CFA Institute Research Challenge hosted by Local Challenge CFA Society France Team J

TEAM J LAGARDÈRE S.C.A. Ticker: MMB FP (Bloomberg) | Index: SBF 120 Sector: Communications | Industry: Media As of January 11, 2016

Recommendation: SELL Target Price: EUR 21.9 | Current Price: EUR 25.4

Highlights

Lagardère S.C.A.: A diluted business despite leading positions in Publishing, Media and

Figure 1: Market Snapshot Travel Retail sectors

Market profile We issue a SELL recommendation on the company with a one-year EUR 21.9 target price which represents a potential downside of -13.9% from its closing price of EUR 25.4 on January 8th, 2016. 52-week price range (€) 21.02-30.23

Average daily volume (3M) 264,465 Dilutive investment strategy for shareholders – With Lagardère’s activities undergoing important . Shares outstanding (M) 131.133 changes – decrease in magazine circulation, shift to digital, high growth in travel retail due to growing air traffic and improvement of travel retail zones – Lagardère is restructuring its portfolio through acquisitions Free-float 88.8% (Paradies, Grupo Boomerang TV) and disposals (press titles). However, the firm destroyed value over Close price as of 01/08/2016 25.4 the last years: while investing in new businesses, Lagardère pulled its ROIC including goodwill down to Sources:Source: Factset Factset a level below its WACC (from 7.7% in 2008 to 5.1% in 2014 with a WACC estimated at 7.7%). Furthermore, poor synergies between its divisions and questionable timing for divestments highlight the weakness of the strategy. Non-core assets are losing weight as evidenced by the disposals in wholesale distribution and the sale of its stakes in Airbus Group and Canal +: 1) Poor synergies between its businesses, and 2) Poor top line growth (-9.3% in the last 10 years), due to its presence in mature businesses and its marginal exposure to fast-growing markets (9.6% of total sales in Middle East, Asia Figure 2: Share price movement Pacific, Latam and Africa combined). 35,00 4 500 . 4 000 High level of debt reduces the flexibility for acquisitions – Because Lagardère needs acquisitions 30,00 . 3 500 especially in Travel Retail and Media, the Group might not be able to acquire high profile targets in 25,00 already consolidated markets such as Duty Free where remaining potential targets of scale are very few. . 3 000 20,00 2 500 The company is close to its debt ratio threshold (3.0x Net Debt/EBITDA vs 3.50x for its covenant) limiting . 2 000 the ability to raise debt. 15,00 . 1 500 MMB priceMMB Share 10,00 Structural constraints against shareholders’ interests – As Lagardère is a French partnership limited . 1 000 5,00 by shares (SCA) where Arnaud Lagardère and Arjil Commandité-Arco have the full responsibility on 500 . losses, the company’s management is barely impacted by the shareholders’ pressure. We think it is risky 0,00 0 . to hold Lagardère SCA shares because the SCA structure 1) SCA structure reduces shareholder power, 2) protects the management from any external pressure as the company cannot be bought out and 3) its liquidity tremendously decreased in the last 7 years: today it takes 446 days to trade the company’s free MMB SBF120 float. In 2008, the number of traded shares was up to 1.7x the number of shares outstanding, a figure Sources: Factset that dropped to 0.8x in 2015.

Figure 4: Key financial ratios

Figure 3: Balance sheet FYe 31/12 (EURm) 2010A 2011A 2012A 2013A 2014A 2015E 2016E 2017E 2018E 2019E structure Sales 8,339 8,048 7,722 7,564 7,493 7,260 7,409 7,613 7,836 8,096 Adjusted EBITDA 733 641 577 515 510 568 559 583 601 641 €2,081m Adjusted EBITA 493 333 322 299 280 345 332 350 361 393 Net Income - Group 163 (707) 89 1,307 41 201 189 201 209 230 €4,108m Net debt 1,772 1,269 1,700 (361) 954 1,061 1,076 1,067 1,062 1,044 €1,744m Net Debt / EBITDA 2.42x 1.98x 2.95x -0.70x 1.87x 1.87x 1.92x 1.83x 1.77x 1.63x Reported EPS 1.28 (5.56) 0.70 10.22 0.32 1.57 1.48 1.57 1.63 1.80 Adjusted EPS 2.10 2.02 1.21 1.54 0.46 1.57 1.48 1.57 1.63 1.80 €3,400m €3,683m DPS 1.31 1.31 1.29 10.34 7.37 1.30 1.30 1.30 1.30 1.30 P/E 24.01 (3.67) 36.25 2.64 67.46 13.75 14.60 13.77 13.26 12.03 Sales growth 0.6% -3.5% -4.1% -2.0% -0.9% -3.1% 2.0% 2.8% 2.9% 3.3% Assets Equity and EBITDA margin 8.8% 8.0% 7.5% 6.8% 6.8% 7.8% 7.5% 7.7% 7.7% 7.9% Liabilities EBIT margin 5.9% 4.1% 4.2% 4.0% 3.7% 4.7% 4.5% 4.6% 4.6% 4.9% ROIC (including goodwill) 7.1% 6.9% 5.4% 6.2% 5.1% 6.3% 6.1% 6.4% 6.6% 7.2%

Current Non Current Equity EV / Sales 0.58x 0.60x 0.63x 0.64x 0.65x 0.67x 0.65x 0.64x 0.62x 0.60x EV / EBITDA 6.60x 7.55x 8.38x 9.39x 9.48x 8.52x 8.65x 8.29x 8.04x 7.54x EV / EBIT 9.81x 14.53x 15.02x 16.18x 17.28x 14.03x 14.58x 13.84x 13.40x 12.32x Sources: Company information Sources: Company information, Team estimates

2

Business Description

3 814 Lagardère is a French diversified-media partnership limited by shares founded in 1992 following the restructuring of Matra. The company is managed by Arnaud Lagardère, son of the founder Jean-Luc Lagardère, together with Arjil Commandité-Arco. Lagardère’s operations include four divisions: 2 004 Publishing, Active, Travel Retail, and Sports and Entertainment.

958 Publishing – With strong flagship brands such as Hachette, Astérix, Grasset or Hatier, Lagardère is the 394 leading publisher in France. Despite its successful shift to e-books, Lagardère Publishing has been affected by the decrease in circulation and registered a revenue CAGR of -1.5% between 2010 and 2014. Over the same period, the group EBITDA margin decreased by 170 basis points, down to 11%. The division is diversified geographically (70% of its sales are outside France since 2007, after the acquisition of Time Warner Book Group) and by segment (literature, education, textbooks, illustrated works and dictionaries) reducing its risks. But that business is declining structurally.

Active – Lagardère Active operates in print media, radio, TV and digital content and owns strong brands such as Elle, Europe 1 and Gulli. This division is suffering from structural changes in media consumption, with press revenues declining due to a decrease in circulation and advertising revenues, and TV channels competing with other media platforms (mainly the internet). The recent shift to digital is favorable to the TV production activity that could diversify its sources of revenues using multiple platforms, even though insufficiently to offset the losses. In total this 8% EBITDA margin division has 5% incurred a negative organic sales CAGR of -2.4% between 2010 and 2014. 29% Travel Retail – #4 in travel retail worldwide, Lagardère Travel Retail is strategically positioned to benefit from the increasing global air traffic passenger demand (+4% CAGR until 2030) and fuel the group’s 52% growth. Present in travel restaurants and shops, it also operates a press wholesale distribution activity 14% which is currently under divestment. From 2010 to 2014, this division showed stable sales growth with a CAGR up by 1.3%, and stable average EBITDA margin of 4.6% (but well below peers, see appendix 10). Publishing Relay, Aelia Duty Free, Hubiz and Tribs are the main brands.

Active Sports and Entertainment – Full service sports marketing agency, this division is present in football, Services Sport and Entertainement tennis, golf, but also shows (Casino de Paris). Highly exposed to seasonal events such as the African Nation Cup, the Asian Football Cup or the Olympic Games, Lagardère Sports and Entertainment is a volatile business with a questionable value added to the group. Despite relatively steady sales, the EBITDA margin significantly dropped: 13.7% in FY2014 vs 28.8% in FY2010.

See figure 6 & 7 for financial splits 0% -11% Figure 8: Lagardère’s strategy

32% Digital Invest 57% Trav el retail

potential Sports 22% TV production Grow th Broadcasting

Publishing Divest Adapt Active Press Book Services Wholesale Publishing Sport and Entertainement Distribution Other Magazines Market position Source: Company information A restructuring company Investments in TV Production and Travel Retail – Lagardère’s strategy is to invest the cash generated in publishing (43% group EBITDA in FY2014) in high growth potential activities. In this context, the group

Main brands acquired in 2015 Grupo Boomerang TV, a Spanish TV producer, and Paradies, a North American travel retailer. Publishing Best-seller hunt – Publishing is Lagardère’s cash cow (c. 50% group’s CFO in 2014). To maintain its margin, Lagardère is increasingly betting on high value books and bestsellers (French version of Fifty Travel Ret. Shades of Grey and Twilight). The group’s objective is to find the next ‘success story’.

Active Disposal of non-strategic and declining activities – Lagardère has started divesting the print media assets (appendix 14), except for the core brands ELLE, JDD and Public (disposal of 102 titles in 2010, Sports & E 10 titles in 2014) and legacy assets from its distribution activities (disposal of Swiss business in 2014 and US-based and Spain-based activities in 2015). The group is also rumored to be selling magazines for which Altice and Mondadori have positioned themselves as serious potential bidders.

Uncertain outcomes – The current market situation is challenging, particularly for Lagardère Travel Retail which is still facing uncertainty as for the sale of its remaining distribution activities (Belgium, 8%3% Canada and Hungary) and which could also experience obstacles acquiring potential targets, especially in the consolidated duty-free industry, as demonstrated by the failure to win the tender for World Duty Free.

89% 3

Free float Arnaud Lagardère Othe r

Lagardère’s management and shareholders: Arnaud Lagardère’s SCA Figure 11: Annual GDP growth rate Arnaud Lagardère, who owns 8.2% of the company, is both a general and managing partner together (in %) with the top management (Pierre Leroy, Dominique D’Hinnin and Thierry Funck Brentano) through Arjil Commanditée-Arco. A supervisory board composed of 15 members oversees the company’s 9 management and accounts, in the interest of the shareholders. The free float represents 88% of the total shares of the company. 6 3 Industry Overview and Competitive Positioning

0 2000 2002 2004 2006 2008 2010 2012 2014 Macroeconomic drivers -3 Media & Publishing: mature markets driven by GDP growth – Because Lagardère Publishing and -6 East Asia & Pacific Lagardère Active operate in mature markets, their growth is limited as their penetration rate almost Europe & Central Asia reached its maximum. We consider GDP growth as a good proxy to assess both markets’ growth. After Latin America & Caribbean the 2008 economic crisis, core EU and US countries have positive growth, ranging between 0% and 2% North America at best. For example, in 2009, Lagardère’s sales in Spain sharply decreased following the beginning of Source: World Bank the crisis. Developing countries, particularly Asia and some countries in Latin America have enjoyed GDP growth rates over 5% during the past few years: they act as global growth drivers.

Air Traffic growth boosts the travel retail industry – Travel retail is largely dependent on air traffic which is booming and has proved its resilience to external shocks (figure 12). According to Airbus and Boeing, the two leading aircraft manufacturers, the air traffic passenger demand will enjoy a 4% CAGR over the period 2015-2030. The challenge for Lagardère Travel Retail is to benefit from this trend and to take advantage of the improvement of airport retailing space which is in line with the air traffic growth. To this end, the company purchased Paradies in the US and signed a contract in December 2015 to operate 3,000sqm in the future Etihad Airways terminal in Abu Dhabi airport, setting its footprint in the strategic Middle East market and positioning itself to generate an estimated future income of €200m to €300m as of 2018.

Industry analysis: 4 major stakes at play

High pressure on advertising revenues – Media companies generate most of their revenues from advertising. This is particularly true for free-TV and radio businesses that are generally 80% to 100% financed by advertising income. Since the 2008 financial crisis, revenues have dropped in the print media segment as a result of the declining circulation of low-value-added magazines and client’s market budgets have been put under pressure. Lagardère has been directly and highly affected, and although the company has decreased its exposure to press and magazines. Despite this strategy, the income from the remaining titles is still falling, registering a -15% CAGR between 2008 and 2014. The only Lagardère titles likely to remain profitable in the medium term today are Elle, JDD and Public, which are said to be «sacrosanct». Additionally, with a growing number of TV channels and the growing impact of the internet Figure 13: Radio coverage of on consumers’ everyday life, the advertising distribution channels are less concentrated leading to a French broadcasters (in m people) stiffer competition among the different actors. max:13 Regulation: a headwind for the media industry – In France, the CSA (French media regulator) has NRJ Group 117 13 decreed an anti-trust regulation for audiovisual companies: 49% maximum TV audience share, possibility to have a strong position in only two media channels over three (radio, press and TV), maximum of seven DTT (Digital Terrestrial Television) channels, 150m inhabitants covered in radio. Today Lagardère Active

Lagardère 113 17 is shifting from a solid position in the declining print media market to a stronger position in TV with the acquisition of the remaining parts of Gulli in 2014 (#2 DTT channel in France) and strong investments in TV production (purchase of Grupo Boomerang in 2015). In relation with radio, Lagardère Active almost

RTL Group 110 20 reaches the maximum authorized coverage. Its growth is limited by the law and Lagardère cannot buy further frequencies without selling one of its current flagship brands. In addition, the media sector plays a very singular role in a country and therefore some governments prefer to keep a strict control over the media industry and to put strong entry barriers for foreign companies within the industry. For instance, in NextRadioTV 55 75 2014, Vladimir Putin signed a law forbidding any foreign participation of over 20% of capital in any mass media Russian group, prompting the decision of Axel Springer to withdraw from the country. The mass media sector also can be highly regulated in democratic and conservative countries like France. In the Nakama 30 100 publishing sector, eBook may not have the same VAT tax rate as for paper books due to a different cost structure, has led to discussions within the European Union. Group coverage Maximum coverage Recurrence of M&A activity and consolidation – The Mass Media sector in the past few years has Sources: CM-CICS, Team estimates been characterized by intense M&A activity (appendix 14). In a context of structural changes, media players need to buy or sell assets to optimize their EBITDA margin. There were many moves in the press sector during the past five years with firms exiting this declining activity (in 2014, TV Magazine SPAS Figure 14: Consumer magazine was sold by Lagardère to Société du Figaro and Grupo Expansion was sold by Time Warner to Southern revenue (in USD bn) Cross Group). Lagardère was – and is still – part of the movement, selling its non-strategic titles to 75 decrease its exposure to print media and reinvest elsewhere. The publishing industry also witnessed big 60 consolidations, with major mergers such as Penguin and Random House as well as HarperCollins and Harlequin in 2013. The M&A activity is recurrent in this industry, with companies buying new imprints to 45 expand their portfolios and to find the next world class bestseller. This phenomenon is also observed in 30 Travel Retail industry where large groups have more firepower and more diversified portfolios of 15 concessions. This is the reason why Lagardère bought the North American firm Paradies: the combined

0 4 1 2 3 4 5 6 7 8 9 10 Digital Print Source: PWC sales of Lagardère Travel Retail and Paradies add up to $800m (10.4% market share) and the acquisition is expected to deliver $15m annual synergies for the next 4 years. In addition, Lagardère Travel Retail secures a foothold in the US market where airports are reorganizing their terminals to grant more space to travel retail and diversify their sources of income. However, M&A activity can be misleading: it has been a solid growth driver for Lagardère over the past five years hiding a weak group organic growth performance.

Shift to digital – Digitalization is one of the big changes in the 2010s decade. New hardware appeared to consume media content. Mass media groups such as suppliers of content have to adapt to these new channels. Reading on tablets has stimulated the eBooks market, conquering 25% of the publishing market in barely five years in the United States and in the United Kingdom. Regarding Lagardère Active, content is increasingly seen online and the firm is developing a multiplatform offer for its off-line brands to expand its sources of revenue and capture more audience. If digital can be seen as a challenge for some activities, it represents a real opportunity for TV production, which can be broadcasted on a larger range of platforms: TV, Netflix, TV replay, YouTube…

Figure 15: Sport market revenue Sports and Entertainment at a glance growth by geography (2011A-2015E) The sports rights market is expected to grow from 4% to 5% annually in the coming years. Lagardère Sports and Entertainment wants to capture this growth by investing in events whose value is likely to 6% increase. Competitions in emerging countries present a higher potential growth and value-added than 5% Occidental and global sport events and this is the reason why Lagardère is decreasing its exposure to 4% the European market while increasing its presence in Asia and Africa (with the Asian Cup of Nations and the African Cup of Nations). However, seven years after its creation, Lagardère Sport and Entertainment 3% is still a volatile business. It also generates operating losses since 2010, putting the question Lagardère 2% whether to keep this business in its portfolio.

1% Competitive analysis: no place for small players 0% North EMEA Asia Latin Lagardère has a good position in almost all of its activities - #1 publisher and #2 TV producer in France, America Pacific America #4 travel retailer worldwide - and the group demonstrated its capacity to develop a wide portfolio of Source: PWC brands (some of them highly recognized such as Hachette, Elle or Relay). However, in the mass media industry, competition is tough and size is key to maintain a relatively good EBITDA margin and stay in the game. The company has four types of competitors:

Media holding companies – This category includes Lagardère and its main competitors. Media holding companies succeeded in developing strong brands to increase their radio and TV audience, and maximize circulation for press and books. Their aim is both to invest the cash generated by their ‘cash cow’ in activities with high capital requirement and to benefit from synergies by cumulating businesses. But one of their main challenges is to justify that the activities gathered under a holding have a higher value than if they were separated. Lagardère competes at national and international level. In France, NRJ Group and NextRadioTV together have a 5.2% audience share in TV channels and a 48% audience share in radio broadcasting. Regarding publishing, Editis and Groupe Madrigall (#2 and #3 in France) realized respectively €760m and €440m total sales in FY2014 vs €2bn for Lagardère. At an international level, Bertelsmann, Mondadori and Hearst are big competitors. These groups are both M&A competitors Figure 16: Lagardère’s since they bet on the same growing markets, and potential buyers for Lagardère’s declining activities (in competitors 2010, Lagardère sold 102 international titles to Hearst). These companies are sometimes also present in non-core activities such as telecommunication, sports and entertainment. Media holdings Vivendi Internet players – Internet players represent a high threat to Lagardère in the digital era. First of all, Google developed highly competitive products such as Google Shopping while favoring it in its own NRJ Group research engines rather than Lagardère’s digital solution LeGuide.com or other price comparison Bertelsmann websites, hence causing big losses for these latter companies (-€1.5m for LeGuide.com a.o.). Internet Mondadori retailers are another important group of competitors: Amazon.com weighs on book prices and holds a strong position on e-books with Kindle (Lagardère buried the hatchet in 2014 following a trade dispute, Pure players after reaching to an agreement). Amazon.com could also represent a big threat to travel retailers together with Daigou and Apple (they combined $700m in sales in 2014), being a serious alternative for duty-free Dufy and convenience stores in travel areas. DFS Pearson Pure players – By focusing on one core-activity, these pure players are expert on their sector and can Penguin House benefit from economies of scale when consolidating. In relation to travel retail, Dufry acquired World Duty Free and Nuance during the last 18 months reinforcing its position of worldwide leader, way ahead of its competitors (€6.1bn sales in 2014 vs €3.8bn for DFS, second actor worldwide). The three best Internet players companies in this industry are pure travel retail players. Lagardère is one of the only diversified actor in travel retail with restauration, shopping and duty-free activities and has a much lower EBITDA margin Google than its competitors with 4.6% versus 8% to 15%. As for the publishing industry, Pearson and Penguin Amazon.com Random House are respectively specialized in education and general literature in the US (a sizable Daigu market of ten times the French market), where bestsellers are much more numerous than in France, and Apple where private education holds more prominence, meaning that the book market for this segment is less dependent on educational content reforms.

Hungry buyers Hungry buyers – In a sector where M&A is recurrent, an important point is whether the opportunities of buying/ selling exist in the market. Today Lagardère has to keep a close watch on some actors such as Altice given their hunger for acquisition: besides its acquisition of SFR, Altice took a 76% participation in Altice NextRadioTV and bought magazine titles such as Libération or L’Express. Players such as Altice could 5

Sources: FactSet, Mergermarket, News run represent both a threat and an opportunity for Lagardère, be it the opportunity to sell assets or the threat to prevent some deals by acting as a fierce competitor in auctions.

Investment summary

We are issuing a SELL recommendation on the company with a €21.9 target price which represents a potential downside of -13.9% from its closing price of €25.4 on January 8th, 2016. Our SELL recommendation is based on three investment lines which are that 1) despite a good business position, 2) Lagardère remains overvalued by the market, with a fragile business scope and 3) the company is limited by its high leverage and a risky dividends policy.

Untapped business positioning – Almost each operating division of Lagardère has an large market share in its respective sector. In publishing, it is a top player worldwide in several countries: fourth in the U.S., second in U.K. and first in France. It captured publishing rights for the great best-seller Fifty Shades of Grey in the French-speaking market. Lagardère Travel Retail is the #4 worldwide in term of sales and with the purchase of Paradies, it has a strong platform in both U.S and Europe. Lagardère Active is one of the major radio players in France and is also the leader in magazine through strong brands like Elle. However, Lagardère Travel Retail seems to operate at lower margin than its peers average (appendix 10). Lagardère Active and Lagardère Publishing are under pressure facing new challenges, such as decrease in advertising expense, more bargaining power from customers and new actors in their respective market. Finally, Lagardère Sports & Entertainment remains uncertain despite massive investment in the past few years (more than €1 billion since 2007).

An overvalued company

A dilutive strategy – The management has delivered an inefficient diversification strategy due to poor execution in Sports and poor synergies between divisions. Moreover, the top line organic growth is negative (-0.6% CAGR from 2010 to 2014) due to mature businesses and a lack of external opportunities. Lagardère SCA has been diluting the business for many years now. Finally, ROIC levels are steeply decreasing, falling under WACC levels, displaying signs of value destruction.

Leverage levels to limit growth – The proceeds from EADS and Canal+ France have been distributed as extraordinary dividend and therefore did not contribute to acquire new businesses and reduce debt. The management stated they were close to the Net Debt/EBITDA cap of 3.0x during the CFA management meeting.

Dividend at risk – The high dividend policy of €1.3 per share on average (forecasted implicit payout ratio of 81.2% on average from 2015e to 2019e) would likely limit the Group in its acquisition processes. Therefore, the leverage could reduce Lagardère’s ability to acquire game-changing targets that will allow to gain market share. A decrease in dividend per share, which is likely to occur, could give a clear negative signal to the market.

An important discount structure – We apply a 15% discount to our valuation to highlight the conglomerate and SCA structure. The first factor highlights the discounted value given by the holding structure to the investor who suffers from unsolicited and inefficient diversification, a diversification which could have been done independently. The second factor seeks to value the lack of power the investor can have. These two factors are discussed in further details through our analysis.

Lagardère stock price and important events 40.00

Noel Forgeard's indinctment Airbus Group 35.00 in EADS case proceeds dividends (rational : insider trading)

30.00 Doubt about the management €25,92 ability of Arnaud Lagardère 25.00 following press article

20.00

Paradise 15.00 acquisition's announcement

10.00 Objectives following 2008 AR do not meet shareholder Lagardère announces Lagardère 5.00 wanting to sell EADS announces the sale expectations stakes of distribution assets 0.00 6

Sources: FactSet

Valuation Figure 17: Valuation synthesis

Our weighted valuation results in a target price of €21.9 representing a downside of -13.8% to the Valuation Synthesis current price of €25.4 as of January 8th. Methodology TP Upside Weight We are issuing a SELL recommendation on Lagardère SCA considering three different valuation DCF €17.6 -30.5% 45% approaches – Discounted Cash Flow (DCF), Sum of The Parts (SOTP) multiples, and Discount SOTP €27.4 8.2% 35% Dividend Method (DDM). The obtained target price is the weighted average of these methodologies. We applied a 45% weight to the DCF method as this valuation accurately reflects the conglomerate DDM €21.6 -14.6% 20% structure of the company as well as our forecasts on sales, EBITA margin and capex. The SOTP Weighted TP €21.9 -13.8% 100% valuation has a lower weight of 35% because it is biased by the comparable choice and tends to overestimate the valuation of the conglomerate by comparing the company to some larger pure Source: Team estimates players.

DCF Valuation – €17.6 (-30.5%)

Figure 18: DCF Scenarios Our valuation is established on a base scenario. We forecasted a 15-year period composed of a 5-year explicit period and a 10-year CAGR growth with stable EBITA margin. The explicit period is based on DCF Scenarios a thorough analysis to assess the potential value creation of each business standalone depending on Bear Base Bull internal and external factors and assumptions. We forecast a 2.2% CAGR from 2015e to 2019e and a 2015e-2019e 2.4% CAGR for the 10-year period. As Lagardère is a conglomerate, each division has been analysed independently to assess the potential growth in top line and margin and then aggregated to a group Sales CAGR 1.0% 2.2% 4.0% level. 2015e sales and EBITA margin have been estimated thanks to a LTM analysis considering the Avg EBIT margin 3.9% 4.7% 5.6% figures from Q4 2014A, H1 2015A and Q3 2015A. We applied a negative 60bps “Holding effect” on our 2020e-2029e SOTP EBITA for each year margin to reflect the 5-year average discrepancy between SOTP EBITA Sales CAGR 1.5% 2.4% 3.5% and the reported group EBITA due to additional operating costs at the Holding level.

Avg EBIT margin 3.4% 4.4% 5.3% Travel Retail, strong growth but a dilutive business – Travel retail business is forecasted to a level Perpetuity of c. 8% CAGR from 2015e to 2029e. The key driver of the business is the expected 4% CAGR of the Sales growth 1.5% 2.0% 2.5% global air traffic passenger. Lagardère Travel retail should capture more than the 4% CAGR Target Price €17.1 €21.9 €28.0 considering the increasing demand airport areas and its willingness to be more present on the luxury goods (Duty free business). The positive momentum is also reflected through airport area extension -32.5% -13.8% 10.4% projects all around the world and for instance, Lagardère acquired new concessions rights in important Source: Team estimates places such as Abu Dhabi, Nice and Venice airports. In 2015, the company acquired the US based company Paradies and became the 2nd largest player in North America. The management announced €14m in synergies which should increase the EBITA margin from 2.9% in 2015e to 3.4% in 2016e and then will increase each year considering the operating leverage. However, as Travel Retail is getting bigger in proportion to total sales with half the margin of businesses such as Publishing and Active, Lagardère Group’s EBITA margin will mathematically decrease from 4.9% in 2019e to 4.4% in 2029e.

Lagardère publishing, a stable and solid business unit – The market is expected to grow by 1.5% p.a. However, due to its geographic exposure and smaller size compared to comparable companies, the division should capture only 1.0% of the growth. We forecast a slowdown in 2017e due to the new EU VAT rate on eBook. We think there will be further pressure on price from distributors but so far, the group has managed to maintain its margin level. EBooks seems to have no impact on EBITA margin because the costs savings from digitalization are eaten away by a lower price policies and a weak share in Lagardère’s book activity. Also, the rebalancing strategy in English-speaking countries might help to capture more best-sellers and increase margin by about 50bps as of 2016e.

Audiovisual will take the lead eventually – In our view, the Active division will have weak top line growth (0.5% CAGR) as we cannot see any improvement in the circulation and the advertising sales of the Press business (45.6% of the division in FY2014) especially in France. The audiovisual activity (47.6% in FY2014) has delivered strong first 9-month sales in FY2015 thanks to the TV show Borgia that can generate a positive trend over 2-3 years.). The EBITA margin is expected to increase gradually as the weight of press will decrease and those of audiovisual and Digital will increase, both with an embedded EBITDA margin above 10% (vs. c. 5% for Press).

Sports & Entertainment, too volatile and not enough incentives – Even though the division will report a strong growth in sales for 2015 (c. +30%) due to the positive calendar effect from the AFCON and the Asia Cup in the H12015, the business is still too volatile in general. We have been disappointed by the track record development since its creation in 2007 as the management has failed in stabilizing the activity and the margin through more recurring events and operations. In addition, recent news indicates the loss of important tennis player such as Andy Murray (2nd in the ATP ranking), Radwanska (5th in the WTA ranking). Lagardère Sports & Entertainment fails in acquiring and keeping more “flagship” contracts that can generate steady revenues over time. We forecast a 1.1% CAGR from 2016e to 2019e and 2% CAGR from 2020e to 2029e.

5-year stable capex before decreasing to an historical level – The past 5-year average capital expenditure on maintenance is c. 3.1% representing c. 100% of D&A vs. 97% historically. This is mainly due to maintenance costs on concessions explained by the good momentum of the travel 7

Figure 19: WACC calculation retail business. Maintenance capex should stay flat at 3.1% from 2015e to 2019e and then decrease to the historical level. WACC- CAPM methodology Weight of debt 31.4% Low and volatile working capital business – Lagardère’s working capital is a small proportion of Cost of debt before tax 5.0% sales and has been volatile over the 10 past years. We used a 10-year historical average of 0.2% Marginal tax rate 33.3% throughout our DCF. Cost of debt after tax 3.3% WACC at 7.7% – We computed the cost of equity using the CAPM method. The CAPM inputs are Beta 1.08 based on a 2.2% the risk free rate, a market premium of 6.9% based on weekly MSCI World market Weight of equity 68.8% return over two years and a 1.08 beta regression against this same market. We think this estimation Risk free rate 2.2% seems fair. Indeed, the idea being that before the crisis, the risk free rate was around 4% and the Market Risk Premium 6.9% market risk premium at 5%. Since the crisis, valuation multiples have not changed Cost of equity 9.6% (Valuation/McKinsey) and implicitly the cost of equity also. As a result, if the risk free today is around 2%, the market return should be around 7%. The cost of debt has been estimated at 5% (appendix 9). WACC 7.7% Source: Team estimates SOTP multiple – €27.4 (+8.2%)

We value Lagardère SCA by taking comparable companies of each business separately. The peers have been selected considering their business portfolio, their capital structure and their geographic positioning. We have only considered the EBITDA multiple for several reasons: it is the least disruptive Figure 20: Implied market's and the closest cash metrics among sales, EBIT and P/E metrics, and it is not biased by the capital expectations (EV/EBITDA) structure. We underweight the SOTP multiples valuation compared to the DCF method to reflect the peer selection bias. Our SOTP valuation gives no potential upside to the current price. We used the

Sports 0.4x 0.1x peer average EV/EBITDA multiple to value each division except for Distribution and Sports and Entertainment (appendix 10). For the distribution business, the peer table shows a positive relation between scale and multiples expectations. Considering this factor, Lagardère should trade at a Active 0.8x discount compared to the average (5.0x vs. 7.4x). Lagardère Sports and Entertainment is expected to record good results because of the AFCON and Asia Cup. However, the business is very seasonal and Distribution -0.1x 0.6x taking the 2015e EBITDA to value the company is biased.

Dividend Discount Model - €21.6 (-14.6%) Travel Retail 0.5x 0.4x This valuation is important considering the SCA structure of Lagardère because shareholders have Publishing 0.9x 0.4x nearly no influence on the company business and as a result they shall be very sensitive to the dividend policy. Lagardère SCA has a clear dividend policy based on a €1.30 dividend per share and the company stated that no exceptional dividends will be distributed from disposals of core assets. With an -50% 0% 50% 100% 85% average payout ratio from 2015e to 2019e, this policy seems aggressive given that the company Current Business Value needs to make important investments in the coming years. We forecast an accumulated €158m Future Business Value retained earnings over the explicit period which is very low to sustain a suitable growth. We assumed Source: Company information, Team estimates a flat dividend policy for 5 years and applied a 1.5% perpetuity growth resulting in a €21.6, which indicates a downside of -14.6%.

An adverse corporate structure for shareholders

Mitigated value added from the Holding Structure – We expect the conglomerate to add some values to the sum of the parts. The synergies are difficult to quantify and even more difficult to qualify as the management delivers no explicit comments on this matter. We compared each division to its respective counterparts and, in our view, only the distribution business has benefited from clear synergies from the press and publishing operations as the EBIT margin is more than competitive compared to peers (appendix 10), but this business is about to be deconsolidated. We feel disappointed by the Sports business which has not benefited from Lagardère’s media experience to turn Arnaud Lagardère’s dream into a real story for the seven past years. This investment is questionable and brings out the Holding’s cash management subject to the top. We see Lagardère Publishing as the cash cow because 1) Lagardère Publishing is a strong leading player, 2) the business is stable and does not need much investment, 3) it generates c. 45% of the group’s EBITDA. This is the real value of Lagardère SCA as a holding company to develop the Travel Retail business. Considering the current cash investment split, it would be appreciated to have a detailed view on capital expenditures of both Travel Retail and Sports, and even Active in which the management is interested in strengthening the TV business to compensate the press depression.

The French partnership limited by share, structure against market efficiency? – The “SCA” structure is a French specific legal structure whose main advantage is to allow management to raise funds by equity issuance while keeping control of the company. This legal structure is advised for family businesses transmission, like Lagardère. In this case, Arnaud Lagardère, as general partner, has a veto right on any status change and has a direct control of CEO nomination. This structure is not favorable to other shareholders, called limited partners. Limited Partners are represented by an elected supervisory board, which in the case of Lagardère is constituted of experts in the operating, financial field with experience in an international group. However, as Lagardère’s managing partners are also general partners, the supervisory board would have difficulty challenging the management in case of conflict. Furthermore, the total return over the past ten years has generated a 6% which is very low. The strategy and management choices have not created value for the shareholder. The SCA structure prevent from any hostile takeover which could be an opportunity for the shareholder

8

Financial Analysis

Dilutive strategy for many years has destroyed value

Fragile business scope: sales have dropped due to numerous disposals – Since the disposals of half its investment in EADS in 2007 – which has been completely divested in 2013 – Lagardère’ total sales have decreased from €8,582 to €7,170, representing -1.7% CAGR during 8 years. This is the result of both Publishing division and Active division (together 42% of total sales in 2014) facing structural changes in the media industry with the arrival of the digital. Since then, the group has registered Figure 21: Organic growth evolution numerous disposals and acquisitions, the disposals exceeding the acquisitions ( -1,6% CAGR due to changes in scope from FY2008 to FY2014). Lagardère Active lost 47% of its sales over 5 years to 2014 2.8% due to the disposal of Russian radio assets notably. All things considered, Lagardère’s total sales dropped by 13% vs its FY2008 total sales. The first nine months of 2015 reported a negative growth due 1.8% to the disposal of legacy assets by Lagardère Travel Retail. However, the organic growth has been positive thanks to the good pace of the Travel Retail activity (+4.7% organic growth over 9M 2015) and 0.2% the favourable Sports calendar with the Africa Cup of Nations and the Asia Cup.

Strong presence in Western Europe – Lagardère’s current strategy is to strengthen its core markets (0.2%) while taking small steps to expand in new markets. The group’s exposure to emerging markets is for now limited, with only 12% of total sales generated from APAC and Latam. Lagardère is mainly exposed to (1.3%) APAC through its Travel Retail and Sports and Entertainment businesses, although a mere deceleration (1.8%) in the economy’s growth would unlikely to distress structural trends in these sectors. By nature, revenues 2010A 2011A 2012A 2013A 2014A 2015E in emerging countries are mostly spread between sports rights (Asia and Africa), publishing (Australia & Source: Company information, Team estimates New Zealand and Latam) and travel retail which all enjoy a secular increase in demand. Lagardère is willing to expand in new markets to capture growth, mostly in Travel Retail in which it is looking to tap into the North American market as evidenced by the acquisition of Paradies in 2015.

Increasing expenditures contribute to week cash generation – Increasing expenditures and week cash generation – SG&A expenses increased overtime relatively to sales, with SG&A/Sales reaching 53.2% in FY2014 vs 48.7% FY2005. And although COGS margin remained relatively stable at c. 46.1% on average for the past decade, Lagardère’s is facing difficulty to reduce its annual expenditures which remain quite high (c. 95% of sales on average between FY2005 and FY2014). Furthermore, the Group has generated a non-stable CFO/Sales ratio during the past 5 years. The CFO/Sales average is 4.4% since 2008 with a lowest point in FY2008 at 2.4% and a highest level at 7.0% in FY2009. This is due to the weak performance on the EBIT side affected by many non-recurring costs and gains.

Operating margin is fading: economy of scales matters – Lagardère operates in mature businesses such as Publishing and Media. Therefore, as organic growth is difficult to capture through the competitive and uncontrolled digital segment, the company needs to expand through external growth to benefit from economies of scale. However, the overall sales are decreasing because of both a negative organic growth and a negative change in scope. From 2011 to 2014, sales were down every year (-1,6% CAGR), Figure 22: Sales split by geography and operating EBIT fell from 4.1% to 3.7%. Since 2008, the operating margins of Publishing and Active 2% divisions have lost 160 basis points and 320 basis points respectively. In addition, Lagardère has 7% reinvested a large part of its cash flows from disposals in Travel Retail and Sports, two activities with a 10% weak EBIT margin compared to the other divisions. The operating EBITDA margin decreased by 35% approximately 240 basis points since 2008. Also, the reported EBIT has been very volatile because of 12% non-recurring charges. The company registered a loss of €822m in 2011 mainly due to the bad operations from with LeGuide.com resulting in an impairment loss of €584m. In 2013, the group recorded 34% a positive net income thanks to the sale of its important stakes in Canal+ and EADS resulting in a gain of €1,671m. France Wester Europe (excl. France) Eastern Europe North America 1500 30,0% Asia Pacific Figure 23: Non-recurring charges impact on EBIT Other Source: Company information 1000 20,0%

500 10,0% 0

0,0% -500

-1000 Non-recurring charges EBIT margin -10,0% Source: Company information

9

Figure 24: CFO vs internal capex ROIC development highlights important headwinds and discrepancies between Lagardère divisions – Lagardère group’s return on invested capital was 9.6% in FY2014 compared to the 18.4% registered in FY2008. Overtime, Lagardère has proven its ability to offer a strong return on invested 167 161 154 151 150 145 capital performance, with an average ROIC of 15.0% over the last decade, especially between 2005 and 2011 where average ROIC stood at 16.9%. However, since 2012 and the disposal of the group’s shares in EADS and Canal+ France, we witnessed a steep decrease in ROIC levels, falling to a historic low of

(218) (227) (244) (233) (218) 9.6% for FY2014. This was partially due to high investments in intangible assets during FY2012 and (288) FY2014, being partly sports rights and mostly concessions agreements following acquisitions by Lagardère Travel Retail (ADR Retail a.o.). But mostly, the deterioration of ROIC could be explained by two factors: 1) the increase in SG&A levels from 48.7% in 2005A to 53.2% in 2014A, causing the fall in

2010A 2011A 2012A 2013A 2014A 2015E NOPLAT margins that have gradually decreased from a 4.6% level in FY2008 to an average level of 2.7% during the past 4 years and 2) the decrease in capital turnover from 5.9x in 2011A to 3.9x in 2014A. Operating cash Maintenance capex The combined effect of those two trends has contributed to destroy value over time. Sources: Company information, Team estimates ROIC is dangerously approaching WACC – The average ROIC (excluding Goodwill) stood at 16.9% between 2005 and 2011, well above WACC levels. However, starting from 2012, the average ROIC decreased to 10.6% to reach a historic low of 9.6% in FY2014, less than 2.5 points above FY2014 WACC (7.1%). Although ROIC is still above WACC, the sharp decrease in ROIC in the last three years gives Figure 25: Operating WC evolution cause to ponder on the sustainability of its business model. On top of that, an accurate proxy to assess 167 the value creation from acquisition for shareholders is to compare ROIC including goodwill with WACC. ROIC with goodwill severely dropped during the last years as well, falling under WACC since 2009 to

76 reach a historic low of 5.1%. 61 51 Gross margin 39 55.2% 54.9% 55.2% 57.0% 56.9% 7 2011 2012 2013 2014 2015 25 12 NOPLAT / Sales SG&A (ex. D&A)/Sales 2.8% 2.8% 2.6% 2.5% 2.8% 47.2% 47.4% 48.4% 50.2% 49.6% -53 2011 2012 2013 2014 2015 2011 2012 2013 2014 2015 -97 10 5 -132 ROIC pre-tax w/o goodwill D&A/Sales 24.2% 14.6% 18.8% 14.4% 16.0% 3.8% 3.3% 2.9% 3.1% 3.1% 2011 2012 2013 2014 2015 2011 2012 2013 2014 2015 Source: Company information 8 ROIC post-tax 16.2% 9.8% 12.5% 9.6% 10.7% 13 2011 2012 2013 2014 2015 Net PP&E/Sales 8.8% 9.6% 10.1% 11.2% 11.5% Figure 26: Total debt and debt 9 Marginal tax rate 2011 2012 2013 2014 2015 equivalents 33.3% 33.3% 33.3% 33.3% 33.3% 16 3 812 2011 2012 2013 2014 2015 Intangibles/Sales 3 571 3 439 7 9.3% 13.2% 11.7% 13.9% 14.4% Capital turnover 2011 2012 2013 2014 2015

2 666 5.9x 3.5x 4.7x 3.9x 3.8x 14 2 494 2 403 2011 2012 2013 2014 2015 Working capital/Sales 2 006 (1.2%) 0.1% (0.7%) 0.8% 0.2% 2011 2012 2013 2014 2015 1 423 1 520 15 Other current assets/Sales 8.0% 14.9% 9.6% 9.1% 9.3% 2011 2012 2013 2014 2015 Poor earnings quality – Over the last decade, Lagardère has shown a poor performance in terms of cash generation, with an average CFO/EBITDA of 58.7% over the period. CFO/EBITDA ratio Source: Company information demonstrates a company’s ability to fully capture the generated cash from its operations. This ratio even falls to a low level of c. 40% during investment years and has decreased from 74.7% FY2009 to 41.2% FY2014. Although the group is expected to witness a recovery in CFO levels, with cash position at €445m Figure 27: Debt ratios vs €210m in FY2014, CFO/EBITDA levels are to remain flat at an average of 75% over the next 5 years, 2012A 2013A 2014A according to our estimates, well behind good performing peers that usually evolve around 90% to 100%.

ICR 3.5 4.1 2.9 Volatile Working Capital – During the past 5 years, Lagardère increased its Days Payable Outstanding Debt/Equity 80% 49% 73% ratio from 74 days in FY2010 to 87 days in FY2014, showing great performance from a management Debt/Assets 26% 17% 20% standpoint. This situation could highlight a bargaining power Lagardère may hold over its collaborators, Source: Company information but could also be tied to the various changes in Lagardère’s portfolio and therefore may not necessarily reflect a positive aspect. We hence remain cautious as for working capital levels evolution.

Figure 28: Net debt and Net Leverage to limit growth and unsustainable financial policy – Lagardère has so far managed to keep debt/EBITDA evolution its leverage ratio under the 3.0x targeted threshold over the last 10 years, despite its sustained M&A 4.0x 2,619 activity. However, the payment of high dividends, especially in FY2013 and FY2014 after the disposal of shares in EADS and Canal+ France in 2013 has rapidly brought the Group to high leverage levels, c. 1,824 3.0x 1,772 1,700 2.8x Net debt / EBITDA in 9M 2015 vs (0.7x) in FY2013, therefore reducing its firepower for acquisitions 1,472 1,269 2.0x of major potential targets such as World Duty Free. Lagardère also tries to balance its debtholders’ base 954 by issuing bonds, which stand for 52% of its debt 2015H1 and by diversifying its funding sources, from 1.0x commercial paper to banks. The Group's liquidity position is still solid, with €1.7bn as of end of June 2015, including an authorised but undrawn syndicated revolving credit facility of €1.3bn signed in May - 2015). However, the signing of this latter line of credit is binding to a covenant of 3.5x Net debt / EBITDA, (361) which could limit Lagardère from purchasing new assets and/or paying high dividends in the future. (1.0x) Overall, the debt level is restricting Lagardère from maintaining its sustained M&A activity and acquiring

Net debt Net debt/EBITDA 10 Sources: Company information, Team estimates “high profile” targets and from pursuing its risky dividend policy of €1.3/share on average considering the company development strategy.

Figure 29: Ebook sales in the US Investment risks

Travel Retail operating margin rise (TR) – Lagardère Travel Retail’s EBITDA margin is far below peer’s average (4.7% vs. 13.3% in 2014). Catching up with peers is an important area for improvement. Given that Lagardère Travel Retail stands for half the group sales and is the growth driver, any EBITDA margin improvement will have a strong impact on Lagardère’s results.

Successful sales of business(BUS) - In the next few years, the ability to sell non-strategic assets such as distribution and press assets will be critical to Lagardère’s funding ability. The value of these businesses is declining. But, the current environment may help Lagardère find a profitable deal and generate more cash. This can have important influence on Lagardère funds and help execute theitsir strategy.

Sports & Entertainment becomes profitable (S&E) – Source: Stratchery Sports & Entertainment is a highly volatile division in terms of sales and margin. Therefore, both the top line and margins are difficult to forecast and we doubt on the management’s ability to deliver stable metrics. However, considering the important potential growth in marketing rights (c. 5% CAGR until 2020), the acquisition of perennial contracts could reduce the volatility and result in high potential growth for Lagardère. This cash-burning division will greatly relieve the group if it becomes more profitable.

Figure 30: Yield chart Key talent and content (CON) – Lagardère Active and Publishing are sensitive to key content creations 7 6,2% such as bestsellers books, star presenters and famous audiovisual shows. For instance, Twilight book series have had a significant impact on sales between 2008 and 2010, and Lagardère Active has also 5, 6% 6 5,5% been sensitive to the departure of Laurent Ruquier as evidenced by the decrease of Europe 1 audience 4,7%4, 8% 4, 8% 4,6% in 2014. Therefore, the acquisition of future key content creations could have an important positive impact 5 on the group’s results.

%

n i 4

d

l

e Digitalisation-linked improvement (DIG) – Changes in distribution channel highly impact business

i

Y 3 structures. In publishing, e-books reduce cost both cost and working capital. Even if Lagardère’s 2,1% management claims that eBook sales have not improved margin so far, there is an important potential 2 improvement in both sales growth and margin.

1 Currency sensitivity (CUR) – Currency rates are volatile and can impact significantly operating margin. In 2015, Euro depreciated against USD and GBP, and the EUR/USD felt from 1.2098 to 1.0863 during 0 the year. Therefore, 9-month sales growth is partly explained by a significant currency effect. This impact represents over 5% of 2015 9M sales for Lagardère Publishing. If the euro value keep falling, Lagardère

10y France yield may earn additional income thanks to this macroeconomic factor. Lagardère's 2014 bond rate Lagardère share yield Low interest rate environment (INT) – The current policy of the Central Bank is to maintain interest Sources: Company information, FactSet rates low. The ECB director rate is at 0.05%. With a dividend yield around 5%, Lagardère share is very attractive against the bond market. The long-term aim of a French partnership limited by shares may ensure better capital preservation. This yield ranks Lagardère at 26th in the SBF 120. Furthermore, if this trend pursues until 2017, Lagardère will be able to issue bonds at a lower rate.

Figure 31: Matrix risk Paying long-term strategy due to legal structure (SCA) – This legal structure is in favor of management which is protected from other shareholders’ will. A hostile takeover of Lagardère is almost impossible due to the key positions (general partners & managing partners) held by Arnaud Lagardère. Then, management is able to focus on long-term value creating strategies and to avoid short-term tactics HIGH to improve yield for shareholders. This legal structure can bring stability to the company. Moreover, governance is more independent in this legal structure. Managing partners are controlled by the S&E CON BUS TR supervisory board which are elected member among limited partners. However, limited partners cannot be managing partners. The role of the chairman of the board and chief executive officer are separate,

Impact MEDIUM which is a good governance signal

SCA DIG CUR Figure 32: Main currency exposure rate in 2015

LOW 1, 25 0, 8 INT

LOW MEDIUM HIGH 1,2 0, 775 R

Probability D U

S 1, 15 0, 75

E

U

/

Source: Team estimates /

P

R B

U 1,1 0, 725

E G

1, 05 0, 7

1 0, 675 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 COURS EUR/ USD 01/ 01/ 2015 EUR/USD COURS GBP/EUR 01/ 01/ 2015 GBP EUR Source : Factset

11

APPENDIX 1: INCOME STATEMENT

Historical data Explicit forecast period

As of 31 December, in millions of euros 2010A 2011A 2012A 2013A 2014A 2015E 2016E 2017E 2018E 2019E Sales 7,966 7,657 7,370 7,216 7,170 6,947 7,089 7,285 7,498 7,747 % growth 0.9% -3.9% -3.7% -2.1% -0.6% -3.1% 2.0% 2.8% 2.9% 3.3% % organic growth 1.8% 0.2% -0.2% -1.3% -1.8% 2.8% 2.0% 2.8% 2.9% 3.3% change in scope 2.9% -4.3% -5.1% -1.5% 1.5% -7.7% 0.0% 0.0% 0.0% 0.0% change in FX -3.7% 0.2% 1.6% 0.7% -0.3% 1.8% - - - - Revenues 8,339 8,048 7,722 7,564 7,493 7,260 7,409 7,613 7,836 8,096 % growth 0.6% (3.5%) (4.1%) (2.0%) (0.9%) (3.1%) 2.0% 2.8% 2.9% 3.3% Gross Revenue 4,789 4,443 4,240 4,176 4,268 4,148 4,224 4,345 4,472 4,629 gross margin 57.4% 55.2% 54.9% 55.2% 57.0% 57.1% 57.0% 57.1% 57.1% 57.2% SG&A (4,296) (4,110) (3,918) (3,877) (3,988) (3,804) (3,892) (3,995) (4,111) (4,237) Operating EBITA 493 333 322 299 280 345 332 350 361 393 EBITA margin 5.9% 4.1% 4.2% 4.0% 3.7% 4.7% 4.5% 4.6% 4.6% 4.9% D&A (240) (308) (255) (216) (230) (223) (227) (234) (241) (249) % revenues 2.9% 3.8% 3.3% 2.9% 3.1% 3.2% 3.2% 3.2% 3.2% 3.2% Operating EBITDA 733 641 577 515 510 568 559 583 601 641 Adjusted EBITDA margin 8.8% 8.0% 7.5% 6.8% 6.8% 7.8% 7.5% 7.7% 7.7% 7.9% Non-recurring charges (150) (822) (94) 1,228 (71) - - - - - EBIT 343 (489) 228 1,527 209 345 332 350 361 393 EBIT margin 4.1% -6.1% 3.0% 20.2% 2.8% 4.7% 4.5% 4.6% 4.6% 4.9% EBITDA 583 (181) 483 1,743 439 568 559 583 601 641 EBITDA margin 7.0% -2.2% 6.3% 23.0% 5.9% 7.8% 7.5% 7.7% 7.7% 7.9% Profit before tax 261 (584) 146 1,436 136 302 284 301 313 345 Tax rate 25.7% -18.0% 27.4% 8.1% 64.0% 33.3% 33.3% 33.3% 33.3% 33.3% Earnings - Group 163 (707) 89 1,307 41 201 189 201 209 230 Profit margin 3.2% 3.2% 2.0% 2.6% 0.8% 2.8% 2.6% 2.6% 2.7% 2.8% Dividend to parent (167) (167) (166) (1,323) (945) (167) (167) (167) (167) (167) Payout ratio 62.5% 65.0% 107.6% 670.1% 1591.6% 82.8% 88.0% 83.0% 79.9% 72.5% DPS 1.31 1.31 1.29 10.34 7.37 1.30 1.30 1.30 1.30 1.30 Reported EPS 1.28 (5.56) 0.70 10.22 0.32 1.57 1.48 1.57 1.63 1.80 P/E 24.01 (3.67) 36.25 2.64 67.46 13.75 14.60 13.77 13.26 12.03

Source: Company information, Team estimates

12

APPENDIX 2: VERTICAL ANALYSIS

Historical data Explicit forecast period As of 31 December, in millions of euros 2010A 2011A 2012A 2013A 2014A 2015E 2016E 2017E 2018E 2019E Sales 95.5% 95.1% 95.4% 95.4% 95.7% 95.7% 95.7% 95.7% 95.7% 95.7%

Revenues 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

Gross Revenue 57.4% 55.2% 54.9% 55.2% 57.0% 57.1% 57.0% 57.1% 57.1% 57.2%

SG&A -51.5% -51.1% -50.7% -51.3% -53.2% -52.4% -52.5% -52.5% -52.5% -52.3%

Operating EBITA 5.9% 4.1% 4.2% 4.0% 3.7% 4.7% 4.5% 4.6% 4.6% 4.9%

D&A -2.9% -3.8% -3.3% -2.9% -3.1% -3.1% -3.1% -3.1% -3.1% -3.1%

Operating EBITDA 8.8% 8.0% 7.5% 6.8% 6.8% 7.8% 7.5% 7.7% 7.7% 7.9%

Non-recurring charges -1.8% -10.2% -1.2% 16.2% -0.9% 0.0% 0.0% 0.0% 0.0% 0.0%

EBIT 4.1% -6.1% 3.0% 20.2% 2.8% 4.7% 4.5% 4.6% 4.6% 4.9%

EBITDA 7.0% -2.2% 6.3% 23.0% 5.9% 7.8% 7.5% 7.7% 7.7% 7.9%

Profit before tax 3.1% -7.3% 1.9% 19.0% 1.8% 4.2% 3.8% 4.0% 4.0% 4.3%

Earnings - Group 2.0% -8.8% 1.2% 17.3% 0.5% 2.8% 2.6% 2.6% 2.7% 2.8%

Dividend to parent -2.0% -2.1% -2.1% -17.5% -12.6% -2.3% -2.2% -2.2% -2.1% -2.1%

Source: Company information, Team estimates

APPENDIX 3 – HORIZONTAL ANALYSIS

Historical data Explicit forecast period

As of 31 December, in millions of euros 2010A 2011A 2012A 2013A 2014A 2015E 2016E 2017E 2018E 2019E Sales 0.9% -3.9% -3.7% -2.1% -0.6% -3.1% 2.0% 2.8% 2.9% 3.3%

Revenues 0.6% -3.5% -4.1% -2.0% -0.9% -3.1% 2.0% 2.8% 2.9% 3.3%

Gross Revenue 3.3% -7.2% -4.6% -1.5% 2.2% -2.8% 1.8% 2.9% 2.9% 3.5%

SG&A 3.4% -4.3% -4.7% -1.0% 2.9% -4.6% 2.3% 2.6% 2.9% 3.1%

Operating EBITA 2.3% -32.5% -3.3% -7.1% -6.4% 23.1% -3.7% 5.4% 3.2% 8.8%

D&A -6.6% 28.3% -17.2% -15.3% 6.5% -3.1% 2.0% 2.8% 2.9% 3.3%

Operating EBITDA -0.8% -12.6% -10.0% -10.7% -1.0% 11.3% -1.5% 4.3% 3.1% 6.6%

Non-recurring charges 32.7% 448.0% -88.6% -1406.4% -105.8% n.a. n.a. n.a. n.a. n.a.

EBIT -7.0% -242.6% -146.6% 569.7% -86.3% 64.9% -3.7% 5.4% 3.2% 8.8%

EBITDA -6.9% -131.0% -366.9% 260.9% -74.8% 29.3% -1.5% 4.3% 3.1% 6.6%

Profit before tax -9.1% -323.8% -125.0% 883.6% -90.5% 121.9% -5.8% 6.0% 3.9% 10.2%

Earnings - Group 19.0% -533.7% -112.6% 1368.5% -96.9% 390.6% -5.8% 6.0% 3.9% 10.2%

Dividend to parent -2.3% 0.0% -0.6% 697.0% -28.6% -82.4% 0.0% 0.0% 0.0% 0.0%

DPS -2.4% -0.3% -1.8% 702.7% -28.7% -82.4% 0.0% 0.0% 0.0% 0.0%

Reported EPS 18.9% -532.9% -112.5% 1365.2% -96.9% 390.6% -5.8% 6.0% 3.9% 10.2%

P/E -8.8% -115.3% -1087.8% -92.7% 2451.2% -79.6% 6.2% -5.7% -3.7% -9.3%

Source: Company information, Team estimates

13

APPENDIX 4 – CASH FLOW STATEMENT

Historical data Explicit forecast period

As of 31 December, in millions of euros 2010A 2011A 2012A 2013A 2014A 2015E 2016E 2017E 2018E 2019E Operating profit 343 (489) 228 1 527 209 345 332 350 361 393

Depreciation and amortization expense 238 305 246 214 223 223 227 234 241 249

Changes in working capital 81 (170) (21) 116 (49) 49 (0) (0) (0) (0)

Cash flows from operations 672 427 531 570 354 616 559 583 601 641

Interest paid (87) (103) (87) (91) (74) (43) (48) (48) (48) (48)

Interest received 20 16 11 5 5 - - - - -

Income taxes paid (74) (83) (64) (149) (75) (101) (95) (100) (104) (115)

Net cash flows from operations 531 257 391 335 210 473 417 434 449 478 Purchases of intangible assets and (228) (253) (264) (296) (249) (225) (230) (236) (243) (251) PP&E Purchases of investments (50) (66) (412) (29) (266) (85) - - - -

Cash used in investing activities (286) (352) (648) (337) (531) (310) (230) (236) (243) (251)

Disposals of tangible assets and PP&E 10 26 20 8 16 - - - - -

Disposals of investments 78 779 59 3 383 28 (108) - - - -

Cash from investing activities 75 861 113 3 447 50 (108) - - - -

Cash flows from investing activities (211) 509 (535) 3 110 (481) (418) (230) (236) (243) (251)

Dividends paid to owners of the Parent (167) (167) (166) (1 323) (945) (167) (167) (167) (167) (167) Dividends paid to minority shareholders (33) (28) (26) (16) (16) - - - - - of subsidiaries Cash flows from financing activities (257) (770) 162 (2 361) (950) (167) (167) (167) (167) (167)

Changes in cash and cash equivalents (8) 83 5 1 078 (1 217) (112) 20 31 39 60 Cash and cash equivalents at beginning 519 511 594 599 1 677 460 348 368 399 438 of the year Cash and cash equivalents at end of 511 594 599 1 677 460 348 368 399 438 499 the year Source: Company information, Team estimates

14

APPENDIX 5 – BALANCE SHEET

Historical data Explicit forecast period

As of 31 December, in millions of euros 2010A 2011A 2012A 2013A 2014A 2015E 2016E 2017E 2018E 2019E Intangible assets 846 746 1 016 885 1 045 1 046 1 048 1 049 1 050 1 052

Goodwill 2 583 1 837 1 799 1 619 1 740 1 740 1 740 1 740 1 740 1 740

Property, plant and equipment 625 712 739 762 840 841 842 843 844 846 Investments in associates and joint 2 054 1 771 1 451 152 159 159 159 159 159 159 ventures Other non-current assets 112 147 132 123 125 125 125 125 125 125

Deferred tax assets 167 184 236 190 199 199 199 199 199 199

Non-current assets 6 387 5 397 5 373 3 731 4 108 4 110 4 113 4 115 4 118 4 121

Inventories 523 542 581 559 578 573 585 601 619 639

Trade receivables 1 189 1 276 1 255 1 239 1 280 1 260 1 285 1 321 1 360 1 405

Other current assets 983 963 1 011 1 019 976 675 689 708 729 753

Short-term investments 106 83 55 36 38 38 38 38 38 38

Cash and cash equivalents 616 654 648 1 748 528 - - - - -

Current assets 3 417 3 518 3 550 4 601 3 400 2 546 2 598 2 668 2 745 2 835

Assets held for sale 1 097 13 437 ------

Total assets 10 901 8 928 9 360 8 332 7 508 6 657 6 710 6 784 6 863 6 956

Equity attributable to owers of the Parent 3 886 2 949 2 909 2 849 1 982 1 976 1 964 1 975 1 983 2 004

Minority interests 132 75 82 78 99 99 99 99 99 99

Total Equity 4 018 3 024 2 991 2 927 2 081 2 075 2 063 2 074 2 082 2 103

Provisions for pensions and equivalents 101 101 119 117 155 155 155 155 155 155 Non-current provisions for contingencies 170 162 168 158 158 158 158 158 158 158 and losses Non-current debt 1 953 1 843 2 165 617 1 030 1 030 1 030 1 030 1 030 1 030

Other non-current liabilities 219 147 93 108 112 112 112 112 112 112

Deferred tax liabilities 126 143 290 245 289 289 289 289 289 289

Non-current liabilities 2 569 2 396 2 835 1 245 1 744 1 744 1 744 1 744 1 744 1 744 Current provisions for contingencies and 342 317 293 342 273 273 273 273 273 273 losses Current debt 541 163 238 806 490 69 84 75 70 52

Trade payables 1 618 1 613 1 651 1 645 1 702 1 668 1 702 1 749 1 801 1 860

Other current liabilities 1 414 1 415 1 352 1 367 1 218 828 845 868 893 923

Current liabilities 3 915 3 508 3 534 4 160 3 683 2 838 2 904 2 965 3 037 3 108 Liabilities associated with assets held for 399 ------sale Total liabilities 6 883 5 904 6 369 5 405 5 427 4 582 4 648 4 709 4 781 4 852

Source: Company information, Team estimates

15

APPENDIX 6 – DIVISION INFORMATION (1/2)

Lagardère Publishing Historical data Explicit forecast period As of 31 December, in millions of euros 2010A 2011A 2012A 2013A 2014A 2015E 2016E 2017E 2018E 2019E Consolidated sales 2 165 2 038 2 077 2 066 2 004 2 100 2 121 2 132 2 153 2 174

% growth (4,8%) (5,9%) 1,9% (0,5%) (3,0%) 4,8% 1,0% 0,5% 1,0% 1,0%

% organic growth -6,3% -4,4% -1,2% 1,9% -4,5% -1,3% 1,0% 0,5% 1,0% 1,0%

% change in scope -1,0% -0,2% -0,5% 0,2% 1,2% 1,0% - - - -

% change in FX 2,5% -1,3% 3,6% -2,6% 0,4% 5,1% - - - -

Reccuring operating profit 250 221 223 223 197 210 212 213 226 228

% recurring operating profit 11,5% 10,8% 10,7% 10,8% 9,8% 10,0% 10,0% 10,0% 10,5% 10,5%

D&A (206) (224) (220) (189) (174) (165) (164) (169) (174) (182)

% sales 2,6% 2,9% 3,0% 2,6% 2,4% 2,4% 2,3% 2,3% 2,3% 2,4%

Adjusted EBITDA 274 245 246 247 221 235 237 239 252 254

EBITDA margin 12,7% 12,0% 11,8% 12,0% 11,0% 11,2% 11,2% 11,2% 11,7% 11,7%

Source: Company information, Team estimates

Lagardère Travel Retail Historical data Explicit forecast period

As of 31 December, in millions of euros 2010A 2011A 2012A 2013A 2014A 2015E 2016E 2017E 2018E 2019E Sales 3 580 3 724 3 809 3 745 3 814 - - - - -

Inter-segment sales (1) ------

Consolidated sales 3 579 3 724 3 809 3 745 3 814 3 399 3 546 3 708 3 885 4 080

% growth 5,7% 4,1% 2,3% (1,7%) 1,8% -10,9% 4,3% 4,6% 4,8% 5,0%

% organic growth 1,7% 2,0% 2,2% -0,9% 1,3% 5,1% 4,3% 4,6% 4,8% 5,0%

% change in scope 0,7% 0,7% -0,8% 0,6% 1,5% -16,0% -0,0% - - -

% change in FX 3,3% 1,3% 0,9% -1,4% -0,9% - - -0,0% -0,0% -

Reccuring operating profit 105 105 104 96 105 99 121 130 140 151

% recurring operating profit 2,9% 2,8% 2,7% 2,6% 2,7% 2,9% 3,4% 3,5% 3,6% 3,7%

D&A (56) (60) (63) (67) (78) (67) (70) (73) (77) (80)

% revenues 1,6% 1,6% 1,7% 1,8% 2,0% 2,0% 2,0% 2,0% 2,0% 2,0%

Adjusted EBITDA 161 165 167 163 183 166 190 203 216 231

EBITDA margin 4,5% 4,4% 4,4% 4,4% 4,6% 4,9% 5,4% 5,5% 5,6% 5,7%

Source: Company information, Team estimates

16

APPENDIX 6 – DIVISION INFORMATION (2/2)

Lagardère Active Historical data Explicit forecast period

As of 31 December, in millions of euros 2010A 2011A 2012A 2013A 2014A 2015E 2016E 2017E 2018E 2019E Consolidated sales 1 826 1 441 1 014 996 958 964 972 977 982 987

% growth 5,9% (21,1%) (29,6%) (1,8%) (3,8%) 0,7% 0,8% 0,6% 0,5% 0,4%

% organic growth 3,3% 1,3% -3,9% -3,8% -5,4% -1,6% 0,8% 0,6% 0,5% 0,4%

% change in scope 2,6% -22,4% -25,5% 2,0% 1,6% 2,3% - - - -

% change in FX - - -0,2% 0,1% -0,0% - - - - -

Reccuring operating profit 85 95 64 64 73 70 71 72 74 75

% recurring operating profit 4,7% 6,6% 6,3% 6,4% 6,7% 7,2% 7,3% 7,4% 7,5% 7,6%

D&A (28) (21) (15) (14) (13) (11) (12) (12) (12) (12)

% revenues 1,5% 1,5% 1,5% 1,4% 1,2% 1,2% 1,2% 1,2% 1,2% 1,2%

Adjusted EBITDA 113 116 79 78 86 81 83 84 85 87

EBITDA margin 6,2% 8,0% 7,8% 7,8% 7,9% 8,4% 8,5% 8,6% 8,7% 8,8%

Source: Company information, Team estimates

Lagardère Sports and Entertainment Historical data Explicit forecast period As of 31 December, in millions of euros 2010A 2011A 2012A 2013A 2014A 2015E 2016E 2017E 2018E 2019E Consolidated sales 396 454 470 409 394 484 450 468 477 506

% growth (21,9%) 14,6% 3,5% (13,0%) (3,7%) 22,8% -7,0% 4,0% 2,0% 6,0%

% organic growth -23,2% 6,2% -5,9% -13,6% -6,6% 12,5% -7,0% 4,0% 2,0% 6,0%

% change in scope - 8,9% 6,6% - 3,4% 4,4% - - - -

% change in FX 1,3% -0,6% 2,8% 0,6% -0,5% 6,0% - - - -

Reccuring operating profit 28 (6) (33) (11) 4 48 18 28 19 40

% operating margin 7,1% -1,3% -7,0% -2,7% 1,0% 10,0% 4,0% 6,0% 4,0% 8,0%

D&A (86) (112) (111) (76) (50) (61) (57) (59) (60) (64)

% revenues 21,7% 24,7% 23,6% 18,6% 12,7% 12,7% 12,7% 12,7% 12,7% 12,7%

Adjusted EBITDA 114 106 78 65 54 110 75 87 80 105

EBITDA margin 28,8% 23,3% 16,6% 15,9% 13,7% 22,7% 16,7% 18,7% 16,7% 20,7% Source: Company information, Team estimates

17

APPENDIX 7 – DCF VALUATION, BASE CASE

DCF Valuation Historical data Explicit forecast period As of 31 December, in millions of euros 2010A 2011A 2012A 2013A 2014A 2015E 2016E 2017E 2018E 2019E Revenues 8 339 8 048 7 722 7 564 7 493 7 260 7 409 7 613 7 836 8 096

% growth 0,6% -3,5% -4,1% -2,0% -0,9% -3,1% 2,0% 2,8% 2,9% 3,3%

EBIT 343 (489) 228 1 527 209 345 332 350 361 393

EBIT Margin 4,1% -6,1% 3,0% 20,2% 2,8% 4,7% 4,5% 4,6% 4,6% 4,9%

Tax rate 25,7% -18,0% 27,4% 8,1% 64,0% 33,3% 33,3% 33,3% 33,3% 33,3%

NOPLAT 255 (577) 166 1 403 75 230 221 233 241 262

% revenues 3,1% -7,2% 2,1% 18,5% 1,0% 3,2% 3,0% 3,1% 3,1% 3,2%

Add: D&A 240 308 255 216 230 223 227 234 241 249

% revenues 2,9% 3,8% 3,3% 2,9% 3,1% 3,1% 3,1% 3,1% 3,1% 3,1%

Gross cash flow 495 (269) 421 1 619 305 453 449 467 481 510

Less: Increase working capital 81 (170) (21) 116 (49) 49 (0) (0) (0) (0)

Less: Capital expenditures (190) 486 (597) 3 066 (471) (418) (230) (236) (243) (251)

o.w. maintenance capex (218) (227) (244) (288) (233) (225) (230) (236) (243) (251)

% revenues 2,6% 2,8% 3,2% 3,8% 3,1% 3,1% 3,1% 3,1% 3,1% 3,1%

o.w. acquisition capex 28 713 (353) 3 354 (238) (193) - - - -

% revenues -0,3% -8,9% 4,6% -44,3% 3,2% 2,7% 0,0% 0,0% 0,0% 0,0%

Free cash flow 386 47 (197) 4 801 (215) 83 219 230 238 259

Discount period 0 0 0 0 0 0,0 1,0 2,0 3,0 4,0

Discount factor 1,00 1,00 1,00 1,00 1,00 1,00 0,93 0,86 0,80 0,75

PV UFCF 386 47 (197) 4 801 (215) 83 203 199 191 193

Sum PV UFCF 2 278 % EV 54,5% Terminal growth rate 2,0% PV terminal FCF 1 904 Enterprise Value 4 182 Plus: Investments in associates and 159 joint-ventures Plus: other assets 460 Less: minorities (99) Less: net debt (954) Less: other liaibilities (1 030) Equity Value 2 718 Number of shares (as of december 131,13 01/08/2016) Conglomerate discount + SCA 15,0% Target price 17,62 Close price as of 01/08/2016 25,36 Target Upside -30,5%

Source: Company information, Team estimates

18

APPENDIX 8 – WACC & TERMINAL GROWTH SENSITIVITY

WACC 6,7% 7,2% 7,7% 8,2% 8,7%

-1,2% -15,2% -25,5% -35,9% -43,7% 2,50%

-5,6% -18,5% -28,1% -37,9% -45,3% 2,25%

-9,5% -21,5% -30,5% -39,7% -46,8% 2,00%

-13,0% -24,2% -32,7% -41,4% -48,2% 1,75% Terminal Growth Terminal -16,1% -26,6% -34,7% -43,0% -49,4% 1,50%

Source: Company information, Team estimates

APPENDIX 9 – COST OF DEBT Cost of debt Assumptions As of 31 December, in millions of euros 2010A 2011A 2012A 2013A 2014A Interests expense on borrowings (100) (112) (93) (73) (95) Non-current debt 1,953 1,843 2,165 617 1,030 Current debt 541 163 238 806 490 Implied cost of debt -4.0% -5.6% -3.9% -5.1% -6.3% Average cost of debt -5.0% Source: Company information

19

APPENDIX 10 – SUM OF THE PARTS VALUATION (SOTP - 1/4) Sum Of The Parts - Multiple Valuation

Source Factset, as of January 09th Lagardère Active

EBITDA Enterprise EV / Sales EV / EBITDA Peers by subdivision Currency margin Value 2014A 2014A 2015E 2016E 2014A 2015E 2016E Lagardère Active EUR 681 7,9% 0,6x 0,7x 0,7x 7,9x 8,4x 8,2x

Alma Media OYJ EUR 303 11,7% 1,0x 1,0x 1,0x 8,8x 8,2x 7,6x

Fairfax Media Ltd EUR 1 313 14,9% 1,0x 1,0x 1,0x 6,9x 6,5x 6,3x

Arnoldo Mondadori Editore SpA EUR 587 3,5% 0,5x 0,5x 0,4x 14,3x 8,2x 6,2x

Johnston Press PLC EUR 541 22,3% 1,6x 1,4x 1,3x 7,3x 6,0x 5,4x

RTL Group SA EUR 13 317 21,3% 2,3x 2,2x 2,2x 10,8x 9,9x 9,7x

ITV PLC EUR 11 495 29,2% 3,6x 3,4x 3,1x 12,2x 11,6x 10,3x

Median 18,1% 1,3x 1,2x 1,2x 9,8x 8,2x 6,9x

Average 17,1% 1,7x 1,6x 1,5x 10,0x 8,4x 7,6x

EV / EBITDA 2015E multiple 8,4x EV / EBITDA 2015e EBITDA 2015E 81 7,4x 7,9x 8,4x 8,9x 9,4x

EV Lagardère Active 681 91 673 719 765 810 855

86 636 679 723 765 808

81 600 640 681 721 762

76 562 600 639 676 714

EBITDA 2015e EBITDA 71 525 561 597 632 667

Source: Factset, Team estimates

20

APPENDIX 10 – SUM OF THE PARTS VALUATION (SOTP - 2/4)

Travel Retail (excluding distribution)

EBITDA Enterprise EV / Sales EV / EBITDA Peers subdivision Currency margin Value 2014A 2014A 2015E 2016E 2014A 2015E 2016E Lagardère Travel Retail EUR 1 263 4,7% 0,5x 0,6x 0,5x 11,4x 9,6x 8,7x

Dufry AG EUR 6 611 11,7% 1,9x 1,8x 1,3x 16,4x 13,5x 9,6x

Autogrill SpA EUR 2 322 4,8% 0,5x 0,6x 0,5x 10,9x 7,2x 6,2x

SSP Group Plc EUR 2 539 9,0% 1,1x 1,0x 0,9x 12,7x 10,6x 9,7x

Sligro Food Group NV EUR 1 478 8,5% 0,6x 0,5x 0,5x 10,3x 9,2x 8,5x

Elior EUR 4 360 6,9% 0,8x 0,8x 0,7x 9,8x 9,2x 8,4x

Median 8,5% 1,0x 0,9x 0,8x 10,6x 9,2x 8,5x

Average 8,2% 1,1x 1,1x 0,9x 11,4x 9,6x 8,2x

EV / EBITDA 2015E multiple 9,6x EV / EBITDA 2015e EBITDA 2015E 132 8,6x 9,1x 9,6x 10,1x 10,6x

EV Travel Retail (excl. Distribution) 1 263 152 1 307 1 383 1 453 1 535 1 611

142 1 221 1 292 1 358 1 434 1 505

132 1 137 1 203 1 263 1 335 1 401

122 1 049 1 110 1 166 1 232 1 293

EBITDA 2015e EBITDA 112 963 1 019 1 071 1 131 1 187

Distribution

EBITDA Enterprise EV / Sales EV / EBITDA Peers subdivision Currency margin Value 2014A 2014A 2015E 2016E 2014A 2015E 2016E Lagardère Distribution EUR 255 4,6% 0,0x 0,2x 0,2x 0,2x 3,8x 5,0x

Connect Group Plc EUR 735 4,0% 0,3x 0,3x 0,3x 7,4x 7,2x 6,3x

WH Smith EUR 2 386 13,6% 1,5x 1,5x 1,5x 11,1x 10,6x 10,1x

Valora Holding EUR 1 003 5,0% 0,6x 0,4x 0,4x 12,5x 9,6x 7,7x

Groupe Fnac EUR 500 3,8% 0,1x 0,1x 0,0x 3,4x 2,1x 1,2x

Median 0 0 4,5% 0,5x 0,3x 0,3x 9,2x 8,4x 7,0x

Average 0 0 6,6% 0,6x 0,6x 0,5x 8,6x 7,4x 6,3x

EV / EBITDA 2015E multiple 5,0x EV / EBITDA 2015e EBITDA 2015E 51 4,0x 4,5x 5,0x 5,5x 6,0x

EV Lagardère Distribution 255 61 244 275 305 336 366

56 224 252 280 308 336

51 204 229 255 280 306

46 184 207 230 253 276

EBITDA 2015e EBITDA 41 164 185 205 226 246

Source: Factset, Team estimates

21

APPENDIX 10 – SUM OF THE PARTS VALUATION (SOTP – 3/4)

Lagardère Publishing

EBITDA Enterprise EV / Sales EV / EBITDA Peers subdivision Currency margin Value 2014A 2014A 2015E 2016E 2014A 2015E 2016E Lagardère Publishing EUR 3 117 11,0% 1,5x 1,5x 1,5x 14,1x 13,3x 13,1x

Pearson PLC EUR 15 298 20,6% 2,5x 2,3x 2,2x 12,3x 13,6x 11,7x

RELX PLC EUR 18 316 33,2% 4,8x 4,7x 4,5x 14,6x 13,9x 12,9x

Scholastic Corporation EUR 1 406 8,2% 1,0x 0,9x 0,9x 12,8x 14,8x 13,3x

Wolters Kluwer EUR 9 723 24,8% 2,7x 2,6x 2,4x 10,7x 10,7x 9,7x

Median 0 0 22,7% 2,6x 2,5x 2,3x 12,5x 13,8x 12,3x

Average 0 0 21,7% 2,8x 2,6x 2,5x 12,6x 13,3x 11,9x

Premium / (Discount) 0% EV / EBITDA 2015e EV / EBITDA 2015E multiple 13,3x 12,3x 12,8x 13,3x 13,8x 14,3x

EBITDA 2015E 235 255 3 137 3 264 3 381 3 519 3 647

EV Publishing 3 117 245 3 014 3 136 3 249 3 381 3 504

235 2 891 3 008 3 117 3 244 3 361

225 2 768 2 880 2 984 3 105 3 218

EBITDA 2015e EBITDA 215 2 645 2 752 2 851 2 967 3 075

Lagardère Sports & Entertainment

EBITDA Enterprise EV / Sales EV / EBITDA Peers subdivision Currency margin Value 2014A 2014A 2015E 2016E 2014A 2015E 2016E Lagardère Sports & EUR 603 12,7% 1,5x 1,2x 1,3x 11,2x 5,5x 8,0x Entertainment Next Fifteen Communications EUR 136 11,9% 1,0x 0,8x 0,8x 8,6x 6,1x 5,4x Group plc Creston plc EUR 87 15,3% 0,9x 0,8x 0,7x 5,8x 5,1x 4,6x

Omnicom Group plc EUR 18 663 14,7% 1,6x 1,3x 1,2x 11,0x 8,9x 8,5x

MDC Partner Inc EUR 1 414 11,5% 1,5x 1,4x 1,3x 13,3x 9,9x 8,2x

Median 0 0 13,3% 1,3x 1,1x 1,0x 9,8x 7,5x 6,8x

Average 0 0 13,4% 1,3x 1,1x 1,0x 9,7x 7,5x 6,7x

Premium / (Discount) -30% EV / EBITDA 2015e EV / EBITDA 2015E multiple 5,5x 4,5x 5,0x 5,5x 6,0x 6,5x

EBITDA 2015E 110 585 650 715 780 845

130 EV Sport & Entertainment 603 540 600 660 720 780 120 493 548 603 658 713 110 450 500 550 600 650 100

EBITDA 2015e EBITDA 405 450 495 540 585 90 Source: Factset, Team estimates

22

APPENDIX 10 – SUM OF THE PARTS VALUATION (SOTP – 4/4)

SOTP Valuation

EV Active 681

EV Travel Retail 1 263

EV Distribution 255 EV Publishing 3 117 EV Sport & Entertainment 603

Holding costs (233)

EV Lagardère SCA 5 686 Discount factor 1,00 PV Enterprise Value Lagardère SCA 5 698

Other EV items (1 464) Equity Value Lagardère SCA 4 234 Number of shares (as of december 01/08/2016) 131,133

Conglomerate discount + SCA 15,0%

Target price 27,44 Close price as of 01/08/2016 25,36 Target Upside 8,2%

Source: Factset, Team estimates

APPENDIX 11 – DIVIDEND DISCOUNT MODEL

Discount Dividend Model

2015E 2016E 2017E 2018E 2019E Terminal ROE 10,2% 9,6% 10,2% 10,5% 11,5%

Diluted EPS 1,57 1,48 1,57 1,63 1,80 Payout ratio 82,8% 88,0% 83,0% 79,9% 72,5% Implied growth 1,7% 1,2% 1,7% 2,1% 3,2% 1,5%

DPS 1,30 1,30 1,30 1,30 1,30 21,44

PV DPS 1,30 1,21 1,12 1,04 0,97 16,00

Dividend Discount valuation 21,65 Source: Factset, Team estimates

23

APPENDIX 12 – LAGARDERE S&E – CALENDAR EVENTS

2007 2008 2009 2010 2011 2012 2013

% growth 0,9% 14,2% -21,9% 14,6% 3,5% -13,0% % organic growth -5,2% -10,1% -23,2% 6,2% -5,9% -13,6%

2014 2015E 2016E 2017E 2018E 2019E

% growth -3,7% 22,8% -7,0% 4,0% 2,0% 6,0% % organic growth -6,6% 12,5% -7,0% 4,0% 2,0% 6,0%

Source : Company Information, Team Estimates

APPENDIX 13 – CAPITAL TURNOVER

Capital turnover by division 2012A 2013A 2014A Publishing 2,0x 2,1x 1,7x Travel Retail 8,1x 7,4x 5,9x Active 1,5x 2,6x 2,3x Sports 1,5x 1,4x 1,2x Source: Company information

APPENDIX 14 – LAGARDERE ACTIVE M&A HISTORIC

Lagardère Announcement Decrease exposure to Decrease exposure to Increase exposure to Sudivision Target Deal value Active date print media international growing markets/ activities Hachette Flipacchi Media SELLER 02 juin 2009 Press n.a. U.S. (5 magazine titles) Hachette Flipacchi Media SELLER 02 déc 2010 Press 630,0 U.S. (102 magazine titles) SELLER 13 avr 2010 Radio Main FM n.a. SELLER 04 nov 2011 Digital Le Monde Interactif SA n.a. SELLER 23 déc 2011 Radio Europa Media Group 124,2 BBC Radiocom (Praha) BUYER 19 janv 2012 Radio n.a. s.r.o. BUYER 20 août 2012 Digital Billetreduc.com n.a. Press and SELLER 11 oct 2012 TV Magazine SPAS n.a. Digital TV and Radio SELLER 25 oct 2013 Canal+ France SA 1 020,0 broadcasting BUYER 03 déc 2013 TV production Reservoir Prod 10,0 BUYER 23 déc 2013 Advertising Regie 1 n.a. Lagardère Active (10 SELLER 02 avr 2014 Press n.a. magazines) BUYER 30 oct 2014 TV broadcast Gulli 25,0 BUYER 28 mai 2015 TV production Boomerang TV S.A. n.a.

Source : Mergermarket, Team Estimates

24

APPENDIX 15 – LAGARDERE TRAVEL RETAIL – COMPARABLE TRANSACTIONS (1/2)

Target % EV EBITDA EBIT EV / EV / EV / Date Target Buyer # Country stake (EURm) margin margin Sales EBITDA EBIT

Travel Retail - Duty-Free &

Luxury players World Duty Free 3 Mar-08 UK Autogrill 100% 716 8.1% 6.1% 1.27x 15.7x 20.7x Europe World Duty Free 4 Mar-08 Spain Autogrill 50% 729 8.1% 2.9% 1.10x 13.6x 38.0x Espana 5 Sep-08 Hudson Group US Dufry 89% 308 12.8% n.a. 0.67x 5.2x n.a. 6 Jan-10 Dufry South America Bermuda Dufry 49% 750 29.6% 16.1% 1.79x 6.1x 11.2x 8 Aug-11 Interbaires + others Argentina Dufry 100% 699 24.4% n.a. 1.98x 8.1x n.a. Hellenic Duty Free 9 Oct-12 Greece Dufry 51% 728 29.0% n.a. 2.50x 8.6x n.a. Shops Autogrill 10 May-13 World Duty Free Italy 100% 2,316 13.1% 7.5% 1.16x 8.8x 15.5x (Management) Hellenic Duty Free 12 Dec-13 Greece Dufry 49% 669 29.0% n.a. 2.30x 7.9x n.a. Shops 13 Jun-14 Nuance Switzerland Dufry 100% 1,268 7.4% 4.9% 0.74x 9.9x 15.1x 14 Nov-14 Naville Switzerland Valora 100% 75 4.2% 3.1% 0.24x 5.6x 7.8x

Average 16.6% 6.8% 1.4x 9.0x 18.0x Median 12.9% 5.5% 1.2x 8.4x 15.3x

Travel Retail -

Foodservices 1 Apr-06 SSP Group UK Macquarie 100% 1,400 9.3% n.a. 1.01x 10.9x n.a. 2 Jun-07 Alpha Group UK Autogrill 57% 328 5.8% 2.8% 0.58x 10.1x 20.5x 7 Oct-10 Alpha Flight Group UK Dnata 100% 183 10.5% n.a. 0.45x 4.3x n.a. Lagardère Travel 11 Sep-13 Airest Italy 50% 110 6.0% n.a. 0.51x 8.5x n.a. retail 15 Mar-15 World Duty Free Italy Dufry 100% 3,578 10.8% 5.4% 1.49x 13.7x 27.5x

Average 7.9% 2.8% 0.6x 8.4x 20.5x Median 7.6% 2.8% 0.5x 9.3x 20.5x

Travel Retail - Travel

Essentials Wiener Feinbaeckerei 16 Aug-15 Germany SSP Group 100% 7 5.5% n.a. 0.22x 4.0x n.a. Heberer (32 outlets) Lagardère Travel 17 Aug-15 Paradies Shops US 100% 483 12.0% n.a. 1.03x 8.5x n.a. retail

Average 8.7% n.a. 0.6x 6.3x n.a. Median 8.7% n.a. 0.6x 6.3x n.a.

Travel Retail - All players

Average 13.3% 6.1% 1.1x 8.8x 19.5x Median 10.5% 5.1% 1.0x 8.5x 18.0x

Source: Company information, Factiva, Factset, Mergermarket,

Note: Enterprise Value for 100% of Press releases the company

APPENDIX 15 – LAGARDERE TRAVEL RETAIL – COMPARABLE TRANSACTIONS (2/2)

EV / EBITDA EV / Sales

15,7x

13,6x 13,7x

10,9x 10,1x 9,9x 8,8x 8,6x 8,5x 8,5x 8,1x 7,9x Averag e 9.1x 6,1x 5,6x 5,2x 4,3x

2,5x 2,0x 2,3x Averag e 1,8x 1,5x 1,3x 1,1x 1,2x 1,0x 0,7x 0,7x 1,0x 1.2x 0,6x 0,4x 0,5x 0,2x

Target Euro Spain South Target Country

Buyer (Managem Announced Apr-06 Jun-07 Mar-08 Mar-08 Sep-08 Jan-10 Oct-10 Aug-11 Oct-12 May-13 Sep-13 Dec-13 Jun-14 Nov-14 Mar-15 Aug-15

EV1 (EURm) 1,400 328 716 729 308 750 183 699 728 2,316 110 669 1,268 75 3,578 483

EBITDA 9.3% 5.8% 8.1% 8.1% 12.8% 29.6% 10.5% 24.4% 29.0% 13.1% 6.0% 29.0% 7.4% 4.2% 10.8% 12.0% margin (%)

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