Natura Cosméticos S.A.

Transcrição

CORPORATE FINANCE
Valuation Report of
Emeis Holdings Pty Ltd.
Advisory
March 12, 2013
KPMG Corporate Finance Ltda.
Av. Nove de Julho, 5109 - 6º andar
01407-905 - São Paulo, SP - Brasil
Caixa Postal 2467
01060-970 - São Paulo, SP - Brasil
Central Tel
Fax
Internet
55 (11) 3245-8000
55 (11) 3245-8309
www.kpmg.com.br
p g
To
São Paulo,
Paulo SP
SP, Brasil
March 12, 2013
Attention: Directors of Natura Cosméticos S.A.
Dear Sirs:
In accordance with the terms of our p
proposal
p
for p
professional services dated January
y 23,, 2013,, and subsequent
q
understandings,
g , we have p
performed a valuation of
Emeis Holdings Pty Ltd., as of the base-date January 31, 2013, as represented in this attached report.
The delivery of this report concludes the obligations of KPMG Corporate Finance Ltda. with Natura Cosméticos S.A., as it relates to the valuation of Emeis Holdings
Pty Ltd. and as a result of the aforementioned proposal.
This report is considered a free translation of the final Portuguese version that was issued on March 12, 2013. If there are any discrepancies or differences between
th versions,
the
i
th version
the
i in
i Portuguese
P t
will
ill prevail.
il
Very truly yours,
Luis Augusto Motta
Partner
KPMG Corporate Finance Ltda., uma sociedade simples brasileira,
de responsabilidade limitada, e firma-membro da rede KPMG de
firmas-membro independentes e afiliadas à KPMG International
Cooperative (“KPMG International”), uma entidade suíça.
KPMG Corporate Finance Ltda., a Brazilian limited liability company
and a member firm of the KPMG network of independent member
firms affiliated with KPMG International Cooperative (“KPMG
International”), a Swiss entity.
Contents
Page
1. Introduction

Background

Obj ti
Objective

Valuation criteria

Sources of information

Scope

IImportant
t t notes
t and
d scope lilimitations
it ti

Subsequent events

Report use and disclosure
3
2. Valuation criteria
3.
3 Brief Description of the company
4. Assumptions used in the valuation
5. Discount rate
6. Estimate of the company’s value
7. Comparable company multiples analysis
8. Conclusion
Appendix: Curriculum Vitae
© 2013 KPMG Corporate Finance Ltda., uma sociedade simples brasileira e firma-membro da rede KPMG de firmasmembro independentes e afiliadas à KPMG International Cooperative (“KPMG International”), uma entidade suíça. Todos
os direitos reservados. Impresso no Brasil.
Valuation Report
2
1. Introduction
Background (Source: Natura management)
Sources of information
•
•
•
•
On December 20, 2012, Natura Cosmetics S.A. ("Natura" or the "Client"),
pursuant to the provisions of CVM Instruction 358/2002, acquired 65
percent of Emeis Holdings Pty Ltd. ("Aesop" or ithe "Company"). The
amount paid in the context of the acquisition was AUD $ 68.25 million,
subject to certain adjustments that were part of the contract of purchase
and sale agreement.
Aesop was founded in 1987 in Australia, with a focus on producing
personal care products tailored to high-end retail. As of the acquisition date,
Aesop operated in more than 60 locations in 11 countries. The product
range includes
i l d
skin,
ki body
b d and
d hair
h i care. The
Th Company's
C
' products
d t are
available online and in more than 60 signature stores in major cities
including Paris, Tokyo and New York, as well as department stores around
the world.
•
Objective
 The objective of our services was to perform a valuation of Aesop, to meet
the provisions of Article 256 of the Corporation Law and Annex 19 of CVM
Instruction 481.
•
For the purposes of the valuation the Discounted Cash Flow (“DCF”)
method was used, as this is a widely used convention for determining the
value of companies with business plans that have likely certainly of future
profitability. The DCF method is further described under Section 2 of this
report.
Our work was based in the following information:

The Company
Company’ss audited financial statements as of June 30,
30 2010,
2010 2011
and 2012 (The Company’s year end is June 30th);

Balance sheet and income statement data as of January 31, 2013;

Internal documents prepared by Natura’s Management;

Business Plan and projections prepared by Natura’s management;

Information obtained throught interviews with Natura
Natura’ss Management;

Data and market information regarding the Company’s industry.
The information used in the Company’s valuation was provided by the Client.
KPMG has assumed that the information received is correct and that no
essential information was withheld. Information was not verified due to the
scope of this work,
work therefore,
therefore KPMG does not assume any responsibility for
its accuracy and perfection.
Scope
•
Valuation criteria
The base-date for this valuation was January 31, 2013.
Our work involved the following procedures:

Analysis of Aesop’s financial statements for the last three fiscal years and
balance sheet as of the base-date;

Interviews with Management to complement and verify our understanding
of Company’s current operations and its future expectations;

Analysis of the Company’s business plan and its main assumptions
developed by Management;

Analysis
Anal
sis if the business
b siness plan,
plan operational projections,
projections studies
st dies about
abo t the
Company and/or internal valuations performed by the Natura;
Valuation Report
3
1. Introduction (cont.)

Analysis of marketing data prepared by Natura and comparison of these
with public data;
•
Therefore, KPMG does not express an opinion or provide any kind of
guarantee in relation to the financial statements.

Sensitivity analysis to evaluate the impact of key variables on the value
of the Company;
•

Analysis of market multiples of comparable companies;
Although we have processed information, we do not provide any kind of
attestation as to the authenticiy of the information collected or an opinion or
guaranty
y in relation to its integrity.
g y
anyy kind of g

Economic-financial modeling of the Company’s operations; and
•

Estimate of the discount rate to be applied.
The scope of our work does not include the detection of fraud in operations,
processes, accounting registries or Company documents.
•
Although we apply our best efforts to accomplish the objetive of this work,
due to the very nature of the services rendered, we do not and will not
p
of anyy expected
p
operation
p
within anyy
assure the sucessful implementation
timeframe, nor will we be responsible for any opportunities that are not
identified, presented or explored, for whatever reason.
•
The work was carried out under the technical supervision of KPMG in an
independent manner. However, due to the very nature of the work, the
analysis is subjective, thus other professionals may express a different point
of view than that of KPMG.
KPMG
Important notes and scope limitations
•
We emphasize that this report was prepared based on the understandings
with the Company’s Management and that the objective set above reflects
these understandings. The work was focused on the preparation of a
financial projection model for the purpose of estimating future cash flows
generated by the Company, based on the premises discussed and
approved by Company Management.
•
We emphasize that the determination of the economic value of possible
contingencies, the market value of fixed assets and other adjustments to
the financial statements (if applicable) were not part of the scope of this
report. Thus, with respect to such items our work was based on information
and analysis made available by the Client and/or their respective auditors,
lawyers and/or other advisors.
•
During
D
i the
th work,
k we have
h
made
d the
th analysis
l i procedures
d
which
hi h we deemed
d
d
appropriate in accordance with the scope set. However, KPMG is not
responsible for the information supplied to it and will not be liable or pay, in
any event, damages or losses arising or resulting from the omission of data
and information by the Management of the Company or the Client.
•
We emphasize
p
also that the work did not constitute an audit according
g to
generally accepted auditing standards and should not be interpreted as
such.
Valuation Report
4

KPMG does not state an opinion as to whether or not assumptions
considered in the financial projections are correct or in relation to the
probability of the future results of the Company reaching the projected
values. It must be emphasized that the actual future realization of
projections depends on the continuing validity of the assumptions they are
based on.
on Any advice,
advice opinion or recommendation provided by KPMG as
part of the engagement shall not amount to any form of guarantee that
KPMG has determined or predicted future events or circumstances.

Valuations, in general, present significant degrees of subjectivity.
Furthermore, the projections and assumptions used in valuations are
based in future expectations, which could be confirmed or not, in view of
the fact that projected events may not occur,
occur due to a number of
exogenous economic and operating factors. Thus, there are no guarantees
that any assumptions, estimates, projections, results or conclusions
presented in the valuation report will be effectively observed and/or verified,
in its entirely or partially.


The figures observed in the future may be different and the differences
may be significant.
significant These possibilities are not a bias or a defect of the
valuation process and are recognized as part of its nature. Hence, KPMG
is not responsible and can not be held responsible for any differences
between the valuation results and the results observed a posteriori.
We emphasize that a valuation establishes an estimate value to be used
for a theoretical interaction between a buyer and a seller, both with a firm
intention of closing the deal,
deal with full access to the relevant facts,
facts without
an immediate need to buy or sell. An effective negotiation does not always
reflect these elements, and may include other elements, and consequently
does not necessarily occur at the value estimated as result of the valuation
exercise.

The services proposed herein may be based on legal and administrative
rules. In this regard, we note that our legislation is complex and very often
the same provision can be interpreted in more than one way. KPMG seeks
always to be up-to-date in relation to the various interpretative tendencies,
in order to permit an ample evaluation of the alternatives and risks involved.
Even so,
so it is certain that there may be some interpretations of the law that
differ from ours. Under these circumstances, neither KPMG, nor any other
firm, can give Client total assurance that it will not be questioned by third
parties or assessed for additional tax by the authorities, including
supervisory agencies.

Our services will be based on current legislation and regulations. The scope
of this proposal does not include the updating of services and/or their
respective reports in light of laws or regulations that may come into effect
after conclusion of the services.

The sums of individual amounts presented in this report may differ from the
result of the sum presented due to rounding.
Report use and disclosure
•
This report was prepared for the exclusive use of the Client’s management,
and therefore should not be disclosed to third parties without our prior written
consent. Nevertheless, we understand that the tax authorities could request
access to this report, and we henceforth authorize its disclosure in this
specific case.
Valuation Report
5
Subsequent events

The valuation was based on the income statement and on the balance
sheet as of the Valuation Date and on information obtained prior to the date
of issue of this report.

We wish to stress that any events that have occurred after the Valuation
Date were not considered.

This valuation was performed using the Discounted Cash Flow criteria as of
the base-date and based on information obtained prior to issuance of this
report. KPMG was not commissioned and is not obliged to update this
report following its date of issue.
Free translation

This summary report is a free translation to English (requested by Natura
Management) of the report issued in Portuguese. If there are any
discrepancies or differences between the versions, the version in
Portuguese will prevail.
Valuation Report
6
Content
Page
1. Introduction
2 Valuation criteria
2.
8
3. Brief description of the company
5. Discount rate
8. Conclusion
Appendix:
pp
Curriculum Vitae
Valuation Report
7

As mentioned previously, the valuation of the Company was performed
according to the DCF criteria.

The DCF method is applicable to any company provided it has a business
plan in place which is reasonably determinable and achievable. This
criterion is especially applicable to companies that have reasonable
prospects for expansion or significant changes in profitability parameters
from its operations and which business plans are regarded as adequate to
enable estimating and measuring these events.

This criterion also includes the value of intangible assets such as
trademarks, customer portfolio, and market share, since these assets can
reflect the capacity to generate results of the company being valued.

The DCF method is based on the concept that the value of a company is
directly related to the amounts and periods during which free cash flows,
derived from operations, will be available for distribution. Therefore, for the
shareholder, the value of the company is measured by the amount of
financial resources that are expected to be generated in the future by the
business, discounted to present value, to reflect the time and risk
associated with the cash generation. For valuation purposes, it is
considered that 100% of excess cash flows would be available for
distribution at the time they are generated.


Contingent assets, non-operating assets and financial assets are added to
the value obtained, as described above, while existing bank debts, loans,
contingent liabilities and non operating liabilities are subtracted, when
applicable, to obtain the equity value of the company.
In order to calculate future cash flows generated by a company’s
operations, income statements are projected. The projected values of
depreciation and amortization are added back while the projected capital
investments are deducted. In addition, appropriate net working capital
adjustments are included. Other items that affect the company’s cash flow
are also considered when appropriate.

It is important to point out that the net profit calculated in the income
projections should not be compared with the accounting net profit to be
reported in subsequent financial years. This is due to the fact, among other
reasons, that the effective net income is impacted by non-operating or nonrecurrent factors, which (since they are not known in advance or
foreseeable) are not considered in the projections, such as occasional
revenue, non-operating revenue, revenues and/or expenses with monetary
and exchange variations, and others.

The purpose of projecting future income statements is to calculate the
projected cash flows of the Company that is being valued and comprises
future cash flows available for both shareholders and creditors of the
company. At this stage of the valuation, the objective is to determine the
capacity
it to
t generate
t cash
h from
f
th company’s
the
’ normall operations,
ti
i other
in
th
words, its potential to generate wealth to its capital providers as/or a result of
its operating characteristics.

The calculation of the discount rate is a fundamental stage of any valuation.
This single factor reflects subjective aspects which vary from investor to
investor such as cost of opportunity and personal perception of the
investment risk involved.
involved

The weighted average cost of capital (“WACC”) is generally used as the
discount rate to be applied to the projected cash flows of companies.

The WACC is calculated on the basis of a capital structure to be adopted
over the long term to finance the operations of the company being valued
and based on the average weighted cost of equity capital and third parties
capital,
it l inherent
i h
t to
t the
th company’s
’ capital
it l structure.
t t
Valuation Report
8
Contents
Page
1. Introduction
3. Brief description of the company

Brief company description

Products

Geographic presence

Sales channel
10
5. Discount rate
8. Conclusion
Valuation Report
9
3. Brief Company description
(Source: Aesop and Natura)
Brief company description
•
Aesop is an Australian company that operates in the cosmetics segment, with
products in Skin Care, Body Care and Hair Care lines amount others, including
products for men, for the household and domestic animals.
•
The Aesop brand is recognized in the market for its high quality as well as its use
botanical natural ingredients.
•
The company was founded in 1987 in the city of Melbourne, Australia.
•
Over the years Aesop has expanded its presence into new markets;
launching in United States in 1990, followed by its arrival in Europe and Asia.
•
Currently, its products are sold in over 50 signature stores in major cities
around the world.
•
Aesop also has a strong presence in department stores. Their business
model has been successful in various countries around the world.
Company timeline
1987
1990
1995
2000
2005
Aesop was founded
by Dennis Paphitis in
Melbourne, Australia.
Launch in EUA.
Launch of the Body
Care e Skin Care lines.
Launch in the UK,
Japan, Malaysia,
France and Hong
Kong.
Launch in the EU, first
signature stores
inaugurated, UK
subsidiary was
established.
Signature stores
opened in Hong Kong,
Sydney, Taiwan,
Singapore, Paris and
Canberra.
2006
2008
2009
2010
2011
Hong Kong and US
subsidiarys
established, signature
stores opened in
Tokyo Paris,
Tokyo,
Paris
Melbourne and
Singapore.
New signature stores
opened in the US and
departament
p
stores
point of sale
expansion.
French and Japanese
subsidiary established,
three signature
g
stores
opened in Australia.
Singapore subsidiary
established, signature
stores opened
p
in
London and Australia.
Four signature stores
opened in Australia.
Valuation Report
10
3. Brief Company description (cont.)
Geographic presence
Europe
London regional hub
Revenue share: 13,9%
Responsible for EMEA area management, marketing, retail
operations and development
APAC (excl. Australia)
Hong Kong regional hub
Revenue share: 39
39,3%
3%
Responsible for APAC area management, marketing, retail
Americas
New York regional hub
Revenue share: 3,7%
Responsable for US area management, marketing, retail
Australia
Global head office
Revenue share: 40,6%
Responsible for brand, marketing and channel strategy,
finance and treasuty and R&D
Valuation Report
11
Participation of each range of products in revenue (04/2012):
Products
•
The Company's product portfolio consists of the following lines:
Other
15%
•
•
•
•
Skin Care:
Ski
C
Th products
The
d t in
i the
th Skin
Ski Care
C
li are
line
formulated with high concentrations of active
botanicals and federallly approved ingredients. The
formulations also contain anti-oxidants, vitamins
and the highest quality plant-based extracts.
Hair Care
5%
Skin Care
50%
Body Care: The range is composed of soaps,
soaps gel
cleansers, blams and oils, that are gentle to the skin
and of high quality.
g of Hair Care p
products are
Hair Care: The range
disigned to adress the needs of all scalp and hair
types.
Other: Other products include deodorants,
f
h i
d t gift
ift and
d travel
t
l kits,
kit
fragrances,
shaving
products,
petcare and domestic items.
Body Care
30%
Product innovation
•
The R&D team is located in a specially built laboratory at the Company's
headquarters in Melbourne.
•
R&D is focused on product innovation, formula research and creating
prototypes that go through rigorous testing.
•
The Company combines the newest technologies with practical and
scientific principles to create quality products.
•
The Company engages with the experimentation of using new ingredients.
Valuation Report
12
Sales channels
•
Listed below are the various sales channels of the Company:
•
Signature stores: Includes all
brand products and services.
•
Number of stores: 54
•
Department stores: Reaches
mainstream customers who
are open to product
experiementation.
•
•
•
•
•
Digital: Global presence
presence,
offers simple introduction
to new clients.
Sales channel allocation in revenue (04/2012):
Wholesale
10%
Digital
2%
Signature
stores
48%
Wholesale: Expands brand
awareness amongst target
consumer.
Department
stores
40%
Valuation Report
13
Content
1. Introdução
1. Introduction
Page
3. Brief company
y description




15
Initial considerations
Macroeconomic assumptions
Operational assumptions
Income statement
5. Discount rate
8. Conclusion
Valuation Report
14
4. Assumptions
Initial considerations
Discount period
•
•
For the year in which the cash flows are generated, we considered the
assumption that the monthly flows have different values over time.
Therefore, the cash flows at the beginning of the year should be discounted
for less time than those at the end of the year.
•
Consequently, for practical reasons, the period’s cash flows were
discounted as they occurred in the middle point of each period.
The assumptions used in the projections were provided the Management
team of Natura and were analyzed by KPMG.
Currency
•
The projections were made using the Australian Dollar as a currency and
were prepared in nominal terms (taking into account the effects of inflation),
as of the base-date of January 31, 2013.
Other considerations
Projection horizon
•
From a theoretical p
point of view the p
projection
j
horizon would extend to
infinity given the longevity of the industry that the Company operates in.
However, due to practical reasons (including the difficulty of estimating
parameters for longer periods), we considered a projection horizon limited
to a few years, according to the Company’s characteristics and current
situation. A terminal value is then added at the end of this period.
•
In this review,, observing
g the characteristics of the Company,
p y, it was
considered a forecast horizon of six years and five months, from the base
date until June 30, 2019.
•
The terminal value was calculated based on a perpetual future cash flows,
based on the normalized value of the operating cash flow of last year of the
projection, 2019. According to the characteristics of the Company was also
considered the p
perpetuity
p
y of cash flows after the forecast p
period,, based on
the following formula and the nominal growth rate of 50% of the projected
growth for the Australian GDP (2.38% p.a.):
Perpetuity value by the
end of the last year of
projection
j ti
=
Normalized free cash flow of the
last year
(Discount rate - Perpetuity
growth rate)
=
•
The valuation using the discounted cash flow was conducted considering a
scenario in which Aesop operated through a distribution network,
network which will
be acquired by the minority shareholders of the Company.
FCn x
(1+g)
(i-g)
Valuation Report
15
4. Assumptions (cont.)
Revenue growth by region:
•
The long term real GDP growth in Australia, the U.S., Europe and Asia
along with inflation were used for each geographic region for a long-term
growth assumption.
•
The macroeconomic assumptions used in the valuation are as follows:
2012-2030
•
The net revenue growth by region was projected according assumptions
and discussions with Natura’s Management and is demonstrated on the
following page.
Source
Real GDP grow th (annual average)
Australia
US
Europe
Asia (excluding Australia)
3,00%
2,40%
1,30%
4,66%
Economist Inteligence Unit
OECD Economic Outlook
Source
Inflation ((historical average)
g )
Australia
US
Europe
Asia (excluding Australia)
1,75%
2,05%
2,40%
4,58%
Australian Bureau of Satistics
Global Financial Data
Eurostat
O
Operational
ti
l assumptions
ti
Net operating revenue
•
Aesop’s net operating revenue has been projected using based on
geographic regions where the Company operated as of the base-date.
Valuation Report
16
•
The following table shows the compounded annual growth rate (CAGR) between the 2010 to 2012 for each operating region of the Company, as well as the main
objectives for the Company to achieve furture growth over the next five years.
Region
CAGR
(FY' 10 - FY'12)
Australia
12 10%
12,10%
APAC (excluding
Australia)
10,70%
Europe
33,40%
US
137,30%
Online sales/Digital
n/a
Future profitability goals
• Australia represents the largest market for Aesop and w ill continue in this position for the next three years.
• Ensure that the brand's p
positioning
g remains relevant and desirable to the core costumers.
• Increase the number of signature stores.
• Improve back-end systems and retail execution.
Japan:
• Continue to expand the netw ork of signature stores by tw o new stores by year.
• Expand number of w holesalers, particularly outside Tokyo.
• Increase exposure, brand recognition and market share.
• Build local management team.
Singapore:
• Continue to build brand recognition.
• Expand the netw ork of signature stores and w holesalers, increasing its market share.
• Develop management team w ith focus on retail.
Hong Kong:
• Establish Hong Kong as the regional base for Asia.
• Position the brand appropriately
appropriately, strenghtening its value
value, given the highly comercial local conditions
conditions.
• Expand the number of signature stores, improve the standard of operating performance in the ones that already exists and increase its market
share.
United Kingdom :
• Develop signature stores and departament store counters, particularly outside London.
• Develop management team.
France:
• Continue to develop the netw ork of signature stores and departament stores counters.
• Relocate the office and develop the management team.
• Develop the brand's presence, ensure that the French positioning sets an example for other EU countries.
• Oportunidade significante de crescimento, já que se trata do maior mercado de cosméticos do mundo.
• Expand distribution.
• Build brand presence through events and editorial.
• Build consumer database.
• Recruit and develop retail team.
• Launch a new global sales plataform.
• Develop and execute an online marketing strategy.
• Launch online magazine and content.
Source: Client
Valuation Report
17
Net revenues by geographic region:
•
The following table displays net revenues by geographic region:
Revenue by region
AUD 000
Historical
2010
2011
Projections
2012
2013
2014
2015
2016
2017
2018
2019
Net revenues
% Grow th
31.320
26,7%
38.255
22,1%
49.016
28,1%
64.045
30,7%
85.944
34,2%
106.486
23,9%
116.316
9,2%
127.442
9,6%
139.770
9,7%
153.046
9,5%
Australia
% Grow th
% Total
14.101
23,2%
45,0%
16.202
14,9%
42,4%
19.887
22,7%
40,6%
23.487
18,1%
36,7%
27.813
18,4%
32,4%
31.862
14,6%
29,9%
33.375
4,8%
28,7%
34.960
4,8%
27,4%
36.621
4,8%
26,2%
38.361
4,8%
25,1%
APAC (excl. Aust.)
% Grow th
% Total
14.209
21,5%
45,4%
16.606
16,9%
43,4%
19.271
16,1%
39,3%
23.511
22,0%
36,7%
29.153
24,0%
33,9%
34.984
20,0%
32,9%
38.218
9,2%
32,9%
41.751
9,2%
32,8%
45.611
9,2%
32,6%
49.828
9,2%
32,6%
Europe
E
rope
% Grow th
% Total
2 876
2.876
97,6%
9,2%
4 863
4.863
69,1%
12,7%
6 827
6.827
40,4%
13,9%
9 899
9.899
45,0%
15,5%
14.651
14
651
48,0%
17,0%
19.779
19
779
35,0%
18,6%
20.510
20
510
3,7%
17,6%
21.269
21
269
3,7%
16,7%
22.056
22
056
3,7%
15,8%
22.872
22
872
3,7%
14,9%
US
% Grow th
% Total
135
-0,8%
0,4%
584
333,8%
1,5%
1.800
208,0%
3,7%
4.320
140,0%
6,7%
7.776
80,0%
9,0%
10.109
30,0%
9,5%
10.558
4,4%
9,1%
11.028
4,4%
8,7%
11.518
4,4%
8,2%
12.030
4,4%
7,9%
0,0%
0,0%
0,0%
0,0%
1.231
0,0%
2,5%
2.828
0,0%
4,4%
6.551
131,7%
7,6%
9.753
48,9%
9,2%
13.655
40,0%
11,7%
18.434
35,0%
14,5%
23.964
30,0%
17,1%
29.955
25,0%
19,6%
Online sales
% Grow th
% Total
Valuation Report
18
Cost of goods sold
•
Costs of goods sold were estimated to be variable with net revenue and also considered economies of scale to be gained during the projection period.
•
The following table shows the composition of the cost of goods sold per geographic region:
COGS by region
AUD 000
Historical
2010
2011
Projections
2012
2013
2014
2015
2016
2017
2018
2019
Total COGS
% Sales
(5.085)
16,2%
(6.381)
16,7%
(7.683)
15,7%
(10.388)
16,2%
(13.805)
16,1%
(17.048)
16,0%
(18.447)
15,9%
(20.009)
15,7%
(21.726)
15,5%
(23.571)
15,4%
Australia
% Grow th
% Total
(2.060)
14,6%
40,5%
(2.346)
14,5%
36,8%
(2.753)
13,8%
35,8%
(3.375)
14,4%
32,5%
(3.931)
14,1%
28,5%
(4.431)
13,9%
26,0%
(4.638)
13,9%
25,1%
(4.854)
13,9%
24,3%
(5.081)
13,9%
23,4%
(5.319)
13,9%
22,6%
APAC (excl. Aust.)
% Grow th
% Total
(2.571)
18,1%
50,6%
(3.065)
18,5%
48,0%
(3.287)
17,1%
42,8%
(4.241)
18,0%
40,8%
(5.227)
17,9%
37,9%
(6.323)
18,1%
37,1%
(6.889)
18,0%
37,3%
(7.505)
18,0%
37,5%
(8.176)
17,9%
37,6%
(8.907)
17,9%
37,8%
Europe
% Grow th
% Total
(410)
14,3%
8,1%
(858)
17,7%
13,5%
(1.095)
16,0%
14,2%
(1.570)
15,9%
15,1%
(2.322)
15,8%
16,8%
(3.135)
15,9%
18,4%
(3.241)
15,8%
17,6%
(3.350)
15,8%
16,7%
(3.463)
15,7%
15,9%
(3.580)
15,7%
15,2%
US
% Grow th
% Total
(43)
32,1%
0,8%
(113)
19,3%
1,8%
(396)
22,0%
5,2%
(892)
20,6%
8,6%
(1.605)
20,6%
11,6%
(2.086)
20,6%
12,2%
(2.179)
20,6%
11,8%
(2.276)
20,6%
11,4%
(2.377)
20,6%
10,9%
(2.483)
20,6%
10,5%
0,0%
0,0%
0,0%
0,0%
(153)
n/a
2,0%
(311)
11,0%
3,0%
(721)
11,0%
5,2%
(1.073)
11,0%
6,3%
(1.501)
11,0%
8,1%
(2.024)
11,0%
10,1%
(2.629)
11,0%
12,1%
(3.283)
11,0%
13,9%
Online sales
% Grow th
% Total
Valuation Report
19
Operational Expenses
Income tax
•
•
The following table presents the projected operating expenses and other
income:
Operational expenses
AUD 000
Investiments
2013
2014
2015
2016
2017
2018
2019
Regional overheads
Head office overheads
Other OPEX
Other revenue
(8,4)
(8,9)
(28,6)
-
(9,5)
(11,6)
(39,5)
-
(10,2)
(13,3)
(48,9)
-
(10,8)
(14,4)
(53,8)
-
(11,5)
(15,6)
(59,3)
-
(12,4)
(16,9)
(65,3)
-
(13,3)
(18,4)
(71,8)
-
Total
(45,9)
(60,6)
(72,5)
(79,1)
(86,4)
(94,6)
(103,5)
•
Other expenses are comprised of rental expenses, insurance,
transportation, legal, IT, sales and administration, among others.
•
Other revenues consisted of financial income and were not projected for
valuation purposes.
Depreciation and amortization
•
•
•
A blended income tax rate based on geographic regions was used to
calculate projected taxes.
The fixed asset base as of the base-date was used in the calculation of
depreciation as well as depreciation of new investments.
As of the base date, the Company had a balance of fixed assets of AUD $
6.9 million, which was depreciated at the rate of 20% p.a. until the end of
the projection period.
A deprecation of 20% p.a. was also considered for new investments.
•
Below are projected investments which includes the opening of signature
stores, current maintenance of department stores, digital operation (online
sales) among others necessary to achieve the Company’s projected
growth.
Capex
C
AUD 000
2013
2014
2015
2016
2017
2018
2019
Capex
6.460
6.995
7.210
2.347
2.970
2.990
2.870
Working capital
•
The working capital was projected using the following accounts and
average days as of the base-date.
Applications
Trade accounts receivable
Inventory
Origins
Accounts Payable
Taxes Payable
Payroll Expense
No. of days
36
274
No. of days
187
1
11
Valuation Report
Basis of calculations
Days of net revenue
Days of COGS
Basis of calculations
Days of COGS
Days of net revenue
Days of COGS e operational expenses
20
Income statement
•
The projected income statement for Aesop is presented below:
Incom
co e state
statem e
entt
AUD 000
Historical
sto ca
2010
2011
Projections
oject o s
2012
2013
2014
2015
2016
2017
2018
2019
Net sales
Sales growth%
31.320
38.255
22,1%
49.016
28,1%
64.045
30,7%
85.944
34,2%
106.486
23,9%
116.316
9,2%
127.442
9,6%
139.770
9,7%
153.046
9,5%
Cost of goods sold
(5.085)
(6.381)
(7.683)
(10.388)
(13.805)
(17.048)
(18.447)
(20.009)
(21.726)
(23.571)
Gross profit
26.235
31.874
41.332
53.657
72.139
89.438
97.869
107.433
118.044
129.474
(21.815)
(26.652)
(34.480)
(45.929)
(60.618)
(72.465)
(79.056)
(86.361)
(94.638)
(103.504)
4.420
5.221
6.852
7.728
11.521
16.973
18.813
21.072
23.406
25.970
(1.114)
(1.595)
(3.843)
(5.242)
(5.966)
(4.602)
(5.196)
(4.502)
(3.677)
4.107
5.257
3.885
6.279
11.007
14.211
15.875
18.904
22.293
-
-
-
-
-
-
-
-
SG&A
EBITDA
Depreciation
EBIT
Financial income
EBT
Corporate taxes
Tax rate%
Net profit
(888)
3.532
-
106
3.532
4.213
5.257
3.885
6.279
11.007
14.211
15.875
18.904
22.293
(1.201)
34%
(1.396)
33%
(1.814)
35%
(1.143)
29%
(1.874)
30%
(3.299)
30%
(4.270)
30%
(4.783)
30%
(5.711)
30%
(6.751)
30%
2.331
2.817
3.443
2.742
4.404
7.708
9.941
11.092
13.192
15.541
Valuation Report
21
Income statement (cont.)
•
The vertical analysis of Aesop’s projected income statement is presented below:
Vertical analysis (% of net sales)
AUD 000
Historical
Projections
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Net sales
100,0%
100,0%
100,0%
100,0%
100,0%
100,0%
100,0%
100,0%
100,0%
100,0%
Cost of goods sold
16,2%
16,7%
15,7%
16,2%
16,1%
16,0%
15,9%
15,7%
15,5%
15,4%
Gross profit
83,8%
83,3%
84,3%
83,8%
83,9%
84,0%
84,1%
84,3%
84,5%
84,6%
SG&A
69,7%
69,7%
70,3%
71,7%
70,5%
68,1%
68,0%
67,8%
67,7%
67,6%
EBITDA
14,1%
13,6%
14,0%
12,1%
13,4%
15,9%
16,2%
16,5%
16,7%
17,0%
D
Depreciation
i i
2 8%
2,8%
2 9%
2,9%
3 3%
3,3%
6 0%
6,0%
6 1%
6,1%
5,6%
6%
4 0%
4,0%
4 1%
4,1%
3 2%
3,2%
2 4%
2,4%
EBIT
11,3%
10,7%
10,7%
6,1%
7,3%
10,3%
12,2%
12,5%
13,5%
14,6%
Financial income
0,0%
0,3%
0,0%
0,0%
0,0%
0,0%
0,0%
0,0%
0,0%
0,0%
EBT
11,3%
11,0%
10,7%
6,1%
7,3%
10,3%
12,2%
12,5%
13,5%
14,6%
Corporate taxes
3,8%
3,7%
3,7%
1,8%
2,2%
3,1%
3,7%
3,8%
4,1%
4,4%
Net profit
7,4%
7,4%
7,0%
4,3%
5,1%
7,2%
8,5%
8,7%
9,4%
10,2%
Valuation Report
22
Content
Page
1. Introduction
2.
3. Brief company description
5. Discount rate

Methodology for the calculation of the discount rate

Cost of equity

Cost of debt

Calculation of the discount rate
24
8. Conclusion
Valuation Report
23
5. Discount rate
Methodology for the calculation of the discount rate
 Establishing the discount rate is a fundamental stage of the economic valuation. This single factor reflects aspects of a subjective nature, varying from one investor to
another, such as opportunity cost and individual perception of investment risk.
WACC
Cost of equity
q y ((Ke))
The Weighted Average Cost of Capital (WACC) was used was an
appropriate parameter to calculate the discount rate to be applied
to the Company’s cash flows. The WACC methodology takes into
consideration various financing components used by companies to
finance its cash needs, including debt and equity cost, and is
calculated according
g to the chart below:
Cost of equity may be calculated through the Capital Assets Pricing
Model (CAPM). The cost of equity was calculated according to the
following formula:
Ke
Cost of equity
=
WACC
Weighted Average Cost of Capital
=
D/(D+E)
x
(Rf
+
ß* (E[Rm] - Rf)
+
Rb
+
Rs
Kd * (1-t)
+
E/(D+E)
(
)
Where:
D
E
t
Kd
Ke
=
=
=
=
=
x
Total Debt
Total Equity
Tax rate
Cost of debt
Cost of equity
Ke
Where:
Rf
β
E[Rm]
= Average risk-free return
= Beta - specific risk coefficient
= Average long-term return obtained on the stock
market
E[Rm] - Rf = Market premium
Rb
= Country risk
Rss
= S
Size
e Premium
e u
Valuation Report
24
5. Discount rate (cont.)
Cost of equity
Risk free rate
•
The Australian Treasuryy bond of 15 yyears,, of 3.35 % was used for average
g
risk free return (Rf) (Source: Bloomberg).
Beta calculation


•
•
Beta is the specific risk coefficient of the shares of a company compared to
a market index, representing the stock market as a whole. In the case of
valuations of companies that are listed and have significant negotiations on
the stock exchange, the share Beta is calculated by the correlation of
weekly returns of their own stocks compared to the selected market index
during a certain period prior to the valuation date.
In the case of companies that are not listed on the stock exchange, or
which do not have significant trading volumes, the company’s Beta can be
represented using the average beta for the sector in which the company
operates.
t
Th
Thus,
th average Beta
the
B t for
f the
th sector
t is
i calculated
l l t d based
b
d on the
th
average correlations of weekly returns of several companies from the same
sector, in relation to the weekly returns of the market index during a certain
period.
In order to estimate the Company’s Beta, the average Beta of comparable
companies
p
from the cosmetics sector was used. This Beta was obtained byy
averaging the unlevered Betas of comparable companies shown in the
following table, with the value of 0.73.
This Beta was then re-leveraged according to the capital structure of the
Company and at the current basic rate of income tax and social contribution
incurred on the Company's operations. As a result the beta utilized was
0 99
0.99.
Leveraged Debt to
Beta
Equity
Com parable com panies
TUPPERWARE BRANDS CORP
NU SKIN ENTERPRISES INC - A
BEIERSDORF AG
ORIFLAME COSMETICS SA-SDR
L'OREAL
ESTEE LAUDER COMPANIES-CL A
ELIZABETH ARDEN INC
REVLON INC-CLASS A
1,34
1,10
,
0,41
0,82
0,52
1,04
1,40
1,18
72,8%
34,5%
62,2%
,
17,3%
1,3%
7,2%
63,1%
18,7%
Effect.
tax
Unlevered beta
rate
30,5%
0,89
34,5%
0,90
62,2%
,
0,33
,
17,3%
0,72
28,5%
0,51
30,2%
0,99
23,9%
0,94
38,3%
1,06
Unlevered beta
Debt to Equity
Tax rate
Relevered beta
0,73
35%
30%
0,99
Source: Bloomberg
Market risk premium
•
For the long term stock market risk premium (E[Rm] – Rf), we used the
average return above the Treasury Bond rate provided by investing in the
Australian stock market, which was of 5.80% (Source: Prof Aswath
Damodaran website).
Size premium
•
For the premium for company size (Rs) was considered the rate of 6.36%,
according to information released by Ibbotson Associates, for comparablesized companies (Source: Ibbotson Associates).
Valuation Report
25
5. Discount rate (cont.)
•
The calculation for the Company’s cost of equity is presented in the table
below:
Cost of equity - Ke
Risk free rate
Beta re-alavancado
Market risk premium
Size premium
Cost of equity (Nom inal in AUD)
Discount rate calculation
•
Based on the structure of capital employed and the cost of equity and debt,
the discount rate was calculated at 12.71% p.a.
3,35%
,
0,985
5,80%
6,36%
15,42%
C t off debt
Cost
d bt
•
For purposes of the cost of debt, was considered the nominal cost of an
american coporate bond in the retail segment rated BB + of 7.0%. After the
effect of taxes (we used the rate of Aesop) the cost of debt is 4.90%.
Costt off d
C
debt
bt (Nom
(N
iinall in
i AU$) - Kd
Cost of debt
Long term effective tax rate
Post tax cost of debt (Nom inal in AUD) – Kd
7,00%
30%
4,90%
Capital
p
structure
•
The capital structure adopted was defined based on target capital structure
observed in comparable companies. Based on this criterion, the structure of
capital employed was 74.3% equity and 25.7% of debt.
Valuation Report
26
Content
Page
1. Introdução
2 V
2.
Valuation
l ti
criteria
it i
5. Discount rate
6. Estimate in the company’s value

Operating free cash flow of the Company

Adjustments for non-operating assets and liabilities
28
8. Conclusion
Annex: Curriculum Vitae
Valuation Report
27
Operating free cash flow of the Company
•
The projected operating free cash flows of the Company were based on assumptions previously discussed in this report and were discounted considering the base
date of January 31, 2013.
•
The estimated projected cash flows for the period are presented below:
Free cash flow AUD 000
Net profit
Depreciation
g capital
p
Increases ((decreases)) in w orking
Capital expenditures
Free operating cash flow s
2013
2014
2015
2016
2017
2018
2019
2.742
4.404
7.708
9.941
11.092
13.192
15.541
3.843
(
(1.715)
)
(6.460)
(1.590)
5.242
(
(2.484)
)
(6.995)
168
5.966
(
(2.379)
)
(7.210)
4.085
4.602
(
(1.077)
)
(2.347)
11.119
5.196
(
(1.219)
)
(2.970)
12.099
4.502
((340))
(4.502)
12.852
3.677
(
(2.448)
)
(2.870)
13.901
Term inal value
Parcial period
Discount period
Discount factor @ 12
12,71%
71%
Present value of free operating cash flow s
•
Term inal
value
16.716
2.609
(
(1.636)
)
(2.609)
15.081
145.923
0,4167
0,2083
0 9748
0,9748
(646)
1,0000
0,9167
0 8936
0,8936
150
1,0000
1,9167
0 7905
0,7905
3.229
1,0000
2,9167
0 6992
0,6992
7.775
1,0000
3,9167
0 6185
0,6185
7.483
1,0000
3,9167
0 6185
0,6185
7.949
1,0000
4,9167
0 5553
0,5553
7.719
1,0000
4,9167
0 5553
0,5553
81.030
As indicated in the purchase agreement, the applicable adjustments to the value of the firm (enterprise value) to obtain the economic and financial value of the
company (equity value), will be assumed by the former controlling shareholders of Aesop. Therefore, for the present case, the transaction value is equivalent to the
enterprise value of the Company. The table below presents the calculation of Aesop’s enterprise value.
Calculation of the econom ic and financial value of the com pany
Discount rate
Terminal Grow th rate ("g")
Sum of discounted cash flow s
Present value of terminal value
Business enterprise value (before adjustm ents)
12,71%
2,38%
33.659
81.030
114.690
Therefore, the value of
65% share of Aesop is
equal to AUD$ 74,548
Valuation Report
28
Content
Page
1. Introduction
2.
5. Discount rate
30
8. Conclusion
Valuation Report
29
Comparable company multiples analysis
•
The market multiples analysis obtains the market values of similar
companies listed on stock exchanges and uses this as a basis for
estimating the value of a particular company.
•
Since the market values of these companies are calculated based on its
trading share value on stock exchanges, which typically are not equivalent
to the acquisition share price, the use of these multiples can be used as a
parameter to the valuation of acquisition of minority stakes in companies.
•
As a result, we use this criterion to evaluate the EV/EBITDA multiple would
be reasonable for the exercise of stock options and sale agreement
between the parties concerning minority equity investments that will remain
with the former controlling shareholders of the Company.
•
The following table presents the EV/EBITDA market multiples of the
comparable companies as of the base-date.
Com pany
EV/EBTIDA
(jan 2013)
ESTEE LAUDER COMPANIES-CL A
L'OREAL
ORIFLAME COSMETICS SA-SDR
REVLON INC-CLASS A
ELIZABETH ARDEN INC
AVON PRODUCTS INC
L'OCCITANE INTERNATIONAL SA
TUPPERWARE BRANDS CORP
NU SKIN ENTERPRISES INC - A
BEIERSDORF AG
14,2
15,6
8,6
8,6
11,2
13,3
15,7
11,1
8,7
16 4
16,4
Average
Median
12,3
12,2
Selected m ultiple
As shown to the right,
the median EV/EBITDA
multiple is equal to12.
12,3
Valuation Report
30
Contents
Page
1. Introduction
2.
5. Discount rate
8. Conclusion
32
Valuation Report
31
8. Conclusion
•
Due to the structuring of the transaction of this acquisition, our conclusion
below is expressed in relation to the "enterprise value" of the Company in
order to provide comparability with the proposed transaction value.
•
KPMG states that neither it nor the team responsible for the preparation of
this evaluation have any conflict of interest that will diminish the
independence necessary to perform its functions.
•
Consequently, adjustments to be made regarding the net debt and working
capital are not covered by this conclusion,
capital,
conclusion since both will be considered
adjustments from the final price to be paid for the acquired interest in the
Company.
•
The economic and financial evaluation of Aesop was conducted by a team of
qualified consultants and the work is constantly monitored and reviewed by a
senior manager. The work team was also composed of a reviewer-partner
and a responsible partner, both with experience in evaluating companies.
•
Based on all previous sections of this report, we conclude that the estimated
economic-financial value of the Company, as of the base-date of January 31,
2013, is approximately AUD $ 114,690 thousand. Consequently, the value of
65% stake in the capital of Aesop is,
is of AUD $ 74,548
74 548 thousand.
thousand
•
The approval of the valuation report occurred only after review of the senior
manager, reviewer partner, and the responsible partner.
•
KPMG also states that does not have credit relations with Natura neither
Aesop nor with any type of business relationship that may impact the result
obtained for this review.
•
Additionally, based on the content of section 7 of this report we also
concluded that the EV/EBITDA multiple equal to 12 times, agreed between
the parties, for the exercise of options or sale of the remaining equity interest
of 35% to be reasonable.
Use and disclosure of report
•
This document has been prepared solely to meet the provisions of Article
256 of the Corporation Law and Annex 19 of CVM Rule 481 with respect to
the acquisition of control of Aesop by Natura.
•
We emphasize that a full understanding of this report and its conclusion is
only possible through its complete reading. Thus, one should not draw
conclusions by reading just part of it.
I
Importantes
t t notes
t
•
This report does not constitute a recommendation nor a price proposal,
solicitation, advice or recommendation by KPMG for the acquisition of the
Company by Natura, KPMG can not be held responsible for any decision
taken by Natura.
•
Natura should perform their own analyzes regarding the convenience and
opportunity to acquire a controlling stake in the Company and should consult
their own legal and financial advisers, to establish your own opinion about this
acquisition.
•
Sums of individual values presented in this report can differ from the result of
the sum due to rounding.
Valuation Report
32
Content
Page
1. Introduction
2.
5. Discount rate
6. Estimate of company’s value
8. Conclusion
34
Valuation Report
33
Appendix
Curriculum Vitae
Name
Luís Augusto Motta Pinto da Luz
Position
Partner - Corporate Finance - KPMG São Paulo
Qualifications
Development Partners Program - Fundação Dom Cabral - 2011
Latin America Leadership Development Partners – KPMG - 2010
MBA in Finance and Controllership - USP, São Paulo – 1995/96
Undergraduate degree in Accountancy - FCPES - RJ - Cândido Mendes
Experience
Luís has wide experience in business modeling, valuation and financial advisory services related to acquisitions, mergers and
feasibility studies and site location.
location Luis joined KPMG in 2002 and previously he worked for Arthur Andersen between 1987 and
2002, in Consulting and Corporate Finance, developing economic and financial analyses and diagnoses of companies. From
1985 to 1987, Luís worked for Banco Graphus as an operations analyst in fixed-income, commodities and capital markets
Sector Expertise
Consumer and Industrialized Products (Food, Beverages, Capital goods, Auto parts, Consumer Products, among others), Real
Estate, Information Technology, Telecommunications and Retail.
Valuation Report
34
® KPMG Corporate Finance Ltda., a Brazilian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG
International Cooperative ( "KPMG International" ), a Swiss entity. All rights reserved. Printed in Brazil.
The KPMG name, logo, and the “cutting through complexity” expression are registered or commercial trademarks of KPMG International.

Natura Cosméticos S.A.

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