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RISKS (3) Margins Continue To Erode

■ Tod’s margins (except gross margin) have declined in the last 6 years. This began in 2012, accelerated in 2013/2014 and has continued to trend down at the end of 2017.

■ ■ ■ ■

Gross Margin - 2011: 49.6%, 2017: 51.1% EBITDA Margin - 2011: 24.9%, 2017: 16.1% Operating Margin - 2011: 21.4%, 2017: 10.4% Net Margin - 2011: 14.9%, 2017: 7.1%

■ This was principally driven by a desire for legitimacy in handbags that pushed the Company to over-

invest in the build-up of credibility and collections in handbags from 2013 to 2016. Deutsche Bank estimates “that the investments in a renowned (but ineffective) designer and the structure to support her creative efforts (from catwalks to collections PR and marketing) cost at least 4-5pp of EBITDA margin”*.

■ However, we believe Management should be able to reverse the recent trend. If Management is able to

restore margins to anywhere close to historical levels (historical average 2006-2012 = 23.2%), profits can be expected to increase significantly from current levels.

TOD'S HISTORICAL MARGINS SINCE 2006 56% 54% 52% 50% 48% 46% 44% 42% 40% 38% 36% 34% 32% 30% 28% 26% 24% 22% 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% 2006

2007

Gross Margin

416

2008

2009

2010

EBITDA Margin

Data Source: Thomson Reuters Eikon as at 7 June 2018 * Deutsche Bank - European Luxury Goods Report - 26 September 2017

2011

2012

2013

2014

Operating Margin

2015

2016

2017

Net Margin

Profile for Richard

Elevation Capital Research Annual 2018  

Elevation Capital Research Annual 2018