Introduction to Brand Valuationipaware.org/wp-content/uploads/2018/10/David-Haigh... ·...
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Introduction to Brand ValuationCONNECTING MARKETING TO FINANCEDavid Haigh, CEO , Brand Finance plc
September 2018
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What do we mean by brand?A brand should be viewed in the context of the business in which it operates.
Brand Value
+ Uplift
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Trade marks (i.e. word mark, logo and strap line registrations), associated marketing IP (specifically domain names, trade dress, advertising copyrights, brand guidelines and manuals) together with the goodwill associated with those trade marks and marketing IP
• Trade Names, • Trade Marks, • Service Marks, • Symbols, • Logo
• Smells,• Sounds,• Slogans
• Product Design, • Packaging Design,• Trade Dress
• Coats of Arms, • Certification Marks, • Unique Accreditations
• Colours
• Websites,• Social Media Sites,• Publications
What do we mean by ‘brand’?
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Brand affects a wide range of stakeholdersEach can have a direct or indirect impact on the business
Customer
Brand Perceptions affect• Price• Volume• Repeat• Share of wallet• Cross sell
External Audiences
Brand Perceptions affect• Distribution terms• Channel access• Strategic alliances• Deal completion• Licensing• CSR
Staff
Brand Perceptions affect• Recruitment• Retention• Recommendation• Morale• Staff costs
Financial Audiences
Brand Perceptions affect• Interest spread• Share price• Debt/ Equity ratio• Risk appetite• Cost of borrowing
PotentialCustomers
ExistingCustomers
Influencerse.g. Media
TradeChannels
StrategicAllies &
SuppliersInvestors
Debt providers
Sales
Production
All OtherEmployees
MiddleManagers
Directors
Brand
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• Covering the world’s leading stock markets
• 58,000 companies
• 120+ Countries
• 69 Sectors
• Trend from 2001-2017
• $109 trillion of Enterprise Value (EV)
• $52 trillion or 48% is tangible assets
• $57 trillion or 52% is intangible assets
• $44 trillion or 40% is ‘undisclosed’ intangible assets
Understanding Intangible AssetsGlobal Intangible Finance Tracker (GIFT™) 2018
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Uncertainty about fair value is a major issueGlobal Enterprise Value 2001 – 2017 (USD trillion)
Source: 2018 BrandFinance® Global Intangible Finance Tracker (GIFT™)
Undisclosed Intangible Value
11.1 11.4 12.5 13.9 14.3 16.7 22.0 23.2 27.5 25.2 26.4 28.3 29.7 33.5 46.8 44.8
51.9
1.2 1.2 1.3 1.5 1.6 2.1 2.7 3.3
3.9 3.2 4.4 4.6 4.6 5.0
5.0 5.4 5.7
2.2 2.4 2.7 3.0 3.3 3.9 4.5 4.3
4.5 5.3 5.4 5.5 5.3 6.0
6.7 7.2 8.0
16.4 10.7 16.4 19.1 22.1
25.1
30.3
7.9
20.8 25.6 15.1 18.2
23.8 26.5
30.5 35.0
43.7
0
10
20
30
40
50
60
70
80
90
100
110
120
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017Tangible Net Assets Disclosed Intangible Assets (ex g/w) Disclosed Goodwill Undisclosed Value
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Understanding intangible assets
Goodwill
Literary worksMusical works
Trademarks and LogosDomain names
DepositorsCustomer lists
MortgagesCredit cardsInsurances
ITDatabases
Goodwill
Artistic
Marketing
Customer
Contract
Technology
Working Capital
Plant & Equipment
Land & Buildings
Intangible assets
Tangible assets
Illustrative Examples – this is not a complete list of all possible intangibles in these classes
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Public company disclosuresShould all acquired intangible assets be separately included in the balance sheet?
Should all internally generated brands be separately included in the balance sheet?
Should all intangible assets be revalued each year? Who do you think should prepare the valuations of intangible assets that are included in annual financial accounts?
Yes
NoDon’t Know
Yes
NoDon’t Know
Yes
NoDon’t Know
Independent third party intangible asset valuers
other
Staff and directors of the companies concerned
Intangible asset valuers working for the company’s auditors
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Brand Values in Annual ReportsLeading companies have started publishing Brand Finance’s results in their annual reports
“Burberry was ranked the sixth most powerful brand globally in the annual ‘Global 500’ report published by Brand Finance”
“Aeroflot continued to strengthen its leadership by promoting the brand of Aeroflot as an air carrier offering the highest safety and comfort on-board, new aircraft and a broad route network.”
“Valuation consultancy Brand Finance reported in February 2015 that the BT brand is now worth US$16.2bn. This is a 6% improvement on a year earlier and makes us the eighth most valuable telecoms brand in the world.”
“Emirates maintains its position as the world’s most valuable airline brand by being relevant, innovative and inspiring. This year, our estimated brand value grew to US$ 7.7 billion, up 17% from the year before, according to the 2016 Brand Finance Global 500 report.”
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What is Brand Valuation?
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ISO 10668 Represents global consensus on Brand ValuationGlobal Standard – ISO 10668
Brands are hugely valuable corporate assets
Brands affect all stakeholder groups
Brands create economic benefits
Brands need active strategic management
Brands are legal assets which can be bought, sold and transferred
Brands can be valued like any other assets
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ISO 10668‘Best Practice’ requirements for a brand valuation to be ISO compliant
1. State valuer’s credentials
2. Confirm Independence
3. Identify the party to whom the valuation opinion is directed
4. Define the asset
5. Specify valuer’s purpose
6. State the basis (e.g. Value in Use, Fair Value, Insolvency)
7. State the approach used
8. Describe the methodology (e.g. Price Premium, Income Split, Royalty Relief)
9. Indicate the Value Date
10. Indicate the Valuation Date
11. Disclose major assumptions
12. Provide a sensitivity analysis
13. Provide a written opinion
14. Provide list of data sources
ISO 10668 Requirements
Transparent ConsistentIndependent
Legal BehaviouralFinancial
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ISO:10668 Approaches
Income split Multi-period excess earnings
Incremental cash flow
Indirect Methods
Market ApproachCost Approach Income Approach
Price PremiumVolume PremiumRoyalty Relief
Direct Methods
Trademark / Brand Valuation
Brand Contribution
Alternative Brand Valuation Approaches
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Royalty Relief determines the value of the brand as a separable asset by valuing the cost savings resulting from owning the brand rather than licensing it from a third party.
1 2 3 4
Brand Strength Index (BSI)
Brand Royalty Rate Forecast Revenues Brand Value
A brand strength benchmarking process with a score expressed out of 100.
The BSI score is applied to a sector royalty rate range to identify an appropriate rate
The royalty rate is applied to forecast revenues to derive brand revenues
Post-tax brand revenues are discounted to a net present value which equals the brand value
Brand Valuation
®
Our most common approach is “Royalty Relief”
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World’s Most Valuable Brands 2018 – Brand Finance
RANK BRAND Country BRAND VALUE (USDm)
2018 2017 2018 2017
1 3 150,811 106,396
2 2 146,311 107,141
3 1 120,911 109,470
4 6 92,289 66,218
5 9 89,684 61,998
6 4 82,422 87,016
7 5 81,163 76,265
8 7 62,826 65,875
9 8 61,480 62,211
10 10 59,189 47,832
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Enterprise Value
Asset breakdown
Intangibles (split by type)
Disclosed Intangibles
$8bn
Enterprise Value
Tangible Assets
Intangible Value
Undisclosed Intangibles
* All values are in USDbn
Brand23%
Business Value Breakdown – As of 31st of Oct 2017
649
550 542
163 146
98
136
136
54
54
Brand Value
Customer25%
MarketingIntangibles
30%
Contract 10%
Technology25%
Goodwill 10%
Intangibles (split by
disclosure)
Enterprise Value
Intangible Value
Undisclosed Intangibles
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Brand Development Brand Strength & Brand Performance Monetary Value
INPUTS OUTPUTS
New ISO Standard ISO 20671
Brand Support
Brand Activities
Legal
Customer/ Stakeholders
Financial
Economic Political
Market
BRAND STRENGTH
BRAND PERFORMANCE
FINANCIAL RESULTS
BRAND VALUATION
1. Income Approach2. Cost Approach3. Market Approach
Continuous Improvement
Brand Evaluation Brand Valuation
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Why conduct Brand Valuations?There are many reasons to value trademarks
Commercial Reasons: Technical Reasons:
Internal Management
Internal Licensing
Portfolio Management
Brand Architecture
Brand Strategy
Budget Setting
Brand Scorecards
Balance Sheet
Taxation
Litigation Support & Dispute Resolution
Joint Ventures
Financing
M&A
Investor Relations
Bankruptcy
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Building branded business and brand valueB
rand
Impl
icat
ion
Scen
ario
s
Evaluate ongoing performance
Current brand and business
value
Target brand and business
value
Step by step approach to value creation
6 Co-branding, Licensing and Franchising
5 Market expansion
4 Product & Service Development
3 Portfolio Management & Rebranding
2 Optimise Brand Positioning and Marketing Spend
1 Brand and Business ROI modelling, Market Sizing, Brand Drivers benchmarking and tracker set-up
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Contact us
Brand Finance is the leading brand valuation and strategy firm, helping companies to manage their brands for improved business results.
www.brandfinance.com
Brand Exchange3 Birchin Lane London, EC3V 9BWUnited Kingdom
David Haigh CEO
Brand Finance plcE. [email protected]. +44 207 389 9400