Benetton Group Spa Rating Change UNDERPERFORM

Equity | Italy | Apparel 15 November 2010

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Flavio Cereda >> +44 20 7996 1455 Research Analyst MLPF&S (UK)

Downgrading BEN to Underperform: PO cut 17% to €5.0 [email protected] We believe BEN has become a value trap, we thought the stock had reached a floor of sorts after H110: it does not appear so. A poor Q3 combined with

deteriorating news flow has returned the stock to its previous predicament, in our Stock Data view: how do I deal with competitors that are bigger, better and more appealing Price EUR5.10 than me? BEN’s inability to generate any real growth this year in spite of the Price Objective EUR5.00 recent restructuring effort (mgmt estimate €50mn net benefits at the EBIT level as Date Established 15-Nov-2010 a result) and peer performance, flags a troubling lack of brand appeal, in our view, Investment Opinion B-3-7 Volatility Risk MEDIUM that we fear will take some time to redress given a challenging 2011-12. 52-Week Range EUR5.06-EUR6.97 Beyond cotton…between a rock and a hard place… Mrkt Val / Shares Out (mn) EUR931 / 182.7 We think BEN will be struggling with a number of very key issues in the MT: over- Average Daily Volume 297,628 reliance on a stagnant and increasingly competitive domestic market (46%), BofAML Ticker / Exchange BNTOF / MIL Bloomberg / Reuters BEN IM / BNG.MI soaring input costs (a first toll in Q4-10 and H1-11), the need to continue to run a ROE (2010E) 7.4% ‘nice price’ policy with many of its retail clients, relatively small exposure to Asia Net Dbt to Eqty (Dec-2009A) 38.4% (16%) and China in particular, and what appears to be a troubling lack of profile in Est. 5-Yr EPS / DPS Growth 2.0% / 13.0% the highest-spend teen-ager/young adult age groups. A visit to one of the Free Float 33.0% revamped stores provide us ample evidence to this effect. F/W10-11 is running at -3.5% and we believe S/S11 is unlikely to be positive in spite of easy LFLs. Key Changes Is the stock cheap or just fairly valued ? (EUR) Previous Current Inv. Opinion B-2-7 B-3-7 Following our cut in estimates, BEN trades on 10x 2011E and 9x 2012E earnings, Inv. Rating NEUTRAL UNDERPERFORM 5.5x and 5x EBITDA with 0 expected EPS growth and a total of 3% EBITDA Price Obj. 6.00 5.00 increase. In our view, the stock does not justify a higher multiple, although the 2010E Rev (m) 2,020.0 2,035.0 family may encourage a healthy yield – remains a risky proposition in our view. 2011E Rev (m) 2,050.0 2,025.0 We think the stock is once more fully valued and deserves its significant discount 2012E Rev (m) 2,110.0 2,085.0 2010E EBITDA (m) 299.1 282.1 to peers and we downgrade BEN to Underperform from Neutral as we see no 2011E EBITDA (m) 323.1 286.1 upside potential on fundamentals at this time having cut EPS forecasts for 2011- 2012E EBITDA (m) 337.1 302.1 12 by 16% and 13%, respectively.

Estimates (Dec) (EUR) 2008A 2009A 2010E 2011E 2012E EPS (Reported Diluted) 1.47 0.68 0.58 0.52 0.58 EPS Change (YoY) 84.2% -53.8% -15.0% -9.4% 11.8% Dividend / Share 0.28 0.23 0.23 0.28 0.34

Valuation (Dec) 2008A 2009A 2010E 2011E 2012E P/E 3.48x 7.53x 8.86x 9.77x 8.74x Dividend Yield 5.55% 4.51% 4.51% 5.50% 6.67% EV / EBITDA* 4.32x 4.96x 5.42x 5.35x 5.06x Free Cash Flow Yield* -4.78% 20.7% 8.78% 5.62% 8.87% Return on Capital Employed 11.5 7.1 6.6 7.1 7.4 SM * For full definitions of iQmethod measures, see page 7.

c58da9b710df662c >> Employed by a non-US affiliate of MLPF&S and is not registered/qualified as a research analyst under the FINRA rules. Refer to "Other Important Disclosures" for information on certain BofA Merrill Lynch entities that take responsibility for this report in particular jurisdictions. BofA Merrill Lynch does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. Refer to important disclosures on page 8 to 10. Analyst Certification on Page 6. Price Objective Basis/Risk on page 6. Link to Definitions on page 6. 10993928 Benetton Group Spa 15 November 2010

iQprofile SM Benetton Group Spa Key Income Statement Data (Dec) 2008A 2009A 2010E 2011E 2012E Company Description (EUR Millions) Benetton is one of the leading apparel Sales 2,128 2,049 2,035 2,025 2,085 manufacturers and retailers under the UCB, EBITDA Adjusted 354 308 282 286 302 Undercolors, Sisley and other minor brands. It is Depreciation & Amortization (99.7) (103) (97.0) (119) (119) Italian-based and italy remains its main market, but EBIT Adjusted 255 205 185 167 183 its products are sold via a network of some 6000 Net Interest & Other Income (41.5) (17.6) (7.56) (14.6) (12.6) doors globally as well as nearly 400 DOS. Tax Expense / Benefit 56.3 (68.0) (67.5) (57.2) (63.9) Net Income (Adjusted) 268 124 105 95.3 107 Average Fully Diluted Shares Outstanding 183 183 183 183 183 Investment Thesis Key Cash Flow Statement Data After a number of difficult years the Group has now Net Income (Reported) 268 124 105 95.3 107 embarked on a relaunch effort to help capitalise on Depreciation & Amortization 99.7 103 97.0 119 119 its brand profile and distribution network better. This Change in Working Capital (125) 21.7 (15.4) (33.0) (11.0) entails changes to the sourcing and Deferred Taxation Charge (4.00) 17.0 15.5 (1.84) (2.09) distribution/logistics processes which will also lead Other CFO (79.2) 28.9 24.5 22.7 39.9 to savings. There is an opportunity to 'modernise' Cash Flow from Operations 159 294 227 202 253 the business dynamics, but it is not yet clear to Capital Expenditure (204) (102) (145) (150) (170) what extent the new management will be able to (Acquisition) / Disposal of Investments (4.70) (12.0) 0 0 0 successfully enforce changes. Deteriorating news Other CFI 0 0 0 0 0 flow is of growing concern at this time. Cash Flow from Investing (209) (114) (145) (150) (170) Share Issue / (Repurchase) (69.1) (2.70) 0 0 0 Cost of Dividends Paid (75.1) (49.8) (42.0) (42.0) (50.0) Increase (decrease) debt 232 (151) (42.0) 27.8 (33.0) Stock Data Other CFF (253) 152 47.0 (27.8) 33.0 Price to Book Value 0.7x Cash Flow from Financing (165) (51.5) (37.0) (42.0) (50.0) Total Cash Flow (CFO + CFI + CFF) (214) 129 44.7 10.3 32.5 FX and other changes to cash 231 (145) (48.7) 28.0 (31.5) Change in Cash 16.5 (15.9) (4.00) 38.3 1.00 Change in Net Debt 216 (135) (38.0) (10.5) (34.0) Net Debt 693 558 520 510 476 Key Balance Sheet Data Property, Plant & Equipment 1,049 1,035 1,072 1,103 1,113 Goodwill 37.9 43.0 43.0 43.0 36.0 Other Intangibles 222 210 240 260 240 Other Non-Current Assets 217 204 199 188 213 Trade Receivables 781 786 793 800 820 Cash & Equivalents 170 154 150 188 189 Other Current Assets 469 395 413 397 416 Total Assets 2,947 2,826 2,910 2,979 3,027 Long-Term Debt 400 401 373 355 338 Other Non-Current Liabilities 95.3 101 98.5 125 119 Short-Term Debt 462 311 297 343 327 Other Current Liabilities 597 558 718 716 755 Total Liabilities 1,555 1,372 1,486 1,539 1,539 Total Equity 1,391 1,456 1,423 1,440 1,488 Total Equity & Liabilities 2,946 2,827 2,910 2,979 3,027 Business Performance* Return On Capital Employed 11.5% 7.14% 6.58% 7.11% 7.43% Return On Equity 19.4% 8.81% 7.39% 6.73% 7.37% Operating Margin 12.0% 10.0% 9.10% 8.25% 8.78% Free Cash Flow (MM) (44.5) 192 81.7 52.3 82.5 Quality of Earnings* Cash Realization Ratio 0.60x 2.38x 2.16x 2.12x 2.37x Asset Replacement Ratio 3.04x 1.48x 2.23x 2.31x 2.62x Tax Rate NM 36.2% 38.0% 37.5% 37.5% Net Debt/Equity 49.8% 38.4% 36.6% 35.4% 32.0% Interest Cover 6.18x 11.4x 10.3x 11.1x 14.1x * For full definitions of iQmethod SM measures, see page 7.

2 Benetton Group Spa 15 November 2010

Table 1: Q309 Q310 delta 9M09 9M10 delta Revenues 609 606 -0.5% 1491 1498 0.5% of which Wholesale 475 470 -1.1% 1089 1085 -0.4% Retail 107 110 2.8% 324 333 2.8% Other 27 28 3.7% 78 80 2.6%

GOP 283 274 -3.2% 692 707 2.2% mg 46.5% 45.2% 46.4% 47.2% EBIT 91 78 -14.3% 134 141 5.2% mg 14.9% 12.9% 9.0% 9.4%

Trade NWC 845 786 Net Debt 819 645 OCF 31 78 Source: Company reports, BofA Merrill Lynch Global Research

Table 2: BEN estimate changes 2010E 2011E 2012E from… …to delta from… …to delta from… …to delta Revenues 2020 2035 0.7% 2050 2025 -1.2% 2110 2085 -1.2% EBITDA 299 282 -5.7% 314 267 -15.0% 330 290 -12.1% EPS 0.57 0.58 1.8% 0.62 0.52 -16.1% 0.67 0.58 -13.4% Net Debt 516 520 0.8% 490 510 4.1% 451 476 5.5% Source: BofA Merrill Lynch Global Research estimates

Chart 1: BEN – Margins are under pressure Chart 2: BEN – Hiccup possible in financials

13.0% 48.0% 2.20 27.00 12.0% 2.00 46.0% 22.00 11.0% 1.80 10.0% 17.00 44.0% 1.60 9.0% 12.00 8.0% 1.40 42.0% ND/EBITDA x 7.00 7.0% 1.20 6.0% 40.0% 1.00 2.00 2004 2005 2006 2007 2008 2004 2005 2006 2007 2008 2009E 2010E 2011E 2012E 2009E 2010E 2011E 2012E

EBIT mg Gross mg Net Debt/EBITDA Interest cov er

Source: BofA Merrill Lynch Global Research estimates Source: BofA Merrill Lynch Global Research estimates

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Table 3: BEN Share Profile SHARE PROFILE (€) 2004 2005 2006 2007 2008 2009 2010E 2011E 2012E Share price, high 10.2 10.2 15.6 14.82 12.3 7.5 Share price, low 8.3 7.0 9.6 10.8 5.3 5.0 Share price, ave/current 9.2 8.4 12.1 12.4 7.2 6.3 5.2 5.2 5.2 Share number (fd) 182 182 182 183 183 183 183 183 183 Major Shareholders (%) Edizione Holding 67.0% Free Float 33.0% VALUATION PROFILE (€) 2004 2005 2006 2007 2008 2009 2010E 2011E 2012E EPS 0.60 0.62 0.68 0.80 0.85 0.67 0.58 0.52 0.58 P/E, high 17.1 16.5 22.8 18.6 14.5 11.3 P/E, low 14.0 11.4 14.0 13.5 6.2 7.5 P/E (average) 15.4 13.6 17.7 15.6 8.5 9.5 9.0 10.0 8.9 Dividend 0.34 0.34 0.37 0.40 0.28 0.23 0.23 0.28 0.34 Dividend yield (average) 3.7% 4.0% 3.1% 3.2% 3.9% 3.7% 4.4% 5.4% 6.5% Pay-out ratio 57.1% 55.2% 54.0% 50.3% 33.3% 34.6% 40.0% 53.7% 58.3% Book value per share 6.7 7.0 7.4 7.7 7.6 8.0 7.8 7.9 8.1 P/BV (average) 1.4 1.2 1.6 1.6 0.9 0.8 0.7 0.7 0.6 CEPS 1.12 1.09 1.15 1.29 1.40 1.23 1.11 1.15 1.25 P/CE (average) 8.2 7.7 10.5 9.6 5.2 5.1 4.7 4.5 4.2 FCFPS 1.14 1.57 0.10 -0.18 -0.27 0.99 0.45 0.29 0.45 P/FCF (average) 8.0 5.4 119.3 -68.1 -26.7 6.4 11.6 18.2 11.5 Enterprise value/share 11.8 10.4 14.1 15.0 11.0 9.4 8.0 8.0 7.8 EBIT per share 0.87 0.87 0.99 1.33 1.39 1.12 1.01 0.91 1.00 EBIT multiple (average) 13.5 12.0 14.3 11.3 7.9 8.3 7.9 8.7 7.8 EBITDA per share 1.39 1.34 1.45 1.83 1.94 1.69 1.54 1.46 1.59 EBITDA multiple (average) 8.4 7.8 9.7 8.2 5.7 5.5 5.2 5.5 4.9 MOMENTUM PROFILE 2004 2005 2006 2007 2008 2009 2010E 2011E 2012E % change Revenues 3.6% 8.3% 9.1% 2.0% -3.7% -0.7% -0.5% 3.0% EBITDA -4.2% 0.0% 0.0% 6.0% -13.1% -8.5% -5.3% 8.6% EBIT -0.6% 14.2% 35.4% 4.7% -19.4% -9.7% -9.8% 9.6% Pre-tax income -1.4% 18.6% 27.5% 4.9% -12.9% -4.3% -14.2% 11.8% Net Income 3.4% 11.7% 16.3% 6.7% -21.6% -13.6% -9.4% 11.8% EPS 3.4% 11.1% 16.1% 6.7% -21.6% -13.6% -9.4% 11.8% CEPS -2.9% 5.9% 12.5% 7.8% -11.8% -10.1% 4.1% 8.7% FCPS 37.2% -93.5% -279.9% 47.5% -466.4% -54.7% -36.0% 57.9% DPS 0.0% 8.8% 8.1% -29.3% -18.6% 0.0% 21.7% 21.4% Net Debt (Cash) PS -23.8% 2.9% 29.6% 45.2% -19.4% -6.8% -9.5% -6.7% Source: Company reports, BofA Merrill Lynch Global Research estimates

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Table 4: BEN Financial Summary 2004A 2005 2006 2007 2008 2009 2010E 2011E 2012E Net sales 1,704 1,765 1,911 2,085 2,128 2,049 2,035 2,025 2,085 Other income Total 1,704 1,765 1,911 2,085 2,128 2,049 2,035 2,025 2,085 Operating costs -929 -995 -1,105 -1,176 -1,130 -1,091 -1,085 -1,085 -1,112 S+ A -522 -528 -542 -575 -644 -649 -668 -673 -683 EBITDA 253 243 264 334 354 309 282 267 290 Depreciation -95 -85 -84 -91 -100 -103 -97 -100 -107 EBIT 158 157 180 243 255 206 185 167 183 Net financial items -22 -23 -20 -40 -42 -20 -8 -15 -13 Reported pre-tax profit 136 134 159 203 213 186 177 152 170 Minorities -0 -2 -3 -5 -2 4 -5 0 0 Tax -28 -20 -31 -53 -56 -68 -67 -57 -64 Net profit 108 112 125 145 155 122 105 95 106 EBITDA margin (%) 14.9% 13.7% 13.8% 16.0% 16.7% 15.1% 13.9% 13.2% 13.9% EBIT margin (%) 9.3% 8.9% 9.4% 11.7% 12.0% 10.0% 9.1% 8.2% 8.8% Pre-tax margin (%) 8.0% 7.6% 8.3% 9.7% 10.0% 9.1% 8.7% 7.5% 8.2% Tax rate (%) -20.3% -15.1% -19.7% -26.0% -26.5% -36.6% -38.1% -37.6% -37.6% Return on equity (%) 9.1% 9.7% 10.7% 11.2% 8.7% 7.3% 6.7% 7.3% CASH FLOW (€M) 2004F 2005 2006 2007 2008 2009 2010E 2011E 2012E Reported profit after tax 108 112 125 145 155 122 105 95 107 Non-cash items 168 163 105 145 129 151 137 140 157 Working capital -7 10 5 -94 -125 22 -15 -33 -11 Operating cash flow 269 285 235 196 159 294 227 202 253 Capital expenditures -90 -115 -216 -226 -204 -102 -145 -150 -170 Other investments 29 114 -0 -4 -5 -12 0 0 0 Free cash flow 208 285 19 -33 -49 180 82 52 83 Other -143 -114 32 -8 -21 1 5 0 0 Dividend paid -69 -62 -64 -69 -75 -50 -42 -42 -50 Share issue 25.3 2.2 0 0 -69.1 -2.7 0 0 0 Change in net debt 21 111 -13 -110 -214 129 45 10 33 Oper. CF/capex (%) -299.5% -248.7% -108.6% -86.9% -78.2% -288.5% -156.3% -134.8% -148.5% Capex/sales (%) -5.3% -6.5% -11.3% -10.8% -9.6% -5.0% -7.1% -7.4% -8.2% Capex/deprec. (%) 94.5% 134.4% 256.4% 247.9% 204.5% 98.9% 149.5% 150.0% 158.9% BALANCE SHEET (€M) 2004A 2005 2006 2007 2008 2009 2010E 2011E 2012E Cash and liquid assets 260 196 181 134 132 135 131 128 132 Trade receivables 658 655 610 681 781 786 793 800 820 Other 215 88 157 135 148 113 129 134 136 Inventory 255 287 331 336 359 301 302 323 337 Current assets 1,388 1,227 1,279 1,286 1,420 1,335 1,356 1,385 1,425 Intangibles 137 152 223 241 260 253 283 303 276 Other fixed assets 773 743 805 930 1,049 1,035 1,072 1,103 1,113 Financial investments 304 285 256 235 217 204 199 188 213 Fixed assets 1,213 1,180 1,283 1,406 1,526 1,492 1,554 1,594 1,602 Total assets 2,601 2,407 2,561 2,691 2,947 2,826 2,910 2,979 3,027 Interest bearing 845 552 584 628 861 712 670 690 657 Trade payables 284 315 403 385 416 404 415 430 445 Other 259 265 233 264 278 256 401 419 437 Total liabilities 1,388 1,132 1,220 1,277 1,555 1,372 1,486 1,539 1,539 Minority 7 13 22 28 24 19 16 18 20 Shareholders' equity 1,206 1,262 1,319 1,387 1,368 1,437 1,407 1,422 1,468 Balance sheet total 2,601 2,407 2,561 2,691 2,946 2,827 2,910 2,979 3,027 Net debt/cash (€m) -467 -356 -367 -477 -693 -558 -520 -510 -476 Net gearing (%) -38.7% -28.2% -27.8% -34.4% -50.7% -38.9% -37.0% -35.9% -32.4% Interest cover (x) 7.2 6.9 8.9 6.1 6.1 10.3 23.1 11.1 14.1 Sales/total assets (%) 65.5% 73.3% 74.6% 77.5% 72.2% 72.5% 69.9% 68.0% 68.9% Inventory/sales (%) 15.0% 16.3% 17.3% 16.1% 16.9% 14.7% 14.8% 16.0% 16.2% Working cap./sales (%) 36.9% 35.6% 28.1% 30.3% 34.1% 33.3% 33.4% 34.2% 0.0% Net Debt/EBITDA 1.85 1.47 1.39 1.43 1.96 1.81 1.85 1.91 1.64 EBITDA/Net Fins 11.60 10.65 13.06 8.35 8.44 15.45 35.25 17.80 22.31 Source: Company reports, BofA Merrill Lynch Global Research estimates

5 Benetton Group Spa 15 November 2010

Price objective basis & risk Benetton Group Spa (BNTOF) We have a EUR 5.0 P.O. This is the average of a DCF model (WACC 8.5%, TGR 1%) yielding EUR 5.3, a fair P/E target of 10X, a fair EV/EBITDA of 5x and a (sustainable) 5% dividend yield. At our PO the stock would trade on 10X earnings, 5.5x EBITDA and on a 5.4% yield. The risks to our PO are an even more marked deterioration of the trading environment, failure to implement the stated business dynamics improvements in 2009 and further changes in senior management. Upside risks are a sharp reversal in order flow trends and a less aggressive policy on pricing as well as input costs reversal

Link to Definitions Consumer & Retail Click here for definitions of commonly used terms.

Analyst Certification I, Flavio Cereda, hereby certify that the views expressed in this research report accurately reflect my personal views about the subject securities and issuers. I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or view expressed in this research report.

EMEA - Small Caps Coverage Cluster Investment rating Company BofAML ticker Bloomberg symbol Analyst BUY Bauer BRAGF B5A GR Gerhard Orgonas, CFA BIC SA BICEF BB FP Caroline Cohen Bilfinger Berger BFLBF GBF GR Gerhard Orgonas, CFA Brembo SPA BRBOF BRE IM Unai Franco CAF CAUXF CAF SM Unai Franco Chantiers Beneteau BTEAF BEN FP Caroline Cohen CTS Eventim AG CEVMF EVD GR Claus Roller, CFA Gemalto GTOFF GTO FP Caroline Cohen GFK GFKAF GFK GR Claus Roller, CFA Grenke Leasing ZGKRF GLJ GR Gerhard Orgonas, CFA Indesit Company SPA IDTCF IND IM Unai Franco Ingenico INGIF ING FP Caroline Cohen L'Espresso GPEDF ES IM Flavio Cereda Luxottica Group LUX LUX US Flavio Cereda Luxottica Group LUXGF LUX IM Flavio Cereda MARR Spa MRRFF MARR IM Flavio Cereda Natuzzi NTZ NTZ US Flavio Cereda Nexans NXPRF NEX FP Caroline Cohen Orpea ORPEF ORP FP Caroline Cohen PFEIFFER PFFVF PFV GR Gerhard Orgonas, CFA Praktiker PKKRF PRA GR Gerhard Orgonas, CFA Prysmian PRYMF PRY IM Caroline Cohen Rheinmetall AG RNMBF RHM GR Gerhard Orgonas, CFA Safilo SAFLF SFL IM Flavio Cereda SAFT SGPEF SAFT FP Caroline Cohen SEB SEBYF SK FP Caroline Cohen SMA Solar SMTGF S92 GR Claus Roller, CFA Takkt TAKKF TTK GR Claus Roller, CFA Tognum TGNMF TGM GR Claus Roller, CFA Trevi-Finanziaria Industriale SPA TVFZF TFI IM Unai Franco Vossloh VOSSF VOS GR Claus Roller, CFA Yoox Group XYOOF YOOX IM Flavio Cereda

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EMEA - Small Caps Coverage Cluster Investment rating Company BofAML ticker Bloomberg symbol Analyst NEUTRAL A. Mondadori Editore SPA MDEPF MN IM Flavio Cereda Bechtle AG XBACF BC8 GR Claus Roller, CFA Centrotherm Photo CPHVF CTN GR Claus Roller, CFA Ebro Foods EBRPF EBRO SM Unai Franco GEA GEAGF G1A GR Claus Roller, CFA Heidelberg HBGRF HDD GR Claus Roller, CFA Krones KRNNF KRN GR Claus Roller, CFA Landi Renzo SPA LDRZF LR IM Unai Franco Neopost SA NPACF NEO FP Caroline Cohen Poltrona Frau PFAUF PFG IM Flavio Cereda Roth & Rau RRAUF R8R GR Gerhard Orgonas, CFA Trigano SA TGNOF TRI FP Caroline Cohen Wincor WNXDF WIN GR Claus Roller, CFA UNDERPERFORM Aeffe XEAFF AEF IM Unai Franco Benetton Group Spa BNTOF BEN IM Flavio Cereda Fielmann FLMNF FIE GR Flavio Cereda Gerresheimer AG GRRMF GXI GR Gerhard Orgonas, CFA Il Sole 24 Ore XIILF S24 IM Flavio Cereda Mersen CBLNF MRN FP Caroline Cohen Nice SPA NIESF NICE IM Flavio Cereda PUMA PMMAF PUM GR Claus Roller, CFA Rational AG RTLLF RAA GR Claus Roller, CFA Wacker Neuson WKRCF WAC GR Gerhard Orgonas, CFA Zignago Vetro SPA XZNGF ZV IM Flavio Cereda RVW Meyer Burger MYBUF MBTN SW Claus Roller, CFA

iQmethod SM Measures Definitions Business Performance Numerator Denominator Return On Capital Employed NOPAT = (EBIT + Interest Income) * (1 - Tax Rate) + Goodwill Total Assets – Current Liabilities + ST Debt + Accumulated Goodwill Amortization Amortization Return On Equity Net Income Shareholders’ Equity Operating Margin Operating Profit Sales Earnings Growth Expected 5-Year CAGR From Latest Actual N/A Free Cash Flow Cash Flow From Operations – Total Capex N/A Quality of Earnings Cash Realization Ratio Cash Flow From Operations Net Income Asset Replacement Ratio Capex Depreciation Tax Rate Tax Charge Pre-Tax Income Net Debt-To-Equity Ratio Net Debt = Total Debt, Less Cash & Equivalents Total Equity Interest Cover EBIT Interest Expense Valuation Toolkit Price / Earnings Ratio Current Share Price Diluted Earnings Per Share (Basis As Specified) Price / Book Value Current Share Price Shareholders’ Equity / Current Basic Shares Dividend Yield Annualised Declared Cash Dividend Current Share Price Free Cash Flow Yield Cash Flow From Operations – Total Capex Market Cap. = Current Share Price * Current Basic Shares Enterprise Value / Sales EV = Current Share Price * Current Shares + Minority Equity + Net Debt + Sales Other LT Liabilities EV / EBITDA Enterprise Value Basic EBIT + Depreciation + Amortization iQmethod SMis the set of BofA Merrill Lynch standard measures that serve to maintain global consistency under three broad headings: Business Performance, Quality of Earnings, and validations. The key features of iQmethod are: A consistently structured, detailed, and transparent methodology. Guidelines to maximize the effectiveness of the comparative valuation process, and to identify some common pitfalls. iQdatabase ® is our real-time global research database that is sourced directly from our equity analysts’ earnings models and includes forecasted as well as historical data for income statements, balance sheets, and cash flow statements for companies covered by BofA Merrill Lynch. iQ profile SM, iQmethod SM are service marks of Merrill Lynch & Co., Inc.iQdatabase ®is a registered service mark of Merrill Lynch & Co., Inc.

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Important Disclosures

BNTOF Price Chart 1-Nov:N 11-Nov 26-Jan:U 12-Jul:N Wynne Cereda PO:NA EUR16 EUR14 EUR12 EUR10 EUR8 EUR6 EUR4 EUR2 EUR0 1-Jan-08 1-Jan-09 1-Jan-10 BNTOF Review Restricted No Coverage B : Buy, N : Neutral, S : Sell, U : Underperform, PO : Price objective, NA : No longer valid, NR: No Rating "Prior to May 31, 2008, the investment opinion system included Buy, Neutral and Sell. As of May 31, 2008, the investment opinion system includes Buy, Neutral and Underperform. Dark Grey shading indicates that a security is restricted with the opinion suspended. Light grey shading indicates that a security is under review with the opinion withdrawn. The current investment opinion key is contained at the end of the report. Chart is current as of October 31, 2010 or such later date as indicated. BofA Merrill Lynch price charts do not reflect analysts’ coverage of the stock at prior firms."

Investment Rating Distribution: Textiles/Apparel Group (as of 01 Oct 2010) Coverage Universe Count Percent Inv. Banking Relationships* Count Percent Buy 13 65.00% Buy 8 66.67% Neutral 2 10.00% Neutral 0 0.00% Sell 5 25.00% Sell 4 80.00% Investment Rating Distribution: Global Group (as of 01 Oct 2010) Coverage Universe Count Percent Inv. Banking Relationships* Count Percent Buy 1948 54.31% Buy 821 46.73% Neutral 891 24.84% Neutral 397 49.07% Sell 748 20.85% Sell 259 37.16% * Companies in respect of which MLPF&S or one of its affiliates has received compensation for investment banking services within the past 12 months. For purposes of this distribution, a stock rated Underperform is included as a Sell.

FUNDAMENTAL EQUITY OPINION KEY: Opinions include a Volatility Risk Rating, an Investment Rating and an Income Rating. VOLATILITY RISK RATINGS, indicators of potential price fluctuation, are: A - Low, B - Medium and C - High. INVESTMENT RATINGS reflect the analyst’s assessment of a stock’s: (i) absolute total return potential and (ii) attractiveness for investment relative to other stocks within its Coverage Cluster (defined below). There are three investment ratings: 1 - Buy stocks are expected to have a total return of at least 10% and are the most attractive stocks in the coverage cluster; 2 - Neutral stocks are expected to remain flat or increase in value and are less attractive than Buy rated stocks and 3 - Underperform stocks are the least attractive stocks in a coverage cluster. Analysts assign investment ratings considering, among other things, the 0-12 month total return expectation for a stock and the firm’s guidelines for ratings dispersions (shown in the table below). The current price objective for a stock should be referenced to better understand the total return expectation at any given time. The price objective reflects the analyst’s view of the potential price appreciation (depreciation). Investment rating Total return expectation (within 12-month period of date of initial rating) Ratings dispersion guidelines for coverage cluster* Buy ≥ 10% ≤ 70% Neutral ≥ 0% ≤ 30% Underperform N/A ≥ 20% * Ratings dispersions may vary from time to time where BofAML Research believes it better reflects the investment prospects of stocks in a Coverage Cluster. INCOME RATINGS, indicators of potential cash dividends, are: 7 - same/higher (dividend considered to be secure), 8 - same/lower (dividend not considered to be secure) and 9 - pays no cash dividend. Coverage Cluster is comprised of stocks covered by a single analyst or two or more analysts sharing a common industry, sector, region or other classification(s). A stock’s coverage cluster is included in the most recent BofAML Comment referencing the stock.

Price charts for the securities referenced in this research report are available at http://pricecharts.ml.com, or call 1-888-ML-CHART to have them mailed. MLPF&S or an affiliate has received compensation from the company for non-investment banking services or products within the past 12 months: Benetton. The company is or was, within the last 12 months, a non-securities business client of MLPF&S and/or one or more of its affiliates: Benetton. In the US, retail sales and/or distribution of this report may be made only in states where these securities are exempt from registration or have been qualified for sale: Benetton. MLPF&S or an affiliate expects to receive or intends to seek compensation for investment banking services from this company or an affiliate of the company within the next three months: Benetton. The analyst(s) responsible for covering the securities in this report receive compensation based upon, among other factors, the overall profitability of Bank of America Corporation, including profits derived from investment banking revenues.

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