http://www.ft.com/intl/cms/s/0/dc06847a-8e0d-11e0-bee5-00144feab49a.html
By Rachel Sanderson in Milan
Published: June 3 2011 20:58 | Last updated: June 3 2011 20:58
By Rachel Sanderson in Milan
Published: June 3 2011 20:58 | Last updated: June 3 2011 20:58
Miuccia Prada and Patrizio Bertelli, the wife-and-husband team behind Italian luxury goods group Prada, will next week throw a party in Hong Kong they have been a decade in organising.
The occasion is to mark the launch of the fifth attempt in 10 years by Prada, the group behind Prada, MiuMiu and Church’s brands, to list a minority stake. The guests are top investors in the region; the entertainment will be a private catwalk show.
Prada’s decision to float on the Hong Kong stock exchange, instead of Milan or London, is symbolic of the importance of the Asian consumer who is propelling growth in luxury goods. Given the industry’s role as an indicator of broader economic trends, it will also be a test of investor confidence. Analysts estimate that at current market multiples the sale of a 20 per cent stake in Prada could raise about €1.85bn ($2.7bn), a valuation higher than the group’s target at the time of its first listing attempt in Milan in 2001 when the market was at a peak.
For the founders, two of fashion’s most avant-garde figures, a successful flotation would make Prada one of the world’s most valuable luxury goods groups and put behind the family a nearly fatal acquisition spree over the past decade in which they took on €1bn in debt.
There is set to be competition. In Milan, both Salvatore Ferragamo and Moncler, a premium sportswear brand, have or are awaiting regulator approval to list shares this month.
Both Ferragamo and Moncler want to sell about €500m of shares, people familiar with the companies say. For all three listings to get away successfully, investors will have to stump up an unprecedented €3bn for luxury goods stocks in the coming weeks.
Speaking to the Financial Times last year, Mr Bertelli, the business brains behind Miuccia Prada, the brand’s better-known designer whose creations include pleated skirts with wallpaper prints and black canvas knapsacks, explained the family’s reasons for considering a listing in Hong Kong.
“If the bourse represents a market, then we should go to a bourse where things are happening,” he said at Prada’s all-white Milan headquarters.
From Prada’s beginnings 35 years ago, when Ms Prada and Mr Bertelli started it out of the Prada family’s turn-of-the century store in Milan’s Galleria Vittorio Emanuele, it has developed as an avant-garde brand setting the tone for fashion trends and developments in the industry.
“Is there a limit to the revenues we can produce? We think that in three to four years we can reach €3bn. That by 2013 to 2014 we can do this,” he told the FT last year. Bain & Co, the consultants, last month revised up its forecast growth for the luxury goods industry this year to 8 per cent, propelled by stronger-than-expected demand from Asia and the US.
Bankers say Prada is more likely to gain a higher valuation multiple in Hong Kong than in Milan. Hong Kong’s more relaxed listing requirements were also considered an advantage after several botched attempts to list in Milan. People familiar with the company say a flotation could value Prada in the region of €8bn to €10.5bn depending on market conditions. At €10.5bn Prada would be valued at about 21 times its 2012 earnings, among the highest in the industry and above LVMH’s 18.6 times.
While optimism about luxury goods sales in Asia have propelled the sector to stronger-than-expected gains in the past year, some experts have concerns about whether China’s capacity for consumption has been overstated.
Prada, which declined to comment, plans to use €1.5bn of the estimated €2bn it expects to raise for expanding the business. It aims to open 80 stores a year for the next three years. About €300m will go to repay bank debt and the rest towards working capital. Most of the proceeds will go to the family’s holding company Prada Holding BV, which plans to reinvest them in the company. Intesa Sanpaolo will also sell almost all of its 5 per cent.
Prada, which is 95 per cent owned by Mr Bertelli, Ms Prada and their family members, paid dividends of €130m in 2009 and 2010, according to documents seen by the FT.
In a move closely watched by European luxury goods groups, L’Occitane, a French cosmetics and perfumery company, listed in Hong Kong in May 2010 attracting strong demand from institutional investors.
Prada ditched its first attempts to join the stock market in 2001 and 2002 after the downturn following the September 11 terrorist attacks in the US.
It then spent the next several years restructuring debt and selling off brands including Jil Sander and Helmut Lang, which it had acquired expensively in the late 1990s, building up more than €1bn in debt at Prada and two family holding companies.
A focus on improving profitability at its core Prada and MiuMiu brands followed and plans were approved to list at the end of 2007 and then delayed until 2008. But the financial crisis scotched that attempt.
The speed of international growth at Prada has surprised even those most familiar with the company.
This year, 35 per cent of total net sales will be denominated in euros, compared with 40 per cent in dollars and dollar-pegged currencies, including the Hong Kong dollar, and 10 per cent in Japanese yen, according to company documents.
Prada acknowledges that its success depends on the expansion of its directly operated stores which in part help to increase its brand recognition but also gives the company tighter control over pricing and profit margins. With 320 directly owned stores around the world, it still significantly lags behind industry leader Louis Vuitton’s 1,200 stores.
According to the company prospectus, Prada sees its fast-growing MiuMiu brand, the edgy, younger label named after Ms Prada’s family nickname, as another potential area of growth. The document also points out the importance of its founders, whose creative, symbiotic and well-known volatile relationship is considered the crucible of the company’s success.
When asked last year why he decided to list Prada, Mr Bertelli, gave the example of Tom Ford and Domenico Del Sole taking over and reviving Gucci. He also cited his desire to create a governance structure that will allow it to survive beyond his and Ms Prada’s time at the helm.
The occasion is to mark the launch of the fifth attempt in 10 years by Prada, the group behind Prada, MiuMiu and Church’s brands, to list a minority stake. The guests are top investors in the region; the entertainment will be a private catwalk show.
Prada’s decision to float on the Hong Kong stock exchange, instead of Milan or London, is symbolic of the importance of the Asian consumer who is propelling growth in luxury goods. Given the industry’s role as an indicator of broader economic trends, it will also be a test of investor confidence. Analysts estimate that at current market multiples the sale of a 20 per cent stake in Prada could raise about €1.85bn ($2.7bn), a valuation higher than the group’s target at the time of its first listing attempt in Milan in 2001 when the market was at a peak.
For the founders, two of fashion’s most avant-garde figures, a successful flotation would make Prada one of the world’s most valuable luxury goods groups and put behind the family a nearly fatal acquisition spree over the past decade in which they took on €1bn in debt.
There is set to be competition. In Milan, both Salvatore Ferragamo and Moncler, a premium sportswear brand, have or are awaiting regulator approval to list shares this month.
Both Ferragamo and Moncler want to sell about €500m of shares, people familiar with the companies say. For all three listings to get away successfully, investors will have to stump up an unprecedented €3bn for luxury goods stocks in the coming weeks.
Speaking to the Financial Times last year, Mr Bertelli, the business brains behind Miuccia Prada, the brand’s better-known designer whose creations include pleated skirts with wallpaper prints and black canvas knapsacks, explained the family’s reasons for considering a listing in Hong Kong.
“If the bourse represents a market, then we should go to a bourse where things are happening,” he said at Prada’s all-white Milan headquarters.
From Prada’s beginnings 35 years ago, when Ms Prada and Mr Bertelli started it out of the Prada family’s turn-of-the century store in Milan’s Galleria Vittorio Emanuele, it has developed as an avant-garde brand setting the tone for fashion trends and developments in the industry.
Prada’s earnings before interest, tax, depreciation and amortisation have almost doubled in the past three years to €535.9m driven by new store openings and sales in Asia. Revenues from the region rose by 50 per cent at constant currency rates in the year ending January 31. Mr Bertelli said last year that once Prada was making more than €1.5bn of annual revenues it had reached a “point of no return”.Stepping out in style
Prada’s decision to kick off the roadshow for its stock market listing with a fashion event is hardly an unexpected step in a luxury goods industry that is familiar with using unconventional strategies to build the value of brands.
In this regard, Miuccia Prada and Patrizio Bertelli have been pioneers, forging collaborations with contemporary artists, architects and movie directors. But it is a technique being employed across the industry by rivals LVMH to PPR as a means of attracting consumers.
Prada promotes its largest stores – in Tokyo, Los Angeles and New York which it calls Prada Epicenters – as works of art built by star architects Rem Koolhaas and Herzog and de Meuron. Ms Prada and Mr Bertelli have also gained a reputation in the contemporary art world as collectors. Fondazione Prada, the home of their art collection, opened in a new venue this weekend in a Renaissance palazzo on the Grand Canal at the Venice Biennale.
They join François Pinault, founder of the PPR group behind Gucci and Bottega Veneta, who already owns his own contemporary art gallery further up the Grand Canal. Bernard Arnault, chairman and chief executive of LVMH, the world’s largest luxury goods group, not only has his own art gallery but has also hung many of Louis Vuitton’s largest stores with art, including works by Gilbert & George, Damien Hirst, Takashi Murakami and Jeff Koons.
Bain & Co, a consultancy, has said that since the financial crisis, when shoppers became nervous about ostentatious luxury, “there is a need to justify the premium price – brand is not enough”.
Giving luxury goods a proximity to art, either by influence or craftsmanship, may make consumers feel that could be reason enough to spend hundreds of euros on a handbag or a pair of shoes.
“Is there a limit to the revenues we can produce? We think that in three to four years we can reach €3bn. That by 2013 to 2014 we can do this,” he told the FT last year. Bain & Co, the consultants, last month revised up its forecast growth for the luxury goods industry this year to 8 per cent, propelled by stronger-than-expected demand from Asia and the US.
Bankers say Prada is more likely to gain a higher valuation multiple in Hong Kong than in Milan. Hong Kong’s more relaxed listing requirements were also considered an advantage after several botched attempts to list in Milan. People familiar with the company say a flotation could value Prada in the region of €8bn to €10.5bn depending on market conditions. At €10.5bn Prada would be valued at about 21 times its 2012 earnings, among the highest in the industry and above LVMH’s 18.6 times.
While optimism about luxury goods sales in Asia have propelled the sector to stronger-than-expected gains in the past year, some experts have concerns about whether China’s capacity for consumption has been overstated.
Prada, which declined to comment, plans to use €1.5bn of the estimated €2bn it expects to raise for expanding the business. It aims to open 80 stores a year for the next three years. About €300m will go to repay bank debt and the rest towards working capital. Most of the proceeds will go to the family’s holding company Prada Holding BV, which plans to reinvest them in the company. Intesa Sanpaolo will also sell almost all of its 5 per cent.
Prada, which is 95 per cent owned by Mr Bertelli, Ms Prada and their family members, paid dividends of €130m in 2009 and 2010, according to documents seen by the FT.
In a move closely watched by European luxury goods groups, L’Occitane, a French cosmetics and perfumery company, listed in Hong Kong in May 2010 attracting strong demand from institutional investors.
Prada ditched its first attempts to join the stock market in 2001 and 2002 after the downturn following the September 11 terrorist attacks in the US.
It then spent the next several years restructuring debt and selling off brands including Jil Sander and Helmut Lang, which it had acquired expensively in the late 1990s, building up more than €1bn in debt at Prada and two family holding companies.
A focus on improving profitability at its core Prada and MiuMiu brands followed and plans were approved to list at the end of 2007 and then delayed until 2008. But the financial crisis scotched that attempt.
The speed of international growth at Prada has surprised even those most familiar with the company.
This year, 35 per cent of total net sales will be denominated in euros, compared with 40 per cent in dollars and dollar-pegged currencies, including the Hong Kong dollar, and 10 per cent in Japanese yen, according to company documents.
Prada acknowledges that its success depends on the expansion of its directly operated stores which in part help to increase its brand recognition but also gives the company tighter control over pricing and profit margins. With 320 directly owned stores around the world, it still significantly lags behind industry leader Louis Vuitton’s 1,200 stores.
According to the company prospectus, Prada sees its fast-growing MiuMiu brand, the edgy, younger label named after Ms Prada’s family nickname, as another potential area of growth. The document also points out the importance of its founders, whose creative, symbiotic and well-known volatile relationship is considered the crucible of the company’s success.
When asked last year why he decided to list Prada, Mr Bertelli, gave the example of Tom Ford and Domenico Del Sole taking over and reviving Gucci. He also cited his desire to create a governance structure that will allow it to survive beyond his and Ms Prada’s time at the helm.
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