Approach & Methodology

Objective
To obtain appropriate value of Reebok Pre/Post Pandemic and assess its validity

1 Understanding the brand- Reebok

Understanding the financials and operating performance of reebok, its futuristic brand outlook

2 Preparing a Pre-pandemic DCF model basis various technical and qualitative industry metrics

3 Preparing a Post-pandemic DCF model basis various technical and qualitative industry metrics

4 Computing value of reebok basis Trading Comparable

5 Conclusion

1
 Future Outlook- Reebok

About the Brand Reebok Brand Strategy

• Reebok is an American-inspired global brand with a deep fitness

heritage and continues to merge its iconic past with new PRODUCT
MISSION: TO BE
FRANCHISES:
technologies that revolutionize both sports and lifestyle products. THE BEST FITNESS
LEVER AGING
• In 2020, the Reebok brand accounted for 7% of the company’s BRAND IN THE
THE BRAND’S
sales. WORLD
FITNESS DNA
• As part of the development of its new five-year strategy, the CONSUMER
OBSESSION: THE
company has decided to begin a formal process aimed at
GAME
divesting Reebok.
CHANGERS MUSCLE UP: REEBOK
ONE VOICE, ONE TRANSFORMATION
BRAND TO THE STRENGTHENS
Distribution and Marketing Strategy CONSUMER BRAND AND
FUNDAMENTALS
MARKETING
INVESTMENTS:
SEAMLESS SPORT THE
TRANSFORMING UNEXPECTED
CONSUMER
THE
JOURNEY ACROSS
MARKETPLACE
OUR CHANNELS

DIGITAL FOCUS
DRIVING
OPERATIONAL PRODUCTIVITY
EXCELLENCE AND EFFICIENCY
ACROSS OF SALES
OUR GLOBAL PLATFORM
MARKETS

2
Pre-Pandemic DCF
Valuation
 DCF valuation – Fair value as on 31.12.19
$ Millions

Particulars FY 2019 FY 2020 E FY 2021 FY 2022 FY 2023 FY 2024 FY 2025 Terminal value
Revenue 2,096 2,346 2,626 2,939 3,289 3,682 4,121
EBIT as a % of Sales 5% 10% 10% 10% 10% 10%
EBIT 116 259 290 325 363 406
Less: Taxes @ 25% (29) (65) (72) (81) (91) (102)
NOPAT 87 194 217 243 272 305
(Less)/Add: (Increase)/Decrease in
Working Capital - (66) (73) (82) (92) (103)
Free Cash Flow to Firm 87 129 144 161 181 202
Terminal capitalised value 2,944
Present value 80 108 111 114 117 120 1,913
Enterprise value 2,564
Less: Debt 145 EBIT margin Terminal
Add: Cash 20 of FY 2020 growth rate
Equity Value 2,439 has been – 2%
reduced to
Proportionate value of Adidas one-halved
consolidated debt and cash –
basis Reebok share of revenue

Assumptions basis Adidas annual report –

• The cost of capital (Ke) have taken to be 9%
• Effective tax rate – 25%
Capex and depreciation have been assumed to be same – owing to paucity of data

4
 Assumptions drivers
$ Millions
Revenue
Particulars FY 2016 FY 2019 CAGR Weights
Weighted average of 3 year CAGR of industry
Nike 32,376 39,117 7% 0.30 players
Puma 4,352 6,603 15% 0.35 Weights have been taken considering the size of
Sketchers 3,563 5,220 14% 0.35 the company and hence relatability with Reebok
Weighted Average 12%

Operating Margin
Particulars FY 2019 Weights
Nike 12% 0.30 Weighted average latest operating margins
Puma 8% 0.35 Weights – same as above
Sketchers 10% 0.35
Weighted Average 10%

5 Year working capital average

Particulars FY 2017 FY 2018 FY 2019 Average Weights
Nike 31% 25% 22% 26% 0.30
Puma 12% 11% 10% 11% 0.35 Working capital as a % of sales
Weights – same as above
Sketchers 36% 35% 30% 34% 0.35
Weighted Average 23%

Change in working capital

Particulars FY 2020 FY 2021 FY 2022 FY 2023 FY 2024 FY 2025
CLosing Working capital 550 615 689 771 863 966
Change in working capital 66 73 82 92 103

5
Post-Pandemic DCF
Valuation
 DCF valuation – Fair value as on 31.12.20
$ Millions
Particulars FY 2020 (A) FY 2021 FY 2022 FY 2023 FY 2024 FY 2025 Terminal value
Revenue 1,691 1,892 2,118 2,370 2,653 2,969
EBIT as a % of Sales 0.4% 3% 5% 10% 10% 10%
EBIT 7 62 104 234 262 293
Less: Taxes @ 25% (2) (16) (26) (58) (65) (73)
NOPAT 5 47 78 175 196 220
(Less)/Add: (Increase)/Decrease in Working Capital
- (46) (53) (59) (66) (74)
Free Cash Flow to Firm 5 1 25 116 130 146
Terminal capitalised value 1,650
Present value 1 21 85 86 86 979
Enterprise value 1,257
Terminal
Less: Debt 266 growth rate
Add: Cash 335 EBIT margin EBIT margin
– 2%
of FY 2021 of FY 2022
Equity Value 1,327
has been has been
Proportionate value of Adidas reduced to reduced to
consolidated debt and cash – one-third one-halved
basis Reebok share of revenue

Assumptions basis Adidas annual report –

• The cost of capital (Ke) have taken to be 11%
• Effective tax rate – 25%
Capex and depreciation have been assumed to be same – owing to paucity of data

7
 Assumptions drivers
$ Millions
Revenue
Particulars FY 2016 FY 2019 CAGR Weights
Weighted average of 3 year CAGR of industry
Nike 32,376 39,117 7% 0.30
players
Puma 4,352 6,603 15% 0.35 Weights have been taken considering the size of
Sketchers 3,563 5,220 14% 0.35 the company and hence relatability with Reebok
Weighted Average 12%

Operating Margin
Particulars FY 2019 Weights
Nike 12% 0.30 Weighted average latest operating margins
Puma 8% 0.35 Weights – same as above
Sketchers 10% 0.35
Weighted Average 10%

5 Year working capital average

Particulars FY 2017 FY 2018 FY 2019 Average Weights
Nike 31% 25% 22% 26% 0.30 Working capital as a % of sales
Puma 12% 11% 10% 11% 0.35 Weights – same as above
Sketchers 36% 35% 30% 34% 0.35
Weighted Average 23%

Change in working capital

Particulars FY 2020 (A) FY 2021 FY 2022 FY 2023 FY 2024 FY 2025
CLosing Working capital 397 443 496 555 622 696
Change in working capital 46 53 59 66 74

8
Post-Pandemic DCF
Valuation
 Trading multiples
$ Millions

REEBOK These multiples are resulting in exorbitant values and

Valuation based on Amount ($ Mn) Multiple Enterprise Value may not be reflecting saleable value of Reebok
Sales multiple (weighted) 1,691 2.54 4,291 EBIT margin of very low as compared to industry
Sales multiple (min) 1,691 1.29 2,187 peers, therefore EBIT multiple will not be relevant
Sales multiple (median) 1,691 3.13 5,297
EBIT multiple 7 61 413 PAT multiple of industry peers is negative, hence this
multiples has been ignored
PAT (PE Ratio) (38) 13.73 (522)

Revenue EBIT MCap Debt

Company Name EBIT Margin (%) Cash (Last FY) EV EV/EBIT EV/Sales PE Ratio Weights
(Last FY) (Last FY) (as on 01.04.21) (Last FY)
Nike 37,403 2,976 8% 2,09,300 9,406 8,348 2,10,358 70.68 5.62 62.73 0.05
Puma 6,281 251 4% 15,264 113 787 14,590 58.13 2.32 181.18 0.30
Sketchers 4,597 58 1% 6,580 735 1,370 5,945 103.00 1.29 78.56 0.30
Crocs 1,386 214 15% 5,420 180 136 5,464 25.53 3.94 0.15
Wolverine
1,791 143 8% 3,170 713 347 3,536 24.79 1.97 0.15
World Wide
Bata 408 72 18% 2,447 - 128 2,319 32.20 5.69 0.05

Average 9% 40,364 1,858 1,853 40,369 52.39 3.47 107.49

Median 45.17 3.13 78.56
Min 24.79 1.29 62.73
Max 103.00 5.69 181.18
1st Quartile 25.35 1.80 62.73
3rd Quartile 78.76 5.64 181.18
Weighted average 61.03 2.54

Owing to the reasons stated above, trading multiples valuation have been
ignored for our calculation purposes

10
Conclusion
 Summary: Valuation of Reebok
$ Millions

Valuation

2,439 1,327
31-Dec-2019 31-Dec-2020

Valuation as per DCF Model has been considered

12
Thank you