Prada points to rising profits ahead of HK IPO

HONG KONG/MILAN Fri Jun 3, 2011 11:35am EDT

Models parade at the end of Prada Autumn/Winter 2011 women collection show at Milan's Fashion Week February 24, 2011. REUTERS/Stefano Rellandini

Models parade at the end of Prada Autumn/Winter 2011 women collection show at Milan's Fashion Week February 24, 2011.

Credit: Reuters/Stefano Rellandini

Related Topics

HONG KONG/MILAN (Reuters) - Prada, the Italian fashion house preparing for an initial public offering (IPO) of about $2 billion in Hong Kong, expects half-year profit to rise by 46 percent as it expands in fast-growing Asia.

The Milan-based maker of luxury leather bags and colorful Miu Miu dresses expects profit of at least 150.7 million euros ($215.3 million) for the six months to July, according to a filing with the Hong Kong stock exchange on Friday. It posted net profit of 103 million euros in the same period of 2010.

Net income more than doubled to 253.6 million euros by January 2011 from a year earlier, fueled by growth in Asia, the filing showed.

Family run Prada plans to use most of the proceeds from its Hong Kong listing to expand and renovate its stores over the next 18 months as it bets on increasing demand for luxury products in China and the rest of Asia. The offering is slated to be priced on June 17, with listing set for June 24.

Acceleration of store openings in key emerging markets is cited among the drivers for revenue and margin growth at Prada in unpublished equity research by Goldman Sachs for potential investors seen by Reuters.

"We believe that there is still substantial potential for growth in Asia Pacific," Prada said in the filing.

Investors expect the Prada offering to come at a premium to European peers, given its growing exposure to Asia, brand appeal and prospects of higher profits and margins.

"I think Prada will trade at a premium to the European luxury sector average, which is around 19 times the price earnings (PE) ratio, but in line with the higher end of the Hong Kong names," a manager at a Switzerland-based luxury goods fund told Reuters on condition of anonymity.

"It will probably come at a PE ratio of at least 23 times," he said.

The price range for the offering is expected to be finalized before the roadshow starts on Monday, sources with knowledge of the deal told Reuters on Friday.

Prada said in the filing that shareholders, including those not resident in Italy, may be subject to a capital gains tax rate in Italy of 12.5 percent, which might cool some investors' appetite.

Prada plans to sell 423.3 million shares, equivalent to 16.5 percent of its enlarged capital, according to a term sheet of the deal seen by Reuters on Wednesday.

About 14 percent of the shares will be sold in a primary offering with proceeds going to Prada, while 86 percent will come in a secondary offering from shareholders Prada Holding BV and Intesa Sanpaolo (ISP.MI).

The IPO could be raised by 63.5 million shares, all from Prada Holding BV, if underwriters exercise a greenshoe option to meet demand for the stock.

The fashion house is run by the founder's grand-daughter Miuccia Prada, a trend-setting designer, and her husband and Chief Executive Patrizio Bertelli.

According to the filing, Prada received 9.7 million euros in fees, salaries, bonus and benefits last year, while Bertelli had 10 million euros. The group's board of directors has proposed a dividend of 35 million euros, or 0.14 euro a share, for the year ended on January 31.

The group has about one third of its 326 directly operated stores in Asia-Pacific, its fastest-growing market, and plans to add a net total of about 80 more by the end of January 2012, most of them in that region.

Consumption of luxury items in China, the world's second-largest economy, has surged at double-digit rates in recent years as a new class of consumers snapped up jewelry from Tiffany & Co (TIF.N), ties and scarves from Hermes (HRMS.PA) and Louis Vuitton (LVMH.PA) handbags.

China will account for 20 percent of the global luxury market by 2015, with spending in the country nearly tripling to $27 billion by that year from around $10 billion in 2009, according to consulting firm McKinsey & Co.

Goldman Sachs (GS.N), Credit Agricole's (CAGR.PA) CLSA brokerage and Italian banks UniCredit SpA (CRDI.MI) and Intesa Sanpaolo's Banca IMI unit (ISP.MI), both on Prada's board, are joint bookrunners and global coordinators of the IPO.

(Reporting by Elzio Barreto and Stephen Aldred in Hong Kong, additional reporting by Stephen Jewkes in Milan; Editing by Ken Wills, Lincoln Feast and Erica Billingham)

FILED UNDER: