Yves-Alain Ach - Financial Information and Brand Value

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Series Editor Régine Teulier

Yves-Alain Ach

Sandra Rmadi-Saïd

First published 2020 in Great Britain and the United States by ISTE Ltd and John Wiley & Sons, Inc.

Apart from any fair dealing for the purposes of research or private study, or criticism or review, as permitted under the Copyright, Designs and Patents Act 1988, this publication may only be reproduced, stored or transmitted, in any form or by any means, with the prior permission in writing of the publishers, or in the case of reprographic reproduction in accordance with the terms and licenses issued by the CLA. Enquiries concerning reproduction outside these terms should be sent to the publishers at the undermentioned address:

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© ISTE Ltd 2020

The rights of Yves-Alain Ach and Sandra Rmadi-Saïd to be identified as the author of this work have been asserted by them in accordance with the Copyright, Designs and Patents Act 1988.

Library of Congress Control Number: 2020943918

British Library Cataloguing-in-Publication Data

A CIP record for this book is available from the British Library

ISBN 978-1-78630-567-1

For many years now, brands have become increasingly important in the lives of companies. Yet nothing is more difficult than defining what a brand is, as there are so many different aspects to the concept. The brand is a company’s most important asset. It enables it to build up a customer base, to develop customer loyalty and to promote the distribution of products, by means of a distinctive sign capable of reaching the consumer. Brands can be found everywhere and become an integral part of our living environment.

Brand valuation requires knowledge of the legal, commercial, marketing, accounting, financial and tax environment surrounding them. These elements cannot be taken into account individually, unless a partial and inaccurate estimate is made.

Perceived by investors as a source of value, the brand is, however, not always recognized as a company asset. Indeed, faced with the non-recognition of internally generated brands as an asset, from an accounting perspective, companies resort to the dissemination of additional information as an alternative to inform investors about the value of these intangible assets. This difference in the accounting recognition of brands, depending on whether they are acquired or internally generated, is not accurately reflected in the company’s assets and liabilities and visible to its stakeholders, particularly to investors.

As a result, the financial statements relating to brands provide little information on these items. With this in mind, companies are led to propose a global offer of standardized and voluntary information in their annual reports with regard to the valuation of the brands they own and operate.

A review of the literature and works on brands has shown the value of looking at the nature, characteristics and determinants of the information disclosed by companies regarding the brands they own and use.

The aim of this book is, on the one hand, to characterize the nature of the information communicated by companies in terms of estimating brand value and, on the other hand, to identify the determinants of this information according to companies’ characteristics.

This book is therefore divided into five chapters. Chapters 1and 2look at different perspectives of the brand and how to create brand value. We examine the growing role of the intangible in our economy, as well as the nature and determination of brand value and brand equity.

In Chapter 3, we review the acquisition of the GUCCI brand by the Pinault-Printemps-Redoute (PPR) Group (now Kering), focusing primarily on the financial information disclosed during this transaction and the valuation method used for the acquisition of Gucci. This case study provides an opportunity to discuss the disclosure of brand information and the valuation of the brand as part of the PPR Group’s strategic refocusing on luxury brands.

In Chapters 4and 5, based on a sample of international brands identified from the Brand Finance and Interbrand databases, we explain the nature, characteristics and determinants of the information disclosed by companies in relation to the brands they own and operate.

Our study will highlight the inadequacy of financial communication and the need to take into account the financial reporting of brands in supplementary parts of annual reports. More specifically, we will discuss the need to provide investors with more reliable, relevant and detailed brand information. We will propose clear recommendations to companies based on the discussion of our results.

The purpose of this first chapter is to define the concept of a brand and to describe its fundamental features. This chapter also deals with the value companies’ use of brands. We define the brand according to an economic perspective and also describe its evolution through the centuries; we will also establish the link between the market and the brand. We will see whether the use of brands creates value and whether the mechanics developed by economic theory are sufficient to ensure brand use. Brands have a limited lifespan, and we will assess whether the means of preserving brands are sufficient to ensure the maintenance of brand ownership.

Before studying the contemporary nature of the concept of a brand, it is useful to consider the origin of brands. The brand is a perennial tool for trade. Whatever the reasons for the use of a brand, it has always been used to indicate an origin and a source. In the Middle Ages, craftsmen “marked” or “branded” their products in order to identify their production. It is therefore a simple transition from “branding” to “brand” (or, in the French, “ marquage ” or “marking” to “ marque ”), and thus legislators were able to take into account the property associated with brands.