264 147 1.641 22 3.148 459 370 111 150 1.809 144 571 203 193 1.176 273 (544) 27.7 161.5 1.847 44 844 103 193 2.0 64.0 1.046 567 480 329 119 3.9 1.8 0.148 218 (472) 55.1% Net Fixed Assets 37.5 CASH (0.9 201.040 912 599 410 119 3.7 NA 2012F 619 2 1.0 1.4 0.366 209 (401) 44.7 NA 2013F 710 2 1.3 37.9 1.252 94 693 153 193 2.3) 162.5 22.4 0.688 10 2. DBS Vickers Page 19 .041 87 251 251 158 2.033 99 232 224 133 2.3 0.9 CASH 0.2) 103.8% Associates'/J Vs 0.052 352 395 270 119 2.847 285 764 34.1% Bank. Cash and Liquid Assets 21.4 0.204 6 2.5% c.1 206.3 1.9 NA 2010A 418 10 1.3 76.103 15 3.80% of Other LT Assets is Intangibles Assets Strengthening fundamental with growing cash from operation Source: Company.4 0.Company Focus Prada Balance Sheet (EUR m) FY Jan Net Fixed Assets Invts in Associates & JVs Other LT Assets Cash & ST Invts Inventory Debtors Other Current Assets Total Assets ST Debt Other Current Liab LT Debt Other LT Liabilities Shareholder’s Equity Minority Interests Total Cap.0 0.6 0.7 1.

DBS Vickers Page 20 .(net) Other Invts. & JV Inc/(loss) (Pft)/ Loss on disposal of FAs Chg in Wkg. & Amort. Other Operating CF Net Operating CF Capital Exp.Cap.17 2014F 982 184 (213) 0 0 (112) 10 851 (240) (4) 0 0 0 (244) (163) (100) 0 0 (263) 1 346 0.24 Capital Expenditure 300 250 200 150 100 50 0 2010A 2011A 2012F 2013F 2014F Capital Expenditure (-) Capex is mainly for new store openings Source: Company. & JV Div from Assoc & JV Other Investing CF Net Investing CF Div Paid Chg in Gross Debt Capital Issues Other Financing CF Net Financing CF Currency Adjustments Chg in Cash Opg CFPS (EUR) Free CFPS (EUR) 2009A 154 92 (98) (1) 0 27 (8) 166 (144) (8) 0 0 0 (152) (1) (15) 0 0 (16) 7 5 0.38 0.07 2012F 581 142 (108) 0 0 (51) 10 574 (225) (4) 0 0 0 (229) (146) (150) 207 0 (89) 0 256 0.09 0.01 2010A 155 104 (39) 0 0 49 11 280 (133) (9) 0 0 0 (142) (48) (77) 0 0 (125) (3) 9 0.Company Focus Prada Cash Flow Statement (EUR m) FY Jan Pre-Tax Profit Dep.31 0.06 2011A 388 118 (90) 4 0 (76) 23 368 (188) (4) 0 0 0 (192) (59) (110) 0 0 (169) 4 10 0.24 0.(net) Invts in Assoc.17 0.05 0. Tax Paid Assoc.14 2013F 760 164 (154) 0 0 (80) 10 701 (255) (4) 0 0 0 (259) (127) (100) 0 0 (227) 0 215 0.

Management Team Source: Company Page 21 .Company Focus Prada APPENDIX A.

Company Focus Prada B. Branding – The Identity Source: Company and various websites Page 22 .

Aoyama. London Rem Koolhaas. New York Herzog & De Meuron.Company Focus Prada C. Tokyo Source: Company Page 23 . Hong Kong MIU MIU’s Store Concept New Bond Street. SoHo. Italy Milan. Japan Canton Road. Italy Nagoya Tower. Store Concept PRADA’s Store Concept Milan.

Potential Markets Expansion potential in underpenetrated markets Source: Company Expansion potential in new markets Source: Company Page 24 .Company Focus Prada D.

Company Focus Prada Expansion focus in Greater China market Source: Company. DBS Vickers Global luxury market’s growth potential to be driven by retail expansion and rising demand from Asia especially China (EUR bn) (% growth) Source: Altagamma Worldwide Market Monitor Page 25 .

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