Gruppo Banca Leonardo

June 23 2009

Benetton Group UNDERWEIGHT A fancy color diamond Target price €5.4 (from previous TP €5.0) Benetton Group is one of the main global players in the apparel business, present Current price €6.3* in 120 countries with over 6,200 stores and five . In 2008 the business was *Price as of June 18 2009 re-focused on four strategic priorities: 1) accelerating expansion in five key emerging countries; 2) pursuing growth in consolidated markets; 3) developing Outstanding shares (m) new commercial initiatives; 4) evolving the culture of the organization. Starting 183 from 2008 the company has also adopted a new approach focused on the final Mkt. Cap.(€m) consumer, leveraging on the wholesale business model with a sell-out approach. 1,156 Due to the changed economic environment the company also adopted in 2009 a Avg. daily volumes (30 days) reorganization plan focused on boosting the commercial business, on optimizing 251,600 shares the supply chain and costs, and on cash generation, aimed at motivating the Main shareholders network and re-thinking the supply chain processes to create a lower cost base. Edizione 67.1% Even if we appreciate the reorganization plan and the new company approach to Reuters / Bloomberg the market, we remain cautious given the low visibility on future consumer trends. BEN.MI / BEN IM UNDERWEIGHT with a €5.4 target price. Last 12 months Catalysts High: €8.3 Low: €4.4 1) Unfavourable macroeconomic conditions; 2) pressure on sales and margins; 3) business proposition "quality at an accessible price"; 4) new sell-out approach; 5) reorganization plan; 6) potential new consumers from trading-down trend; 7) new commercial initiatives (i.e. menswear, baby and childrenwear, accessories). Earnings trend 12-month share performance Benetton Group We estimate a -0.6% CAGR 2008-11e for revenues, -5% for EBIT and -8% for 8.50 FTSE All Share net profit. The reorganization plan should bring in structural savings of ca. €50- 8.00 MSCI Europe 70m on a 12-month base (therefore partly also in FY09) to be reinvested in the 7.50 7.00

commercial business and partially balancing the reorganization costs. 6.50

6.00

Valuation 5.50 Our DCF model, based on a perpetual growth rate of +2% (unchanged) and a 5.00 10.4% WACC (from 10.7%), returned a target price of €5.4 (implicit P/E09e 4.50 4.00

of 9.9x). 3.50

3.00 Risks JJASONDJFMAMJ 1) Aggressive competition driven by price policies by competitors; 2) worse- June 19 2009 Source: DATASTREAM ning of the macroeconomic scenario; 3) lower-than-expected benefits from the reorganization plan; 4) lower-than-expected growth in emerging markets; 5) financially distressed clients; 6) increasing debt. 2007 2008 2009e 2010e 2011e Performance 1M 3M 12M EPS € 0.80 0.85 0.54 0.60 0.66 Absolute (%) 2 22 -22 YoY growth % 15.8 6.6 -35.9 9.8 9.9 Dividend € 0.40 0.28 0.18 0.20 0.22 To FTSE Italy All Share (%) 4 -11 14 P/E × 15.6 7.5 11.6 10.6 9.6 Dividend Yield % 3.2 4.4 2.8 3.1 0.0 To MSCI Europe (%) 2 2 12 PEG × 1.2 EV/sales × 1.3 0.9 0.9 0.9 0.9 EV/EBITDA × 8.1 5.4 6.1 5.7 5.3 Source: Datastream EV/EBIT × 11.2 7.5 9.8 8.9 8.2 EV/capital employed × 1.4 0.9 0.9 0.8 0.8 ROE % 10.5 11.3 6.8 7.1 7.4 ROCE % 13.1 12.5 9.6 10.0 10.2 Debt/Equity × 0.3 0.5 0.5 0.4 0.4 Paola Pecciarini FCF Yield % -1.3 -4.2 2.6 3.9 3.5 Tel. +39.02.72206.604 [email protected] Source: Company data, GBL estimates NOT FOR DISTRIBUTION IN CANADA, AUSTRALIA OR JAPAN Italian Luxury & Consumer Goods June 23 2009

SWOT Analysis

Chart 1 - BENETTON GROUP: SWOT Analysis

Strengths Weaknesses

“Quality at accessible price” Concentrated sales mix Global recognition for UCB Wholesale distribution limits control Capillary distribution Still limited brand awareness on interna- Focus on wholesale distribution with sell- tional markets for second lines out approach Mature sector with aggressive competi- New collection structure tion Outsourcing and delocalizaiton of production Sector entry barriers are low Supply flexibility Industrial flexibility

Opportunities Threats

Reorganization plan "Collection" and risk Development of UCB men's collection Macro-economic scenario Accessories Real estate investments Development of Undercolors Mark-up policy Development of childrenwear Financially stressed third-party retailers Re-launch of Playlife Development of licenses and further brand extension Emerging markets Store attractiveness improvement Consumers’ trading down Real-estate spin-off

Source: GBL estimates

Strategy and management targets

Strategy 2008 strategic priorities In 2007 Benetton Group appointed a new CEO, Mr Gerolamo Caccia Dominioni, who started refocusing the business on new strategic priorities, with the goal to accelerate growth in a sustainable and profitable way. The key strategic priorities set-up from 2008 are: 1) development of "taylor-made" approach (flexible business approach that takes different strategies according to different market needs into account); 2) to accelerate expansion in key emerging countries by focusing on five high-potential markets (, China, Russia and ex-URSS, Mexico, Turkey); 3) to keep growing in consolidated markets through brand extension and new store openings, reducing collection complexity, to develop new commercial initiatives (UCB Man, Benetton Baby and Baby Under, Sisley Young, accessories); 4) to evolve the culture of the organization (matrix approach to maximize growth opportunities of each brand in every market).

32 NOT FOR DISTRIBUTION IN CANADA, AUSTRALIA OR JAPAN Gruppo Banca Leonardo Italian Equity Research Italian Luxury & Consumer Goods June 23 2009

Profitability drivers From 2008 the Group also started to focus on a sell-out approach, due to the new competitive environment and the changed consumers' behaviour. Particular focus is now on: 1) optimizing the delivery cycles according to sell-out time (providing better service and flexibility to the partners to phase the commercial offer for local consumers, thus also optimizing transport costs through differentiated deliveries based on store clusters); 2) new role of agents; 3) improving store attractiveness to raise sales per store (increased traffic driven by the introduction of new store concepts and product extensions); 4) improving the sales mix (i.e. increasing contribution of accessories, menswear and hanging garments).

Table 1 - BENETTON GROUP: Geographical diversification % on total sales 2000 2001 2002 2003 2004 2005 2006 2007 2008 Italy na na na na 51.0% 48.0% 47.9% 48.5% 46.6% Rest of Europe * 65.1% 68.7% 68.9% 73.3% 17.7% 20.7% 36.3% 38.0% 35.4% America 12.3% 10.2% 9.6% 6.1% 10.2% 10.2% 3.3% 2.4% 3.0% Japan 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% Rest of Asia 8.7% 7.3% 6.9% 6.6% 7.3% 7.3% 10.1% 6.5% 11.3% RoW 11.9% 11.8% 12.6% 12.0% 11.8% 11.8% 0.4% 0.6% 1.7%

* 2000-2003 Euro area (including Italy) Source: Company data

Table 2 - BENETTON GROUP: Channel mix % on total sales 2000 2001 2002 2003 2004 2005 2006 2007 2008 Retail na na na na 15.6% 19.3% 22.1% 21.1% 22.0% Wholesale na na na na 84.4% 80.7% 77.9% 78.9% 78.0%

Source: Company data

Table 3 - BENETTON GROUP: Store network N. stores 2000 2001 2002 2003 2004 2005 2006 2007 2008 DOS (Retail stores) na 80 87 121 204 543 618 689 827 Franchised stores na 5,320 5,276 5,128 4,856 4,703 4,846 5,118 5,395 Total na 5,400 5,363 5,249 5,060 5,246 5,464 5,807 6,222

Source: Company data

Table 4 - BENETTON GROUP: Product diversification % on total sales 2000 2001 2002 2003 2004 2005 2006 2007 2008 Apparel (third parties) 91.4% 91.2% 91.8% 91.5% 92.0% 92.3% 92.7% 93.8% 95.6% Textile (third parties) 6.6% 6.8% 6.2% 6.5% 6.2% 5.6% 5.0% 4.2% 4.4%

Source: Company data

FY08 in line with targets FY08 sales grew +4% YoY, in line with the Group's targets, despite the deterioration in the international economic environment, driven by the enrichment of the offer with higher-value product categories and an increase in sales volumes, together with an acceleration of growth in strategic countries. The gross operating profit increased +180bps YoY thanks to higher volumes in apparel and an improvement in efficiency, while the EBIT margin was roughly stable YoY due to higher SGA costs (also reflecting the establishment of direct control over the business particularly in the US market), but net income reported a growth of +7% YoY, despite higher financial costs related to the higher debt (€689m, +45% YoY).

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Ongoing strategy In 2009 the Group adopted a reorganization plan, to face the new macroeconomic scenario, which worsened in 4Q08 showing pressure on margins and negative retail like-for-like sales performance. The reorganization plan should bring €50-70m in structural savings in 12 months base to be partially reinvested in the commercial business. The plan focuses on: 1) boosting the commercial business; 2) optimizing the supply chain; 3) cost control; 4) cash generation, thanks to NWC control and capex optimization.

Table 5 - BENETTON GROUP: 2009 reorganization plan 2009 outlook 1) Difficult and challenging scenario 2) Evidence of pressure on margins in 4Q Actions 1) Strengthening partnership with commercial network 2) A quantum leap in product cost 3) Extraordinary reduction in cost structure 4) Strict discipline on capital invested

Source: Company data

Table 6 - BENETTON GROUP: Details of 2009 reorganization plan Actions Details €m Boosting commercial business Wholesale Selective boost to network (brand and market differentiation; timing graduated by collection; volume-driven) Extreme commercial discipline Commercial enforcement of new initiatives Strong development of outlet channel introducing dedicated collections Retail Closing of non-profitable stores in crisis scenario New footprint in critical markets Variable store personnel costs Maximum efficiency in country overheads Supply chain excellence Ongoing negotiations according to commodity and currency trends 30-40 savings Optimizing sourcing mix according to cost-quality-time to market Collection process innovation to streamline activities and gain max efficiency Cost optimisation Personnel direct costs 20-30 savings from SGA New skills Consolidate and streamline organizational functions Accountability on restructuring plan goal SGA New modus operandi; ongoing renegotiation Maximum consolidation and suppliers’ rotation Extreme standardization in products and services acquired Cash generation Ongoing rent renegotiations according to real estate market trend and mall traffic 30-40 additional cash flow Extending payment terms to at least 90 days Capex optimization - acceleration of openings in already-acquired locations; Capex approval "by exception" based on market evolution and within a defined plafond (-25% vs. 2008)

Source: Company data

Focus on commercial business and lower The commercial business should be mainly boosted by: cost base 1) strengthening of collaboration with partners; 2) new commercial development tools; 3) new projects in existing networks; 4) selective support based on volumes growth.

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Major actions undertaken to achieve a lower cost base are: 1) rethinking the process of the supply chain (separate contract for prototypes and production, centralized textile purchases for third parties suppliers) and 2) sourcing mix optimization, which should bring savings for ca. €30-40m; 3) cost optimization (SGA and personnel costs, suppliers and standardization of products), which should bring in ca. €20-30m of savings.

FY09 management targets Focus on profitability After the +1% YoY increase in Spring/Summer09 orders, Fall/Winter09 orders (over 60% visibility) showed a slowdown, which could bring to final order slightly negative YOY (-1/2% YoY). The initial F/W deliveries of orders already collected will be postponed from June to July (in accordance with the new sell-out approach), consequently penalizing 2Q09 (by ca. €100m) that will be fully recovered in 3Q09, not increasing the risk of order cancellation, while improving logistic costs. Profitability should be supported by the initial positive benefits from the reorganization plan, which should generate structural savings for ca. €50-70m (€30-40m from the optimization of the supply chain, €20-30m from SGA savings) in 12 months base (therefore also partly in 2009) to be partially reinvested in the commercial business and restructuring costs, and also ca. €30-40m additional cash-flow generation, also thanks to capex reduction (FY09e capex ca. €150m, -25% YoY) mainly due to lower real estate investments. Net debt should be roughly stable YoY (€689m in FY08). In April the Group also appointed a new CFO, Mr Nathanson, former CFO of Bulgari.

Earnings trend

Challenging outlook after 1Q09 results in line What: Benetton Group 1Q09 results released on May 11. Our view: sales came in line with our and consensus' estimates (-2.1% YoY at constant exchange rates), the EBITDA and EBIT were +2.5% and +5.4% above our estimates (which were ca. -10% below consensus) and net profit was over +20% above our and consensus' estimates (mainly due to lower financial charges). Net debt increased +35% YoY (in line with our estimate), despite lower capex (€50m vs. €77m in 1Q08) due to increasing. Focus: despite Spring/Summer09 orders up +1% YoY, wholesale were down - 7% YoY due to limited reorders and the shipment occurred during the Christmas season. In 1Q09 trade receivables increased as a result of higher sales to emerging countries, lower factoring, new textile commercial initiatives and also to support some reliable clients in Russia and Turkey. Market conditions remain tough, like-for-like DOS sales (-4% YoY in 1Q09) in April improved vs. March, but are still negative. Expansion in emerging markets in 1Q09 showed a slowdown vs. FY08 and the focus for each market has been focus on local needs: Benetton is refocusing its presence in China

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(reducing the number of store openings and concentrating on bigger cities), sales in Mexico are driven mainly by openings of new corners, in Turkey the market is holding up, while in the Russian countries sales are slowing down. In the latter two countries. One-off: -€4m restructuring charges on 1Q09 EBIT vs. a +€6m positive item in 1Q08 (adj. EBIT €29m, -29% YoY), -€3m negative on 1Q09 net profit vs. +€4m positive on 1Q08 (adj. net profit €21m, -16% YoY).

Table 7 - BENETTON GROUP: Quarterly results 1Q08 2Q08 3Q08 4Q08 1Q09 YoY QoQ 1Q09e Act/Est Consensus Revenues 465 531 538 594 449 -3.4% -24.4% 448 0.3% 451 EBITDA 65 93 91 104 50 -23.1% -51.9% 49 2.5% 55 margin 14.0% 17.5% 16.9% 17.5% 11.1% 10.9% 12.2% EBIT 47 69 66 72 25 -46.8% -65.3% 24 5.4% 27 margin 10.1% 13.0% 12.3% 12.1% 5.6% 5.3% 6.0% Pre-tax profit 37 55 53 67 21 -43.2% -68.7% 17 20.1% 20 Net profit 29 43 37 46 18 -37.9% -60.9% 15 23.4% 15 Net debt 565 555 814 689 763 35.0% 10.7% 760 0.4% na

Source: Company data, GBL estimates

FY2009-11e estimates Negative EBIT CAGR 2008-11e We estimate a flattish (-0.6%) sales CAGR 2008-11e, -1.5% for EBITDA, with a margin decrease of -50bps to 16.1% in FY11e, -5% for EBIT, with a margin decrease of -140bps to 10.5% in FY11e and -8% for the net profit. In particular, for FY09e we expect sales down -5% YoY, EBITDA down - 14% YoY (margin -160bps YoY), EBIT down -25% YoY (margin -250bps YoY) and net profit down -36% YoY. Net debt should decrease at a -3% CAGR 2008-11e to €628m, implying a Net debt/EBITDA of 1.9x in FY11e (from 2x in FY08 and 2.3x in FY09e).

Table 8 - BENETTON GROUP: Main data 2006 2007 2008 2009e 2010e 2011e CAGR 2008-11e Revenues 1,911 2,085 2,128 2,029 2,040 2,089 -0.6% EBITDA 264 334 353 304 320 337 -1.5% margin 13.8% 16.0% 16.6% 15.0% 15.7% 16.1% EBIT 180 243 254 190 205 220 -4.6% margin 9.4% 11.7% 11.9% 9.4% 10.1% 10.5% Pre-tax profit 159 203 213 146 160 176 -6.1% Net profit 125 145 155 99 109 120 -3% Net debt 369 475 689 695 655 628 -3% Dividend (€) 0.37 0.40 0.28 0.18 0.20 0.22 -8.2% Source: Company data, GBL estimates

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Chart 2 - BENETTON GROUP: Financial liabilities (March 2009)

€400m (2007-2012) Current position

3 loan agreements: • Fully drawn • Cost: 1.4% €100m BNP-BNL €150m €150m Covenants 2008

EBITDA/net fin. expenses Min 4 9.5x Cost: Euribor 1/2/3/6 month+20/50bp* NFP/EBITDA Max 3.5 1.96x

€500m (2005-2010) Current position • Drawn for €340m Club deal: • Cost: 1.52% €100m Unicredit €100m Intesa Sanpaolo Covenants 2008 €100m BNP-BNL €50m Pop. Verona €50m Calyon EBITDA/net fin. expenses Min 4 9.5x €50m HSBC NFP/EBITDA Max 3.5 1.96x €50m Citigroup NFP/Equity Max 1.0 0.5x Cost: Euribor 1/2/3/6 month +27.5/60bp* €413m Current position

Uncommitted credit facility • Drawn for €106m Cost: interbank or prime rate + spread

* Depending on the ratio between NFP/EBITDA; covenants calculatedevery six months

Source: Company data

Table 9 - BENETTON GROUP: Net book value of land and building (March 2009) Land and building Commercial 598 Industrial 106 Other 22 Total 726 Commercial Italy 170 Russia - ex USSR 128 France 109 Spain 67 Japan 35 Portugal 23 Iran 21 Belgium 18 Austria 16 India 9 Switzerland 2 Total 598

Source: Company data

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Valuation

Target price at €5.4 We valued Benetton Group using our DCF model and obtained a target price of €5.4 per share (from previous €5, only due to the change in the free-risk rate assumption). We estimated a sales CAGR 2008-15e of +1.1%, assumed a long-term (FY2016-20e) growth rate of +1% and a +2% perpetuity. We assumed a US$/€ exchange rate of 1.30 (1Q09 average) for FY09e and the following years. We applied a 4.45% risk free rate (from previous 4.75%) and a +4% risk premium (unchanged) with an un-levered beta of 1.3 (unchanged), which translates into a WACC of 10.4% (from previous 10.7%).

Table 10 - BENETTON GROUP: DCF valuation (€m) 2009e 2010e 2011e 2012e 2013e 2014e 2015e 2016e 2017e 2018e 2019e 2020e Sales 2029 2040 2089 2139 2191 2244 2298 2321 2344 2368 2391 2415 YoY -4.7% 0.5% 2.4% 2.4% 2.4% 2.4% 2.4% 1.0% 1.0% 1.0% 1.0% 1.0% EBIT 190 205 220 232 241 246 251 253 256 258 261 264 margin 9.4% 10.1% 10.5% 10.8% 11.0% 11.0% 10.9% 10.9% 10.9% 10.9% 10.9% 10.9% Tax (49) (53) (57) (60) (63) (64) (65) (66) (67) (67) (68) (69) Amortization/depreciation 114 115 117 119 122 124 127 128 130 131 132 134 Variation of working capital (17) (11) (18) 22 (20) (19) (14) (15) (15) (15) (15) (15) Capex (150) (143) (157) (160) (164) (168) (172) (128) (130) (131) (132) (134) FCFF 88 113 105 152 116 119 126 173 175 176 178 180 Discount factor 100% 91% 84% 76% 70% 63% 58% 50% 45% 41% 37% 34% PV of cash flow 88 103 88 116 81 76 73 86 79 72 66 60 NPV of FCF 2009-20e 988 Continuous growth assumption 2.0% Terminal value 2,134 PV of terminal value 716 42% Total enterprise value 1,704 Net financial position end-2008 -689 Minorities (24) Net financial assets 0 Total equity value 992 Total n. shares (m) 182.7 Fair value per share (€) 5.4 Source: GBL estimates

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Corporate data

Chart 3 - BENETTON GROUP: Main shareholding structure

Benetton Group

State of NJ Edizione common fund

67.1 % 2.1%

Source: Company data, Consob

Table 11 - BENETTON GROUP: Corporate information Chairman Luciano Benetton Executive Vice Chairman CEO Gerolamo Caccia Dominioni CFO Alberto Nathanson Investor Relations Mara Di Giorgio Villa Minelli - 31050 Ponzano, [email protected] Tel.+39 0422 519778

Source: Company data

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Earnings model - Benetton Group

Profit & Loss as reported (€m) 2007 2008 2009e 2010e 2011e CAGR 2008-11e Revenues 2085 2128 2029 2040 2089 -0.6% YoY growth 9.1% 2.0% -4.7% 0.5% 2.4% Raw materials -1176 -1146 -1116 -1103 -1129 Staff costs -156 -168 -173 -178 -184 Other costs -419 -461 -436 -439 -439 Total costs -1751 -1775 -1725 -1720 -1752 -0.4% YoY growth 6.3% 1.4% -2.8% -0.3% 1.9% EBITDA 334 353 304 320 337 -1.5% YoY growth 26.7% 5.6% -13.8% 5.2% 5.3% Depreciation -91 -99 -114 -115 -117 Amortization & others

EBIT 243 254 190 205 220 -4.6% YoY growth 35.5% 4.4% -25.1% 7.8% 7.4% Net financial income/(charges) -30 -41 -47 -45 -44 Other financials -10 -1 3 0 0

Pre-tax profit 203 212 146 160 176 -6.0% YoY growth 27.6% 4.8% -31.5% 9.8% 9.9% Taxes -53 -56 -45 -50 -55 tax rate 26.0% 26.4% 31.0% 31.0% 31.0% Net profit before minorities 150 156 101 111 122 Minorities -5 -2 -1 -1 -2 Discontinued operations

Net profit 145 155 99 109 120 -8.2% YoY growth 16.4% 6.6% -35.9% 9.8% 9.9%

Source: Company data, GBL estimates

Adjusted data (€m) 2007 2008 2009e 2010e 2011e CAGR 2008-11e Adjusted EBITDA 337 352 304 320 337 -1.4% YoY growth 26.7% 5.6% -13.8% 5.2% 5.3% Adjusted EBIT 246 253 190 205 220 -4.5% YoY growth 35.5% 4.4% -25.1% 7.8% 7.4% Adjusted net profit 148 153 99 109 120 -7.8% YoY growth 16.4% 6.6% -35.9% 9.8% 9.9%

Source: Company data, GBL estimates

Profit & Loss (weight on revenues) 2007 2008 2009e 2010e 2011e Avg. 2009-11e Revenues 100% 100% 100% 100% 100% 100%

EBITDA 16% 17% 15% 16% 16% 16% EBIT 12% 12% 9% 10% 11% 10% Net profit 7% 7% 5% 5% 6% 5%

Adjusted EBITDA 16% 17% 15% 16% 16% 16% Adjusted EBIT 12% 12% 9% 10% 11% 10% Adjusted net profit 7% 7% 5% 5% 6% 5%

Source: Company data, GBL estimates

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Data per share (€) 2007 2008 2009e 2010e 2011e Avg. 2009-11e Stated EPS 0.80 0.85 0.54 0.60 0.66 0.60 YoY growth 16.4% 6.6% -35.9% 9.8% 9.9% -5.4% Adjusted EPS 0.81 0.84 0.54 0.60 0.66 0.60 YoY growth 19.7% 3.1% -35.0% 9.8% 9.9% -5.1% Recurrent dividend 0.40 0.28 0.18 0.20 0.22 0.20 YoY growth 8.1% -30.0% -35.9% 9.8% 9.9% -5.4%

Source: Company data, GBL estimates

Balance Sheet (€m) 2007 2008 2009e 2010e 2011e Tangible assets 930 1049 1149 1195 1251 Intangible assets 212 260 201 183 167 Financial assets 95 51 51 51 51 Total fixed assets 1237 1360 1402 1430 1470 Receivables 681 782 791 796 815 weight on revenues 32.6% 36.7% 39.0% 39.0% 39.0% Inventories 336 359 355 357 366 weight on revenues 16.1% 16.9% 17.5% 17.5% 17.5% Payables -385 -416 -405 -400 -410 weight on raw materials 32.8% 36.3% 36.3% 36.3% 36.3% Working capital 631 725 742 753 771 weight on revenues 30.3% 34.1% 36.6% 36.9% 36.9% Tax assets 163 165 165 165 165 Severance indemnity fund 51 49 51 52 54 weight on staff costs -33% -29% -29% -29% -29% Other assets & liabilities -193 -216 -181 -184 -187 Capital employed 1889 2083 2178 2215 2271 Shareholders' equity 1387 1368 1460 1536 1620 Minorities 28 24 24 24 24 Total shareholders' fund 1415 1392 1483 1560 1644 Medium & long-term debt -400 -400 -366 -327 -299 Short-term debt -228 -461 -461 -461 -461 Cash & equivalents 153 172 132 132 132 NFP (Debt)/Cash -475 -689 -695 -655 -628

Adjusted ROE 11% 11% 7% 7% 8% Adjusted ROCE post tax 11% 10% 7% 7% 7%

Change in working capital -94 -93 -17 -11 -18 Receivable rotation (days) 118 132 140 140 140 Inventory rotation (days) 58 61 63 63 63 Debtor rotation (days) 118 131 131 131 131 Operating cycle (days) 176 193 203 203 203 Cash cycle (days) 58 62 73 73 73

Adjusted capital employed 1774 2034 2092 2131 2189

Source: Company data, GBL estimates

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Contacts Definition of table items Phone: +39 02 72206 + extension EPS € Earnings adjusted for extraordinary items diluted as appropriate Head of Equities Head of Research YoY Year on year growth rate Ruggero Bottazzi 624/625 Anna Maria Benassi 603 QoQ Quarter on quarter growth rate [email protected] [email protected] Dividend / DPS € Gross dividend per share Sales Analysts P/E × Share price / EPS Dividend Yield % Gross dividend per share / Share price Paolo Bellingeri 271/292 Automotive & Gaming Ruggero Bottazzi 624/625 × Laura Pennino 601 PEG P/E / EPS CAGR 2006-09e Alessandro Copparoni 417/421 [email protected] × Marco Letizia 365/366 EV/sales (Market Cap + net debt)/Sales Roberto Mozzi 274/275 EV/EBITDA × (Market Cap + net debt)/EBITDA Gianluca Pediconi 544/372 Anna Maria Benassi 603 EV/EBIT × (Market Cap + net debt)/EBIT [email protected] EV/Cap. Employed × (Market Cap + net debt)/Cap. Employed Traders Daniela Miccolis 303 Ottavio Bertolero 541 [email protected] ROE % Net Profit / Shareholders’ Equity Vittorio Ciniselli 294 Building materials ROCE % Operating Profit / Capital Employed Roberto Mancini 608/609 Filippo Prini 387 Debt/Equity × Net Debt / Net shareholders’ equity Massimo Misani 392/396 [email protected] Eugenio Tamagni 263/265 Free Cash Flow Yield Free Cash Flow / Market Cap. Insurance, Asset Gathering Interest cover × EBIT / Net financial charges Gianantonio Villani 621 Sales traders [email protected] Pay out ratio % Dividend paid / Net profit Stefano Brioschi 297 Debtors rotation (days) Debtors *365 / Net sales Silvio Pascali 616 Luxury & Consumer Goods Grazia Pecorelli* 358/362 Paola Pecciarini 604 Inventories rotation (days) Inventories *365 / Net sales [email protected] Creditors rotation (days) Creditors *365 / Operating costs Captive & Retail Media Sales / Capital employed × Net sales / Net Capital employed Angelo Albani 353/325 Daniele Ridolfi 586 Sandro Bassi 351 [email protected] NFP €m Net Financial Position Andrea Capra 350/324 Motorways Free Float % Shares below 2% owned by shareholders Massimo Curti 290/312 Enrico Bartoli 564 Massimo Grande 327/328 [email protected] Danilo Micrani 291/547 Small Caps * on maternity leave Laura Pennino 601 [email protected] Filippo Prini 387 [email protected] Rating System Telecommunications Enrico Coco 568 [email protected] 1. STRONG BUY Utilities 12/18-month total expected return > 10%, associated with analyst’s Claudia Introvigne 427 high conviction [email protected] Editors 2. BUY Ilenia Spertini 339 12/18-month total expected return > 10% [email protected] Nadia Veca 456 3. UNDERWEIGHT [email protected] 12/18-month total expected return between +10% and –10% Translators Simona Pasero 585 4. SELL [email protected] 12/18-month total expected return < -10% Fiona Claudia Stone* 557 [email protected] 5. TENDER THE SHARES/DO NOT TENDER THE SHARES Assistant Stock recommendation in presence of a Public Tender Offer Simona Cerri 419 simona. [email protected]

* on maternity leave

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Disclaimers

Gruppo Banca Leonardo S.p.A. and/or Group companies are providing or have provided advisory services to Intesa Sanpaolo in the past twelve months.

Gruppo Banca Leonardo S.p.A. and/or Group companies are providing or have provided advisory services to UBI Banca in the past twelve months. Gruppo Banca Leonardo S.p.A. - Via Broletto 46, 20121 Milan, Italy - Tel. +39 02.72206.1 - Fax +39 02.85465222 - www.bancaleonardo.com This document has been prepared by Gruppo Banca Leonardo S.p.A. (the ""), duly authorized by the on October 1st 1999 and parent company of the Gruppo Banca Leonardo This report has been prepared using sources believed by the Bank to be reliable and accurate. However, as the information contained in this report has not been independently verified, no representation or warranty, express or implied, is made as to the fairness, accuracy or completeness of the information and opinions contained in this report and it is not the author's intention to provide, and the recipient may not rely on this report as providing, a complete or comprehensive analysis of the company's financial or trading position or prospects. Without limiting the generality of the foregoing, liability for negligent misstatement in respect of the contents of, or any omission from, this report is hereby expressly excluded. This document does not constitute, or form part of, an offer to sell or an invitation, inducement or solicitation of an offer to buy, purchase or subscribe for any securities, and neither this document nor anything contained herein, including, without limitation, all projections, estimates and valuations, shall form the basis of or be relied upon in connection with any contract or commitment to subscribe or acquire securities. This document contains projections that present a possible outcome on the basis of the assumptions set out herein. These represent only one possible outcome and are the independent views of the author of this document. These projections are subject to certain risks, uncertainties and assumptions that have not been verified and future actual results of the company could differ materially. Reports are distributed by electronic mail and mail exclusively to the Bank's clients. The Research Department's recommendations and research are distributed to Bank's clients. This document has been furnished to you solely for your information. It is not intended for distribution to the press or other media and may not be reproduced or redistributed by mail, facsimile,electronic or computer transmission or by any other means to any other person. By accepting this document you agree to be bound by the foregoing limitations. Neither this document nor any copy hereof should be taken or transmitted into Canada Australia or Japan or distributed in the United States, Canada, Australia or Japan. 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The Bank intends to cover every financial instrument with the same frequency as the relevant information is disseminated by the relevant issuer. Any changes of frequency will be notified in compliance with the applicable law and regulations. The information and opinions in this report are subject to change without notice. Any opinions, projections, estimates and valuations contained in this document are entirely those of the authors. The Bank has adopted internal procedures and organizational models suitable to ensure a clear separation of the Research Department from all investment services and the independence of financial analysts (the structure hierarchically reports to the Bank's CEO). The internal self-discipline code provides for proper rules of conduct aimed at protecting clients and the market (the Research Department staff is NOT ALLOWED to perform any transactions in financial instruments covered by a recommendation during the periods prior to or following the recommendation). The Bank is authorized to perform all investment and additional services, according to Legislative Decree No. 58 of 1998. Therefore, with reference to articles 69quater and 69quinquies of CONSOB's Regulation on Issuers no. 11971/1998, the Bank might have a potential interest or conflict of interest with the issuers mentioned herein; conflicts of interests will be disclosed in each report. The Bank has adopted a "Conflicts of Interest Policy", pursuant to Directive no. 2004/39/EC and CONSOB's Regulation on Intermediaries no. 16190/2007 (the extract of the Policy is available on the Bank's website http://www.bancaleonardo.com). 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For additional information about the Bank's rating system please refer to the Bank's website ww.bancaleonardo.com in the area dedicated to the research.

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