Reference Document 2010

Transcription

1 2011 EDITION Reference Document 2010 An adventure of enterprise

2 The original French version of this document was filed with the Autorité des Marchés Financiers on March 21, 2011 pursuant to Articles of its General Regulations. The original French version of this document may be used for the purposes of public capital and financial transactions if it is supplemented by a transaction note approved by the Autorité des Marchés Financiers. This is a free translation of the French original Document de référence. In the event of any discrepancy between the French version and the English translation the French version shall prevail in all cases.

3 Table of contents 1 PPR in Group activities 15 3 Corporate Social Responsibility (CSR) 53 4 Financial information Legal information Corporate governance Person responsible for the Reference Document and Statutory Auditors Cross-reference tables and Index REFERENCE DOCUMENT - PPR 1

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5 1 PPR in 2010 HISTORY 4 KEY CONSOLIDATED FIGURES 6 PPR AN ADVENTURE OF ENTERPRISE 8 Entrepreneurial spirit driving value creation 8 A decentralised structure where delegation is key 8 An unparalleled group of assets: organic growth offers the greatest potential for value creation for the Group 9 Focusing on global luxury and Sport & Lifestyle brands to maximize PPR s growth and profitability profile 10 An ambitious sustainable development policy that creates value 13 PPR remains on course, poised to take full advantage of stronger worldwide recovery 13 PPR Group Organisational Chart as of December 31, REFERENCE DOCUMENT - PPR 3

6 1 PPR IN 2010 History History The PPR Group was founded by François Pinault in 1963, as a timber and building materials business. In the mid-1990s the Group repositioned itself on the retail market and soon became one of the leading players in the sector. The acquisition of a controlling stake in Gucci Group in 1999 and the establishment of a multi-brand Luxury Goods group marked a new stage in the Group s development. In 2007, the Group seized a new growth opportunity with the purchase of a controlling stake in Puma, a world leader and benchmark in Sportlifestyle. PPR is thereby continuing to develop its activities in the most buoyant markets, through strong and highly-reputed brands François Pinault establishes the Pinault Group, specialising in timber trading. Flotation on the Paris Stock Market s Second Marché of Pinault SA, a company specialising in timber trading, distribution and processing. Acquisition of Cfao, a group specialising in electrical equipment distribution (through CDME, which became Rexel in 1993) and in trading with Africa. The Group acquires Conforama and enters the retail market. The Pinault-Printemps Group is born with the takeover of Au Printemps SA, which held 54% of La Redoute and Finaref. La Redoute is merged into Pinault- Printemps, and the Group is subsequently renamed Pinault-Printemps-Redoute. Takeover of Fnac. Launch of the Group s first website, laredoute.fr. Acquisition by Cfao of SCOA, the leading pharmaceutical distributor in West Africa, through its subsidiary Eurapharma. Creation of Orcanta, a women s lingerie chain. Launch of fnac.com, the Fnac website Takeover by Redcats (PPR s home shopping business) of Ellos, the leader on the Scandinavian mail order market. Creation of Fnac Junior, a concept store for children under 12. Takeover of Guilbert, the European leader in offi ce supplies and furnishings. Acquisition by Redcats of 49.9% of Brylane, the fourth-largest home shopping company in the US. Creation of Made in Sport, a chain of stores dedicated to sports enthusiasts. Purchase of the remaining stake in Brylane. The Group enters the Luxury Goods sector with the acquisition of 42% of Gucci Group NV. First steps towards the creation of a multibrand Luxury Goods group, with the acquisition by Gucci Group of Yves Saint Laurent, YSL Beauté and Sergio Rossi. Acquisition of Surcouf, a specialised PC retailer. Acquisition by Gucci Group of Boucheron. Launch of Citadium, the new Printemps sports store REFERENCE DOCUMENT - PPR

7 PPR IN History Gucci Group acquires Bottega Veneta and Balenciaga and signs partnership agreements with Stella McCartney and Alexander McQueen. Conforama enters the Italian market with the purchase of the Emmezeta group, one of the leaders in the home furnishings market in Italy. Pinault-Printemps-Redoute raises its stake in Gucci Group to 53.2%. The Group raises its stake in Gucci Group to 54.4%. Sale of the Guilbert home shopping business to Staples Inc. Partial disposal of the Credit and Financial Services division in France and Scandinavia to Crédit Agricole SA (61% of Finaref) and BNP Paribas (90% of Facet). The Group raises its stake in Gucci Group to 67.6%. Sale of Pinault Bois & Matériaux to the Wolseley group in the UK. Sale of the Guilbert Contract activity to the US group Offi ce Depot. Sale of an additional 14.5% stake in Finaref. The Group raises its stake in Gucci Group to 99.4% further to a tender offer. Sale of Rexel. Sale of the residual 24.5% stake in Finaref. Change of corporate name: Pinault- Printemps-Redoute becomes PPR. Sale of MobilePlanet. Sale of the residual 10% stake in Facet Sale of 51% of France Printemps to RREEF and the Borletti group. Sale of Orcanta to the Chantelle group. Sale of the Bernay industrial site (YSL Beauté Recherche et Industrie). Discontinuation of Fnac Service s activities. Acquisition by Conforama of a majority stake in Sodice Expansion. Acquisition by Redcats group of The Sportsman s Guide, Inc. Sale of the residual 49% stake in France Printemps to RREEF and the Borletti group. Sale of Kadéos to the Accor group. Acquisition of a 27.1% controlling stake in Puma. This stake was increased to 62.1% further to a tender offer. Acquisition by Redcats USA of United Retail group. Sale of YSL Beauté to L Oréal. Sale of Conforama Poland. Sale by Redcats UK of Empire Stores. Sale by Redcats USA of the Missy division. Acquisition of a 23% stake in Girard Perregaux. Acquisition by Puma of Dobotex International BV. Acquisition by Puma of Brandon AB. Sale of Bédat & Co. Sale of Surcouf. Flotation of 58% of Cfao. Acquisition by Puma of a 20% stake in Wilderness Holdings Ltd. Acquisition by Puma of Cobra. Sale of Fnac é veil & j eux. Sale of the controlling stake in Conforama REFERENCE DOCUMENT - PPR 5

8 1 PPR IN 2010 Key consolidated figures Key consolidated figures The comparative information for 2009 has been restated as described in Note 2.23 to the consolidated fi nancial statements. (in millions) Change Revenue 14,605 13, % o/w generated outside of France (as a % of revenue) 66.6% 63.6% pts Gross profit 7,429 6, % Recurring operating income 1,531 1, % Recurring operating margin (as a % of revenue) 10.5% 9.1% pt Net income attributable to owners of the parent % Free cash flow from operations (*) 1,081 1, % (*) Net cash flow from operating activities net acquisitions of property, plant and equipment and intangible assets. Share data (in ) Change Earnings per share attributable to owners of the parent % Dividend per share 3.50 (**) % (**) Subject to the approval of the General Shareholders Meeting on May 19, Excluding non-current items, the change in net income from continuing operations attributable to owners of the parent was as follows: Change Net income from continuing operations attributable to owners of the parent % Net income per share from continuing operations attributable to owners of the parent (in ) % 25% Luxury Group 18% Puma BREAKDOWN OF REVENUE BY SEGMENT 25% Redcats 32% Fnac 27% Luxury Group % Puma 24% Redcats 31% Fnac 3% South America 4% EEMEA* 6% Japan 16% North America 9% Asia-Pacific 2009 BREAKDOWN OF REVENUE BY REGION 62% Western Europe 4% South America 4% EEMEA* 6% Japan 16% North America 11% Asia-Pacific % Western Europe * EEMEA: Eastern Europe, Middle East and Africa REFERENCE DOCUMENT - PPR

9 9166, , , , , , PPR IN Key consolidated figures BREAKDOWN OF RECURRING OPERATING INCOME BY SEGMENT (excluding holding companies and others) 14% Fnac 12% Fnac 54% Luxury Group 23% Puma 9% Redcats % Luxury Group 10% Redcats 21% Puma FINANCIAL POSITION - DEBT-TO-EQUITY RATIO (1) SOLVENCY 2009: 39.9% 2010: 32.4% 10,947 11, ,367 3, ,584 3,461 6,121 5,510 4,367 3, Shareholders' equity (in millions) Net financial indebtedness (2) (in millions) (1) Net financial debt as a percentage of shareholder's equity for the consolidated entity. 2005* 2006* 2007** 2008* 2009* 2010* Net financial indebtedness (2) (NFI) (in millions) Solvency ratio (NFI/EBITDA) * Published not restated. ** Pro forma. Undrawn confirmed credit lines 6,123 LIQUIDITY Maturity schedule of net financial indebtedness (2) ( 3,781 million) , * 2012** 2013** 2014** 2015** Beyond** * Gross borrowings after deduction of cash equivalents and financing of customer loans. ** Gross borrowings. (2) Net financial indebtedness defined in section REFERENCE DOCUMENT - PPR 7

10 1 PPR IN 2010 PPR An adventure of enterprise PPR An adventure of enterprise ENTREPRENEURIAL SPIRIT DRIVING VALUE CREATION At the heart of PPR s identity is a distinctive state of mind: the all-encompassing entrepreneurial spirit that has driven the Group since its inception in Over the years, as PPR carried out profound transformations, this spirit has presided over all of the Group s major strategic changes. PPR has been steadfast in its focus on four key principles: operating in fast-growing industries; mastering value-creating businesses; expanding internationally to reduce its exposure to its home market, France (whose weight in Group sales, in 2010, was down to one-third of the total); and diversifying its activities to mitigate risk. At every stage in its construction, PPR has acted boldly, imposing its culture of performance, investing resolutely in the long-term development of each of its businesses, and nurturing them to achieve strong growth. The Group sets its sights ever higher as it strives to transform its strategic vision into innovative, valuecreating achievements. The PPR adventure is one of ongoing metamorphosis, leveraging its momentum to build new business areas, broaden the geographical footprint of Group companies, invent original products, formats and concepts, and apply fresh models for growth and improved performance, all the while paying heed to sustainable development. This active, forward-looking culture encourages all our people to look beyond their immediate horizons, assess risks, be creative, take responsibilities and act decisively. Far from being content to follow established procedures, PPR s teams are driven by an urge to break new ground through their inventive spirit, enthusiasm and ambition. A DECENTRALISED STRUCTURE WHERE DELEGATION IS KEY PPR s strong entrepreneurial culture long ago led it to embrace the principle of decentralisation. Its structure creates a balance between operating units, each of which enjoys extensive autonomy within a set framework, agilely supported by leadership from the holding company responsible for driving forward the Group s strategic ambitions. This form of organisation devolves responsibility and initiative to all Group employees, empowering them to maximize value creation for PPR. All employees are committed to developing the resources they are given and assuming responsibility and accountability for their performance. The holding company defines PPR s strategy and ensures that the interests of the Group s various stakeholders remain aligned. It manages performance in all Group entities through streamlined orientation, regulation and control systems. It also manages certain areas on behalf of the Group that come under its exclusive remit, including mergers and acquisitions, treasury and finance, shareholder relations and Group corporate governance. In addition, it fulfils leadership, management, support and coordination roles within the Group. Day to day, the subsidiaries have the executive power they need to run their businesses. Proximity to their markets and customers enables the Group s units to develop the right strategy for each brand and retail chain, and to set the direction for each business, as well as to make all operational decisions. Group units are supported by responsive, flexible and interconnected management structures. Operating autonomy helps keep all PPR people involved and committed to the Group s overall performance, and encourages talent to rise to its full potential. PPR looks to pool resources and facilities wherever this adds value to its units and boosts performance. It applies cross-functional policies to optimise specifi c key processes for the Group as a whole, notably as concerns e-commerce, sustainable development and talent management REFERENCE DOCUMENT - PPR

11 PPR IN PPR An adventure of enterprise The systematic sharing of knowledge, expertise and best practices across the Group is encouraged, helping to drive creativity, innovation and excellence in procedures, optimise the use of resources and cut costs. PPR s culture naturally encourages the dialogue, free expression and conviviality that brings and holds the Group together and fosters a sense of solidarity among its people. The straightforward, direct and streamlined communication style that prevails throughout the Group is a perfect illustration of this principle. This well-recognised uniquely appreciated management style lies at the heart of the Group s way of working and performance. It encourages cooperation, solidarity and sharing, and helps promote diversity among employees. It enables PPR to attract and retain new talent and allows them to develop within the Group. This gives PPR a significant competitive advantage when it comes to building the finest teams, finding new team members and adapting them as needs change, in order to stimulate ambitions so that its teams can go further, faster. Enhancing the Group s human capital is a core tenet of PPR s strategy. Despite turmoil in the economic environment, PPR remains on course with a solid, longterm human resources policy, which seeks to: enhance the opportunities available to all Group employees through a pro-active program of job and skill management, focusing in particular on those who are most at risk; ensure effective social dialogue, notably by bringing together management and employee representatives to discuss the Group s strategic issues; and get all employees to actively support PPR s commitment to sustainable development, in particular through shared commitment to diversity. The overall goal is to ensure that all Group employees remain fully invested in their work, a principle that has held true through good and challenging times. AN UNPARALLELED GROUP OF ASSETS: ORGANIC GROWTH OFFERS THE GREATEST POTENTIAL FOR VALUE CREATION FOR THE GROUP PPR is committed to continually improving its performance with the aim of increasing returns on investment over the long term. Group companies are guided by a strong cost-control culture and constantly seek to refi ne their business models and enhance operating profitability while remaining focused on maximising return on capital employed and keeping working capital down to the minimum required for each business. Through attention to detail and meticulous execution, PPR ensures that the Group s processes and systems are effi cient and effective. Each link in the value chain in both operating businesses and support functions is optimised by enthusiastic and talented teams. PPR has built up unrivalled expertise in retailing, with a diverse range of formats, strongly differentiated models and highly innovative channels. Redcats and Fnac are trailblazers in their respective fi elds and have developed into instantly recognizable players in their markets. Notable achievements include the constant extension and renewal of product and service ranges, the roll out of e-commerce, innovative ways of interacting with customers and the expansion of networks. In the Luxury Group and Puma, PPR has two very different but coherent collections of prestigious brands. Both are global, complementary and positioned in a highgrowth sector: apparel and accessories. Brands of the Luxury Group are the fi nest examples of the values and traditions of excellence. They remain true to their roots while bringing their aura and success into modern times, evoking ultimate quality and exclusivity through an offering of prestigious and luxury goods. Puma targets a broader consumer market and customers who seek to defi ne themselves by shared and identifiable lifestyles. The brand draws its credibility from its identity, authenticity, technical quality and style. Its ranges and pricing make it appealing to large numbers of consumers. PPR is therefore the driving force behind an unparalleled array of brands and expertise, steadily enriched by the Group s determination to constantly seek out new sources of growth and profi tability. In its current form, PPR has signifi cant potential for internal growth and improved internal performance: higher revenue, increased operating margin and a greater return on capital employed. The Group s key strategic priority consists in making good use of opportunities for organic growth by taking advantage of the different, yet converging, strategies of each of its businesses. Fnac is stepping up the expansion of its online business, investing to strengthen its leadership position in France, to complete the roll out of its fnac.com platform outside France, to develop a pure-play online model in certain countries where Fnac is not currently present, and to revitalize its online offering. The chain is further rejuvenating its image, better leveraging its brand equity, and enhancing customer experience throughout its expanding store network. A new store opening program, particularly outside France, is about to be implemented; 2010 REFERENCE DOCUMENT - PPR 9

12 1 PPR IN 2010 PPR An adventure of enterprise franchised units will be opened; and new concepts will be implemented. Fnac is further improving the effi ciency and competitiveness of its operations, and enhancing the involvement of its associates. Redcats move to a fully online model encompassing sales, processes and organizational functions is on the verge of completion. To achieve this, Redcats is continuing to adapt its product offering (timing of collections, additional categories, styles, etc.) as well as its sales models (from mail-order sales with seasonal discounts to cutting-edge online fashion distributor with marketplace and m-commerce expertise). Redcats plans to systematically expand the Group s brands internationally, develop specialised e-commerce portals such as OneStopPlus Europe or shoestyle.fr, and acquire complementary sites, as it did with Castaluna in Operations will be optimised through further synergy development and cost-control. The strategy of PPR s Luxury Goods brands focuses on expansion while maintaining the right balance between growth and the fundamentals of each brand. The Group is stepping up expansion in new regions (particularly South America), expanding its network of directly operated stores (focusing on emerging economies, notably China), promoting the growing momentum of the Internet, introducing new product categories, and improving its long-term sales performance, thanks in particular to ever more efficient merchandising and tailored communication tools, operating excellence throughout stores and optimal use of CRM. The business model and operating opportunities of each brand will be optimized, and systems put in place to take advantage of skills that are shared within the Group (international expansion, real estate, websites, media buying, supply chains, operating leverage across distribution channels, sharing distinctive skills, talent pools, etc.). Puma is back on the offensive, with an ambitious strategy aimed at making the Sportlifestyle brand the most sought-after and most responsible brand in the world. To complete this plan, Puma intends to invest in several areas: refocusing its organisation, enhancing brand awareness, and optimizing its structure. The purpose of these investments is to make Puma more responsive within its markets, make its products even more innovative, and improve its supply chain and information systems. The brand is also developing its marketing strategy to fi ne-tune its positioning and customer segmentation. Focus will be on tailoring its communication policy and brand offering at the local level, and bolstering its communications spend. The product portfolio will continue to be adapted to further enhance its appeal: product ranges will be streamlined; the brand cohesion of the product mix will be strengthened; and emphasis will be placed on quality and pricing policies, the global reach of core segments (team sports, running/ training/fitness, motor sports and lifestyle), the local reach of the other segments (golf, outdoor/sea, children, etc.), increased investments in innovative products and managing by category. Puma is also focusing its efforts on twelve core geographic targets in six mature markets (US, Japan, France, Germany, Italy, UK) and six emerging economies (China, Korea, India, Russia, Brazil, Mexico). Finally, Puma is stepping up its investments to boost growth in online sales. FOCUSING ON GLOBAL LUXURY AND SPORT & LIFESTYLE BRANDS TO MAXIMIZE PPR S GROWTH AND PROFITABILITY PROFILE PPR is gradually rebalancing its strategic positioning towards a collection of powerful, universal Luxury and Sport/Outdoor brands within a coherent product category: apparel, shoes and accessories. These consumer sectors are experiencing considerable growth, and they are complementary in many ways, both from a macro-economic and social standpoint and in terms of business models. This shift is accelerating the Group s growth and enhancing its profi tability profi le. The global branded apparel and accessory market offers strong long-term growth potential for both Luxury and Sport & Lifestyle Goods PPR is concentrating on the Luxury Goods and Lifestyle markets and focusing on consistent product categories within a more global, homogeneous market: apparel, shoes and accessories. Combining activities of similar nature will enhance the Group s visibility, coherence and fi nancial performance REFERENCE DOCUMENT - PPR

13 PPR IN PPR An adventure of enterprise PPR s objective is to create an environment conducive to both high-end, exclusive brands that justify high prices and margins, and brands whose products are more accessible across broader market segments. The Group is targeting a wide spectrum of customers, from the middle class to high earners, with distinct marketing positioning from premium mass market to luxury. PPR has put brands at the heart of its strategy to build market strength because of the immediate visibility, public recognition and notoriety they generate, extending beyond the products themselves and the local markets from which they were born. Brands can be propelled on the international stage, far beyond their country of origin. Brands with global appeal can rapidly expand to all corners of the world. A strong brand stands out among its competitors and creates a special relationship with the customer through familiarity, closeness, and by influencing choices, creating a more personal experience, etc. justifi es a higher sale price and thus generates profitable growth. A brand also builds trust and loyalty among customers, reinforcing consumer passion. Moreover, brands represent strong symbols that give customers a point of reference in a fast-changing world. All these factors help protect its activities and ensure long-term stability. By concentrating on brand-focused activities, PPR is ensuring more comprehensive control of the value chain: total command of product design and development, direct supervision of production and supply chains (whether or not they are part of the Group) and forward integration of distribution via various channels (directly operated stores, third-party distributors, franchisees, online sales, licenses...). Due to their size and global reach, as well as their strong growth potential and profi tability, the Luxury and Sport/ Outdoor Goods sectors are naturally attractive for PPR. Both Luxury Goods and Sport/Outdoor Goods have an intrinsically global appeal. The values they embody, the ambassadors who represent them and the events on which they rely are all universal in nature. This is why the reputation of the brands associated with Luxury Goods and Sport Goods generally knows no borders. For both of these sectors, the potential market is as large as the world population. Outside of Luxury and Sport/Outdoor Goods, branded apparel and accessory makers rarely reach beyond regional or multi-local markets, with only a handful of successful, global players. The Luxury and Sport/Outdoor Goods markets are huge, particularly for branded apparel, shoes and accessories. Major macro-economic and societal trends, as well as corporate social responsibility and consumer behaviour preferences, will continue to fuel the growth of these markets over the long term. Worldwide demographics are changing; populations are becoming wealthier; trade is increasingly global; the international reach of media is expanding (advertising, the Internet, social networks, etc.); a universal desire to consume is spreading; lifestyles among different generations are beginning to come together; and the period of frugality is coming to an end. The Luxury Goods sector offers strong potential for growth in emerging markets (particularly China, with other countries such as Brazil gradually gaining ground) due to the increase of more affl uent classes, a new category of consumers from the middle class appearing, and an increase in female customers. Luxury Goods offer sustainable growth in mature markets. Both affordable luxury and ultra high-end products benefi t from aging, wealthier populations. Sport/Outdoor Goods are expanding primarily in emerging markets (China and India, as well as Russia, Brazil and Indonesia) and will continue to grow as the middle classes gain access to digital technology, see their disposable income improve, and gain more opportunities to participate in sport. In mature markets, increased interest in well-being and health will generate growth. The Luxury Goods and Sport/Outdoor Goods sectors also have complementary structures and business models. Accounting for large volumes, Sporting Goods are marketed across consumer segments and cover broad markets. This fragmented sector offers substantial profitability. Luxury Goods are more exclusive and generate very high margins, and major players are fewer in this sector. The combination of these two sectors bolsters PPR s strength and resilience, speeds up its growth and enhances its profi tability. The Luxury and Sport/Outdoor sectors infl uence one another: fashion makes sport younger, and luxury takes inspiration from sport. A shared spirit brings Sport and Luxury together, particularly when it comes to creativity, marketing and communications. Pursuing dreams, seeking out diversion and escape, having an appreciation for what is rare, and recognising performance in sport or in quality are all shared in Luxury and Sport. In both sectors, the role of brands is crucial not only to establish and defend strong qualitative characteristics, but also to open up areas of recognition, or even lifestyles that are defi ned by brands. Luxury brands, like Sport/Outdoor brands, can, when they reach their potential, come into their own and defi ne a lifestyle that goes beyond their most iconic products and unite connoisseurs within a loyal community REFERENCE DOCUMENT - PPR 11

14 1 PPR IN 2010 PPR An adventure of enterprise The Group s strategic refocusing is guided by strict value-creation criteria but not subject to specific deadlines Seeking to develop a stronger, more consistent group of brands in apparel, shoes and accessories, PPR began the rebalancing of its activities with the sale of Printemps in , pursued it with the sale in the open market of a 58%-stake in Cfao in 2009, and announced in December 2010 the sale of Conforama. Eventually, PPR will also dispose of Fnac, Redcats and its remaining stake in Cfao, maximizing the interests of all stakeholders and value creation the hallmark of all of its strategic moves. The rebuilding of PPR into a group of strong, global brands started in earnest with the takeover of Puma in Other acquisitions will speed up the Group s expansion and improve its growth and profitability profile. These acquisitions are not crucial in order to continue to create value for PPR; rather they are a catalyst for expansion and international development. External growth opportunities may involve assets that change the Group s confi guration in which case the investment will be made directly by PPR or targeted, bolt-on acquisitions complementing existing brands and product categories in which case they are made by one of the Group s units (as was the case in 2010 for Cobra, acquired through Puma). PPR s investment projects must achieve high standards of excellence and create significant value over time. Strict acquisition criteria in terms of brand equity, growth potential, increased performance, opportunities for synergies, impact on the Group s fi nancial statements are considered prior to every move. Following in the footsteps of PPR s current brands, those that may appeal to PPR have a truly distinctive identity a sought-after legacy, a unique scope of expression, values and characteristics of a well-known image, a clear commitment and the right market that ensures that they have what it takes to be more than just a passing trend. They are chosen based on the long-term and constantly evolving nature of their image (well-recognised, lasting codes and language, an ability to expand their territories and create alliances, a global scope or an aptitude to rapidly expand internationally) that justifies the strength of an authentic style. They will appeal to the Group if they have highly exceptional expertise (iconic products, continual creativity and innovativeness, a strong presence on social networks, effective CRM, top-notch distribution, etc.). Priority is given to brands that have demonstrated concern for responsible and balanced development, in line with PPR s sustainable development standards. The Group only considers targets that offer genuine potential to signifi cantly improve fi nancial performance (revenue, profi tability, cash fl ow) that PPR can identify and exploit in the long term, and that will go beyond the potential that these assets had before being brought into the Group. PPR should be able to expand these brands (in terms of geographical reach, distribution channels and networks, product categories, etc.) without impacting their origins and values. The following types of opportunities may be considered: developing profitable, mediumsized brands whose revenue could be increased; turning around larger entities whose potential has not been fully reflected in the acquisition price because of belowcapacity performance; strengthening or moving into a specifi c sector by acquiring a target that has skills that would be useful for the Group s other brands and that could serve as a platform for synergies; taking over small businesses with a very distinctive heritage and special expertise whose growth could be accelerated by PPR. If a brand is going to be acquired by PPR, it means that signifi cant synergies have been clearly identifi ed and quantifi ed, and that PPR has confi rmed that it can truly implement these synergies. The Group s future brands will thus be selected based on their cohesive nature and their potential complementarity under PPR s aegis. This may involve cost synergies or economies of scale (in terms of sourcing, supply chain, buying spaces, other indirect purchases, R&D, real estate, fi nancial resources, etc.) as well as synergies for development that will help amplify and accelerate the Group s growth prospects and development (controlling all distribution channels and in particular the Internet, pooling key expertise, talent bases, cross-functional sharing of experience, benchmarking, etc.). This will make it possible to create value that goes beyond the acquisition price and beyond simply adding the new entity to the rest of the Group. This new focus will give the PPR holding company an additional role of underwriting, developing and managing these synergies in order to serve all brands as a centre of expertise. Finally, PPR will only consider assets whose prices are deemed justifi ed and that are compatible with its objectives in terms of earnings growth, fi nancial solidity and return on investment. The pace and timing of the Group s transformation will be guided exclusively by the above considerations. PPR has not given itself any specifi c deadline to complete disposals and acquisitions. It views these moves as steps to further improve its fi nancial performance, not preconditions to its ongoing development, and hence will follow no other timing than its own. The Group s ultimate aim is to assemble a balanced and coherent ensemble of global brands, all drawing on core value-creating skills. Accordingly, PPR will benefi t from the high margins of the Luxury Goods sector and the volumes of the Sport/Outdoor activity REFERENCE DOCUMENT - PPR

15 PPR IN PPR An adventure of enterprise AN AMBITIOUS SUSTAINABLE DEVELOPMENT POLICY THAT CREATES VALUE For PPR, sustainable development is a priority that focuses on striving to lead the Group s businesses responsibly over the long term. This strategy also revolves around economic performance the foundation of business sustainability social equality and environmental awareness. It seeks to understand customer expectations and allows the Group to remain on the cutting edge as new markets develop. When a sustainable development strategy is integrated proactively, it offers a wide range of opportunities for boosting growth, cutting costs and spurring innovation. It also serves as a powerful way to motivate the Group s employees, and creates significant value for PPR. From 2008 to 2010, PPR developed and stepped up its commitment to sustainable development, in particular by establishing seven strategic priorities, which form a shared frame of reference. Each brand or retail chain depending on its activity strives to uphold these common standards, setting specifi c, quantitative goals for each priority. The variable remuneration of the senior management of Group units is also based in part on achieving these objectives. These strategic priorities also involve the traceability of raw materials, means of transportation, as well as training policy, and they concern employees, customers and suppliers of the Group, as well as the regions in which the Group operates. PPR s Executive Committee carefully monitors their implementation. The policy carried out over the past ten years has enabled PPR to build solid convictions with regard to Corporate Social Responsibility and has led the Group to put in place a new, ambitious enterprise model. This new initiative is at the heart of PPR s strategic vision; it defi nes its business practices and transforms the business and management cultures of all its units. It embodies the Group s shared commitment to supporting and promoting the internal and external solutions in the economic, social and environmental realms that enhance and strengthen sustainable development for the planet and for PPR s activities over the long term. This policy seeks to integrate the various parameters for sustainable development into PPR s business model so that it comes to represent a genuine competitive edge for the Group, all the while helping to create a better world for the generations to come. These initiatives will be carried out by a dedicated team focusing on four main areas of sustainable development: Ecology, Humanity, C reativity, and L eadership. Three types of support initiatives will be carried out: internal initiatives, non-profit initiatives, notably through partnerships with charities, and for-profi t investments. PPR REMAINS ON COURSE, POISED TO TAKE FULL ADVANTAGE OF STRONGER WORLDWIDE RECOVERY The world economy experienced a strong recovery in 2010 and benefi ted from a clear upturn in international trade, although performance varied from region to region. Emerging markets continued to surge, driving growth worldwide. Growth also resumed in the industrialized economies, though its pace remained affected by ongoing tension over sovereign debt in Europe, among other factors. Boosted by stronger worldwide economic recovery, PPR benefited from the recovery plans adopted by Group companies in 2008 and 2009 and pursued last year, as well as from sales initiatives launched by its brands and retail chains to drive profitable growth. PPR s fundamentals are sound, its finely tuned business model and unrivalled ability to adapt have enabled the Group to better resist changes in its economic environment and deliver steady performance. In the short term, PPR should enjoy an array of converging factors that will lead to strong and steady growth. In an economic environment that remains complex and volatile, strengthening the Group s strategic vision and confirming its medium- and long-term objectives remain as crucial as ever. PPR has chosen its path, punctuated in particular with the planned sale of Conforama announced in REFERENCE DOCUMENT - PPR 13

16 1 PPR IN 2010 PPR An adventure of enterprise Only the pace at which it moves ahead may now change, taking into account the current situation and the care needed to handle uncertainties within the markets. Luxury Goods and Sport/Outdoor Goods the two flagship sectors of the PPR of tomorrow have excellent prospects over the coming years. Their activities are fully in line with today s consumer trends and consumer aspirations. Given the signifi cant exposure in emerging markets, these sectors are benefi ting from a distinctive growth dynamic, and Luxury brands will maintain the pace of expansion of their store networks. By constantly striving to make the products of each of its brands more attractive and improve operating efficiency, PPR units will continue to expand sales and improve margins. Fnac and Redcats are well positioned to continue to outperform their respective segments and gain market share. The focus has been on sales momentum, which will continue to reap benefi ts, and the slightest improvement in their market conditions will magnify revenue growth. Stronger results are expected with effective merchandising and pricing policies, streamlined supply chains and ongoing initiatives to rein in costs. Free cash fl ow will also continue to grow by controlling working capital requirements and carefully selecting investment opportunities. PPR will step up and support the digital strategy of its brands and chains. A Group E-business D evelopment Department has recently been set up to create a systematic approach for developing inter-brand synergies, coordinate e-business projects and promote knowledge sharing. PPR will thus pool key expertise, in support of its brands and chains, to identify and share the best digital practices, encourage innovation, enhance the technical capacities and customer functionalities of websites, and increase Internet penetration for the Group s activities. PPR is thus pursuing its policies to attract new talent, promote skill and career development, and encourage fruitful exchanges within the Group. Finally, PPR continues to strive to fulfil its corporate responsibility, which comprises social equality and environmental awareness, now integral to its business aims and the day-to-day work of the operating teams. PPR GROUP ORGANISATIONAL CHART AS OF DECEMBER 31, 2010 PPR 100% 100% 71.6% 99.9% Fnac Redcats Puma Gucci Group 100% Gucci 100% Bottega Veneta 100% YSL 91% Balenciaga 100% Boucheron 100% Sergio Rossi 51% Alexander McQueen 50% Stella McCartney REFERENCE DOCUMENT - PPR

17 2 Group activities FNAC 16 REDCATS 23 PUMA 30 LUXURY GROUP 35 GUCCI 39 BOTTEGA VENETA 42 YVES SAINT LAURENT 45 OTHER BRANDS REFERENCE DOCUMENT - PPR 15

18 2 GROUP ACTIVITIES Fnac Major retailer of cultural and technological products Active in seven countries: France, Belgium, Brazil, Spain, Italy, Portugal and Switzerland 4 million members worldwide, including 2.4 million in France Fnac.com, one of the top e-commerce sites in France by visitor numbers Number one retailer of personal computers, cameras, MP3 players, hi-fi equipment etc. in France (1) Top bookstore and music store in France (1) 20 million customers and 139 million visits to stores a year in France BUSINESS CONCEPT 4,473 million in revenue in million in recurring operating income in ,364 average number of employees in stores at the end of 2010 Since its creation in 1954, Fnac has pioneered new trends, provided customers with an unrivalled range of cultural products and given consumers access to the most cutting-edge technological items. Over the past few years Fnac has strengthened its leading position within its markets and reaffi rmed its ambition to become the preferred benchmark company for its customers, particularly thanks to its personalised, holistic marketing approach. The distinguishing feature of Fnac stores is the unequalled selection of books, CDs, DVDs, video games and technological products available under one roof. The product choices reflect Fnac s selective and impartial approach, underpinned by the independence of the its buyers and sales force in relation to suppliers and by the work of its test laboratory. Fnac also has a unique policy for providing advice and recommendations to customers, through its product information sheets, its purchasing guides distributed in stores, and its Contact magazine sent to members homes. Furthermore, in-depth advice provided by its sales teams is available both in-store and online. Fnac s stores and websites are used not only for purchases; but also provide a forum for cultural exchange and for nurturing a wide range of hobbies and interests. Fnac is faithful to its status as a cultural and technological player and corporate citizen. Fnac s commitment is evidenced by the more than 12,000 cultural events it organises each year in France and abroad, both within its stores and externally, as well as through its public support for cultural diversity and freedom of expression and its support for defending human rights. (1) Source: GFK REFERENCE DOCUMENT - PPR

19 GROUP ACTIVITIES 2 Fnac COMPETITIVE ENVIRONMENT Fnac is the leading retailer of cultural and technological products in the majority of the countries in which it operates. In France, Fnac is the top bookstore (1), with 1,164,000 books available and 49.4 million units sold, and the leading music store (1), with 425,000 CDs available to order and 38 million units sold (audio and video). It is also the leading retailer of personal computers, cameras, camcorders, headphones and MP3 players (1). Fnac does not have any direct competition but rather a multitude of competitors in each of its sectors such as pure players, international distributors and national retailers. STRATEGY Fnac operates in 7 countries through 148 stores (including 68 outside France) and a network of websites. In 2010, Fnac remained firmly committed to its strategy of growing its multi-channel specialised brand through its 100% C ustomer R evolution project based on the objectives of strengthening Fnac s online leadership position, pursuing its international expansion, winning the out of town market in France and extending its service offering. Fnac.com at the heart of the multi-channel strategy Fnac s e-commerce strategy began in 1999 with the formation of Fnac.com. Eleven years on, Fnac has become the leading online cultural and technological player in France. Fnac.com offers some 8 million new and second-hand products together with a catalogue of over 4 million downloadable titles. In the space of one year, through its marketplace service, Fnac.com has quadrupled its offering and increased the 24-hour availability of its products. Online sales account for about 11% of Fnac s revenue in France. Fnac.com s profi table business has delivered double-digit growth for more than fi ve years in a row. Fnac s online expertise has also been rolled out to international markets, where the internet already accounts for more than 4% of revenue. Portugal joined the line-up in July 2010, following on from Spain and Italy in 2009, providing an international offering that capitalises on Fnac.com s cutting-edge online expertise. International expansion Despite the difficult economic environment, Fnac s international operations reported a 6% increase in revenue in 2010 and accounted for almost one third of Fnac s total revenue for the year. International expansion is a key growth driver for Fnac and in 2010 the strategy was focused on expanding in countries where it is already established. Five new stores were opened during the year, in Italy, Spain, Belgium, Portugal and Brazil. Furthermore, Fnac remains on the lookout for developments and opportunities in other markets. For example, in the second half of 2011 it will open its fi rst store in Morocco, based in Casablanca, as part of a franchise agreement signed with the Aksal group a leading player in Morocco s specialised retail sector. The aim of entering into this agreement is to develop Fnac s operations in Morocco and Fnac is looking at the possibility of opening a further three stores in Morocco in the coming years. 7% Portugal 10% Spain BREAKDOWN OF 2010 REVENUE BY COUNTRY 4% Belgium 5% Brazil 4% Italy 3% Switzerland 67% France (1) Source: GFK REFERENCE DOCUMENT - PPR 17

20 2 GROUP ACTIVITIES Fnac Expansion of the store network in France The out of town market in France harbours a vast pool of potential sites and as such is a vital growth channel for Fnac. By establishing a presence in new out of town business locations, Fnac can adapt quickly to changing trends in where and how its customers like to shop. Fnac has already signed leases for new site locations at four retail parks for At the same time Fnac is continuing to invest in highstreet locations both through renovation projects and new store openings: for instance, in late 2010 it transferred and extended its shopping center store in Rennes, where it now offers customers new products and services such as stationery, games and toys and a Forum Fnac Café; Fnac has also opened a bookstore in one of its central Paris stores (Fnac Odéon), which originally specialised in new technologies; in 2011 Fnac intends to further expand its high-street network through the opening of two new stores, the fi rst of which will be in eastern Paris. Development of services Through its LaboFnac offering Fnac provides customers with a wide range of services that encourage them to choose Fnac for their purchases. In addition, a new service offering aimed at professionals, called FnacPro, was launched in 2010 in over ten stores in France. FNAC AT THE HEART OF THE DIGITAL REVOLUTION Fnac is an innovative player in digital markets. During 2010 it launched the FnacBook e-book device and rolled out a community strategy, notably by creating online Espaces Passion areas. Fnac launches FnacBook, its first e-book device In 2010 Fnac launched a major offensive to become the leading seller of e-books. As France s top bookstore and seller of cutting-edge technical products, Fnac naturally has a determining role to play in promoting and developing this new market. Consequently, in November 2010 Fnac launched its FnacBook, a comprehensive e-book offering which combines the widest choice of e-books in France (80,000 books accessible via Fnac.com), the FnacBook e-book reader, and a range of applications enabling users to read and buy e-books and manage their e-libraries on all types of media systems, including multimedia tablets, telephones, computers and dedicated readers. In addition to developing its offerings for content and media systems, Fnac is actively working with the entire industry on the organisation of this new sector. BREAKDOWN OF 2010 REVENUE BY PRODUCT CATEGORY 5% Services and Accessories 22% Discs and Gaming 32% Personal Computers 19% Books and Stationery 7% TV/Vidéo 6% Hi-Fi 9% Photography REFERENCE DOCUMENT - PPR

21 GROUP ACTIVITIES 2 Fnac Espaces Passion areas on Fnac.com In 2010 Fnac extended its Espaces Passion areas from its stores to the internet by creating online areas that are specifically dedicated to visitors hobbies and interests. As well as containing expert advice and recommendations from Fnac s sales staff, Fnac.com s Espaces Passion areas are also real forums for discussion where visitors can express their opinions and exchange views and ideas on interests as varied as classical music, jazz, pop, rock, rap, comic books, manga and photography. The information in these Espaces Passion areas can also be posted on all of the internet social networks with a view to enabling all customers and web users to benefi t from Fnac s expert advice and recommendations. AN OFFERING AND BUYING EXPERIENCE TAILORED TO EACH CUSTOMER Fnac s 100% C ustomer R evolution plan places a clear focus on commercial innovation and customer relationship management. Its aim is to boost loyalty and achieve growth in each target customer segment by using a personalised, holistic marketing approach. The plan also refl ects the spirit of Fnac s stated ambition to reinvent itself and become the preferred, benchmark retail chain for each customer in the sphere of cultural and technological products. A superior offering in each product range Fnac responds to major structural trends in its markets and changes in consumer behaviour by adding new product ranges to its offering was no exception with the launch of the FnacBook e-book offering, the introduction of home automation and security products and the arrival on the market of innovative technologies such as the ipad and 3D TV. Fnac has also developed FnacPro a product and service offering specifically designed for small and medium-sized enterprises that is available at corner booths in Fnac stores or over the telephone. In addition, Fnac has reorganised its sales approach in order to improve the visibility of its offering and enhance purchasing comfort for its customers, notably by increasing the number of demonstration products on the shelves such as refl ex cameras, headphones, MP3 players and gift sets. Another Fnac innovation is the box-sets and exclusive editions that it creates each year for music and cinema lovers that are only available in Fnac stores or on the Fnac.com site. A personalised relationship with each customer Fnac members More than 50% of Fnac s revenue is derived from Fnac members who total 4 million people worldwide (including 2.4 million in France). They form part of Fnac s loyalty scheme which offers benefi ts, discounts and invitations to exclusive events and is one of the most sophisticated schemes of its kind in the retail sector. The One card Introduced in 2009, the One card is reserved for Fnac s high-spending customers. 50,000 One cardholders are entitled to an optimal quality of service including a special in-store reception desk, a dedicated phone line available seven days a week from 8.30 am to pm, priority reservations for products and events, and a specific aftersales service that provides direct trouble-shooting advice and, where required, sets up a one-to-one meeting with a Fnac sales representative NUMBER OF FNAC STORES BY COUNTRY France Spain Portugal Brazil Belgium Italy Switzerland Total 2009: 143 Total 2010: REFERENCE DOCUMENT - PPR 19