Global Equity Research - Borsa Italiana · Global Equity Research Europe Including UK Retailers, Specialty 4 March 2013 ... UBS does and seeks to do business with companies covered

UBS Investment Research Moleskine

The little black dress of notebooks An unrivalled brand in its space Moleskine is built around a set of strong intangible values (positioned as a “bookyet to be written” rather than a purely functional notebook). The result is a brandwith a clearly-defined competitive position that has enabled it to commandpremium pricing and deliver superior organic top-line growth at high levels of profitability.

Organic top-line growth will be key to Moleskine’s story Having achieved compound annual sales growth of +24% over the past few years,we expect Moleskine to grow by an average of +18% in 2013-17, driven by the brand’s still limited penetration of its addressable market, through an improvement in brand awareness and brand availability (by category, channel and region).

EBIT margins are best-in-class, but mix to weigh from here With an impressive adjusted EBIT margin of 41.7%, Moleskine is by far the mostprofitable company relative to our coverage universe of luxury and HPC stocks,reflecting well-managed production costs, lean organisational structures and strongpricing power. In the future, we expect gross margins to remain high, as thecompany continues to minimise production costs, although its diversification intodifferent channels and, to a lesser extent, regions is likely to weigh on EBITmargins, which we expect to decline to 36.5% by 2017.

We have derived a €515-775 million valuation range Our scenario analysis centres around a +/-5% swing in sales CAGR to 2017, towhich we have applied: (1) a valuation range of 20-25x 2014E P/E (based on a group of fast-growing consumer companies); and (2) a DCF analysis. The average of the two methodologies suggests a valuation range of €515-775 million.

Global Equity Research

Europe Including UK

Retailers, Specialty

4 March 2013

www.ubs.com/investmentresearch

Eva Quiroga

[email protected]

+44-20-7568 7519

Fred SpeirsAnalyst

[email protected]+44-20-7568 8829

This report has been prepared by UBS Limited THIS DOCUMENT MAY NOT BE DISTRIBUTED IN THE UNITED STATES, CANADA OR JAPAN. ANALYST CERTIFICATION AND REQUIRED DISCLOSURES BEGIN ON PAGE 88. UBS does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.

Moleskine 4 March 2013

THIS DOCUMENT MAY NOT BE DISTRIBUTED IN THE UNITED STATES, CANADA OR JAPAN. UBS 2

This document has been prepared by its authors independently of Moleskine S.p.A. (the "Company"), Appunti S.à r.l. (“Appunti”) and Pentavest S.à r.l (“Pentavest” and, together with Appunti, the “Selling Shareholders”). UBS Limited has no authority whatsoever to give any information or make any representation or warranty on behalf of the Company, any Selling Shareholder, Goldman Sachs International, UBS Limited and Mediobanca – Banca di Credito Finanziario S.p.A., BNP Paribas and any advisors to the Company or Selling Shareholders or any other person in connection therewith. In particular, the opinions, estimates and projections expressed in it are entirely those of the authors hereof and are not given as an agent of the Company, any Selling Shareholder, Goldman Sachs International, UBS Limited, Mediobanca – Banca di Credito Finanziario S.p.A., BNP Paribas and any advisors to the Company or Selling Shareholders or any other person or in its capacity as a manager or underwriter of any offering.

UBS Limited and/or one or more of its affiliates is or may be acting as an underwriter in an offering of securities of the Company. This document does not constitute or form part of any offer, solicitation or invitation to subscribe or purchase any securities nor shall it or any part of it form the basis of or be relied upon in connection with any contract or commitment whatsoever. Any decision to purchase or subscribe for securities in any offering must be made solely on the basis of the information contained in the prospectus or other offering circular issued by the Company in connection with such offering.

This document is based upon information that we consider reliable, but UBS Limited has not independently verified the contents hereof. The opinions, estimates, and projections expressed in it are as of the date hereof and are subject to change without notice. No representation or warranty, express or implied, is made as to and no reliance should be placed on the fairness, accuracy, completeness or reasonableness of the information, opinions and projections contained in this document, and none of the Company, any Selling Shareholder, Goldman Sachs International, UBS Limited, Mediobanca – Banca di Credito Finanziario S.p.A., BNP Paribas and any advisors to the Company or Selling Shareholders or any other person nor any other person accepts any liability whatsoever for any loss howsoever arising from any use of this document or its contents or otherwise arising in connection therewith.

THIS DOCUMENT IS BEING SUPPLIED TO YOU SOLELY FOR YOUR INFORMATION AND MAY NOT BE REPRODUCED, REDISTRIBUTED OR PASSED ON, DIRECTLY OR INDIRECTLY, TO ANY OTHER PERSON OR PUBLISHED, IN WHOLE OR IN PART, FOR ANY PURPOSE. NEITHER THIS DOCUMENT NOR ANY COPY OF IT MAY BE TAKEN OR TRANSMITTED INTO THE UNITED STATES (OR TO U.S. PERSONS), CANADA OR JAPAN OR DISTRIBUTED, DIRECTLY OR INDIRECTLY, IN THE UNITED STATES OR CANADA, OR DISTRIBUTED OR REDISTRIBUTED IN JAPAN OR TO ANY RESIDENT THEREOF. THE DISTRIBUTION OF THIS DOCUMENT IN OTHER JURISDICTIONS MAY BE RESTRICTED BY LAW, AND PERSONS INTO WHOSE POSSESSION THIS DOCUMENT COMES SHOULD INFORM THEMSELVES ABOUT, AND OBSERVE, ANY SUCH RESTRICTIONS. BY ACCEPTING THIS REPORT YOU AGREE TO BE BOUND BY THE FOREGOING INSTRUCTIONS.

In the United Kingdom this document is for distribution only to (i) persons who have professional experience in matters relating to investments falling within article 19(5) of the UK Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the “Order”) or (ii) high net worth entities falling within article 49(2)(a) to (d) of the Order and other persons to whom it may lawfully be communicated (all such persons together being referred to as “relevant persons”). In the United Kingdom, this document is directed only at Relevant Persons, and other persons should not act or rely on this document or any of its contents.

In EEA Member States (other than the United Kingdom and Italy to which specific restrictions apply) that have implemented Directive 2003/71/EC (together with any applicable implementing measures in any such EEA Member State, the "Prospectus Directive") this document is for distribution only to qualified investors in that Member State within the meaning of Article 2(1)(e) of the Prospectus Directive and otherwise in accordance with the relevant laws and regulations of that Member State.



THIS DOCUMENT IS ISSUED BY UBS LIMITED ON A CONFIDENTIAL BASIS FOR YOUR EXCLUSIVE INFORMATION AND CONVENIENCE AND SHOULD NOT BE REPRODUCED AND/OR REDISTRIBUTED, AND/OR PASSED ON, IN WHOLE OR IN PART, TO ANY OTHER PERSON.THIS DOCUMENT IS FOR DISTRIBUTION IN ITALY ONLY TO QUALIFIED INVESTORS WITHIN THE MEANING OF ARTICLE 34 TER, 1, LETTER B), OF CONSOB REGULATION NO. 11971 OF 1999, AS AMENDED AND OF ARTICLE 26, 1, LETTER D), OF CONSOB REGULATION NO. 16190 OF 2007 AS AMENDED. THIS DOCUMENT IS NOT ADDRESSED TO ANY MEMBER OF THE GENERAL PUBLIC IN ITALY. IN NO CIRCUMSTANCES SHOULD THIS DOCUMENT CIRCULATE AMONG, OR BE DISTRIBUTED IN ITALY TO, INDIVIDUALS OR ENTITIES FALLING OUTSIDE THE DEFINITION OF QUALIFIED INVESTORS AS PREVIOUSLY SPECIFIED NOR BE INTENDED FOR DISTRIBUTION CHANNELS. THIS DOCUMENT HAS BEEN PREPARED BY AN ENTITY WHICH MAY HAVE A SPECIFIC OWN INTEREST IN RESPECT OF MOLESKINE S.P.A., ITS SHARES OR THE TRANSACTIONS TAKEN INTO CONSIDERATION HEREBY. IN PARTICULAR THIS ENTITY IS ACTING AS JOINT GLOBAL CO-ORDINATOR AND JOINT BOOKRUNNER IN THE CONTEXT OF THE OFFERING.



Contents page

Executive summary 5 — The power of a “book yet to be written” .................................................................. 5 — Organic top-line growth will likely be key................................................................ 5 — Margins are best-in-class, but mix to weigh ........................................................... 6 — 2013 progress is likely to be back-end loaded ....................................................... 6 — An experienced management team ....................................................................... 7 — Risks....................................................................................................................... 7 — Valuation range ...................................................................................................... 8

What is Moleskine? 13 — Summary .............................................................................................................. 13 — Corporate history .................................................................................................. 13 — Moleskine’s positioning......................................................................................... 14 — Barriers to entry and pricing power....................................................................... 16 — A creative and loyal consumer ............................................................................. 16

It is all about the top line 17 — Summary .............................................................................................................. 17 — The book that has been written so far .................................................................. 17 — The book that has yet to be written ...................................................................... 18 — 1. Increase brand awareness ............................................................................... 20 — 2. Increase brand availability................................................................................ 22 — 3. Increase brand offering .................................................................................... 39

EBIT margins are best-in-class, but mix to weigh from here 45 — Summary .............................................................................................................. 45 — The book that has been written so far .................................................................. 46 — The book that has yet to be written ...................................................................... 49

Risks 55 — Long-term risks..................................................................................................... 55 — Short-term risks .................................................................................................... 56

Financials 58 — Profit and loss account ......................................................................................... 58 — Sales and sales growth ........................................................................................ 59 — Balance sheet....................................................................................................... 61 — Cash flow.............................................................................................................. 62

APPENDICES 64 Management 65

— The executive board ............................................................................................. 65 — Remuneration and incentives............................................................................... 67

The deal structure 68 — Rationale for the IPO............................................................................................ 68 — Key terms of the offering ...................................................................................... 68

The shareholder base 69 Presentation 70

Eva Quiroga

[email protected]

+44-20-7568 7519

Fred SpeirsAnalyst

[email protected]+44-20-7568 8829



Executive summary The power of a “book yet to be written” Established in the mid-1990s, Moleskine has become one of the world’s most famous brands, due to its range of notebooks, diaries and related writing products. These are positioned not around their functionality, but their emotional appeal (a “book yet to be written” with strong references to culture, design and travel), giving Moleskine a clear competitive advantage and hence pricing power.

In the past, this has translated into average sales growth of +24% and we expect this to support ongoing strong growth in the future (UBS +18% CAGR 2013-17E), as Moleskine continues to pursue its expansion by: (1) channel, with Retail likely to be a key driver; (2) category; and (3) region.

EBIT margins are best-in-class, given low manufacturing costs as production is outsourced, mainly to Asia, and lean operating structures, as there are currently only 131 employees. Over the medium term, we expect margins to remain well into the 30s even though we expect them to come off their recent peak (41.7%), given the cost of expansion in general and Retail in particular, which is likely to have an adverse impact on the mix (UBS 36.5% in 2017E).

Our scenario analysis centres around a +/-5% swing in sales CAGR to 2017, to which we have applied: (1) a valuation range of 20-25x 2014E P/E (based on a group of fast-growing consumer companies); and (2) a DCF analysis. The average of the two methodologies suggests a valuation range of €515-775 million.

Organic top-line growth will likely be key Having achieved compound annual sales growth of +24% over the past few years, we expect Moleskine to continue to record double-digit growth in the future, forecasting average organic top-line growth of +18% for the period 2013-17. In our opinion, the single most important driver is the brand’s still limited penetration of its addressable market – an issue we expect it to tackle through an improvement in brand awareness and brand availability (all the more so as an important portion of its sales comes from impulse purchases) – while keeping the brand relevance intact.

Chart 1: Sales by channel (€m) Chart 2: Sales by region (€m) Chart 3: Sales by category (€m)

-20

30

80

130

180

2012 2017EIndirect B2C B2B E-commerce Retail

-20

30

80

130

180

2012 2017EEMEA Americas APAC

-20

30

80

130

180

2012 2017EPaper WTR Digital

Source: Company data, UBS estimates Source: Company data, UBS estimates Source: Company data, UBS estimates

Moleskine – one of the world’s most famous brands with a clear competitive advantage and hence pricing power

Continued expansion expected to support ongoing strong growth in average sales

Best-in-class operating margins should remain in the high-30s over the medium term

Valuation range of €515-775 million

The period 2013-17E should see average organic top-line growth of +18%



A few definitions

B2C: Sales to consumers via a network of 23,500 doors (aka points of sale; 40% of sales in book stores, 10% each in stationery stores/third-party online, and 8% in department stores).

B2B: Sales to corporate customers with financial institutions, telecom companies and hotels the three biggest customer groups.

WTR – Writing, Travelling & Reading: Covering the sale of writing instruments, bags and luggage, as well as glasses and book-lights.

Margins are best-in-class, but mix to weigh Moleskine has impressively high adjusted operating margins (41.7% in 2012), making it by far the most profitable relative to our coverage universe of luxury and HPC companies. We believe that this reflects well-managed production costs, lean organisational structures and strong pricing power. In the future, we expect gross margins to remain high, as the company continues to minimise production costs, although diversification into different channels and, to a lesser extent, regions is likely to weigh on operating margins, which we expect to decline to 36.5% by 2017 – still well into the 30s.

Table 1: Gross margin and EBIT margin, 2012-17E

2012 2013E 2014E 2015E 2016E 2017E

Gross margin (adjusted) 74.8% 75.7% 76.4% 76.9% 77.3% 77.6%

Change (%) 100 bps 70 bps 50 bps 40 bps 20 bps

EBIT margin (adjusted) 41.7% 39.6% 38.2% 37.3% 36.8% 36.5%

Change (%) (240) bps (150) bps (80) bps (40) bps (10) bps

Source: Company data, UBS estimates

2013 progress is likely to be back-end loaded Given the relatively small size of the business and its increasing seasonality, we expect there to be considerable jumpiness in sales growth and EBITDA margins between quarters. As for 2013, we would generally expect progress to be back-end-loaded, reflecting a number of factors:

1H13 will be marked by investment in the new distribution channels as the company will be hiring new sales people for B2B/ Retail, while investing in its own E-commerce platform – all of which is likely to weigh on costs.

The resulting step-up in underlying top-line growth will be seen in 2H13 as the additional sales people are currently being added and will likely take one to two quarters to pull their weight.

As a result of the above, and in line with the increased volatility observed in recent quarters, we expect to see single-digit sales growth in 1H13 (driven by a better 1Q13 as 2Q13 will likely be hampered by particularly challenging year-on-year comparisons) and strong double-digit sales growth in 2H13. This should be mirrored by a similar trend in EBITDA, which we expect to be down in 1H13 and up strongly in 2H13 (note that our model assumes a -180bp decline in FY13, given the distribution channel shift).

Well-managed production costs, lean organisational structures and strong pricing power manifested in impressively high adjusted operating margins



An experienced management team Moleskine’s executive committee

Moleskine’s executive board consists of seven members, who, in our view, fall into two main clusters: first, there are the Moleskine veterans, Maria Sebregondi and Fabio Rosciglione, who have been with the brand since its very early days through their roles at Modo & Modo; and second, there are the more recent recruits, notably Arrigo Berni, who joined Moleskine as CEO in the wake of the Syntegra acquisition. All of the executive board members have extensive experience in a number of Italian and global consumer and luxury companies, as well as in the publishing world.

Table 2: Moleskine's executive committee, 2012

Name Responsibility Age Moleskine (years) Previous employers

Arrigo Berni CEO 56 7 P&G, Bain, Bulgari, Testoni

Alessandro Strati CFO 42 5 Black & Decker, ENI, Newell-Rubbermaid, FILA

Maria Sebregondi Brand & Communication 64 18 * Freelance consultant and writer, Modo & Modo

Fabio Rosciglione Sales & Marketing 60 18 * Décor Line Franchising, Design Studies, Parole di Cotone, Modo & Modo

Lorenzo Del Felice Operations 42 2 Consiel, Deloitte , Prada, Bally, Borbonese, Club House (Fendi Casa)

Roberto Di Puma Product, Design & Publishing 56 3 CLUP, GB Progetti, Idea Books Editore, Lem, Parole di Cotone

Peter Jensen Digital 42 2 Lego

Average 51 6

Source: Company data, UBS. * Initially involved with the Moleskine brand since Modo & Modo

Management remuneration

The equity investments of Arrigo Berni, Fabio Rosciglione, Maria Sebregondi, Roberto Di Puma and two former managers will be liquidated as follows: one-third cash at the IPO, one-third Moleskine shares (18-month lock-up), and one-third Moleskine shares (24-month lock-up). Alessandro Strati, Peter Jensen and Lorenzo Del Felice are entitled to receive a bonus linked to the value of Moleskine, one-third of which will be paid in cash at the IPO with the remaining two-thirds paid in Moleskine shares one year from the IPO date with a lock-up period of 18-24 months from the IPO date. In addition, there is a stock option plan, dependent on the IPO taking place, the guidance for which is in the appendix.

Risks In the short term, we see the following key risks:

Continued weakness in the EMEA region, affecting retailers’ willingness to carry new stock.

Seasonality and volatility, the former exacerbated as a result of the change in channels, and the latter on a quarterly, not an annual basis.

Currency movements, affecting both sales translation as well as the transaction.

In the long term, we see the following key risks:

All executive board members have extensive experience in a number of Italian and global consumer and luxury companies

Three executive board members are entitled to receive a bonus linked to the value of Moleskine



Executive management, especially CEO Arrigo Berni, who we consider key to the story.

Lack of specific protection around the design of the notebooks and diaries, which has the risk of attracting similar products.

Competition remains active, though we feel that Moleskine is protected via its unique brand position.

A decline in brand awareness, although we feel that Moleskine is protected via its concentrated focus on innovation, including digital.

Channel/category expansion, notably in B2C, Retail and Writing, Travelling & Reading (WTR), and the impact these will have on profitability.

Valuation range Running a scenario analysis Base-case scenario: Sales +18% CAGR; EBIT margin -520bps

Our base-case scenario assumes organic sales growth of +18%, and a -100 basis point annual decline in the adjusted operating margin between 2013 and 2017.

The key driver behind our sales forecast is the expansion into Retail and B2C, which we expect to contribute combined growth of 74% (split evenly): for Retail, we assume the opening of 18 retail stores per year; for Indirect B2C, we assume a CAGR of +10% in 2012-17E (new doors (aka points of sale) and improved productivity).

The key driver behind our margin forecast is the disproportionate expansion into Retail, which should be partly offset by continued improvement in underlying gross margins, as management continues to shift Paper production from China to lower-cost locations, such as Vietnam.

Downside scenario: Sales +13% CAGR; EBIT margin –40bps vs base

Our downside scenario assumes 5% less organic sales growth than the base case, given a combination of: (1) slower B2C sales growth, due to continued economic weakness in southern Europe (Italy, France and Spain are ~20% of sales) and a risk of door reductions; (2) somewhat slower B2B sales growth beforehand; and (3) slightly more modest Retail expansion. Over the 2012-17E period, this should result in a 19% reduction in sales to €144 million versus the base (€179 million).

This slowdown in sales would likely have a small negative impact on operating leverage, leading to an additional -40 basis point impact on margins by 2017E, and consequently a reduction in operating profit of -20% versus the base from €65 million to €52 million and in net profit from €44 million to €35 million.

Upside scenario: Sales +23% CAGR; EBIT margin stable vs base

Our upside scenario assumes 5% additional organic sales growth than the base case, given a combination of: (1) a faster roll-out of the Retail store network; (2) higher B2C sales growth than expected from the entry into new doors and more space in existing stores on the back of the upgrade in display formats; and (3)

Expansion into Retail and B2C is key to our +18% CAGR sales forecast

Our margin forecast is primarily driven by the disproportionate expansion into Retail

Lower assumed organic sales growth reflects slower B2C and B2B sales growth, and slightly more modest Retail expansion

Faster roll-out of the Retail store network, and higher B2C and B2B sales growth underpin the 5% higher additional organic sales growth



slightly higher B2B sales growth. Over the period 2012-17E, this should result in a 23% increase in sales versus the base from €179 million to €220 million.

We model that the favourable operating leverage in B2C would be offset by an adverse mix effect from the disproportionate growth in Retail, combined with a likely reinvestment in expanding the brand. As a result, we are maintaining our 2017 margin forecast under this scenario, leading to a 23% increase in both operating profit (€80 million versus €65 million in the base case) and net profit (€54 million versus €44 million in the base case).

Table 3: Scenario analysis – key figures

Downside Base Upside

B2C CAGR (%) 6% 10% 15%

B2B CAGR (%) 10% 13% 19%

Retail CAGR (%) 96% 106% 124%

2012-17E sales CAGR (%) 13% 18% 23%

2017 sales (€m) 144 179 220

Difference versus base (%) -19% 0% 23%

2017 EBIT (€m) 52 65 80


2017 net profit (€m) 35 44 54


Source: UBS estimates

Identifying a meaningful peer group

Given Moleskine’s unique positioning, there is no easily identifiable peer group for the purpose of valuation multiple comparisons. As a result, we have identified a range of companies that share some of Moleskine’s characteristics:

Superior organic top-line growth: In order to capture Moleskine’s superior organic top-line growth, we have looked at the valuations of a number of high-growth, premium consumer companies: Michael Kors, Mulberry, Brunello Cucinelli, Tumi, Lululemon, Prada and L’Occitane. These are currently trading at an average 2014E P/E multiple of 22.4x with 2012-15E sales growth of +17.6%, EPS growth of +20.4% and a FY12 operating margin of 21.4% based on UBS consensus estimates.



Table 4: High-growth, premium consumer companies – key valuation parameters

Sales CAGR

2012-15E

EBIT margin 2012

EBIT CAGR

2012-15E EPS CAGR2012-15E

Adjusted P/E

2013E

Adjusted P/E

2014E

Brunello Cucinelli 13.8% 14.0% 22.2% 23.2% 35.0x 29.0x

L'Occitane 17.5% 16.7% 17.7% 14.5% 21.8x 18.6x

Lululemon 18.2% 27.5% 19.3% 21.2% 30.5x 24.4x

Michael Kors 25.3% 27.4% 30.5% 27.0% 25.7x 20.5x

Mulberry 17.3% 17.7% 25.3% 21.0% 27.1x 21.4x

Prada 14.7% 27.2% 18.3% 18.3% 24.1x 20.5x

Tumi 16.4% 19.7% 20.6% 17.5% 25.9x 22.6x

Average 17.6% 21.4% 22.0% 20.4% 27.1x 22.4x

Source: Company data, UBS estimates for L’Occitane and Lululemon, IBES consensus estimates for Brunello Cucinelli, Michael Kors, Mulberry, Prada and Tumi

Premium positioning and pricing power: In order to capture Moleskine’s unique brand positioning (with strong intangible benefits, as well as tangible benefits in the form of product quality and consumer communication), we have looked at the valuations of a number of luxury/premium brand companies: Coach, Ferragamo, Hermès, LVMH, Richemont and Tod’s. These are currently trading at an average 2014E P/E multiple of 18.6x with 2012-15E sales growth of +8.5%, EPS growth of +12.6% and a FY12 operating margin of 23.9%, based on UBS and consensus estimates.

Table 5: Luxury companies - key valuation parameters

Sales CAGR

2012-15E

EBIT margin

2012-15E

EBIT CAGR

2012-15E

EPS CAGR

2012-15E

Adjusted P/E

2013E

Adjusted P/E

2014E

Coach 6.4% 31.1% 6.5% 9.9% 11.9x 10.9x

Ferragamo 10.2% 16.0% 18.0% 23.2% 25.4x 21.5x

Hermès 9.0% 30.7% 10.6% 10.6% 34.3x 30.7x

LVMH 8.1% 21.2% 10.5% 8.5% 17.3x 15.5x

Richemont 10.4% 23.0% 11.3% 13.4% 15.8x 14.0x

Tod's 7.1% 21.6% 9.6% 9.7% 20.6x 18.6x

Average 8.5% 23.9% 11.1% 12.6% 20.8x 18.6x

Source: Company data, UBS estimates, IBES consensus estimates (Ferragamo)



Chart 4: Peer group – multiple and key metric comparison, 2014E

0%5%

10%15%20%25%30%35%40%

Herm

ès

Brun

ello

Cucin

elli

Lulul

emon

Tum

i

Mole

skine

Ferra

gam

o

Mulb

erry

Mich

ael K

ors

Prad

a

L'Occ

itane

Tod's

LVM

H

Rich

emon

t

Coac

h

0x5x10x15x20x25x30x35x40x

Adjus

ted

P/E

EBIT margin (FY12) Sales CAGR ('12-'15)

Source: Company data, UBS estimates for L’Occitane and Lululemon, IBES consensus estimates for Brunello Cucinelli, Michael Kors, Mulberry, Prada and Tumi

Determining a valuation range

In order to determine a valuation range, we have looked at a number of methods, including multiple analysis and DCF – sanity-checking them against the implied 2014E P/E and EV/EBITDA multiples, as well as the free cash flow yield.

Multiple analysis – €500-745 million range

Since the characteristics of the first group (faster-growing consumer companies) are much more compatible with those of Moleskine than those of the second group (luxury companies), we have decided to focus on the multiples of the first group to determine our valuation range.

For the base case, we are using a 2014E P/E multiple of 22.4x, in line with the average of the high-growth, premium consumer companies, given that their organic top-line growth and earnings growth profiles are similar to those of Moleskine.

For the downside scenario, we are using a 2014E multiple of 20.0x, a 10% discount to the average of the fast-growing consumer companies, balancing the somewhat slower growth assumed in the case of the downside scenario with Moleskine’s superior profitability.

For the upside scenario, we are using a 2014E multiple of 25.0x – 10% above the average of the faster-growing consumer companies. The latter reflects the group’s superior organic top-line growth on the back of channel expansion which should lead to a rapid increase in brand awareness, including in APAC.

On the back of this, we establish a valuation range of between €500 million under the downside scenario and €745 million under the upside scenario.



Table 6: Setting our valuation range – multiple analysis based on 2014E numbers

Downside scenario Base Upside scenario

Sales (€m) 100.9 110.0 119.5

EBIT (€m) 38.0 41.6 45.3

Net profit (€m) 25.1 27.6 30.0

P/E 20.0x 22.4x 25.0x

Equity value (€m) 500 615 745


DCF analysis – €530-805 million range

In addition to applying a range of 2014E P/E multiples to our downside, base and upside scenarios, we have carried out a DCF analysis for all three (details of which are summarised below), resulting in a valuation range of between €530 million and €805 million.

Table 7: Setting our valuation range – DCF analysis

Downside Base Upside

WACC

Equity risk free rate 5.0 5.0 5.0

Equity risk premium 4.5 4.5 4.5

Beta 1.2 1.2 1.2

Target equity/ EV weight 93.2% 94.5% 95.4%

WACC 10.0% 10.0% 10.0%

Medium-term growth 3.0% 5.0% 7.0%

Long-term growth 1.5% 2.5% 3.5%

Net equity value (€m) 530 655 805


Blended average – €515-775 million

Averaging our findings from the multiple and DCF analyses results in a valuation range of €515-775 million.

Sanity-checking the €515-775 million valuation range against key multiples (for the base business, based on 2014 estimates) implies a range of 18.7-28.1x on a P/E basis and 11.3-17.3x on an EV/EBITDA basis, with the free cash flow yield ranging from 3.2% to 4.9%.

Table 8: Key valuation parameters based on a range of equity values, 2014E

Equity value (€m) 500 550 600 650 700 750 800

P/E (x) 18.1x 20.0x 21.8x 23.6x 25.4x 27.2x 29.0x

FCF yield (%) 5.0% 4.6% 4.2% 3.9% 3.6% 3.4% 3.1%

EV/EBITDA (x) 11.0x 12.1x 13.3x 14.4x 15.6x 16.7x 17.9x




What is Moleskine? Summary What is Moleskine? Is it a notebook? Yes. Is it just a notebook? No. It is a lot more than a notebook. It is a “book yet to be written”, built around a number of strong intangible values with culture/design/travel at the core. Due to these intangibles, Moleskine enjoys a strong competitive position, which has enabled it to gradually expand the brand into adjacent categories and price it at a clear premium (the classic notebook, for instance, is priced at €15-17 in EMEA – broadly in line with a book). This is supported by its focus on distribution in book stores and now own stores rather than stationery stores.

Chart 5: Moleskine – a “book yet to be written”

Source: Moleskine® website

Corporate history The Moleskine that we know today dates back to the mid-1990s, when Maria Sebregondi, then a professor in Italy, read Chatwin’s “Songlines” (first published in 1986). In the book, Chatwin talks about moleskine, his favourite notebook (“to lose a passport was the least of one’s worries; to lose a notebook was a catastrophe”), sourced from a small printing house in Tours/France, and its disappearance upon the death of the printing house’s owner (“le vrai moleskine n’est plus”).

Maria Sebregondi then undertook more research into the brand and discovered that Chatwin was only one in a long line of artists using moleskine; others included Ernest Hemingway, Pablo Picasso and Vincent van Gogh. In her words: “Here was a story steeped in culture, rich in imagination and tied to a grand historical tradition. So, why not bring it back to life?” She convinced her publisher Modo & Modo to establish the “Moleskine” brand in 1995.

Initially, the brand evolved around the original notebook (which still accounts for 9% of sales), from where it gradually expanded into a variety of other notebooks as well as diaries – sourced from a small number of trusted suppliers in APAC, and distributed mainly in EMEA and the US. Interestingly, Moleskine has made its Asian production into a selling point for the brand (“designed by Moleskine in Italy and manufactured in China”), which it explains on its website:

Moleskine – not just a notebook, but a “book yet to be written”

Established in the mid-1990s



“The Far East we know well and which supplies our production needs, in fact, is not the one of low levels of quality and disregard for copyrights and civil rights. …It is the refined China of the great tradition that was handed down to Japan and then spread throughout the Far East and the world…In the Far East, we have found manufacturers capable of blending the large volumes of industrial production with the care and individual attention of handmade craftsmanship. …Our search for the right partners has been time-consuming and exhaustive, and it has demanded much testing and a careful selection process.”

In 2006, private equity house Syntegra took a 79.6% stake in the business, allowing the Moleskine brand to strengthen consumer awareness, broaden the product offer and expand the distribution network (by channel as well as region), while ensuring the brand remained true to its core of culture, design and travel.

Chart 6: The development of Moleskine, second half of the 1800s to date

Second half of the

1800s to 1960 1980s-1995 1995-2006 2006 to date

Arrival of Syntegra (79.6% stake)

Increase in brand awareness

Broadening of the product offering

Expansion of the distribution

Used by artists such as van Gogh, Picasso, Hemingway, Chatwin

"Le vrai moleskinen'est plus!"

Establishment of the Moleskine brand by

Modo & Modo

Establishment of the Moleskine brand

Creation of a supplier and distribution

network

Initial expansion of the product offering

Source: Company data, UBS

Moleskine’s positioning The tangible attributes

Like many strong brands, Moleskine can be identified by a number of tangible attributes:

The outside: On the outside, Moleskine’s core paper range, i.e. notebooks/diaries/planners, is covered in cardboard (initially available only in black, then in red and now in a greater range of colours) with the logo embossed at the bottom of the back, sports round corners and is closed with an elastic band. Products are individually wrapped with colour-coded sleeves (e.g. green for plain, orange for lined and yellow for squared notebooks).

The inside: On the inside, Moleskine’s first page contains the following note: “In case of loss, please return to … As a reward: $ …” – replicating the offer made by Chatwin in all his notebooks. At the back, there is an inside pocket, containing a leaflet with Moleskine’s history and, in the case of some of the more specialised notebooks, a range of stickers. As for the paper, there are three options: plain, lined and squared. In addition, each Moleskine item, including the most simple notebooks, contains a sticker certifying that the product has passed quality control.



Chart 7: The outside Chart 8: The inside Chart 9: The back pocket

Source: Moleskine® website Source: Moleskine® website Source: Moleskine® website

The intangible attributes

When management first set out to position Moleskine, it did so around two axes: the first one represented a brand’s ‘raison d’être’ (with function and identity at the two ends of the spectrum), while the second one represented the brand’s delivery to the consumer (with commerce and culture at the two ends of the spectrum).

Identity versus function: On the identity versus function axis, Moleskine was positioned at the identity end (more in line with Lifestyle and Luxury, although more inclusive than a pure luxury brand), with the aim of allowing the consumer to see the brand as a way of expressing himself/herself, rather than fulfilling a mere need (the domain of stationery). Think about a high-end watch: its owner is as likely to want to make a statement wearing it as reading the time from it.

Culture versus commerce: On the culture versus commerce axis, Moleskine was positioned at the culture end (a position well supported by the brand’s history), while Luxury and, more importantly, Lifestyle and Stationery were positioned towards the commerce end. As a result, Moleskine has – from the beginning – had a strong position in the book store (rather than the stationery channel), e.g. Barnes & Noble is one of its biggest customers.

Chart 10: Moleskine’s brand positioning

Luxury

Lifestyle

Publishers

Stationery

Identity

Function

Com

mer

ce Culture


“Moleskine is built on a set of intangible values with global appeal, supporting a premium price position”

CEO Arrigo Berni



Barriers to entry and pricing power As a result of its positioning around a set of intangible values with global appeal, Moleskine has a clear competitive advantage. That does not mean that there is no competition; in fact, there are several similar brands available in the market, though none of them can boast the same cultural heritage as Moleskine, and few of them can claim the same attention to detail and quality as Moleskine (a view supported by years of loyal Moleskine users).

In addition to its competitive advantage, Moleskine’s positioning has allowed it to command a clear price premium: in EMEA, for instance, the classic notebook retails at €15-17 – broadly in line with a book – while a purely functionality-driven notebook comes at a cheaper price of €3-4. We have tried to identify a number of brands from other walks of life (for our female readers, some are cosmetics; for our male reader, some are technology) to illustrate the power of a brand:

Table 9: Understanding the power of the brand – examples from other walks of life

Sector "I want the brand because…" Positioning and below the line

Aesop Cosmetics "…It is quirky, utilises the best of the natural world with modern science and the packaging comes complete with quotes from

Serge Gainsbourg, Miles Davis, Winston Churchill and Carl Jung." ¹

In-store architecture (eg Lucy McRae) Online travel guides of key Aesop cities

Kiehl's Cosmetics "Respect for old-fashioned values is really who we are." (Kiehl's president, Michelle Taylor) Strong heritage (New York apothecary, "Mr Bones")

Easily identifiable, high-quality packaging No advertising - all "word-to-mouth"/ endorsement

L'Occitane Cosmetics "…This is one decadent luxury that is worth every penny." ¹ Strong association with a region (Provence)/ travel No advertising - all below-the-line/ "word-to-mouth"

Clear price premium over comparable products

Le Creuset Kitchenware "Le Creuset cookware is synonymous with quality and style." ¹ Clear visual brand positioning (e.g. use of colour) Superior quality and strong therefore pricing power

Leica Technology "...Leica is still the benchmark." ¹ Travel at the very heart of the Leica brand Leica Galleries, Magnum, FCDA

Sennheiser Technology "…It changes the way you edit and listen to music." ¹ Sennheiser Travel Line, mobility via headphones "Artists with Sennheiser" (e.g. Madonna/Coldplay)

Source: UBS. ¹ Consumer blog.

A creative and loyal consumer The core of Moleskine’s customer base has always been the “creative class”, including:

The super creative core, i.e. people whose profession is strongly related with creativity (artists, designers, architects, actors, etc).

The creative professional, i.e. people in knowledge-intensive industries for whom creativity can be part of their professional or their personal life.

In addition to that core, the Moleskine consumer (who is in the 18-55-year-old range with similar purchasing patterns between men and women) tends to be better educated, an urban dweller and a heavy online user. While the latter may seem surprising as the analogue and digital worlds seem to be at opposite ends of the spectrum, we believe that today’s consumer seamlessly switches from one to the other. Besides, the strong penetration of internet users among its target group has allowed Moleskine to flourish on the back of various blogs and dedicated websites (e.g. Moleskineries.com).

Several similar brands compete with Moleskine, but it has a clear advantage, courtesy of its positioning around a set of intangible values with global appeal…

…and is able to command a clear price premium

Moleskine has flourished on the back of various blogs and dedicated websites due to the strong penetration of internet users among its target consumer group



It is all about the top line Summary Having achieved compound annual sales growth of +24% over the past few years, we expect Moleskine to continue to grow in double digits and forecast average organic top-line growth of +18% over the period 2013-17. The single most important driver is the brand’s still limited penetration of its addressable market – an issue we expect it to tackle through an improvement in brand awareness and brand availability (all the more so as an important portion of its sales comes from impulse purchases), while keeping brand relevance intact.

Chart 11: Sales by channel (€m) Chart 12: Sales by region (€m) Chart 13: Sales by category (€m)

0

60

120

180

2012 2017E

Sales

(€ m

illion

)

B2C B2B E-commerce Retail

0

60

120

180

2012 2017E

Sales

(€ m

illion

)

EMEA Americas APAC

0

60

120

180

2012 2017E

Sales

(€ m

illion

)

Paper WTR Digital

Source: Company data, UBS estimates Source: Company data, UBS estimates Source: Company data, UBS estimates

The book that has been written so far During the past three years, sales have increased by €37 million to €78 million in 2012 from €41 million in 2009 – a compound annual growth rate of +24%.

Chart 14: Development of sales, 2009-12

€78m€67m

€53m€41m

0

10

20

30

40

50

60

70

80

2009 2010 2011 2012

Sales

(€ m

illion

)

CAGR +24%


By channel, the contribution to the €37 million increase in sales was highest in B2C (69% of the total) and B2B (20% of the total). While the remaining two channels made a smaller contribution, one has to remember that they were put in place only in 2010 (E-commerce) and 2012 (Retail).

Average organic top-line growth of +18% forecast for the period 2013-17



Table 10: Development of sales by channel, 2009-12

2009 2010 2011 2012 Addition % of total CAGR

Indirect B2C 35.5 44.7 55.5 61.1 25.6 68% 20%

B2B 5.3 8.6 10.7 12.7 7.4 20% 34%

E-commerce 0.0 0.1 1.1 3.3 3.3 9% N/M

Retail 0.0 0.0 0.0 1.0 1.0 3% N/M

Sales 40.8 53.4 67.3 78.1 37.3 100% 24%


By region, the contributions to the €37 million sales increase were very similar in EMEA (42%; front-end loaded, as 2012 suffered from weakness in Italy) and the Americas (43%; back-end loaded, helped by the launch of the Evernote Smart notebook and the growing contribution from E-commerce, which increased to €1.9 million in 2012 from €0.5 million in 2011). APAC contributed the remaining 15% with a gradual acceleration through the period.

Table 11: Development of sales by region, 2009-12


EMEA 25.5 32.0 41.1 41.2 15.7 42% 17%

Americas 12.1 17.4 20.0 28.1 16.0 43% 32%

APAC 3.1 4.1 6.2 8.8 5.7 15% N/M

Sales 40.7 53.5 67.3 78.1 37.4 100% 24%


By category, the contribution to the €37 million increase in sales was, as would be expected, highest in Paper (85%, given the sheer size of the division and the steady flow of new products) with the remaining 15% attributable to WTR (reflecting the category’s strong start, given that it was not fully introduced until late 2010).

Table 12: Development of sales by category, 2009-12


Paper 40.8 53.0 62.8 72.6 31.8 85% 21%

WTR 0.0 0.4 4.4 5.5 5.5 15% N/M

Digital 0.0 0.0 0.0 0.0 0.0 0% N/M

Sales 40.8 53.4 67.2 78.1 37.3 100% 24%


The book that has yet to be written Based on the assumption that the traditional Moleskine consumer is 18-55 years old, lives in urban areas and has enjoyed a higher education, management has identified the brand’s current addressable market (consumers considering buying a Moleskine product and being able to afford it) as totalling 228 million people worldwide – a number it expects to have increased to 320 million by 2020. Note that the minimum annual income in this group is at US$40,000.

The current addressable market totals 228 million people worldwide, rising to 320 million by 2020…



Chart 15: Moleskine’s addressable market, 2012

0

50

100

150

200

250

300

350

WesternEurope

EasternEurope

NorthAmerica

LatinAmerica

Asia Pacific MEA Total 2012 Total 2020E

Addr

essa

ble po

pulat

ion (m

)


Within this addressable market, Moleskine so far only scratches the surface, as in 2012 only 3.3 million consumers bought at least one Moleskine product (based on a survey undertaken by the company) – equivalent to no more than 1.5% of the total addressable market. Unsurprisingly, the number is above the average in Western Europe and North America, where Moleskine has a longstanding presence, as well as in Latin America – the latter likely reflecting the local consumer’s affinity with European craftsmanship and global mobility (bearing in mind that Moleskine is only starting to expand in the area).

In Eastern Europe and Asia Pacific, however, Moleskine’s penetration is below the average with the latter a particular area of focus for the group, given the sheer size of the addressable market (47 million potential users). In addition, the brand has a small presence in the MEA region.

Table 13: Moleskine within its addressable market, 2012

Region Moleskine consumers ('000) Addressable market ('000)

Penetration (% of total)

Latin America 54 3,000 1.8%

Western Europe 1,750 103,000 1.7%

North America 1,054 64,000 1.6%

Eastern Europe 69 7,000 1.0%

Asia Pacific 394 47,000 0.8%

MEA N/M 4,000 0.0%

Global total 3,321 228,000 1.5%


Looking ahead, we see three key drivers behind an increase in the penetration of the Moleskine brand:

Increased brand awareness

Increased brand availability

Increased brand offering

…but so far Moleskine only scratches the surface, as in 2012 only 3.3 million consumers bought at least one product

Asia Pacific is a particular area of focus for the group



1. Increase brand awareness We believe that Moleskine has several levers at its disposal to improve brand awareness, facilitated by its multi-channel approach. These include: (1) expanding the number of doors (points of sale) (via B2C and Retail), while strengthening the existing doors (via a gradual upgrade in the types of display materials used); (2) leveraging B2B as a communication tool; (3) focusing on below-the-line communication; and (4) intensifying the digital effort.

Expanding the number of doors (e.g. Apple)

One comparatively “easy” way to improve awareness of the Moleskine brand is by increasing the number of doors in which it can be found – particularly important given that a substantial portion of Moleskine purchases are made on impulse, due to their relatively affordable price. This includes Moleskine’s traditional base (e.g. book stores, stationery stores, department stores) as well as diversification towards new formats: in the wake of the Evernote Smart launch at the end of last year, Moleskine gained access to 280 Apple stores in the US – possibly the first time ever that a printed non-Apple product was distributed in-store.

Table 14: Development of the number of doors, 2009-12

2009 2010 2011 2012 CAGR (%)

EMEA 11,802 12,288 12,485 12,509 2%

Americas 5,080 5,162 7,249 8,474 19%

APAC 2,216 2,478 2,504 2,591 5%

Total 19,098 19,928 22,238 23,574 7%


Leveraging B2B as a communication tool

In 2012, Moleskine had 1,183 B2B customers (56% of which were in EMEA, 33% in the Americas and 11% in APAC). An estimated three-quarters of these were repeat customers, serving as an effective marketing tool by raising awareness for the brand – all the more so in light of the breadth of the B2B customer base, which should allow everybody to make a positive association with the brand (e.g. Berlinale for fans of the cinema or MoMA for fans of art).

Chart 16: Moleskine B2B – Regent Chart 17: Moleskine B2B – MoMA Chart 18: Moleskine B2B – Conventions


Potentially several levers at its disposal to improve brand awareness

Door presence is important as a substantial portion of Moleskine purchases are made on impulse

Some 75% of B2B customers are repeat customers



Focusing on below-the-line communication

Given the positioning of the brand, interaction with its public focuses on below- the-line communication, e.g. blogs, events, workshops and social networks:

Detour: In 2006, Moleskine introduced Detour, an exhibition of notebooks illustrated by famous artists, with eight main editions in London, New York, Paris, Berlin, Istanbul, Tokyo, Venice and Shanghai as well as three special editions in Milan, Venice and Bologna – seen by an estimated 21,000 visitors and summarised in the Detour Book.

My Detour: Also in 2006, Moleskine introduced My Detour, an exhibition of notebooks illustrated by any Moleskine user, with eight main editions in London, New York, Paris, Berlin, Istanbul, Tokyo, Venice and Shanghai as well as 13 special editions in Beijing, Paris, Milan (three), Florence, Parma, Rome, Naples, Dakar, San Francisco, Tokyo and Osaka.

In-store events: In addition, Moleskine hosted a number of in-store events in 22 cities in EMEA, the Americas and APAC, engaging 7,700 participants in-store directly, 42,000 participants indirectly and 440,000 participants online.

Viral Videos: Over the past three years, Moleskine has posted 48 different videos, which have been watched more than 1.9 million times over the past 12 months.

Chart 19: Detour in Berlin, 2008 Chart 20: Detour in Tokyo, 2009 Chart 21: My Detour in New York


Intensifying the digital effort

In the past few years, Moleskine has been focusing on the brand’s digital aspect, launching a number of websites in different countries, starting with Italy in 2010, followed by various other countries in EMEA and the Americas in the following two years – taking the number of geographies covered to 22 at the end of 2012.

Not only has this allowed the establishment of an e-commerce platform (see below), but it has also helped increase the brand content, though we feel that there is room for future improvement (especially as searching for Moleskine continues to lead to local websites that pioneered the brand, but are not controlled by it, as a result of which they are low on content; examples include www.rsvp-berlin.de in Germany and www.simplymoleskine.com in the UK).

In addition to focusing on its own website, Moleskine has been more active with social media, such as Facebook (with more than 148,000 friends; the number of which is increasingly at a steady pace), Twitter (with more than 21,805 followers) as well as You Tube (with more than 8,000 subscribers and more than 5.2 million views).

By the end of 2012, Moleskine had launched websites in 22 geographies



2. Increase brand availability In addition to increasing brand awareness, greater availability will be a key driver behind future top-line growth, as an opportunity to “run into the brand” (at an average price of €15-17, impulse purchases are an important way to discover it) and expand the product offer. According to a survey conducted by the group, 30-50% of those consumers who are aware of Moleskine, but have not bought it in the past 12 months, have not been able to find what they looked for.

Chart 22: Development of brand awareness of Moleskine, 2007-12

0%

10%

20%

30%

40%

50%

60%

70%

UK Italy Germany USA Japan Urban China

Bran

d awa

rene

ss (%

)

2007 2012

N/AV N/AV


By channel, Moleskine’s single most important route to market has historically been B2C (78% of 2012 sales). However, its importance has been gradually declining, as the group has been evolving to a multi-channel approach, including B2B (16%) and, more recently, E-commerce (4%) and Retail (1%).

By region, Moleskine’s most important market has been EMEA (53% of 2012 sales, the majority of which come from Germany, the UK, and Italy), followed by the Americas (36%, the majority of which is from the US) and APAC (11%, the majority of which is from Japan and Australia).

Table 15: Sales by region and channel, 2012

B2C B2B E-commerce Retail Total % of total

EMEA 31.4 7.5 1.4 0.9 41.2 53%

Americas 22.7 3.6 1.9 0 28.1 36%

APAC 7.0 1.6 0.0 0.1 8.8 11%

Total 61.1 12.7 3.3 1.0 78.1 100%

% of total 78% 16% 4% 1% 100% ---


Fast forward five years and we expect the contribution from B2C to have fallen from 78% to 55% of sales, while Retail is likely to have taken the number two spot (22% of sales), pushing B2B into third position (13% of sales) with E-commerce a very close runner-up (11%).

Greater availability will be a key driver behind future top-line growth

Five years from now Retail is likely to have pushed B2B into third place in terms of sales…



From a geographical point of view, EMEA is likely to still be the single biggest region, although we expect its contribution to have declined from 53% to 39% of sales, boosting the Americas from 36% to 45% and APAC from 11% to 16% of sales.

Table 16: Sales by region and channel, 2017E

B2C B2B E-commerce Retail Total % of total

EMEA 36.6 9.1 5.7 18.2 69.6 39%

Americas 45.6 9.7 11.7 13.9 81.0 45%

APAC 16.5 3.9 1.8 6.6 28.7 16%

Total 98.7 22.7 19.2 38.7 179.4 100%

% of total 55% 13% 11% 22% 100% ---


B2C – three regions, two strategies

Although it has been declining in importance since Moleskine has been focusing on expanding its multi-channel strategy, B2C remains the single most important channel (78% of sales in 2012). Moleskine is currently present in as many as 23,600 doors (versus 14,000 in 2006 and 22,000 in 2011). It is hardly surprising that the number of doors is highest in EMEA (53%), followed by the Americas (36%) and APAC (11%). As a result, the strategy varies slightly in EMEA (the focus is on deepening penetration/improving sales density) and the Americas/APAC (the focus is still on expanding the network/improving sales density).

How to deepen penetration: Upgrade display formats

Moleskine currently has three display formats – displays, walls/islands and ateliers – the cost of which is carried by the group:

Displays are an entry strategy, in smaller locations and/or to support limited-edition campaigns. They have average display capacity of 150-200 pieces. At the end of 2012, there were a total of 15,111, up from 9,472 in 2009 (+17% per year).

Walls/islands are the first step in an upgrade from displays. They have maximum display capacity of 1,500 pieces. At the end of 2012, there were a total of 453, up from 94 in 2009 (up 69% per year). The uplift to sell-out vis-à-vis displays is 50-70% on average.

Ateliers are aimed at high-potential locations. They have maximum display capacity of 3,000 pieces. At the end of 2012, there were a total of 89 – the first having been launched only in 2010. The uplift to sell-out vis-à-vis walls/islands is 45-70% on average.

Table 17: A summary of the B2C network, 2011-12

Displays Walls/islands Ateliers Doors

2011 15,359 357 31 22,238

2012 15,111 453 89 23,574

Change (%) -2% 27% 187% 6%


…while EMEA should remain the single biggest region, albeit with a diminished sales contribution

Chart 23: Development of B2C

€99m(55% total)

€61m(78% total)

0102030405060708090

100

2012 2017E

CAGR +10%




A key risk would be a shrinking of Moleskine’s traditional distribution network (e.g. closure of bookstores in a more difficult economic environment in Western Europe, notably southern Europe), and/or a reduction in the available space for the brand.

Deepening penetration: Strengthen position with key retailers

Moleskine’s top 300 retailers account for 71% of sales. Of these, the company has direct relationships with the top 50 (sharing marketing activities/product development strategies; agreeing on in-store merchandising/displays; discussing price schemes/incentive plans; organising in-store events); these top 50 retailers account for close to half of total Moleskine sales and include Waterstones, Fnac, Feltrinelli, Thalia, Paperchase, Galeria Kaufhof and Karstadt in EMEA; Barnes & Noble (7% of sales), Amazon (3%), Target (2%) and Staples in the US; and Loft and Tokyo Hands in APAC/Japan.

Chart 24: Moleskine’s top 300 retailers, 2012

Dire

ctre

lation

ship

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Top-50 # 51-100 # 101-150 # 151-200 # 201-250 # 251-300 Other

Contr

ibutio

n to B

2C sa

les by

retai

ler (%

)


A key risk would be if any of the B2C retailers – notably any of the 50 key retailers, such as Barnes & Noble – decided to no longer carry Moleskine.

EMEA: Improve penetration and sales density

In EMEA, Moleskine had 12,509 doors in 2012, broadly unchanged on 2011, reflecting that room for further network expansion is limited at this stage. As a result, future strategy will likely be driven by deepening penetration and improving sales density in existing accounts.

Deepening penetration in existing accounts. Moleskine estimates it had a total of 8,659 displays in use in EMEA in 2012, down by around 500 from the prior year, reflecting a combination of door closures, breakage and changes to other formats – with the number of walls/islands and ateliers increasing by 24% and 132%, respectively, significantly elevating the brand’s in-store presence in the accounts in question (e.g. Selfridges in London).

Improving sales density in existing accounts. We believe that – together with the deepening penetration – this will be achieved by the group’s focus on newer categories, notably WTR, which tend to command higher price

Chart 25: Number of doors, 2011-12

02,5005,0007,500

10,00012,500

Doors Display s2011 2012

Walls:278 to 345Ateliers:28 to 65




points (e.g. a bag retails at about €70, compared with a classic notebook at €15-17) – although we would note, on the flipside, that a bag takes up more display space and turns less frequently than a notebook.

Over the next five years, we expect sales in EMEA to rise from €31.4 million in 2012 to €36.6 million in 2017E, driven by compound annual organic top-line growth of +3%. This forecast is based on the assumption of: (1) an unchanged number of doors; (2) average same-store sales growth of 2-3% (with a similar contribution from price, mix and volumes); and (3) a gradual improvement in the quality of the network, with more walls/islands and ateliers offsetting fewer displays, which should add 1%. We expect the start of the period to be marked by continued weakness in Western Europe, notably southern Europe (which we estimate accounts for one-third of EMEA sales), which could ultimately lead to a reduction in the available (book) store network. That said, we are assuming an unchanged number of doors for 2013 and thereafter, given that Moleskine is working on accessing several new accounts across the EMEA region. As for the contribution from mix and volume, we forecast it to be broadly stable as a small contraction in volumes should be offset by a small increase in price/mix.

Table 18: Sales and sales growth in EMEA B2C – the building blocks, 2012-17E

2012 2013E 2014E 2015E 2016E 2017E 2012-17E CAGR

Displays 8,659 8,559 8,459 8,359 8,259 8,159 -1%

Walls/islands 345 405 480 555 630 705 15%

Ateliers 65 95 120 145 165 185 23%

Total doors 12,509 12,509 12,509 12,509 12,509 12,509 0%

Price growth/door --- 1.5% 1.5% 1.5% 1.5% 1.5% ---

Mix + volume/door --- -1.5% 2.0% 2.0% 2.0% 2.0% ---

Change in sales/door --- 0.0% 3.5% 3.5% 3.5% 3.5% ---

Uplift displays from doors --- 3.3x 3.3x 3.3x 3.3x 3.3x ---

Uplift W/I from displays --- 1.5x 1.5x 1.5x 1.5x 1.5x ---

Uplift ateliers from W/I --- 1.5x 1.5x 1.5x 1.5x 1.5x ---

Sales 31.4 31.2 32.4 33.8 35.2 36.6 3%

Change (%) --- -1% 4% 4% 4% 4% ---


Americas: Expand network and sales density

2012 saw a sharp increase in the number of doors in the Americas, helped by Moleskine entering 280 Apple stores following the Evernote Smart introduction. Going forward, we see room for further expansion of the distribution network through leveraging the strong performance in existing accounts – all the more so as the positioning of Moleskine allows for greater latitude than typical luxury/ lifestyle brands. In addition, we see room for greater sales density as Moleskine converts displays to walls/islands and ateliers and as the group expands the products on offer. Moleskine recently started to introduce its products in Latin America.

We expect sales in EMEA to rise from €31.4 million in 2012 to €36.6 million in 2017E


0

3,000

6,000

9,000






Over the next five years, we expect sales in the Americas to rise from €22.7 million in 2012 to €45.6 million in 2017E, driven by compound annual organic top-line growth of 15%. We expect:

A 5% increase in the number of doors, as there is, unlike in EMEA, still a lot of white space to be covered, given the wide range of different distribution channels (2013, for instance, will see the addition of 300 FedEx stores).

Average same-store sales growth of 9% with a strong contribution from mix (due to the continued roll-out of WTR) and volume (due to the relatively low penetration in the US and Latin America); price should add another 1-2%.

A gradual improvement in the quality of the network, which should contribute around 1-2% to overall growth.

Table 19: Sales and sales growth in Americas B2C – the building blocks, 2012-17E

2012 2013E 2014E 2015E 2016E 2017E 2012-17E CAGR

Displays 4,409 4,609 4,859 5,159 5,484 5,834 6%

Walls/islands 58 88 123 163 208 258 35%

Ateliers 10 20 35 55 80 110 62%

Total doors 8,474 8,924 9,374 9,824 10,274 10,724 5%

Price growth/door --- 1.5% 1.5% 1.5% 1.5% 1.5% ---

Mix + volume/door --- 6.0% 7.0% 7.5% 8.0% 8.5% ---

Change in sales/door --- 7.5% 8.5% 9.0% 9.5% 10.0% ---




Sales 22.7 25.1 28.9 33.4 39.0 45.6 15%

Change (%) --- 11% 15% 16% 17% 17% ---


APAC: Expand network and sales density

As in EMEA, the number of new doors in APAC in 2012 was limited, up a mere 3% year on year. We see room for further expansion of the distribution network through leveraging the underlying market opportunities – all the more so as the brand’s penetration is still very low, particularly outside Australia and Japan. We also see room for greater sales density as Moleskine converts displays to walls/islands and ateliers and as the group expands the products on offer (note that the WTR category already slightly over-indexes in APAC, which should be beneficial for its future development). A key risk is a meaningful slowdown in the pace of (1) new door expansion, and (2) higher-value display format roll-out.

We expect sales in APAC to rise from €7.0 million in 2012 to €16.5 million in 2017E, driven by compound annual organic top-line growth of +19%. We expect:

A 7% increase in the number of doors, as Moleskine is still a small player outside a handful of key markets like Australia and Japan.


0

1,000

2,000

3,000






Average same-store sales growth of 11% (driven by a strong contribution from both mix (due to the continued roll-out of WTR) and volume (due to the brand’s relatively low penetration in a number of fast-growing markets like China), while price should add another 1-2%).

A rapid improvement in the quality of the network, reflecting the fact that department stores remain an important channel in the region, facilitating the roll-out of higher-value display formats; this should contribute 1-2% to the overall growth in the region.

Table 20: Sales and sales growth in APAC B2C – the building blocks, 2012-17E

2012 2013E 2014E 2015E 2016E 2017E 2012-17E CAGR

Displays 2,043 2,143 2,243 2,343 2,443 2,543 4%

Walls/ islands 50 65 85 105 125 145 24%

Ateliers 14 34 59 89 119 149 60%

Total doors 2,591 2,741 2,916 3,116 3,341 3,591 7%

Price growth/ door --- 1.5% 1.5% 1.5% 1.5% 1.5% ---

Mix + volume/ door --- 8.0% 9.0% 10.0% 10.0% 10.0% ---

Change in sales/ door --- 9.5% 10.5% 11.5% 11.5% 11.5% ---




Sales 7.0 7.9 9.4 11.4 13.7 16.5 19%

Change (%) --- 12% 19% 21% 21% 20% ---


Conclusion on B2C

Over the next five years, we expect sales in B2C to increase from €61.1 million in 2012 to €98.7 million in 2017, implying compound annual organic top-line growth of +10%, driven by expansion in the number of doors (+2-3%), uplift from superior display formats (+1-2%), price increases (+1-2%) and increase in mix/ volumes (+5%). By region, we expect the below-average growth in EMEA (+3% CAGR) to reduce the region’s contribution to sales from 51% in 2012 to 37% in 2017, while the contribution from the Americas (+15% CAGR) and APAC (+19% CAGR) should increase from 37% to 46% and from 12% to 17%, respectively.



Table 21: Development of B2C sales and their main drivers, 2012-17E

2012 2013E 2014E 2015E 2016E 2017E 2012 -17E average

Change in number of doors (%) --- 2% 3% 3% 3% 3% 3%

Uplift from display format mix (%) --- 0% 1% 2% 2% 2% 1%

Pricing growth (%) --- 2% 2% 2% 2% 2% 2%

Mix/volume growth (%) --- 1% 5% 5% 6% 6% 5%

Year-on-year growth (%) --- 5% 10% 11% 12% 12% 10%

EMEA 31.4 31.2 32.4 33.8 35.2 36.6 3%

Americas 22.7 25.1 28.9 33.4 39.0 45.6 15%

APAC 7.0 7.9 9.4 11.4 13.7 16.5 19%

Sales (€ million) 61.1 64.2 70.7 78.6 87.9 98.7 10%

EMEA 51% 49% 46% 43% 40% 37% ---

Americas 37% 39% 41% 43% 44% 46% ---

APAC 12% 12% 13% 14% 16% 17% ---

Sales (% of total) ¹ 100% 100% 100% 100% 100% 100% ---

Source: Company data, UBS estimates. ¹ Percentages may not add up to 100% due to rounding issues.

B2B – adding to a loyal base

B2B is Moleskine’s second most important channel (16% of sales in 2012) via a network of 1,183 customers (companies, institutions and various other organisations). Growth in this division will be driven by a combination of new customers on the one hand, while management focuses on maintaining and nurturing the existing customer base on the other. As we pointed out earlier, besides having a positive direct impact on sales through the development of the customer base, B2B will have a positive indirect impact on sales through an increase in brand recognition.

EMEA: Bigger focus on smaller clients

In EMEA (59% of sales in 2012), Moleskine had 666 B2B customers in 2012, up 18% from prior-year levels, implying average sales per customer of €11,200.

Going forward, we expect average organic top-line growth of 4%. This will be driven by a 10% increase in the number of customers, with a particular focus on France, Germany, Italy and the UK – supported by a gradual expansion of the B2B sales force. However, this is likely to be partly offset by a 6% decline in average sales per customer, reflecting the fact that Moleskine will be stepping up its focus on small and medium-sized clients.

Chart 28: Development of B2B

€23m(13% total)

€13m(16% total)

0

4

8

12

16

20

24

2012 2017E

CAGR +12%




Table 22: Sales and sales growth in EMEA B2B – the building blocks, 2012-17E

2012 2013E 2014E 2015E 2016E 2017E 2012-17E CAGR

Retained customers 424 500 575 646 705 758 12%

Retention rate (%) --- 75% 75% 75% 75% 75% ---

New customers 242 267 287 295 305 323 6%

Total customers 666 766 861 941 1,011 1,081 10%

Change (%) --- 15% 12% 9% 7% 7% ---

Sales per customer (€ '000) 11.2 10.0 9.3 8.9 8.6 8.4 -6%

New/existing customers --- 50% 60% 65% 70% 75% ---

Sales (€ million) 7.5 7.7 8.0 8.3 8.6 9.1 4%

Change (%) --- 2% 4% 4% 4% 5% ---


Americas: Investing in future key accounts

In the Americas (28% of sales), Moleskine had 392 B2B customers in 2012, up 17% year-on-year, implying average sales per customer of €9,100.

Going forward, we expect average organic top-line growth of 22%. This will be driven by a 12% increase in the number of customers, supported by ongoing development of the direct sales channel, which will, over time, replace the current system of agents and distributors. Supported by the latter and an increased focus on a number of key accounts, we expect average sales per customer to increase 9% on a compound annual basis.

Table 23: Sales and sales growth in Americas B2B – the building blocks, 2012-17E

Americas 2012 2013E 2014E 2015E 2016E 2017E 2012-17E CAGR


Retention rate (%) --- 75% 75% 75% 75% 75% ---

New customers 142 158 173 188 203 218 9%

Total customers 392 452 512 572 632 692 12%

Change (%) --- 15% 13% 12% 10% 9% ---

Sales per customer (€ '000) 9.1 9.8 10.7 11.8 12.9 14.1 9%


Sales (€ million) 3.6 4.4 5.5 6.8 8.2 9.7 22%

Change (%) --- 24% 24% 23% 21% 19% ---


APAC: Best of both worlds

In APAC (13% of sales in 2012), Moleskine had 125 B2B customers in 2012, up 98% year-on-year, implying average sales per customer of €13,100.

Going forward, we expect average organic top-line growth of 19%. This will be driven by a 26% increase in the number of customers through a combination of focus on new markets such as China, Korea and Singapore, and the development of an indirect channel in markets like Japan. However, this will likely be partly offset by a (6%) decline in average sales per customer, as we are assuming that



average sales from new customers will initially be only 50-60% of those of existing ones.

Table 24: Sales and sales growth in APAC B2B – the building blocks, 2012-17E

2012 2013E 2014E 2015E 2016E 2017E 2012-17E CAGR


Retention rate (%) --- 75% 75% 75% 75% 75% ---

New customers 78 76 93 110 129 149 14%

Total customers 125 170 220 275 335 400 26%

Change (%) --- 36% 29% 25% 22% 19% ---

Sales per customer (€ '000) 13.1 11.8 10.9 10.3 9.9 9.7 -6%


Sales (€ million) 1.6 2.0 2.4 2.8 3.3 3.9 19%

Change (%) --- 22% 20% 18% 17% 17% ---


Conclusion on B2B

Over the next five years, we expect sales in B2B to increase from €12.7 million in 2012 to €22.7 million in 2017, implying compound annual organic top-line growth of 12%, driven by a net 13% increase in the number of customers, which assumes that the group retains three-quarters of its existing client base and overcompensates for the loss of the other 25% by recruiting incrementally more new customers – supported by a strengthened B2B salesforce. By region, we expect below-average growth in EMEA (4%) to reduce the region’s contribution to sales from 59% in 2012 to 40% in 2017, while we assume the contributions from the Americas (22% CAGR) and APAC (19% CAGR) increase from 28% to 43%, and from 13% to 17%, respectively.

Key risks to continued growth in B2B include a slowdown in the recruitment of new customers, and a reduction in the number of loyal customers (potentially driven by a switch to other suppliers or a focus on other product categories).



Table 25: Development of B2B sales and their main drivers, 2012-17E

2012 2013E 2014E 2015E 2016E 2017E 2012-17E CAGR

Retained customers 722 887 1,041 1,195 1,341 1,483 16%

Retention rate (%) --- 75% 75% 75% 75% 75% ---

New customers 462 501 552 593 637 689 8%

Total customers 1,183 1,388 1,593 1,788 1,978 2,173 13%

Change (%) --- 17% 15% 12% 11% 10% ---

EMEA 11.2 10.0 9.3 8.9 8.6 8.4 ---

Americas 9.1 9.8 10.7 11.8 12.9 14.1 ---

APAC 13.1 11.8 10.9 10.3 9.9 9.7 ---

Sales per customer (€ '000) 10.7 10.2 10.0 10.0 10.2 10.5 ---

EMEA 7.5 7.7 8.0 8.3 8.7 9.1 4%

Americas 3.6 4.4 5.5 6.8 8.2 9.7 22%

APAC 1.6 2.0 2.4 2.8 3.3 3.9 19%

Sales (€ million) 12.7 14.1 15.9 17.9 20.2 22.7 12%

Change (%) --- 11% 13% 13% 12% 13% ---

EMEA 59% 54% 50% 47% 43% 40% ---

Americas 28% 32% 35% 38% 41% 43% ---

APAC 13% 14% 15% 16% 16% 17% ---

Sales (% of total) ¹ 100% 100% 100% 100% 100% 100% ---

Source: Company data, UBS estimates. ¹ Percentages may not add up to 100% due to rounding

E-commerce – continuing to expand

Moleskine’s e-commerce platform was launched in Italy in July 2010, followed by the rest of the EU in April 2011, the US in August 2011 and various other countries throughout the course of 2012, taking the total number of geographies to 22 by the end of last year.

As a result, online sales increased from €1.1 million in 2011 to €3.3 million in 2012 (€2.9 million from Paper and €0.4 million from WTR), equivalent to about 4% of sales. This was driven by an increase in the number of E-store visits from 1.2 million in 2011 to 3.5 million in 2012, and a rise in the average order value from €37 in 2011 to €39 in 2012 – while the conversion rate declined somewhat from 3.1% in 2011 to 2.8% in 2012, driven by a lower number in the Americas (from 4.9% in 2011 to 3.8% in 2012), with EMEA broadly unchanged (at 2.0%).

Table 26: E-commerce key statistics, 2011-12

EMEA Americas Total

2011 2012 2011 2012 2011 2012

E-store visits (m) 0.7 1.9 0.4 ¹ 1.6 1.2 3.5

Conversion rate 2.0% 2.0% 4.9% 3.8% 3.1% 2.8%

Average order value (€) 42.0 41.0 34.0 37.0 37.0 39.0

Products per order N/AV 4.0 2.5 2.8 N/AV 3.3

Source: Company data, UBS. ¹ This figure captures the August to December period

Chart 29: Development of E-commerce

€19m(11% total)

€3m(4% total)

02468

101214161820

2012 2017E

CAGR +42%




Going forward, we see substantial potential for growth in this channel, driven by:

Strong secular growth in the channel, notably in countries such as China, where the number of internet users has been increasing exponentially. Along similar lines, Reckitt Benckiser recently commented that internet sales in China are by far the highest within the group (as a percentage of sales).

A steady increase in the number of visits in both existing markets (expansion of the visitor base via improved content or greater focus on social media and an increase in the frequency of use via focus on post-purchase activities and an E-store link in the new Moleskine app) as well as new markets (access to so far uncovered countries in APAC, including China, the Americas, i.e. Brazil, as well as EMEA, i.e. Portugal and Switzerland).

An increase in average spending, to be facilitated by the increasing contribution from the higher-priced WTR category, coupled with an increasing focus on countries where Moleskine is selling at a premium (notably APAC, but also the Americas).

A switch to a proprietary platform, which will be introduced in the second half of 2013 and should be supportive of a more comprehensive and uniform presentation of the brand – while helping management save on provider fees going forward. We feel there is still room to improve Moleskine’s online presence, with one area of improvement being the introduction of a “rating” system allowing consumers to easily identify best-sellers, which often leads to increased purchases of these products – as witnessed by adidas since the launch of a system that allows visitors to mark and comment products.

EMEA: From 1.9 million to 6.1 million visits

In EMEA, we expect the number of E-store visits to increase from 1.9 million in 2012 to 6.1 million in 2017, supported by continued investment in the channel. Based on a stable conversion rate of 2.0% and a gradual increase in the average order (driven mainly by price increases), we expect sales to increase more than four-fold, from €1.4 million in 2012 to €5.7 million in 2017, with 2013 and 2014 numbers boosted by the move to the company’s proprietary platform.

Table 27: Sales and sales growth in EMEA E-commerce – building blocks, 2012-17E

2012 2013E 2014E 2015E 2016E 2017E 2012-17E CAGR

E-store visits (m) 1.9 3.2 4.2 4.8 5.6 6.1 26%

Conversion rate (%) 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% ---

Average order (€) 41 42 43 44 45 46 2%

Sales (€m) 1.4 2.2 3.6 4.3 5.0 5.7 32%

Change (%) --- 54% 65% 18% 18% 13% ---


Chart 30: Pricing by country, 2012

04080

120160200

Italy UK US

Germ

any

Japa

n

China

Relat

ive pr

icing

(Ital

y reb

ased

@

100)




Americas: From 1.6 million to 6.5 million visits

In the Americas, we expect the number of E-store visits to increase from 1.6 million in 2012 to 6.5 million in 2017, supported by continued investment in the channel. Based on a stable conversion rate of 3.8% (which is already high in an industry context) and a gradual increase in the average order (driven by a mix of price increases and mix improvement, including switch to more WTR), we expect sales to increase more than six-fold from €1.9 million in 2012 to €11.7 million in 2017, with 2013 and 2014 numbers again boosted by the move to the company’s proprietary platform.

Table 28: Sales and sales growth in Americas E-commerce – building blocks, 2012-17E

2012 2013E 2014E 2015E 2016E 2017E 2012-17E CAGR

E-store visits (m) 1.6 2.8 3.8 4.7 5.7 6.5 32%

Conversion rate (%) 3.8% 3.8% 3.8% 3.8% 3.8% 3.8% ---

Average order (€) 37 39 41 43 45 47 5%

Sales (€m) 1.9 3.3 5.9 7.7 9.7 11.7 44%

Change (%) --- 74% 79% 31% 26% 21% ---


APAC: Assuming 1.8 million visits by 2017

In APAC, we expect the number of E-store visits to amount to 1.8 million by 2017, which – coupled with a gradually improving conversion rate and a gradual increase in the average order – should result in sales of €1.8 million by the end of the period.

Table 29: Sales and sales growth in APAC E-commerce – building blocks, 2012-17E

2012 2013E 2014E 2015E 2016E 2017E 12-17E CAGR

E-store visits (m) -- 0.2

Documents

Global Equity Research - Borsa Italiana · Global Equity Research Europe Including UK Retailers, Specialty 4 March 2013 ... UBS does and seeks to do business with companies covered