CFA Institute Research Challenge hosted by CFA Society University of Economics and Business

The CFA Institute Research Challenge is a global competition that tests the equity research and valuation, investment report writing, and presentation skills of university students. The following report was submitted by a team of university students as part of this annual educational initiative and should not be considered a professional report.

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Athens University of Economics and Business, Department of Accounting &Finance

Summary Year Sales growth FOURLIS HOLDINGS S.A. (FOURLIS or Group henceforth) is a Greek company that currently holds the franchise rights of “IKEA”, “Intersport” and “The Athlete’s Foot”. The Group currently operates in Greece, , , 2017 2.61% and . 2018 4.90% Investment Recommendation 2019 6.42% We issue a BUY recommendation with a target price of €6.835 per share; representing 19.91% upside from its 2020 8.06% February 8, 2018 closing price of €5.70. Our valuation is based on a Free Cash Flow to Equity Model. Our recommendation lays on the following key catalysts: 2021 7.47% 2022 Strong franchise brands and exemplary management 6.11% FOURLIS holds two largely successful brands, namely Intersport and IKEA, and has managed to increase their 2023 5.78% potential with a praiseworthy administration. Intersport has evolved into a leading name in the Greek market, 2024 5.46% while IKEA has enjoyed boosted sales through FOURLIS’ innovative pick-up points system. Opportunities arising in the five countries of operation 2025 5.12% All 5 countries demonstrate markets and characteristics that will definitely contribute to FOURLS’ project, Source: Team Analysis provided that the Group takes advantage of them. Despite ongoing risks in some countries, our analysis forecasts a more favorable future. Target Price and upside Project “FOURLIS: MISSION 2025” The Greek Group demonstrates a structured and well-detailed plan, with intention to expand its current store network throughout the 5 operating countries by the year of 2025. This is an integral part of any analysis Target Price €6.835 concerning FOURLIS’ future; the expansion is directly linked to key factors such as projected sales, operating expenses and the Group’s profitability. Current Price €5.70 Insightful decision making Upside In past years, FOURLIS has made some very intelligent moves, one of them being the shift from wholesale to 19.91% Potential activity in 2015, which has undoubtedly benefited its financial status. The Greek company also has a strong logistics system that facilitate transportations and relevant operating hurdles, leading to enhanced efficiency. Source: Team Analysis Recent news 1. Ingvar Kamprad, founder of IKEA, dies at 91 (27.01.18) The Swede pioneer might have peacefully passed, yet he was not involved in running the company since 1988. 2. FOURLIS sells SPEEDEX share (12.08.17) FOURLIS sold the 49.55% holding in its affiliate company SPEEDEX SA; the company has declared that the transaction will not have any significant impact on its financial status. 3. Approval of elections for a new Board of Directors (16.07.2017) Having completed its 5-year tenure, the annual General Assembly of the Shareholders approved the election of a new Board. 4. Reduction of Share Capital (16.07.2017) The annual General Assembly of the Shareholders also decided to reduce the company’s share capital through the reduction of share’s nominal value.

This report is published for educational purposes only by students competing in The CFA Institute Research Challenge. 1 Athens University of Economics and Business, Department of Accounting &Finance

1. Business Description FOURLIS is a group of companies, founded in 1950. It holds the franchise rights of 3 retail (namely IKEA, Intersport, and The Athlete’s Foot) and operates in 5 countries across the area of South Eastern . However, the business status was not always like this. Prior to the acquisition of IKEA and Intersport franchise rights, FOURLIS had the general dealership of GENERAL ELECTRIC household appliances (1970-1980), representation rights for SAMSUNG in Greece and Romania, and held 51% of P. KOTSOVOLOS S.A, a Greek retailer of electric gear and relative products. In 2004, KOTSOVOLOS was disposed to Group and, during the same year, the first Intersport store opened in Romania. This initiated a series of actions, which, combined with the disposal of SAMSUNG rights in 2010, led to IKEA and Intersport franchising being the Group’s main activity. Specifically, while the domestic development of the two franchises started in 2001, the Group expanded its activity with the acquisition of network and franchise rights in Romania (Intersport, 2004), Bulgaria (Intersport, 2006 and IKEA, 2011), Cyprus (IKEA, 2007 and Intersport, 2007) and Turkey (Intersport, 2011). Finally, in 2014, FOURLIS took possession of the franchise rights of another sportswear retailer called “The Athlete’s Foot”, currently operating in Greece and Cyprus. In general, during the past decades, FOURLIS’ activity has shifted from the wholesale to the retail market, a move that is reflected in the Group’s financial statements. Due to the profitable choices made throughout that period, the Group seems to have settled in a specific pattern, aiming at expanding its activity in the following years. Given the current economic state in Greece, the basis of this progressive strategy has been shifted towards the remaining 4 countries. Fields of activity Currently, FOURLIS operates in two main sectors: the retail home furnishing market via the franchise of IKEA in Greece, Bulgaria, and Cyprus, and the retail sporting goods market through the franchise of Intersport in Greece, Cyprus, Romania, Bulgaria, and Turkey, along with “The Athlete’s Foot” stores in Greece and Turkey(Figure 1). Specifically, regarding IKEA, the Group owns Housemarket S.A., a company that has the franchise rights of the Swedish brand. Meanwhile, the Group holds investments in the following companies: Sofia South Ring Mall EAD (shareholding of 50%) and Rentis Real Estate Investments S.A (shareholding of 100%). The Group also used to hold an interest of 49.55% in SPEEDEX S.A., a Greek company operating in the courier industry, which was liquidated in December 8, 2017. IKEA Originating from and founded in 1943, IKEA is one of the biggest and most popular home furnishing retailers in the world generating a big part of the Group’s income. Throughout the years, the company has established its reputation with a wide variety of quality products, and a value-for-money strategy. IKEA’s simple but sturdy designs and self-assembly products are now familiar in homes around the globe. Having enjoyed a successful trajectory in the European market, the Swedish company intends to increase its activity in other markets outside the EU in the following years and increase overall sales by 2020. Despite the recent death of IKEA’s founder, Ingvar Kamprad (January 1st, 2018) his sons, Peter, Jonas, and Mathias, still participate in the boards of various IKEA entities. The family, however, is no longer at the helm. Ingvar Kamprad had formerly stepped down from running the business, yet remained an advisor until his late days. Therefore, his departure will not have any significant impact on IKEA or FOURLIS itself. There are main 5 stores operating in Greece (2 stores in Athens,1 in , , Larisa) 1 in Bulgaria (Sofia Ring Mall) and 1 in Cyprus (Nicosia). Meanwhile, there are five (5) IKEA pick-up points operating in Greece (, , , and ) and 2 in Bulgaria (Varna and Burgas) (Figure 3). These are small IKEA shops, which are used as exposition places in order to ease the market research and delivery process for those who live in places far from the main stores. It should be underlined that FOURLIS was the first company in the world to apply this approach; the strategy has been reasonably successful, leading to an increase of potential customers and sales revenues. INTERSPORT Intersport is an international sporting goods retailer, founded in in 1968. Its popularity is undoubtedly an asset to the Group, which reaffirms FOURLIS’ diligent research when it comes to the acquisition of a brand’s franchise rights. With over a decade of activity in Greece, Romania, Cyprus and Bulgaria, the Group now aims at focusing on the recent entry in the Turkish market with a goal to double its stores in the particular country by 2025(Figure 4). THE ATHLETE’S FOOT Another sportswear retailer, “The Athlete’s Foot” (TAF, henceforth) was acquired by FOURLIS in 2014 with the right to develop the store network in the five aforementioned countries, albeit currently operating solely in Greece and Turkey. TAF is a global retailer for fashionable athletic footwear and apparel, carrying some of the world’s most renowned brands. In other words, it serves as the Group’s luxurious and more stylish athlete goods alternative to Intersport. COMPANY STRATEGY- “MISSION 2025” As a part of its mission, FOURLIS intends to expand Intersport activity in the 5 aforementioned countries, with a special focus on Turkey and Romania. The former constitutes a recent entry with a lot of room for development due to the country’s big population. The latter serves as a prosperous opportunity given its rapid economic growth compared to other European countries. Specifically, the mission plan comprises 5 new stores in Greece, 3 in Bulgaria, 1 in Cyprus, 9 in Romania and 24 in Turkey. However, the exact location of the new stores in each country and the opening year have not been disclosed by the company yet. When it comes to IKEA, there are no current plans for further development. FOURLIS has already carefully placed stores in the countries where the brand’s rights have been acquired. However, the Group intends to turn its two pick up points in Crete (a big Greek island), into main IKEA stores. This is a move that will likely generate more profits from the Cretan market, given the island’s market size. In addition, the Varna pick-up point is scheduled to also turn into a main store.

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Figure 5 Finally, there are also plans for TAF, a brand currently represented only in Greece and Turkey. The Group has posed Share €49,790,497.70 a target of 40 stores in total within the following 3 to 5 years. Despite being a more refined brand, this could prove Capital to be a daunting task given the its low recognition in comparison to its main antagonists. Number 51,330,410 of Shares 2. Corporate Governance Nominal FOURLIS aims to be perceived as strong stakeholder-protecting company, with regular monitoring of its members €0.97 Value and rigorous compliance to contemporary corporate governance standards. (Appendixes 24 & 25) Source: Company Data Corporate Management The team of directors is comprised of experienced, middle-aged managers that most of them have worked for the Group at least for a decade. They are all certified and well-experienced regarding their corresponding field of work. Shareholder structure The share capital of the company amounts to €49,790,497.70 divided into 51,330,410 registered shares with nominal value of €0.97 each (Figure 5). All shares have the same rights and obligations. As of 2013, FOURLIS has initiated a stock option policy. In total, 1,507,678 stock options were granted in three yearly waves (2013, 2015, 2016), with an exercise price of €3.4 per share. Within 2016, 338,088 options were exercised. After the disposal of 2,566,520 options on June 16, 2017, the Group has decided to extend its plan and initiated a new program consisting of 4 waves, each one with a 5-year maturity. Grant date of the first wave has been set by the Stock Option Plan on November 20, 2017. At this point, we should underline that the purpose of this action, as stated by the Group’s representatives, is the active participation of management in ownership, providing executives with incentives and a chance to benefit further from the Group’s development. Hence, FOURLIS’ stock option policy is considered as an incentive-offering action, rather than available to draw funds. Corporate Governance The Group’s board of directors consists of 9 members, 3 of them belonging to FOURLIS’ family and 4 Figure 7: Board of being independent non-executive members. All of them are well educated individuals with many years of significant Directors List experience in companies abroad and in Greece. They occupied leadership positions throughout their careers, most Vassilios Chairman of the of them being associated with the retail industry. Since February 2, 2011, the company has decided to follow the Fourlis Board Hellenic Corporate Governance Code, which has been drafted by the initiative of Hellenic Federation of Enterprises. Apostolos CEO, MD & Moreover, the company discloses the transactions of related parts according to the provisions of the Law, so that Petalas Executive Director capital market participants are protected from market manipulation and actions actions trigger by inside information. Dafni Committees Vice Chairman Fourlis In order to add value to Group’s operations and protect stakeholders’ interests, there are 3 committees linked to the Director of board of directors: Audit, Internal Audit, and Nomination & Remuneration Committees. Meetings are scheduled Lida Corporate Social regularly, with the presence of executive members while reviews are prepared on a yearly basis. Fourlis Responsibility and Policy of Equal Opportunities and Diversity Executive Director FOURLIS encourages a safe and healthy work environment, free from discrimination, harassment and retaliation. This Eftichios Vice Chairman - is a very important feature, especially if we consider the turning point that society is facing in such matters. Vassilakis Independent Employment decisions, working conditions, ethics and other similar aspects are constantly being monitored, in order Source: Company Data to establish and maintain a healthy environment for all company’s members. Social Responsibility Program Based on FOURLIS’ core values, namely, integrity, respect, and efficiency, the Social Responsibility Department was established in 2008 to coordinate the Group's companies in a common framework of actions and initiatives concerning its “People, Society and Environment” mission. Thus, further actions have been accomplished in order cater for the company’s employees and their well-being, supporting them and their families. When it comes to environmental activity, highlights include an Energy Saving Program that has been implemented for energy management and efficiency purposes. As a standalone Group, but also through IKEA and Intersport, FOURLIS has been very socially active with a plethora of donations, programs and supportive actions to non-profit social organizations and other such communities. 3. Industry overview & Competitive Positioning A. Industry overview As mentioned before, FOURLIS currently holds 3 brands in its portfolio, which fall into 2 main fields, and operates in 5 different countries. Therefore, it is essential that both fields and countries are analyzed, given that they are critical factors of the Group’s activities. The relationship between each country’s economy and the operating sectors’ prospects is dynamic and constantly evolving. (Appendix 10) A1. Sector Analysis Furnishing Market At this moment, FOURLIS owns IKEA’s franchise rights in Greece, Cyprus and Bulgaria; no plans of further expansions have been announced by the Group. For many years, the furnishing market has been one with very slow growth and few global leaders. In fact, it has been characterized as saturated numerous times in the press. Moreover, the market seems to differ from place to place, with local producers and retailers holding a large market-share in each country. Along with a handful of others, IKEA is one of the biggest, if not the leading brand, in retail home furnishing. With careful planning and precise operations, FOURLIS has established the Swedish brand as a trend setter and a frontrunner in the 3 aforementioned countries. This also comes as result of the IKEA’s brand awareness. In general, high initial costs of investment, as well as the existing competition, make furnishing a somewhat hostile market to enter. The Greek and Cypriot furnishing markets are rather similar in structure and prospects. Due to the rise of retail business in Bulgaria, we expect significant increases in sales coming from domestic producers and retailers (Figure 9).

This report is published for educational purposes only by students competing in The CFA Institute Research Challenge. 3 Athens University of Economics and Business, Department of Accounting &Finance Sportswear Market With leading names such as Nike and Adidas strongly competing each other, the sportswear market seems to evolve qualitatively on a constant basis; new products are designed and delivered at a non-stop rate. Moreover, recent fashion trends, such as “athleisure”, have drawn attention to sportswear, and increased the number of potential customers. Nevertheless, chances of new entries are minimal, given that this is already a field with established leaders and constant price wars. Should they occur, serious competitors usually come from countries outside FOURLIS’s range of activity and, since expansion is costly, such threats are very low. In terms of market structure, brands nowadays look to establish branches in countries through franchisees and shops in multi-brand retailers (e.g. Intersport), while operating a few flagships in strategic locations. Sales, however, are largely determined by the economy of the country within whom they operate. This has caused a drop in sales in the Greek market which is still trying to recover from the aftermath of the big crisis. Meanwhile, the country faces many financial challenges ahead. Hence, FOURLIS has shifted its focus towards markets of neighbour countries, where current prospects are better. Romania, for instance, exhibits tremendous short-term potential as a result of continuous CPI increase and the country’s rapid economic growth (fastest in Europe). A2. Country Analysis Greek market Greece is undoubtedly a country struggling for stability in financial and political terms. Since approximately 62% of FOURLIS’ sales come from the Greek market (50 Intersport stores, 5 main IKEA stores and 5 pick-up points), its evolution is of utmost importance. However, austerity measures applied by the Greek governments throughout the years have decreased consumption, minimized the retail industry and therefore have hampered efforts for development. Because of its close relation to the economy, the Greek market is expected to follow the same route. However, there is a current belief that things might improve in the near future. Despite decreases in CPI, relative retail industries seem to pick up a bit. Finally, turning the two IKEA pick-up points in Crete into main stores should increases revenues and take advantage of the islands market potential. Turkish market Turkey has the world's 17th-largest nominal GDP and is a recently industrialised country. Given its tremendous potential, FOURLIS reasonably aims at doubling the number of Intersport stores in the country and even adding a few new TAF stores. All these new stores should perfectly accommodate the constantly evolving CPI and the domestic retail industry. Meanwhile, Turkey’s emerging market economy will be a huge benefit to the Group’s expansion plans. Nevertheless, political instability and constant conflicts inside Turkey ought to be considered as major issues. The rise of terrorists and fanatic islamists have increased tension within the country’s boarders. While the domestic economy is bound to continue its steady rise, adverse events regarding sociopolitical trends cannot be predicted. Such events could hinder FOURLIS’ investments and lead to a change in the company’s strategy for the future. Cypriot market Political stability and a steady economic growth are some of Cyprus’s main highlights, albeit the country still aims at surpassing some of the crisis’ side-effects. Given the small market size and the stabilised economy, there are small development margins. There are already 4 Intersport stores (Pafos, Limassol and 2 in Nicosia) and 1 main IKEA store (Nicosia). FOURLIS intends to open 1 more Intersport store within the next 8 years, which is a realistic and totally achievable target. Yet, specifically for the Intersport stores, market shares could decrease in the future if mega-brands (e.g. Nike) decide to establish flagships or independent shops (via franchise). The current lack of such stores undoubtedly poses a future threat. Romanian market Romania has the 41st largest GDP in the world and is considered as one of the fastest growing economies in Europe. According to the IMF, it has the fastest growth in 2016 (more than 6%) and is expected to continue its steady rise until 2019. The country’s ever-growing middle class combined with increases in price standards and e-sales should support FOURLIS’ plans. There are currently 31 stores in Romania and the target number of 40 stores by 2025 seems achievable. However, a lot of uncertainty is being generated by the country’s political stage. On January 21, 2018 more than 30,000 Romanians across the country gathered to protest against the current government, which is perceived as corrupt. Moreover, the rise of Romania’s public debt, along with other thorny observations, such as increased consumer expenses, price inflation and low workforce productivity, might be signs of a potential bubble. Many analysts from the country compare its current situation to that of 2004 Greece. Bulgarian market Bulgaria is a developing country. Therefore, as a result of an ever-changing business environment, today's Bulgarian market is characterized by constant changes, growing diversity and increasing competition. Retail furnishing is one of those few sectors with a steady rise. FOURLIS operates its INTERSPORT and IKEA stores mainly through malls, which actually demonstrate steady sales and are very popular in Bulgaria. To put it differently, the Group has managed to establish a reliable source of income in an otherwise turbulent economy. Plans of 3 new Intersport stores and a new IKEA main store in Varna (currently a pick-up point) look achievable. B. Competitive positioning Along with the classic approaches (Porter’s 5 forces, SWOT analysis, Bowman’s clock), we opted for an additional basket analysis (Appendix) concerning the products sold from IKEA and Intersport. Our goal was to back previous analyses and evaluate the range of products offered as well their value in relation to the price they are being sold at (value for money). (Appendixes 11,12,13 and 14)

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IKEA The Swedish brand constitutes as an undisputed force in retail furnishing. Through its valuable approach and an exceptional business plan combined with a fully vertically integrated value chain, IKEA differentiates itself from other retailers and faces little competition (Figure 9). Meanwhile, as demonstrated in our basket analysis, the wide range of products and prices, all quality guaranteed, leave costumers with hardly any actual bargaining power; the term “value for money” is a synonym to IKEA’s products (Figure 12). As mentioned before, IKEA manages its own delivery spots through main stores and pick up points. The former have been catalytic to the creation of the “IKEA experience”. No such substitutes can be found elsewhere. From FOURLIS’s standpoint, intelligent stores’ location and IKEA’s brand recognition are the main keys to the Group’s success. This explains the Group’s intention to increase the number of main stores and delivery points through a thorough plan in the future. Meanwhile, the e-shops in Greece, Cyprus and Bulgaria will boost sales as time goes by. Intersport The fact that Intersport operates as a multi-brand retailer, makes the company dependent on the brands available at its stores. Sportswear is a very competitive field, where the brands themselves are usually the market leaders. The fact that Intersport’s products can be found elsewhere leads to a customer base particularly indifferent to their final choice. Furthermore, because of the field’s own nature and the numerous choices available, Intersport is in a vulnerable position when it comes to rivals (Figure 10). Despite those negative aspects, our basket analysis showed that Intersport is very competitive in terms of pricing, although such differences are minimal between sportswear retailers (Figure 13). Moreover, we found out that Intersport offers more product categories than most of its competitors. As far as FOURLIS is concerned, the brand is fairly popular and currently holds a fair share across all 5 markets while having a lot of room for potential growth. Sales continue to provide a relatively fixed income. Especially in the Greek market, Intersport displays an increased market share, combined with several stores across the country. The Athlete’s Foot (TAF) A new addition to the Groups sportswear portfolio, TAF is neither a leading name nor a widely known brand. From a strategic analysis perspective, the brand certainly faces various challenges. At the present time, there are only a few shops in Greece (12) and just 2 in Turkey, with only a handful of potential costumers actually being aware of them. However, this has not discouraged FOURLIS from planning to open many more shops in the following 3 to 5 years in Greece and Turkey. This move is undoubtedly considered ambitious. Since TAF is a more luxurious brand, careful planning and appropriate timing are required when opening new stores. Turkey is an easier “target”, given the country’s rising retail, especially in wealthier areas with higher consumption. FOURLIS already possesses some relative experience for brands of this caliber; a few years back FOURLIS held the rights of “New Look” in Romania, a similar retailer, but proceeded to its sale shortly after its acquisition. 4. Investment summary Investment Thesis We issue a Buy recommendation on FOURLS with a target price of €6.835 per share (19.91% upside), which was derived from a Free Cash Flow Equity Analysis. A Peer Comparison Analysis was also conducted, although not incorporated into the target price for reasons stated in the respective chapter. Our FCF valuation is based on a thorough analysis and meticulous forecasts concerning Group’s evolution. In the following paragraphs, we state the key potential drivers as well as the most significant investment risks: FOURLIS “2025 Mission” Project The Greek company demonstrates a detailed and well-planned business model for the next 8 years that intends to expand its activities across all 5 countries that currently operates in. This is undoubtedly an ambitious plan, but rigorous implementation and appropriate timing can eventually lead to the increase of sales, brands’ awareness, Group’s profitability. History of sharp-witted maneuvers and improved financial status FOURLIS has a recent history of wit investment decisions and successful implementation strategy. In 2015, the Group shifted its activities from wholesale to retail, which resulted to major enhancements in its financial status. Annual revenues have been on a continuous rise ever since and the vast improvements in key financial ratios such as ROE and ROA exhibit a stunning comeback. Succeeding in the “2025 mission” project will boost Group’s earnings, leading to an increase of the company’s equity value. Exemplary brand management The brands currently held in Group’s portfolio are managed in a skilful manner; FOURLIS was the first IKEA retailer in the world to launch the pick-up points system, which opened up further markets and has proven to be a masterful step towards the brand’s evolution and increased sales. Moreover, Intersport enjoys a fair amount of success especially in Greece, where it currently occupies a market share of 22.50% and a broad store network. Although some may claim that a retailer’s success actually stems from the brand’s publicity, we believe that, over the time, FOURLIS has taken careful and intelligent initiatives when it comes to the acquisition and disposal of franchise rights. Experienced senior management Not only all executives are well educated and experienced, but they also have the required knowledge about investments in the 5 established countries. For instance, the procedures followed for the selection of new store regions display a detailed and rational structure. New investments are examined from different angles, which is always a beneficial feature. This is valuable when determining the timing and positioning of new store network. Current state of the Greek economy and domestic retail Since approximately 62% of FOURLIS’ sales come from the Greek market, the outlook of the Greek economy is essential to the Group’s sales and future sustainability. However, the domestic economy hasn't yet rebounded from the 2008 crisis. This creates a sizeable market anomaly in the retail industry especially for goods like those sold by the Group. Moreover, on February 22, 2018, the global credit agency Moody’s updated Greece’s issuer rating to B3 with

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a positive outlook. These are welcome news considering the relatively recent optimistic forecasts concerning the future of the Greek economy. We believe that a steady recovery of the economy and, consequently, an upturn of the retail industry will provide an opportunity to the Group increase its sales on a constant basis. Combined with proper management, annual profits will also improve. Taking advantage of promising markets In Cyprus, Bulgaria, Romania and Turkey, things are definitely looking better, for different reasons in each case. The Cypriot economy still aims at surpassing side-effects from the crisis, albeit stability has been brought back. Bulgaria has a developing economy with huge potential for the FOURLS’ establishments. Meanwhile, Romania’s rapid growth displays promising results for the foreseeable future. Finally, Turkey, despite huge political and cultural issues, demonstrates one of the most promising economies of the world. At this moment, independent analysts and global institutions estimate a high real GDP growth for the following 5 years for Cyprus (2.5%), Bulgaria (2.9%), Romania (3.3%) and Turkey (3.8%). The 2025 project intends to capitalize on these premises through the strategic expansion of the Group’s franchise network. Investment Risks The risks associated with FOURLIS were divided into market, financial and business risks. This approach was based on the Group’s structure and the various drivers affecting both the brands as well as FOURLIS itself. Key risks that investors should be aware of include country risks (e.g. Greece) and uncertainties originating from the company’s “2025 Mission” programme, especially the management of expenditures. Currency risks occurring from activity in the Romanian and Turkish market are evaluated as medium to low impact ones, given the small percentage of revenue that they generate and the FOURLIS’s relative ease to hedge them. 5. Financial analysis When studying FOURLIS’ financial progress over the past four years, one can observe the effects of the Group’s major shift from wholesale to retail trade. (Figure 23) This change occurred in 2015 and has yielded numerous positive outcomes ever since. FOURLIS’ M-score indicates that the data withdrawn from the Group’s financial statements are most likely to be legitimate and not manipulated in order to present enhanced results (Figure 18). Profitability Since the shift in 2015, profitability ratios have risen with significant increases in EBITDA (27.10% change) and Net Profit Margin, the latter now steadily recovering from its dramatically negative state. Particularly, the Net Profit Margin ratio was well below zero in 2013 and 2014 (-2.06% and -2.78%, respectively); this rebounded in the following years and its steady increase from 0.03% in 2015 to 2.17% in 2017 indicates a prosperous future. However, while 2.17% indicates improvement given its past low levels, still falls short when compared to the industry’s average of 4.75 %. Hence, there is still a lot of room for potential growth. (Appendix 7-B). DuPont Analysis Advanced DuPont analysis provides similar insights. Net Operating Profits After Tax (NOPAT) ratio has obviously improved and percentage changes in ratios such as RNOA (from 0.34% in 2015 to 5.16% in 2017) and NOA Turnover (from 1.47 to 1.58) provide further support to our argument. The increase in profits can also be attributed to the company’s expansion and rapid growth in countries outside Greece. Meanwhile, since 2015, the rapid improvement in ROE (from 0.09% to 5.90%) comes from enhancements in Net Financial Leverage (72.85% in 2017) and NOPAT Margin (3.27%), due to the upturn of the operating income. (Appendix 8) Efficiency The Group seems to operate in a more efficient manner since 2015, when it moved to the retail sector. Granting less credit to customers has enabled the company to improve its Trade Receivables Turnover, and collect receivables more promptly than it used to (1.89 days compared to 2013’s discouraging 13.29). Payables can be paid within 136.75 days on average, while the operating cycle currently lasts 117.78 days. The cash conversion trade cycle has a value of - 18.97, which means there is a credit window of 19 days from the collection to the payment of cash. Such improvements have definitely benefited the Group in terms of working capital, which is essential when it comes to its two main areas of activity. Our estimates suggest that FOURLIS’ working capital (Figure 22), will decrease sharply in 2020. This stems from the fact that a great amount of Group’s cash will finance the purchase of new tangible assets for the completion of new IKEA investments . (Appendix 7-C) FOURLIS Figure 23 2013 2014 2015 2016 2017E 2018F 2019F 2020F 2021F 2022F peers Return on Equity -4.92% -7.24% 0.09% 3.67% 5.90% 8.39% 11.22% 13.10% 15.03% 15.73% 14.91% Return on -1.91% -2.56% 0.03% 1.43% 2.27% 3.38% 4.64% 5.75% 6.95% 7.84% 7.65% Assets Gross Profit 38.55% 39.78% 41.28% 42.51% 42.53% 42.46% 42.38% 42.32% 42.19% 42.12% 30.37% Margin NOPAT Margin 1.80% 0.40% 0.23% 4.13% 3.27% 4.06% 5.11% 5.87% 6.82% 7.42% 6.58% Net Profit -2.06% -2.78% 0.03% 1.40% 2.17% 3.09% 4.21% 5.12% 6.10% 6.92% 4.75% Margin Inventory 3.29 2.90 3.11 3.17 3.11 3.11 2.88 2.88 2.89 2.89 2.94 Turnover Asset Turnover 0.93 0.92 0.99 1.02 1.05 1.09 1.10 1.12 1.14 1.13 1.83 Current Ratio 0.94 0.89 0.82 0.95 1.11 1.11 1.12 0.98 1.05 1.19 1.24 Source: Reuters, Company Data and Team Analysis

This report is published for educational purposes only by students competing in The CFA Institute Research Challenge. 6 Athens University of Economics and Business, Department of Accounting &Finance Short-term liquidity Despite positive changes in other related measures, short-term liquidity still remains at low levels. Key ratios, such as Current, Quick and Cash ratio, which reflect the coverage of short-term debt in an emergency, seem to stagnate and Figure 24 A remain approximately the same. Although we believe it should only be a matter of time until FOURLIS’ liquidity Greece: Correlation between recovers, further steps and actions should be realized in order to improve the current status. Moreover, the decision average region income and to shift core activities to the retail sector is heavily reflected on the Defensive Interval index, which had a material average country income change between 2014 and 2017 (from 42.49% to 32.25%). The increase of -EBIT to Interest Expenses ratio- has significantly enhanced the Group’s ability to cover its financial expenses; the corresponding index increased from a Top 5 “richest” Correlation low 0.37 to 2.29 and continues to enhance since 2015. (Appendix 7-D) regions Central Athens 1.881 Solvency North Athens 1.550 Regarding solvency, FOURLIS still faces a challenge as long-term credibility has not improved yet. However, one can West 1.550 attribute this state to the financial turmoil of past years hampering any efforts of Greek companies to improve their East Attica 1.219 financial health and credit status. Provided that Greek economy continues to recover in the following years, FOURLIS will be able to benefit from any positive outcomes and depict better results. South Athens 1.134 The Altman’s Z-Score (Figure 21) was estimated to a score marginally below 1.8, a price indicative of a company’s Source: National Statistical poor credibility. In fact, companies with such low ratings are usually considered to be on the brink of default. Institution Nevertheless, this should not be worrying as FOURLIS is steadily recovering from effects of the big crisis prior to the shift to retail in 2015. That being said, FOURLIS’ solvency is bound to improve in the foreseeable future; the Group Figure 24 B intends to cease loan activities as soon as the current ones expire and fund the store network expansion via the cash Turkey: Correlation between inflows of ongoing investments. The Greek company also enjoys a fairly competitive interest rate for long-term debt average region income and (2018-2025), around 4.25% as calculated in our analysis (Appendix 7-E). average country income Optimistic Outlook in 2025 and the years afterwards Top 5 “richest” Correlation Factors such as a promising economic environment, Group’s insightful strategic planning and forecasted economies regions of scale, lead to a projected 5-year revenue increase from €439 million (2017) to €604 million (2022). All 5 countries, Istanbul 1.682 each with its own idiosyncrasies, look promising in the long-term future. FOURLIS is expected to benefit along with Kocaeli 1.565 as the successful implementation of the new investments. Therefore, the Group will be able to return a greater value Ankara 1.513 to its shareholders. Based on our analysis; ROE will reach an impressive 14.95% while ROA rises at 8.92%. To a great Tekirdag 1.284 degree, this forecast derives from the carefully planned and rather ambitious “2025 Mission” Project. When it comes Antalya 1.254 to ROE and ROA (Figures 19 & 20), it is important for a company to follow the industry standards, often used as Source: National Statistical benchmarks for its viability. In fact, many analysts consider them as the most important indicators of a company’s Institution evolution. FOURLIS’ progress is quite close to the industry patterns; in 2015, the average firm with similar structure and operating range is estimated to exhibit ROE and ROA of 14.91% and 7.65% respectively. We estimate a steady Figure 24 C decrease afterwards and expect FOURLIS’ ratios to drop to 11.41% and 7.97% by 2030. Since the planned project will Bulgaria: Correlation between have likely ended by 2025 and given the lack of further data, the steady decline makes sense. (Appendix 9) average region income and average country income Top 5 “richest” 6. Valuation Correlation regions For our valuation purposes, we employed a free cash flow model and a “peers comparison” analysis. The latter, Sofia capital 1.413 however, was not incorporated into our price target for reasons stated further in the text. Pernik 1.169 A. Free Cash Flow Valuation Pleven 1.111 Our first step was to forecast FOURLIS’ sales in the future. The forecast of future sales was a fundamental part of this Smolyan 1.061 procedure; since FOURLIS owns the franchise rights of three brands, the Group’s profitability is directly linked to Varna 1.032 them. A sales forecasting methodology was developed to forecast sales with maximum precision. In addition, based Source: National Statistical on the Group’s ultimate 2025 goal, we performed a separate analysis that predicts the sales of the new investments. Institution The contribution of new investments was incorporated to the extent that our projections confirm their accomplishment. Figure 25 Sales revenue forecast In order to accurately estimate the growth of expected sales for each brand, a quantitative approach was followed; Countries Rating CRP all drivers were attributed a matching variable and were included in a collective method which applied for all IKEA Greece B3 7.50% and Intersport stores (TAF store revenues were included in Intersport store revenues). The main goal of the function Bulgaria Baa2 2.19% is the estimation of the the annual turnover of IKEA and Intersport stores. (Appendix 16) Cyprus Ba3 4.15% The annual turnover of a store depends on the market share of the store’s occupied territory, the income of local citizens and the percentage amount of their income used for the consumption of products like IKEA’s and Intersport’s. Romania Baa3 2.54% Hence, the annual gross revenues of a store equals to the previous year’s total income increased by the annual Turkey Ba1 2.88% percentage change. In order to evaluate those changes, an estimation of the variables’ changes throughout the years Source: NYU Damadoran was necessary. This estimation was accomplished as follows.

First, the national GDP of each country was allocated to various sectors of activity, taking into consideration demographic characteristics and the distribution of income. All data were retrieved from each country’s statistical Figure 26 agency. Based on the forecasted GDP growth, we were able to determine each area’s future income as well as its WACC: 2018 corresponding percentage of consumption for similar products. It should be underlined the fact that each location Expected Return 16.95% has a different rate of growth, so we used its corresponding correlation with national GDP growth in order to estimate Long-term Debt rate 4.14% the final percentage change. Finally, market shares for each area are affected by the evolution of retail and the store’s maturity stage, which is 4-5 years for an Intersport store and 6-7 years for an IKEA store. Short term Debt Rate 6.00% Specifically, for the retail industry, both general and specified retail (furnishing and sportswear) were incorporated WACC 10.83% into the analysis. Although the furnishing retail industry, for instance, primarily affects the IKEA shops, there still is a Source: Team Analysis correlation to general retail, leading to an indirect impact. We also used the CPI as an auxiliary index, because of its non-seasonal inclination to retail, meaning that the CPI tends to follow the course of retail without being so much affected by the economic cycle.

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As stated above, the estimation of potential customers in an area occupied by a store took into account the number of local citizens. However, given that IKEA stores tend to attract customers from nearby areas, additional variables were considered. As informed by FOURLIS’ representatives, the accessibility of an IKEA store is a very important factor, usually assessed through the road network surrounding the store. Hence, accessibility was gauged quantitatively via a corresponding methodology (Appendix). We used the average driving time to the nearest IKEA store, as calculated by Google Maps, and then estimated a proportional percentage of potential customers possibly attracted from surrounding areas. A driving distance shorter than 20 minute grants full accessibility. A 10 minute increase in driving distance leads to a 10% decrease in accessibility. In the case of IKEA’s pick-up points, the same procedure was followed with the sole exception being that potential clients are calculated as 50% of the area’s citizens. This comes as a result of the pick-up points’ small size and the fact that they cannot serve a great amount of customers. Sales forecast for new stores FOURLIS intends to expand its store network in the following 8 years as a part of the 2025 project. However, the Group has not disclosed the exact dates and locations of new stores. Thus, we had to evaluate both factors and integrate them into our sales forecast, since they are integral to our estimation. Although the nature and the methodology of the analysis was the same, there were some differences. The unawareness of the exact dates led to Figure 28 a 50% reduction to sales during the first operating year. Moreover, a separate analysis was conductive regarding 2022 Real GDP estimated revenues from newly established areas. Consequently, the distribution of national GDP in the operating Growth (IMF regions changed dynamically during that eight-year time span. forecast) Weighted Average Cost of Capital (WACC) Greece 1.00% The estimation of WACC was based on a dynamic approach towards its key components, namely Cost of Equity and Bulgaria 2.50% Cost of Debt (Figure 26). Moreover, the cost of debt was broken into short-term and long-term, in order to increase Cyprus 2.20% the forecast’s precision. The WACC changes dynamically throughout the years (Figure 27); after 2026, the underlined Romania 3.30% variables remain stable but their respective weights continue to shift thus leading to changes in WACC. It should be Turkey 3.60% underlined that the final estimation was adjusted to the fact that Greece’s issuer rating was updated to B3 on Terminal February 22, 2018, while the positive outlook attributed by the global agency was also taken into consideration. Value 1.63% This largely affected the cost of equity, which was estimated with Damodaran’s Lamda approach. Specifically, Growth Greece’s country risk premium changed from 10.38% to an improved 7.5%, similar to that of countries with the same rating. Given the positive outlook, we estimated a rating upgrade to B2 in 2022. Regarding the Cost of Debt, both long-term and short-term debts were assessed through historical data of FOURLIS’ loan structure and payments, as Figure 29 well as the Group’s financial statements (Appendix 18). Year Sales growth Expenditures Most of Group’s expenditures are inherently related to sales. This stems from the fact that FOURLIS’ current operating 2017 scheme lays on franchise rights. Based on historical data from the company’s financial statements, we estimated the 2.61% correlation between sales and the relating costs. However, we observed that the annual change of some costs does 2018 4.90% not follow a specific pattern. In order to estimate them as precisely as possible, we considered a variety of additional 2019 variables such as inflation or expanding economies, and calculated a premium that drives their change through time. 6.42% Moreover, the sensitivity of these changes was evaluated when incorporated in the forecast (Appendix). Finally, 2020 8.06% expenses associated with the new investments were estimated separately (Appendix 17). 2021 Macroeconomic anomalies and future equilibriums 7.47% Business cycle is a key factor that can possibly affect an industry or economy and can exist for an extended period of 2022 6.11% time. Therefore, macroeconomic anomalies arise. In terms of our analysis, such anomalies were observed in countries like Romania and Greece. The former displays an increasingly accelerating economic growth, leading to a positive 2023 5.78% anomaly affecting all correlated sectors within the country. The latter exhibits a negative anomaly, deriving from the 2024 2008 crisis, which has suppressed various fields, such as the retail industry. In both cases, however, these anomalies, 5.46% either positive or negative, are expected to dissipate in the future. In other words, macroeconomic equilibrium is 2025 5.12% expected on a long-term horizon. We incorporated these observations into our forecast, specifically in the part Source: Team Analysis concerning the evolution of the retail industries and forecasted sales. Terminal Value When all macroeconomic anomalies dissipate, the annual sales growth rate will eventually be close to the weighted average of the real GDP growth for the 5 countries; each weight represents the corresponding sales per country in Figure 30 relation to FOURLIS’ total sales (Appendix 19). FOURLIS Target Price through Valuation Period each Multiple First, the Free Cash Flow analysis was based on an 8-year window, which is exactly the life span of FOURLIS’ “2025 Mission” project. This version resulted to an estimated target price of €6.469 (13.49% upside potential). However, we P/E x 25.964 noticed that the use of an 8-year time period increased the impact of the terminal value on the target price (62.83% P/SALES x 0.903 of Equity Value), meaning a small change in our forecast assumptions could significantly affect the target price. In P/BV x 3.082 addition, by 2025 most of the macroeconomic anomalies will not have been eliminated. Therefore, the terminal value is not representative of the full growth’s potential of FOURLIS. P/CASH FLOW x 17.013 To overcome these disadvantages, the valuation period was expanded to 41 years (2018-2059), a period where all EV/EBITDA x 16.413 macroeconomic anomalies are likely to have been eliminated), in order to achieve a more accurate sales growth Target Price 7.229 € forecast. This version results to a target price of €6.835 (19.91% upside potential). The rest assumptions remained the same. Source: Team Analysis The great difference between the two versions is that, by using the 8-year analysis, the terminal value kept the sales growth rate (and therefore the free cash flow growth rate) stable thus underestimating the real sales growth in the future. B. Peer comparison FOURLIS’ economic activity can be separated into 2 main distinct fields: furnishing (IKEA) and sportswear (Intersport, TAF), both in the retail sector. First, we identify 3 companies in each field (all operating within the European borders)

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with similar characteristics. Each one represents a different size scale according to their capitalization, meaning there was a large, a small and a medium sized company. Afterwards, we use the median as a representative index of the corresponding sector average firm. The multiples from each field were finally integrated into what should be FOURLIS’ theoretically appropriate indexes. Specifically, we used the P/E, P/Sales, P/BV, P/Cash flows and EV/EBITDA ratios (Figure 30). This indicates that the company’s price has potential for further rise. The rather high P/E ratio stands as the only exception; its price is nearly twice the calculated standard. The estimated target price was €7.229 (nearly 26.82% upside). Nevertheless, as mentioned before, this method was not incorporated into the target price, because of the major differences in the market capitalization of the peers. (Appendix 15) 7. Investment Risks A. Country risks (Figure 31) CRG (Country Risk of Greece, Probability: High, Impact: High) Greece generates 62% of FOURLIS’ revenues, so every change in the country has a direct impact on the firm. In addition, the country’s economy has not yet fully recovered from the recent crisis. The economy’s condition generates a political instability which, combined with the country’s dependency from the EU, brings uncertainty to the future. On February 21, 2018 Moody’s upgraded Greece's issuer rating to B3 from Caa2 with a positive outlook. This a positive sign but further confirmations regarding a prosperous future are necessary. CRC (Country Risk of Cyprus, Probability: Medium, Impact: Medium) On one hand, the Cypriot economy has bounced back from the crisis and stability within the country seems to have been restored. On the other hand, some independent analysts remain thoughtful about the future; Cyprus has the second higher CRP of the five countries of activity. CRB (Country Risk of Bulgaria, Probability: Medium, Impact: Medium) Bulgaria has a developing economy that produces 14% of the Group’s revenues. Credit rating agencies, such as Standard & Poors, rate the country with a BBB- rating. CRR (Country Risk of Romania, Probability: Medium, Impact: Medium) Romania is another developing country. FOURLIS has planned the addition of 9 new Intersport stores. Important changes in the country can directly affect the course of these new investments. As mentioned in our market analysis, Romania shows tremendous potential but precautions should be taken, due to domestic political conflicts and thoughts of a potential bubble. CRT (Country Risk of Turkey, Probability: Medium, Impact: Medium) At this moment, just 4% of total revenues come from Turkey. FOURLIS intends to increase this by doubling the number of Intersport stores in the county; this comes as part of the firm’s 2025 project. Therefore, economic evolution strongly depends on the unstable political and social conditions. B. Financial risks (Figure 32) LC (Liquidity / Credit Risk, Probability: Low , Impact: Medium) FOURLIS maintains a sufficient amount of Cash and Equivalents. Meanwhile, a positive free cash flow is expected in the future. The company also has lines of credit in financial institutions, so that potential cash deficits can be dealt without leading to unresolved liabilities. As a result, we consider liquidity and credit risks to be rather low. CF (Currency fluctuation, Probability: Medium , Impact: Low) Among the 5 countries in which FOURLIS operates, Greece and Cyprus have the Euro as their national currency while Bulgaria is fixed to the Euro. However, Turkey and Romania have different currencies. Since 12% of the Group’s revenues come from them, foreign exchange risk is present. However, this percentage is relatively low, so the impact of currency fluctuations is rather small. C. Business and operation risks (Figure 33) FOURLIS 2025 (Probability: Low-Medium , Impact: Medium) The Group’s main operational risk derives from its own business plan, the “2025 Mission” project; highlights include the expansion of the Intersport and TAF networks. Hence, future sales and revenues are heavily dependent on its rigorous implementation. However, FOURLIS seems to be capable of handling the pressure and accomplishing the project. Executives are equipped with relative experience and the Group has previously delivered such tasks with impressive results. The successful establishment of IKEA pick-up points in Greece and Bulgaria is an example that illuminates the Group’s managerial skills and expertise. In conclusion, operational risks originating from the 2025 project are perceived to be relatively low, due to a positive evaluation of the FOURLIS’ capabilities. C (Competitors Risk, Probability: Low, Impact: Medium) As stated before, due to the Group’s strong brand awareness, there are few threats originating from IKEA’s competitors. On the contrary, the huge growth expected in the retail market (especially in sportswear) could lead to an increase of the market shares of current competitors while new entries are also a possible threat. Intersport and TAF face greater competition so risks are remarkably higher. Notably, one should be aware of the fact that respective market shares could decrease in Cyprus, where big brands are not currently represented through shops of their own. EXM (Expenditures Management, Probability: Medium, Impact: High) Expenditures correlated with sales have a great impact on FOURLIS’ viability as a company, though historical data demonstrate that they are manageable. Therefore, risks regarding their increase are considered to be low. On the other hand, operating expenditures (e.g. salaries and rents), although critical, cannot be absolutely controlled by executives. For this reason, different scenarios were considered in order to evaluate the price sensitivity to their change (Appendix 23).

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OUR (Other Unforeseeable Risks, Probability: Low, Impact: High) This category summarizes all the events outside of the firm’s control that can hamper its progress, like natural disasters and terrorist attacks. Since it is impossible to predict such incidents, their impact is extremely difficult to be estimated. Nevertheless, precautions should always be taken. D. Risks to target price and sensitivity analysis The incorporation investment risks and factors into sales’ projection, indicates that the greatest uncertainty emanates from future trends in a country’s economy and sectors’ condition. The dissipation of macroeconomic anomalies is critical. It is also important to gauge the sensitivity of our target price to the fluctuations of operating costs, the Greek credit rating (given its positive outlook), Terminal Value growth and some other variables. In these respects, two independent approaches were developed to evaluate the impact of these potential factors and how they might change our recommendation. Monte Carlo Simulation and Sensitivity analysis in Macroeconomic Anomalies

Figure 34 Monte Carlo Simulation Statistic Results Trials 100.000 Base Case 6.73 Mean 6.45 Median 6.48 Standard Deviation 0.432 Variance 0.186 Skewness -0.3150 Kurtosis 1.0102 Minimum 3.74 5% Percentile 5.71 25% Percentile 6.18 75% Percentile 6.75 95% Percentile 7.11 Maximum 11.33 Buy recommendation 68.51% scenarios The Monte Carlo Simulation was executed with the purpose of estimating the sensitivity of stock to uncertainties Source: Team Analysis emanating from the fact that macroeconomic anomalies might not dissipate. After executing 100,000 simulations, we observed a 68.51% potential of obtaining a target price above 10% upside or €6.27 per share. The simulations also considered alternative sensitivities of the target price to the delay or acceleration of the elimination of macroeconomic anomalies. Specifically, we tested different scenarios about the evolution of each country’s economy, the general retail sector as well as the furniture and clothing/footwear retail sectors. (Appendix 21) Further sensitivity analyses The examination of historical data, revealed a non-neglectful volatility in the annual change of some key factors of operating expenditures (salaries, rents etc). Consequently, we tested 4 alternative scenarios regarding the estimated annual growth rate applied to the Free Cash Flow method (with a valuation period until 2059) and deduced the impact on the target stock price. In order to ensure that the terminal value has an insignificant impact on the Free Cash Flow method (with a valuation period until 2059), different scenarios were tested for the growth rate of the base scenario. As expected, the results showed that the terminal value growth has an insignificant impact on the target price in the aforementioned valuation model. Given the update of the Greek issuer rating to B3 with positive outlook, we made alternative assumptions concerning the exact time of the next upgrade and various scenarios were tested about the year of the next upgrade. Another exogenous variable that was incorporated is the long-term debt rate (from 2026 to 2059); a sensitivity test was conducted for this factor as well. Last but not least, given FOURLIS’ activity in Turkey and Romania, we tested the sensitivity of our target price to fluctuations of the respective exchange rates. The results of the aforementioned analyses indicate that the operating expenditures have the greatest impact on the target price, while the remaining variables have little to insignificant impact. In other words, our target price recommendation appears robust and the general tenor of our analysis remains unaffected. (Appendix 22)

This report is published for educational purposes only by students competing in The CFA Institute Research Challenge. 10 Athens University of Economics and Business, Department of Accounting &Finance Table of Contents APPENDIX 1: INCOME STATEMENT ...... 12 APPENDIX 2: BALANCE SHEET ...... 12 APPENDIX 3: CASH FLOW STATEMENT ...... 12 APPENDIX 4: ADDITIONAL ANALYSIS ...... 13 APPENDIX 5: BENEISH’S M-SCORE ANALYSIS ...... 13 APPENDIX 6: ALTMAN Z-SCORE ANALYSIS ...... 13 APPENDIX 7: FINANCIAL RATIOS ...... 14 A) PEERS COMPARISON ...... 14 B) PROFITABILITY RATIOS ...... 14 C) EFFICIENCY RATIOS ...... 14 D) SHORT-TERM LIQUIDITY RATIOS ...... 15 E) SOLVENCY RATIOS ...... 15 APPENDIX 8: DUPONT AND ADVANCED DUPONT ANALYSIS ...... 15 APPENDIX 9: RETURN ON EQUITY AND RETURN ON ASSETS 2013-2030 ...... 15 APPENDIX 10: PESTEL ANALYSIS ...... 16 APPENDIX 11: PORTER ANALYSIS ...... 16 APPENDIX 12: BASKET ANALYSIS ...... 17 APPENDIX 13: BOWMAN’S STRATEGY CLOCK ...... 19 APPENDIX 14: SWOT ANALYSIS ...... 20 APPENDIX 15: MULTIPLES VALUATION ...... 21 APPENDIX 16: SALES ...... 21 A) RETAIL INDUSTRY, GDP GROWTH AND CONSUMER PRICE INDEX ...... 21 B) DISTRUBITION OF CONSUMPTION ...... 22 C) RETAIL INDUSTRY TURNOVER ...... 23 D) DISTRUBITION OF CONSUMPTION ...... 23 E) IKEA STORES’ MAPS OF POTENTIAL CUSTOMERS ...... 24 F) FOURLIS 2025 PROJECT ...... 25 G) RESULTS 2017-2059 ...... 25 APPENDIX 17: OPERATING COSTS ...... 26 APPENDIX 18: WACC ...... 26 APPENDIX 19: TERMINAL GROWTH ...... 27 APPENDIX 20: FREE CASH FLOW TO EQUITY ...... 27 APPENDIX 21: MONTE CARLO SIMULATION ...... 28 APPENDIX 22: SENSITIVITY ANALYSIS ...... 28 APPENDIX 23: RISK ASSESSMENT ...... 29 APPENDIX 24: CORPORATE GOVERNANCE EVALUATION ...... 30 APPENDIX 25: CORPORATE GOVERNANCE: SHORT RESUME OF EXECUTIVES ...... 30

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APPENDIX 1: INCOME STATEMENT (Source: Company Data and Team Analysis) (in million of €) 2013 2014 2015 2016 2017E 2018F 2019F 2020F 2021F 2022F Sales 403.270 413.370 414.441 428.069 438.983 460.468 489.550 522.660 569.098 603.652 Cost of Sales -247.828 -248.913 -243.348 -246.083 -252.275 -264.939 -282.059 -301.463 -328.999 -349.397 Gross Profit 155.442 164.457 171.093 181.986 186.707 195.529 207.491 221.197 240.098 254.255 Other Operating Income 16.120 9.126 3.807 4.821 4.289 4.509 4.809 5.143 5.646 6.002 Selling, General & -160.983 -167.913 -155.633 -162.396 -163.161 -166.154 -169.618 -175.638 -183.486 -189.517 Administrative Expenses Earnings Before Interest & 10.579 5.670 19.268 24.411 27.835 33.884 42.681 50.702 62.259 70.740 Taxes Other Financial Expenses and -8.259 -5.444 -8.983 -10.206 -9.438 -9.900 -10.525 -11.237 -12.236 -12.979 earnings Long-Term Debt interest -6.609 -7.127 -5.669 -5.322 -4.949 -4.585 -4.398 -3.951 -3.796 -2.747 Short-Term Debt interest -1.553 -2.234 -2.099 -1.188 -1.259 -1.160 -1.283 -1.088 -1.494 -1.146 Earnings Before Taxes -5.842 -9.135 2.517 7.695 12.188 18.239 26.475 34.425 44.733 53.869 Income Taxes -1.202 -2.962 -2.265 -1.686 -2.674 -4.017 -5.871 -7.675 -10.013 -12.075 Earnings After Taxes -8.295 -11.472 0.253 6.009 9.514 14.222 20.604 26.750 34.720 41.794 APPENDIX 2: BALANCE SHEET (Source: Company Data and Team Analysis) (in million of €) 2013 2014 2015 2016 2017E 2018F 2019F 2020F 2021F 2022F Tangible Fixed Assets 236.17 224.77 224.86 221.04 221.71 222.37 223.79 256.46 259.48 236.17 Investments 7.80 17.16 17.16 17.40 16.76 17.43 18.13 18.85 19.61 7.80 Intangible Fixed Assets 13.94 11.28 10.15 9.43 9.39 9.37 9.43 9.95 10.42 13.94 Other non-current assets 35.08 33.33 31.24 30.34 29.75 29.71 29.90 31.52 33.03 35.08 Long-term Receivables 7.05 5.59 6.19 5.90 5.99 5.98 6.02 6.35 6.65 7.05 Total Non-Current Assets 300.05 292.12 289.60 284.11 284.46 284.87 287.27 323.13 329.19 300.05 Inventories 75.25 85.97 78.35 77.69 81.21 85.19 97.91 104.53 113.82 75.25 Tax Receivable 1.55 2.12 1.92 1.32 1.05 1.26 1.26 1.33 1.40 1.55 Receivables 14.89 13.67 3.80 2.30 2.30 2.30 2.32 2.44 2.56 14.89 Other current assets 15.00 18.72 16.54 18.69 18.61 16.74 16.84 17.76 18.61 15.00 Cash and Cash Equivalents 27.87 34.89 24.86 33.62 33.47 29.42 37.11 14.62 32.24 27.87 Assets Available for Sale 0.00 0.00 3.38 1.29 1.10 1.30 1.30 1.37 1.44 0.00 Total Current Assets 134.56 155.36 128.85 134.91 133.96 136.19 156.74 142.05 170.06 134.56 Total Assets 434.60 447.49 418.45 419.01 418.42 421.06 444.01 465.19 499.25 434.60 Equity 50.99 54.56 54.56 54.92 56.57 52.02 52.02 52.02 52.02 52.02 Share premium 11.67 11.39 11.38 12.42 12.59 12.59 12.59 12.59 12.59 12.59 Reserves 35.88 32.37 31.65 31.68 32.40 33.68 33.68 33.68 33.68 33.68 Retained Earnings 70.46 60.11 60.03 64.58 61.65 71.16 85.38 105.99 132.74 167.46 Shareholder's Equity 168.99 158.43 157.62 163.61 161.13 169.45 183.67 204.28 231.03 168.99 Long-term Debt 110.59 104.91 93.75 104.64 125.70 119.45 111.01 106.33 95.26 110.59 Other long-term Liabilities 11.31 10.09 10.03 9.23 9.50 9.41 9.47 9.99 10.47 11.31 Long-term Liabilities 121.90 115.00 103.78 113.88 136.53 128.86 120.48 116.32 105.72 121.90 Trade Payables 3.18 2.64 2.00 1.85 1.89 1.88 1.89 2.00 2.09 3.18 Short-term Debt 38.23 62.81 53.10 42.51 21.09 19.42 21.49 18.22 25.03 38.23 Other Short-term Liabilites 102.31 108.61 101.96 97.18 96.75 101.44 116.46 124.37 135.38 102.31 Short-term Liabilites 143.71 174.05 157.06 141.53 120.56 122.75 139.85 144.59 162.50 143.71 Total Shareholders' Equity & Liabilities 434.60 447.49 418.45 419.01 418.22 421.06 444.01 465.19 499.25 434.60

APPENDIX 3: CASH FLOW STATEMENT (Source: Company Data and Team Analysis) (in Millions €) 2013 2014 2015 2016 2017E 2018F 2019F 2020F 2021F 2022F Earnings After Taxes -8.30 -18.30 -3.05 5.89 9.51 14.22 20.60 26.75 34.72 41.79 Adjustments 30.54 30.36 27.68 30.83 35.17 26.40 29.21 29.93 35.05 32.35 Less: Increase in Inventories 0.03 -14.41 5.68 -0.54 -3.53 -3.97 -12.72 -6.62 -9.29 -6.91 Less: Increase in Receivables 9.86 -1.02 1.65 -1.78 0.00 0.00 -0.01 -0.13 -0.12 -0.19 Plus: Increase in Other Short-term Liabilities -12.26 3.53 -10.51 -16.36 -14.99 -9.64 -19.60 -12.31 -14.96 -12.08 Cash Flow From Operating Activities 22.32 9.32 27.02 19.85 26.16 27.01 17.47 37.62 45.41 54.97 Less: Purchases of Tangible and Intangible Fixed -11.48 -14.17 -9.85 -10.59 -20.76 -47.08 -27.00 -70.73 -40.61 -46.93 Assets Less: Increase in Investments -5.24 -1.18 -3.98 -0.79 2.75 -2.63 -0.15 -5.26 -1.25 -2.71 Less: Increase in Other Non-Current Assets 0.51 0.18 0.09 0.15 0.18 0.16 0.15 0.14 0.13 0.12 Cash Flow From Investing Activities -16.21 -15.18 -13.73 -11.24 -17.83 -49.55 -26.99 -75.84 -41.73 -49.53 Plus: Increase in Long-term and Short-term Debt -19.93 12.82 -23.03 0.17 -8.15 21.96 20.28 18.44 16.33 14.14 Cash Flow From Financing Activities -19.93 12.82 -23.03 0.17 -8.15 21.96 20.28 18.44 16.33 14.14 Cash and Cash Equivalents (beginning) 41.83 27.87 34.72 24.86 33.62 33.47 29.42 37.11 14.62 32.24 Change in Cash and Cash Equivalents -13.83 6.96 -9.75 8.79 0.18 -0.57 10.76 -19.78 20.01 19.58 Exchange Differencies -0.13 0.04 -0.11 -0.03 -0.33 -3.48 -3.07 -2.71 -2.39 -2.10 Cash and Cash Equivalents (end) 27.84 34.87 24.86 33.62 33.47 29.42 37.11 14.62 32.24 49.72

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APPENDIX 4: ADDITIONAL ANALYSIS FOURLIS' Long-Term Debt (thousands of €) Years Nominal amount of loans Average interest rate Interest Expences Amortization 2018 119,451 4.143% 4,949 8,439 2019 111,010 4.130% 4,585 4,683 2020 106,328 4.136% 4,398 11,070 2021 95,258 4.148% 3,951 4,219 2022 91,038 4.170% 3,796 25,592 2023 65,446 4.198% 2,747 2,459 2024 62,987 4.244% 2,673 2,533 2025 60,454 4.297% 2,597 2,609 Source: Company Data and Team Analysis •After communicating with FOURLIS’ representatives, we were provided with information regarding the main costs of IKEA and INTERSPORT stores. In order to accurately gauge the impact of new investments in the balance and the company in general. Cost of new IKEA •The following data were included in the Cost of new INTERSPORT stores Crete Varna analysis. In addition, due to the lack of data stores Store's construction €350,000 concerning opening dates, we used only New store's lot €2,700,000 €2,000,000 50% of a store’s estimated sales in the first Inventories' value €350,000 Store's construction €13,300,000 €12,250,000 operating year Source: Company Data and Team Analysis Total €16,000,000 €14,250,000 Source: Company Data and Team Analysis •Our analysis was adjusted to the news about changes in Shareholder’s Equity: Changes in Shareholders' 2017 2018 Equity Reduction of share capital €-5,133,041 0 Stock option plan €1,872,122 €1,872,122 APPENDIX 5: BENEISH’S M-SCORE ANALYSIS Source: Company Data and Team Analysis

The Beneish’s model is a mathematical model that uses financial ratios to identify whether a company has manipulated its earnings. If the M-Score is lower than -2.22, the company is unlikely to be a manipulator. If, however, the M-Score exceeds -2.22, the company probably manipulates its earnings. Variables to calculate M-score 2013 2014 2015 2016 2017E 2018F 2019F 2020F 2021F 2022F DSRI=Day's Sales Receivables Index 0.92 0.90 0.28 0.59 0.98 0.95 0.95 0.99 0.96 1.01 GMI=Gross Margin Index 0.99 0.97 0.96 0.97 1.00 1.00 1.00 1.00 1.00 1.00 AQI=Asset Quality Index 1.15 1.02 1.03 0.97 1.00 0.99 0.96 1.00 0.97 1.00 SGI=Sales Growth Index 0.96 1.03 1.00 1.03 1.03 1.05 1.06 1.07 1.09 1.06 DEPI=Depreciation Index 1.14 0.81 1.31 0.87 0.80 1.00 1.00 1.06 0.95 1.00 SGAI=SGA Expenses Index 1.00 1.02 0.92 1.01 0.98 0.97 0.96 0.97 0.96 0.97 LVGI=Leverage Index 0.98 1.07 0.96 0.98 1.00 0.98 0.98 0.95 0.96 0.93 Total Accruals/Assets -0.07 -0.05 -0.06 -0.03 -0.04 -0.03 0.01 -0.02 -0.02 -0.02 M-score - 8 variable model -2.84 -2.82 -3.39 -3.02 -2.69 -2.61 -2.44 -2.51 -2.53 -2.50 *M score= -4.84 + (0.92*DSRI) + (0.528*GMI) + (0.404*AQI) + (0.892*SGI) + (0.115*DEPI) - (0.172*SGAI) - (0.327*LVGI) + (4.679 *Accrual to TA) Source: Company Data and Team Analysis

Results indicate that FOURLIS is unlikely to manipulate its earnings. APPENDIX 6: ALTMAN Z-SCORE ANALYSIS The Altman Z-score is the output of a credit-strength test that estimates the likelihood of bankruptcy. It is based on 5 financial ratios related to the Group’s solvency. A score below 1.8 means that the company is heading close to bankruptcy, while scores above 3.00 indicate a healthier state. 2013 2014 2015 2016 2017E 2018F 2019F 2020F 2021F 2022F - X1 Working Capital / Total Assets -0.04 -0.07 -0.02 0.03 0.03 0.04 0.00 0.02 0.06 0.02 X2 Retained Earnings/ Total Assets 0.16 0.13 0.14 0.15 0.15 0.17 0.19 0.22 0.26 0.31 X3 EBIT/ Total Assets 0.02 0.01 0.04 0.06 0.05 0.07 0.08 0.10 0.11 0.12 X4 Market Capitalization/ Total Liabilities 0.69 0.72 0.51 0.72 0.71 0.71 0.68 0.68 0.66 0.66 X5 Revenue/ Total Assets 0.93 0.92 0.99 1.02 1.05 1.08 1.08 1.11 1.12 1.11 ALTMAN Z-SCORE 1.63 1.53 1.56 1.83 1.89 1.99 2.07 2.14 2.28 2.42 *The formula is (1.2*X1) + (1.4*X2) + (3.3*X3) + (0.6*X4) + (1.0*X5). Source:Company Data and Team Analysis

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Data from the 2013-2016 period lead to score below 1.80 and display the group’s issues regarding credibility. Nevertheless, FOURLIS is expected to surpass the 1.80 rating and improve the Altman z-score. It should be underlined that FOURLIS seems to struggle between 2013 and 2016. Nevertheless, factors such as the results of our analysis, positive changes in the Altman Z-Score and financial ratios (2015-2016) indicate that it is only a matter of time until the group fully recovers.

APPENDIX 7: FINANCIAL RATIOS: A) PEER COMPARISON FOURLIS peers IKEA peers INTERSPORT peers Return on Equity 14.91% 17.41% 9.58% The following financial ratios were calculated for Return on Assets 7.65% 9.25% 4.25% FOURLIS and were compared to those of its peers. Gross Profit Margin 30.37% 26.22% 39.23% We opted for all the companies used in the Peers NOPAT Margin 6.58% 6.11% 7.57% Valuation for each of the two main fields Net Profit Margin 4.75% 4.27% 5.76% (furnishing and sportswear retail) and calculated Inventory Turnover 2.94 3.43 1.92 the peer’s ratio as the weighted average of the two Asset Turnover 1.83 2.10 1.92 medians (one of each industry), with each weight Current Ratio 1.24 1.17 138 corresponding to their 2016 sales. Source: Reuters, Company Data and Team Analysis

FOURLIS 2013 2014 2015 2016 2017E 2018F 2019F 2020F 2021F 2022F peers Return on Equity -4.92% -7.24% 0.09% 3.67% 5.90% 8.39% 11.22% 13.10% 15.03% 15.73% 14.91% Return on Assets -1.91% -2.56% 0.03% 1.43% 2.27% 3.38% 4.64% 5.75% 6.95% 7.84% 7.65% Gross Profit Margin 38.55% 39.78% 41.28% 42.51% 42.53% 42.46% 42.38% 42.32% 42.19% 42.12% 30.37% NOPAT Margin 1.80% 0.40% 0.23% 4.13% 3.27% 4.06% 5.11% 5.87% 6.82% 7.42% 6.58% Net Profit Margin -2.06% -2.78% 0.03% 1.40% 2.17% 3.09% 4.21% 5.12% 6.10% 6.92% 4.75% Inventory Turnover 3.29 2.90 3.11 3.17 3.11 3.11 2.88 2.88 2.89 2.89 2.94 Asset Turnover 0.93 0.92 0.99 1.02 1.05 1.09 1.10 1.12 1.14 1.13 1.83 Current Ratio 0.94 0.89 0.82 0.95 1.11 1.11 1.12 0.98 1.05 1.19 1.24 Source: Reuters, Company Data and Team Analysis APPENDIX 7: FINANCIAL RATIOS: B) PROFITABILITY RATIOS 2013 2014 2015 2016 2017E 2018F 2019F 2020F 2021F 2022F EBITDA Margin 6.24% 6.21% 7.82% 9.25% 9.94% 10.88% 12.04% 13.05% 14.24% 14.87% EBIT Margin 2.66% 1.28% 4.19% 5.42% 4.93% 6.11% 7.56% 8.73% 10.01% 11.07% Source: Company Data and Team Analysis

APPENDIX 7: FINANCIAL RATIOS: C) EFFICIENCY RATIOS 2013 2014 2015 2016 2017E 2018F 2019F 2020F 2021F 2022F Total Asset Turnover 0.93 0.92 0.99 1.02 1.05 1.09 1.10 1.12 1.14 1.13 PP&E Turnover 1.71 1.84 1.84 1.94 1.98 2.07 2.19 2.04 2.19 2.30 Inventory Turnover 3.29 2.90 3.11 3.17 3.11 3.11 2.88 2.88 2.89 2.89 Trade Receivables Turnover 27.09 30.25 108.98 185.96 190.48 200.09 211.39 214.03 222.43 219.84 Trade Payables Turnover 2.63 2.34 2.45 2.56 2.63 2.64 2.44 2.44 2.45 2.45 Average Inventory Holding Period 109.31 124.34 115.90 113.65 115.89 115.75 124.97 124.83 124.54 124.39 Average Days to Collect Receivables 13.29 11.90 3.30 1.94 1.89 1.80 1.70 1.68 1.62 1.64 Average Days to Pay Payables 137.13 153.87 146.70 140.70 136.75 136.59 147.46 147.30 146.96 146.79 Operating Cycle 122.60 136.24 119.21 115.58 117.78 117.55 126.67 126.51 126.16 126.03 Cash Conversion (Trade) Cycle -14.53 -17.63 -27.49 -25.12 -18.97 -19.04 -20.79 -20.79 -20.80 -20.75 Source: Company Data and Team Analysis

This report is published for educational purposes only by students competing in The CFA Institute Research Challenge. 14 Athens University of Economics and Business, Department of Accounting &Finance APPENDIX 7: FINANCIAL RATIOS: D) SHORT-TERM LIQUIDITY RATIOS 2013 2014 2015 2016 2017E 2018F 2019F 2020F 2021F 2022F Current Ratio 0.94 0.89 0.82 0.95 1.11 1.10 1.11 0.99 1.05 1.19 Quick Ratio 0.30 0.28 0.20 0.26 0.31 0.27 0.29 0.13 0.22 0.33 Cash Ratio 0.19 0.20 0.18 0.25 0.29 0.25 0.27 0.11 0.21 0.31 Defensive Interval 37.16 42.49 28.56 32.56 32.25 32.73 37.54 20.41 31.85 42.21 Operating Cash Flow Ratio 0.15 0.05 0.17 0.14 0.19 0.26 0.31 0.40 0.48 0.64 EBIT to Interest Expense 0.65 0.37 1.16 1.50 2.29 5.69 8.07 10.38 14.41 17.61 EBIT to Net Interest Expense 0.69 0.40 1.25 1.55 3.48 4.90 6.51 9.06 10.77 17.17 Source: Company Data and Team Analysis APPENDIX 7: FINANCIAL RATIOS: E) SOLVENCY RATIOS 2013 2014 2015 2016 2017E 2018F 2019F 2020F 2021F 2022F Total Debt to Equity 0.88 1.06 0.93 0.90 0.91 0.82 0.72 0.61 0.52 0.42 Net Debt to Equity 0.72 0.84 0.75 0.69 0.70 0.64 0.51 0.53 0.38 0.22 Debt to Capital 46.89% 51.42% 48.23% 47.35% 47.67% 45.04% 41.91% 37.88% 34.24% 29.32% Total Debt to EBITDA 5.91 6.53 4.53 3.71 3.36 2.77 2.25 1.83 1.49 1.23 Interest Coverage Ratio(With 0.65 0.37 1.16 1.50 2.29 2.84 3.51 4.06 4.65 5.15 Profits) Interest Coverage Ratio(With 2.48 1.81 2.95 2.39 3.77 4.60 5.62 6.82 8.19 10.04 Cash Flows) Source: Company Data and Team Analysis APPENDIX 8: DUPONT AND ADVANCED DUPONT ANALYSIS Standard DuPont Model 2013 2014 2015 2016 2017E 2018F 2019F 2020F 2021F 2022F Net Profit Margin[A] -2.06% -2.78% 0.03% 1.40% 2.17% 3.09% 4.21% 5.12% 6.10% 6.92% Asset Turnover[B] 0.93 0.92 0.99 1.02 1.05 1.09 1.10 1.12 1.14 1.13 Equity Multiplier[C] 2.58 2.82 2.65 2.56 2.60 2.48 2.42 2.28 2.16 2.01 ROE=[AxBxC] -4.92% -7.24% 0.09% 3.67% 5.90% 8.39% 11.22% 13.10% 15.03% 15.73% Source: Company Data and Team Analysis

Advanced DuPont Model 2013 2014 2015 2016 2017E 2018F 2019F 2020F 2021F 2022F RNOA [D=ExF] 2.43% 0.55% 0.34% 6.29% 5.16% 6.61% 8.84% 9.63% 12.01% 13.54% NOA Turnover [E] 1.34 1.39 1.47 1.52 1.58 1.63 1.73 1.64 1.76 1.82 NOPAT Margin [F] 1.80% 0.40% 0.23% 4.13% 3.27% 4.06% 5.11% 5.87% 6.82% 7.42% Net Borrowing Cost After Tax [G] 11.85% 9.49% 0.65% 9.94% 4.13% 3.95% 4.45% 3.43% 4.45% 4.63% Net Financial Leverage [H] 78.00% 87.19% 79.08% 71.70% 72.85% 66.87% 54.05% 55.84% 39.98% 24.54% ROE [D+(D-G)xH] -4.92% -7.24% 0.09% 3.67% 5.90% 8.39% 11.22% 13.10% 15.03% 15.73% Source: Company Data and Team Analysis APPENDIX 9: RETURN ON EQUITY AND RETURN ON ASSETS 2013-2030

This report is published for educational purposes only by students competing in The CFA Institute Research Challenge. 15 Athens University of Economics and Business, Department of Accounting &Finance APPENDIX 10: PESTEL ANALYSIS POLITICAL Political stability and taxation were considered as the most important dimensions of political analysis. FOURLIS currently operates in 5 countries, each one demonstrating local peculiarities. However, Greece, Bulgaria, Romania and Turkey are generally characterized by a relative political uncertainty in the long- term. On the other hand, Cyprus is perceived as a more stable country with minimal political risk. Regarding taxation, Greece and Turkey have imposed high corporate taxes throughout the last years, with the remaining 3 countries being considered as low-tax jurisdictions. ECONOMIC FOURLIS’ main economic activities are located in countries that show promising signs of rapid economic growth, especially in the short run. Their real GDP growth is at least 1% higher than the average developed country, with Greece being the only exception, due to its well-known financial crisis. Moreover, unemployment, despite being above the average EU standards, has decreased in the past years and is forecasted to continue likewise. Again, Greece remains an exception, having relatively high unemployment rates. SOCIAL When it comes to social factors, we decided to look at the quality of life in each country and the relative impact on social trends that might affect the enterprise under scrutiny. This can be accomplished by examining the adjusted HDR index, which combines various characteristics, such as economic facts, education standards and life expectancy. All five countries scored a relatively high ranking, despite a rather stable population. There were no current social trends considered as burdens to the FOURLIS’ activity. TECHNOLOGICAL Regardless the sector, technology is undoubtably a key factor to company’s growth nowadays, as e-commerce plays an important role to sales. A comparison of each country’s IP addresses to its’ total population shows that most houses have internet access. ENVIRONMENTAL All areas of activity had very encouraging scores in this category. We based our conclusions mainly on the EPI index, which combines many characteristics that fall into two main categories - environmental health and ecosystem vitality. Four out the five countries hold high rankings, with Turkey being the only country with a nearly above average score. LEGAL Greece, Cyprus, Bulgaria and Romania are listed as members of the European Union. This means that their legal forms correspond to those of the EU, which is a positive factor. However, according to the Easy-to-do-business-index, which combines various relative data, all 5 countries, with Turkey holding the lowest ranking, are are score lowly to legal protection.

PESTEL CYPRUS BULGARIA TURKEY GREECE ROMANIA POLITICAL Political Stability YES NO NO NO YES Taxation 12.5% 10.0% 20.0% 29.0% 16.0% ECONOMIC Real Growth (Advanced Economies 2.2%-IMF 3.4% 3.6% 3.5% 1.8% 5.5% Forecasts) Unemployment 10.0% 6.7% 10.6% 20.6% 5.0% SOCIAL Population Growth STABLE DECREASE INCREASE STABLE DECREASE Ranking on index: Quality of life (adjusted HDI 29 41 55 31 40 index(0,650+ high)) TECHNOLOGICAL Number of Internet Adresses (comparing with 0.35m (high- 1,7m (medium- 3.2m (high- 3.7m (low- 8m (low-stable) population-trend) stable) increase) stable) increase) LEGAL Ranking among 190 countries: Easy-to-do- Business (The lower the ranking the easier it 45 39 69 61 36 is to do business) ENVIROMENTAL Ranking on index: Enviromental Perfom. Index 40 (80.24) very 33 (83.84) very 21 (85.81) very 34 (83.24) 99 (67.68) good (rating) good good good very good Source: Team Analysis, IMF, National Statistical Institutions, OECD, World Bank and Yale University APPENDIX 11: PORTER ANALYSIS RIVARLY WITHIN THE INDUSTRY – MODERATE As a company, FOURLIS has no direct rivals. Competition within the industry can be traced through the strategic analysis of its brands, IKEA, INTERSPORT, TAF. IKEA has the greatest brand recognition among its competitors, which has largely contributed to dominant market shares across all operating markets (the Swedish brand’s ability to compete against other powerful retailers is backed by our basket analysis). The sportswear retail business is undoubtedly one of the hardest ones, because of the existence of powerhouses like Nike, Adidas etc., who usually have their own flagship stores and franchisees, as well as multi- brands (in this case Intersport) that represent brands like the aforementioned ones. Competition is intense but the market share and the basket analysis showed that Intersport has a very strong position among this category’s retailers. THREAT OF NEW ENTRANTS – MODERATE Due to IKEA’s brand recognition and high initial costs of investment as well as heavy domestic competition, new entries are not perceived as a significant threat in the 3 regions of activity. However, the expected rise of retail business might bring along some new entries to the furnishing industry or, most likely, further development of the current retailers. Concerning sportswear retail, despite a high Easy-to-do-business Index, in most countries chances of new entries are not great, given that this is already a saturated field with little signs of evolution in this retail category. Turkey might be the only exception, however establishing a new business there is quite hard.

This report is published for educational purposes only by students competing in The CFA Institute Research Challenge. 16 Athens University of Economics and Business, Department of Accounting &Finance BARGAINING POWER OF SUPPLIERS – LOW The fact that IKEA is based on the franchise concept creates a safe operating environment from FOURLIS’ standpoint. The only threat here is a possible interruption of the agreement, though we should note that this is a far fetched scenario. Suppliers of sportswear retailers, being also Intersport’s main competitors in the market, have increased influence and bargaining power. The same applies to The Athlete’s Foot. However, suppliers are not willing to put any more pressure, given Fourlis’ profitable Intersport investments. BARGAINING POWER OF CUSTOMERS – HIGH As a brand, IKEA has managed to differentiate itself from other competitors although most of them tend to follow IKEA’s strategy. This, combined with the brand’s recognition can lower the customer’s bargaining power a bit but we can’t set aside the fact that in retail, customers can easily switch between shopping destinations in order to satisfy their preferences, without any significant impact to the final result. As a sportswear retailer, Intersport offers nearly the same products with other retailers as well as the brands via their own stores. The Athlete’s Foot, also, provides the same brands, with style being the only exception, thus leaving the customers partially indifferent to their final choice. THREAT OF SUBSTITUTES – LOW Such threats are considered to be relatively low, given the range of products offered by the brands as well as their competitive position of IKEA, Intersport and TAF, Fourlis is not vulnerable to substitutes.

RIVALRY WITHIN THE INDUSTRY Domestic strength (qual.) 20% FOURLIS Porter's Competition (quant., CPI diagramme) 30% Five Forces Market share 50% Rivalry 3.3 THREAT OF NEW ENTRANTS Entrants 2.7 Competition (quant., CPI diagramme) 25% Suppliers 2.6 Retail market development (quant.) 20% Customers 3.9 Easy-to-do-Business (quant.) 10% Substitutes 1.0 Investment cost (qual.) 30% Source: Team Analysis Popularity (qual.) 15% BARGAINING POWER OF SUPPLIERS Porter's Rating Very high 5 Closed contracts with ΙΚΕΑ Relationship with co-antagonists High 4 (INTERSPORT) Medium 3 BARGAINING POWER OF CUSTOMERS Low 2 Competition (quant., CPI diagramme) 40% Very low 1 Product differentiation (qual.) 60% THREAT OF SUBSTITUTES Source: Team Analysis Explanation: The Porter’s Five Forces ratings are completed in two phases. Firstly, a rating is made for each brand in every country of activity where the total score of a country is the score of each brand, weighted by the percentage of revenue made by each brand. Secondly, each country’s score is weighted by the percentage of Fourlis’ revenue made in each country, to calculate Fourlis’ total score.

APPENDIX 12: BASKET ANALYSIS

Price Basket Process 1. We chose a representative basket of goods, with items from multiple departments 2. The price of each good in the basket depends on the online price; special offers were excluded. In case the exact product was not available, we opted for another one, whose specifications matched best to those of the original product. If similar products are not available, the good was eventually not used in the analysis. 3. For every furnishing retailer, both the quantity and the price range of the products offered in each category were recorded. 4. For each sportswear retailer, the number of supported sport categories was recorded. 5. In order to reach a final value proposition, the goods were normalised by a factor of their mean. The total relative price basket value, being the average normalised price, is the sum of the normalised values of each good.

Normalisation Process To create a sample representative of IKEA’ product range, the price basket analysis required a variety of products with different price ranges. That, the price basket was normalised by dividing the price of each product by the average price of its category. The aforementioned procedure was applied for every good and the normalised price basket corresponded to the average normalised cost. This method was perceived as more indicative in terms of analysing the pricing competitiveness of each retailer; the mean was chosen as a normalisation factor because of its ability to maintain the relative orderings of the retailers in each category and therefore their price range.

This report is published for educational purposes only by students competing in The CFA Institute Research Challenge. 17 Athens University of Economics and Business, Department of Accounting &Finance IKEA: Basket Analysis In € Characteristics ΙΚΕΑ JYSK PRAKTIKER MARMARIDIS ENTOS Bed Double - Wooden - Length≈ 209cm - Width≈ 176cm 189 159 219 315 Mattress Springs - Double - Length≈ 200cm - Width≈ 160cm 169 179 199 145 Bedside Table 2 Drawers 60 40 60 102 Wardrobe 3 Doors - Width≈ 140cm - Height≈ 181cm 119 110 119 Bedroom Total 597 528 657 490 664 Office Table Wooden - Side Drawer - Width≈ 140cm - Height≈ 73cm 159 199 119 114 Seat Rotating - Seat Height≈ 60cm 89 80 63 150 Library 2 Columns - Height ≈1.5m 64 55 60 109 264 Office Total 312 334 242 528 Sofa 3Seats - Width≈2.28m - Fabric 399 399 199 380 414 Table 2 Levels - Length≈1.18m 50 129 90 59 210 Wooden - Storage Capacity:2 Closets/Shelves - TV Furniture 80 129 90 79 250 Width≈1.20m Living Room Total 529 657 379 518 874 Dining Table 10Seats - Extendable - Length≈1.80m - Height≈74cm 199 169 219 289 450 Chair Wooden - Width≈43cm - Seat Height≈48cm 35 40 35 27 126 Dining Table Wooden - 6Chairs - Extendable - Length≈2m -Pine Massif 669 1.000 399 984 with 4-6 Chairs Kitchen-Dining Room Total 1,008 1,329 758 1,381 2,608 Total Price 2,446 2,848 2,036 2,389 4,674 NORMALIZED PRICE 0.84 0.93 0.79 0.87 1.61 Source: Team Analysis IKEA JYSK PRAKTIKER MARMARIDIS ENTOS In € Price Q Price Q Price Q Price Q Price Q Bed 89-479 40 70-230 10 139-299 25 128-500 18 450-1,350 9 Mattress 59-759 55 45-225 7 159-399 106 398-1,200 13 180-930 8 BEDROOM Bedside Table 25-119 28 24-99 11 25-70 22 170-210 4 Wardrobe 40-219 17 18-399 29 65-299 25 299-690 13 Office Table 45-299 38 45-129 9 25-169 29 350-590 5 190-410 3 OFFICE Seat 25-249 51 30-169 14 19-129 39 39-69 3 79-459 15 Library 29-867 68 30-139 21 25-159 32 39-109 6 240-440 3 Sofa 90-1500 121 100-475 10 100-499 38 100-1,500 109 550-1,850 17 LIVING Table 30-249 56 55-299 30 30-139 27 49-550 45 160-599 15 ROOM TV Furniture 40-400 34 60-249 10 90-299 6 79-490 13 KITCHEN- Dining Table 199-599 39 50-399 18 80-229 7 100-990 52 450-1,290 10 DINING Chair 20-139 51 20-99 28 13-80 50 27-130 40 129-259 9 ROOM Dining Table with 4-6 Chairs 75-1018 59 115-639 40 80-119 5 98-1,180 55 Source: Team Analysis Explanation: Q is for quantity of offerings products Results From the analysis, we were able to conclude that IKEA is very competitive in terms of pricing and is the leader in terms of offered quantities, verifying its ‘value for money’ strategy. INTERSPORT: Basket Analysis

In € Item INTERSPORT COSMOS ZAKCRET Shoes 54.99 54.90 54.90 Clothes - Equipment 34.99 36.80 36.80 Ball 24.99 24.95 24.95 Football Soccer Bag 20.00 35.00 20.00 Football Pack Total 134.97 151.65 136.65 Shoes 44.00 40.00 45.00 Tennis Racket 40.00 60.00 45.00 Bag 49.99 49.95 49.20 Tennis Accessories 22.98 22.85 22.09 Tennis Pack Total 156.97 172.80 161.29 Total Price 291.94 324.45 297.94 € Normalized Price 0.96 1.08 0.97 Source: Team Analysis

This report is published for educational purposes only by students competing in The CFA Institute Research Challenge. 18 Athens University of Economics and Business, Department of Accounting &Finance Sport ADIDAS INTERSPORT NIKE COSMOS ZAKCRET Football ✓ ✓ ✓ ✓ ✓ Basketball ✓ ✓ ✓ ✓ ✓ Running ✓ ✓ ✓ ✓ ✓ Gym - Training ✓ ✓ ✓ ✓ ✓ Skateboard ✓ ✓ ✓ ✓ ✓ Lifestyle ✓ ✓ ✓ ✓ ✓ Golf ✓ ✓ Swimming ✓ ✓ ✓ ✓ Tennis ✓ ✓ ✓ ✓ ✓ Hockey ✓ ✓ Martial Arts ✓ ✓ ✓ ✓ Rugby ✓ Cycling ✓ ✓ Volleyball ✓ ✓ ✓ ✓ ✓ Handball ✓ ✓ Weight Lifting ✓ Ballet ✓ ✓ ✓ Ping Pong ✓ ✓ ✓ Winter Sports ✓ Yoga ✓ ✓ ✓ ✓ ✓ Source: Team Analysis Results The above analysis indicates that INTERSPORT is very competitive in terms of pricing. Moreover, Intersport stands well in terms of supporting a variety of sport categories, although ADIDAS is more competitive.

APPENDIX 13: BOWMAN’S STRATEGY CLOCK Methodology: 1. Bowman's strategy clock is a model used in marketing to analyse the competitive position of a company in comparison to the offerings of competitors. Competitive positioning, in Bowmans’ clock is presented as the combination of price and value of the products. 2. The 8 positions are illustrated in the following table:

Result: Considering all the available data and the basket analysis, our results about leading competitors in the two industries are the following figures:

Furnishing Industry A leader in furniture retail as it successfully combines the IKEA “Value for Money” strategy with great diversification of products. Both firms have a strategy close to “Value for Money” but the PRAKTIKER- quantity of products offered, in JYSK many departments, is quite limited. These firms have a strategy ENTOS- closer to “Quality over Price” MARMARIDIS which leads to high prices making them less competitive.

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Sportswear Industry Offers a wide range of products, covering a great number of sports, in very competitive prices. Despite not INTERSPORT being a producer itself, the wide range of brands offered holds the key to INTERSPORT’s current status. Both firms offer a variety of brands in COSMOS- their stores in very competitive ZAKCRET prices and share a good market share ADIDAS- Their brand awareness acts as NIKE catalyst for their dominant positions.

APPENDIX 14: SWOT ANALYSIS

A SWOT analysis was performed to better understand FOURLIS’ competitive positioning within the industry. It is structured around a series of categories within each SWOT section. Each category is ranked according to its potential impact on FOURLIS. A 30-points system was used to analyze the overall position of FOURLIS.

Weaknesses

Strategies 3 Profitability Facilities 2 Cost 1 Management Structure 0 Internal Marketing Operations

Property Brand Image Development Product Line

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Strengths Weaknesses ✓ Brand awareness ✓ The majority of FOURLIS’s ✓ Healthy supply chain retail stores at market ✓ Well diversified saturation ✓ Improving financial ✓ Macroeconomic performance environment IKEA IKEA ✓ Value for Money strategy ✓ High initial investment ✓ Customer’s experience is and fixed cost in enhanced via various activities furnishing sector ✓ Pick-up Points – Alternative INTERSPORT and low-cost investment ✓ Exposed to a high number Intersport-TAF of suppliers and lack of ✓ Low initial investment and well-known own brands fixed cost in sportswear sector ✓ High range of products / prices Opportunities Threats ✓ Expected increase in e- ✓ Strong competition commerce and retail market in ✓ Price war all regions of activity ✓ Economies of scale ✓ New products and services APPENDIX 15: MULTIPLES VALUATION

We opted for three companies for each of the two main fields (furnishing and sportswear retail) and calculated the Multiples price as the weighted average

Market Multiples Cap(Mil.) P/E P/SALES P/BV P/CASH FLOW EV/EBITDA FOURLIS 295.15 € 44.71 0.69 1.9 13.11 10.71 IKEA PEERS Maisons du Monde SA (MDM.PA) € 1,626 33.81 1.66 3.49 22.76 34.23 Troc de l Ile SA (TRDL.PA) € 5 7.31 0.24 0.82 4.14 3.94 Beter Bed Holding NV (BETR.AS) € 283 26.83 0.67 3.74 17.15 - IKEA PEERS MEDIAN x 26.83 x 0.67 x 3.49 x 17.15 x 19.085 INTERSPORT PEERS XXL ASA (XXLA.OL) € 1,170 24.58 1.4 3.24 18.52 18.93 Basic Net SpA (BCNT.MI) € 225 23.65 1.71 2.21 14.92 10.71 Intersport Polska SA € 52 - 0.28 2.13 - -5.9 INTERSPORT PEERS MEDIAN x 24.115 x 1.4 x 2.21 x 16.72 x 10.71 FOURLIS PEERS MEDIAN x 25.964 x 0.903 x 3.082 x 17.013 x 16.413 FOURLIS Target Price through each Multiple 3.310€ 7.459€ 9.245€ 7.397€ 8.735€ TARGET PRICE 7.229€ Source: Team Analysis of the two medians (one of each industry), with each weight corresponding to their 2016 sales.

APPENDIX 16: SALES To forecast future sales, we considered factors that have a direct effect, such as the GDP growth rate, general and specified retail industry, the CPI, and the percentage amount of the income used for the consumption of products similar to those of IKEA and INTERSPORT.

APPENDIX 16: SALES : A) RETAIL INDUSTRY, GDP GROWTH AND CONSUMER PRICE INDEX First, we focused on the analysis of current trends in every retail industry within FOURLIS‘ operating range. The examination of the compiled historical data, reviled a lack of equilibrium in most countries. Hence, the progression of future sales in each country will be affected by the macroeconomic equilibriums achieved at some point; this will be largely determined by the progression of existing trends. *Explanation: Equilibrium between macroeconomic figures: Throughout the years, the general domestic retail industry and the GDP of a country exhibit a certain correlation that leads to trends in the evolution of the aforementioned figures. However, during periods of a crisis or rapid economic expansion, this balance tends to breaks down, thus creating what is otherwise known as a macroeconomic anomaly; this occurs in most of the 5 countries in the analysis. Correspondingly, the general and the specified(furnishing and sportswear) domestic retail industry should follow a similar path on the long run as well as the total turnover and the CPI of each industry. Nevertheless, ever since the financial crisis of 2008, this balance seems to have been disrupted in most countries.

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BULGARIA

CYPRUS

ROMANIA RESULTS

Due to the crisis, equilibrium has been totally disrupted, with the GREECE furnishing retail industry taking a massive hit since 2010.

As observed, the greatest anomaly in the Bulgarian BULGARIA economy is situated between the country’s GDP and retail TURKEY industry.

With the exception of furnishing CYPRUS retail, everything seems to be close to pre-crisis standards.

An economy with small ROMANIA macroeconomic anomalies.

Great imbalances can be observed; notably, the retail TURKEY industry is well above its theoretical levels.

APPENDIX 16: SALES : B) DISTRUBITION OF CONSUMPTION

In order to indicate trends in consumption, a distinctive analysis about the distribution of consumption in the furnishing and sportswear retail industries was performed. The accumulated data were compared to the intertemporal average rate of consumption within the European Union members.

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APPENDIX 16: SALES : C) RETAIL INDUSTRY TURNOVER Based on the previous forecasts, the local demographic characteristics and the distribution of income among the different cities in every country, we estimated the future retail industry turnover growth both for IKEA and INTERSPORT

stores in FOURLIS’ regions of activity. APPENDIX 16: SALES : D) IKEA STORES’ MAPS OF POTENTIAL CUSTOMERS Contrary to INTERSPORT stores, potential customers of IKEA stores originate not only from a store’s region but from neighbor areas as well. The number of a store’s potential customers comes as the percentage of neighbor regions. To estimate potential customers of a new store, we use the percentage of population in the local region along with a dynamic ratio. For regions with a driving distance of 20 minutes, we use 100% of the region’s population as potential customers. Every minute of extra driving distance equals to a 1% decrease. For a driving distance longer than 120 minutes, the citizens do not count as potential clients of IKEA store. This approach was based on the fact that people tend to drive from one region to another in order to visit an IKEA store. After communicating with FOURLIS representatives, we were informed that the accessibility of a store and especially the road network of the surrounding area are critical. In the 3 following maps, we used blue sonars for potential customers of current stores and green sonars for the new main stores in Crete and Varna.

Bulgaria % of potential clients Current New stores (extra from population stores customers) Sofia capital 100% Pernik 90% Blagoevgrad 50% Burgas 50% Kyustendil 40% Lovech 20% Plovdiv 40% Pleven 10% Vratsa 30% Montana 5% Varna 50% 50% Dobrich 60% Shumen 55% Targovishte 35% Razgrad 35% Silistra 20% Ruse 5% Source: Team Analysis

This report is published for educational purposes only by students competing in The CFA Institute Research Challenge. 23 Athens University of Economics and Business, Department of Accounting &Finance Greece New stores % of potential clients from Current (extra population stores customers) North Athens 100% West Athens 100% Central Athens 100% South Athens 100% West Attica 90% East Attica 60% and islands 100% South Aegean 50% 15% Crete 50% 50% Eastern Macedonia and 30% Thrace Central Macedonia 80% Western Macedonia 15% Thessaly 75% Ionian Islands 20% Epirus 75% Western Greece 30% Central Greece 10% Peloponnese 20% Source: Team Analysis

Cyprus % of potential clients from Current stores population Nicosia 100% Limassol 70% Larnaca 90% Paphos 30% Source: Team Analysis

2017 New stores 2025 APPENDIX 16: SALES : E) FOURLIS 2025 PROJECT Greece 50 +5 55 In order to envision the company’s project and accurately incorporate it into our analysis, we Cyprus 4 +1 5 contacted with the company’s representatives. We were informed about the criteria that are Bulgaria 7 +3 10 evaluated when deciding the location of new stores in periods of network expansion, as well as Romania 29 +11 40 the exact number of new stores scheduled for each country in the following 8 years. Based on these criteria and relative drivers, further research on demographical characteristics, the Turkey 24 +31 55 forecasted income per capita and the forecasted population growth we ended up with the Source: Company Data following possible options for the new locations: (Greece-blue, Cyprus-yellow, Bulgaria-green, Romania-brown, Year 2018 2019 2020 2021 2022 2023 2024 2025 Turkey-red) New stores 1 2 4 6 7 10 10 11 Source: Company Data

FOURLIS 2025 project: Regions' of the new Intersport stores 2018 2019 2020 2021 2022 2023 2024 2025 Izmir North Aegean Central Athens North Athens North Athens Central Athens Pleven Targu Mures Kocaeli Plovdiv Plovdiv Larnaca Cluj-Napoca Galați Botoșani Oradea Brăila Arad Craiova Brașov Satu Mare Izmir Instabul Sibiu Izmir Adana Bursa Instabul Sanliurfa Diyarbakır Konya Instabul Ankara Mersin Manisa Instabul Antalya Hatay Kayseri Gaziantep Ankara Samsun Sanliurfa Izmir Balıkesir Kocaeli Van Kahramanmaras Mersin Aydın Denizli Source: Team Analysis

This report is published for educational purposes only by students competing in The CFA Institute Research Challenge. 24 Athens University of Economics and Business, Department of Accounting &Finance APPENDIX 16: SALES: F) SALES RESULTS 2017-2025 TOTAL SALES AND SALES GROWTH Intersport IKEA TOTAL SALES GROWTH Attachment: The increased growth rate that is noticed 2017 140,397,691 298,584,861 438,982,552 2.61% from 2019 until 2022 is caused by : 2018 145,869,213 314,613,038 460,482,251 4.90% →The partial elimination of macroeconomic 2019 153,377,309 336,675,254 490,052,563 6.42% anomalies 2020 162,426,614 367,130,006 529,556,620 8.06% →The increasing turnover of stores that haven’t reached their maximum market share yet. 2021 169,721,086 399,376,438 569,097,524 7.47% →The new investments of FOURLIS 2025 project. 2022 178,266,772 425,574,637 603,841,409 6.11% 2023 186,535,017 452,189,005 638,724,022 5.78% 2024 195,611,835 477,980,948 673,592,782 5.46% 2025 205,155,335 502,895,426 708,050,761 5.12% Source: Team Analysis

COUNTRIES' SALES GROWTH GREECE BULGARIA CYPRUS TURKEY ROMANIA Intersport IKEA Intersport IKEA Intersport IKEA Intersport Intersport 2018 4.47% 4.97% 9.53% 7.75% 0.11% 3.94% 6.51% 1.54% 2019 8.41% 7.08% 5.82% 8.98% -1.82% 4.07% 3.70% 0.54% 2020 9.14% 9.36% 8.23% 11.33% -1.49% 4.42% 4.12% 0.83% 2021 6.03% 9.17% 9.56% 10.35% -0.28% 4.64% 3.94% 1.26% 2022 5.57% 6.21% 9.68% 8.85% 6.92% 4.58% 4.55% 3.02% 2023 4.61% 6.60% 6.20% 5.84% 5.20% 5.24% 7.57% 2.84% 2024 4.75% 5.95% 9.40% 5.13% 4.07% 5.43% 8.06% 2.74% 2025 4.45% 5.61% 8.10% 4.57% 4.24% 4.29% 7.89% 3.72% Source: Team Analysis

The analytical table of sales’ growth in each country and industry demonstrates the impact of the elimination of macroeconomic anomalies and the implication of FOURLIS 2025 project. It should be noted that the sales growth is not the same for each country, as a result of the different real GDP growth. Important observations: ✓ Greece : The macroeconomics anomalies have a significant impact on both industries. In addition, new investments keep the growths high for a long period of time. ✓ Bulgaria : Potential plans of increasing sales can be achieved due to the high real GDP growth. Varna’s new IKEA main store contributes to a sales’ growth higher than 10%. ✓ Cyprus and Romania : Related industries have a sales growth approximately equal to the real GDP growth, because of the lack of macroeconomic anomalies between special retail industries and general retail. Only the new investments push the growth higher; this comes as the result of an increase in potential customers. ✓ Turkey : The retail sportswear industry is a market where FOURLIS will introduce a great number of stores, especially in the 2023-2025 period; this is reflected fully in the sales growth. APPENDIX 16: SALES: G) RESULTS 2017-2059 The following chart presents the percentage of sales growth above the weighted average GDP. As observed, long-term sales cannot increase more than the weighted average of GDP growth, due to maturity in all regions of activity.

This report is published for educational purposes only by students competing in The CFA Institute Research Challenge. 25 Athens University of Economics and Business, Department of Accounting &Finance APPENDIX 17: OPERATING COSTS Based on historical data and other features from FOURLIS’ financial statements, we calculated the average annual change in operating expenses. Research indicates that two categories of operating expenses (Salaries, Rents and Energy costs) seem to have a bigger annual change in periods where countries have a high GDP growth rate. This could be a result of inflation or expanding economies. That being so, a premium was incorporated into these two categories. Operating Expences IKEA Historical analogies of Annual Historical Estimated annual Premium Operating costs Change change Salaries 38.81% 1.47% 0.85% 0.90% Rents and Energy 37.09% 0.57% 0.85% 0.53% Advertising, Storage and Shipping Costs 15.76% 1.00% - 0.16% Other Expenditures 8.34% 1.00% - 0.08% Total 100.00% 1.668% Source: Company Data and Team Analysis Operating Expences Intesport Historical analogies of Annual Historical Estimated annual Premium Operating costs Change change Salaries 33.82% 1.93% 0.85% 0.94% Rents and Energy 45.58% 1.27% 0.85% 0.97% Advertising, Storage and Shipping Costs 12.03% 1.00% - 0.12% Other Expenditures 8.56% 1.00% - 0.09% Total 100.00% 2.113% Source: Company Data and Team Analysis APPENDIX 18: WACC In order to calculate the WACC, we use the CAPM adjusted with Country Risk Premium, using Damodaran’s Lamda approach. Specifically, each CRP is calculated based on the country’s rating by Moody’s with the aggregate CRP coming as the weighted average of each CRP; each weight corresponds to a specific Lamda. Each Lamda is estimated through FOURLIS’ sales in each country and the country’s exports. Furthermore, we use a “mature” market as a benchmark and its 10-years bond rate as the risk free rate. In our case, was our choice as mature market. Countries Rating CRP % of Total Weigted CRP Country's exports % LAMBDA Greece B3 7.50% Sales CRP Bulgaria Baa2 2.19% Greece 7.50% 60.59% 30.46% 0.8713 6.53% Cyprus Ba3 4.15% Bulgaria 2.19% 14.70% 63.98% 0.4080 0.89% Romania Baa3 2.54% Cyprus 4.15% 11.78% 65.30% 0.3395 1.41% Turkey Ba1 2.88% Turkey 2.88% 3.98% 21.97% 0.0510 0.15% Romania 2.54% 8.95% 41.39% 0.1528 0.39% Source: Team Analysis and World Bank FOURLIS' CRP: 9.37%

Expected Return per year calculation FOURLIS' effective tax rate Equity Risk Country Risk Required Return (Damodaran 2018 22.03% Risk free Premium premium Lamda approach) 2019 22.18% 2018 0.76% 6,83% 9.36% 16.95% 2020 22.27% 2019 0.76% 6.50% 9.39% 16.66% 2021 22.39% 2020 0.76% 6.14% 9.53% 16.43% 2022 22.42% 2021 0.76% 5.85% 9.42% 16.02% 2022 0.76% 5.51% 8.38% * 14.64% 2023 22.48% 2023 0.76% 5.29% 8.38% 14.42% 2024 22.53% 2024 0.76% 4.92% 8.38% 14.06% 2025 22.58% 2025 0.76% 4.80% 8.38% 13.94% Source: Team Analysis 2026+ 0.76% 4.71% 8.37% 13.85% Source: Team Analysis and Reuters * Greece rating upgrade from B3 to B2

WACC calculation per year Required Return Long-term Debt rate Short term Debt Rate WACC 2018 16.95% 4.14% 6.00% 10.83% 2019 16.66% 4.13% 6.00% 11.08% 2020 16.43% 4.14% 6.00% 11.48% 2021 16.02% 4.15% 6.00% 11.70% 2022 14.64% 4.17% 6.00% 11.35% 2023 14.42% 4.20% 6.00% 11.60% 2024 14.06% 4.24% 6.00% 12.08% 2025 13.94% 4.30% 6.00% 12.24% 2026+ * 13.85% 4.70% 6.00% 12.40% Source: Team Analysis * From 2026 to 2059, WACC calculation continues to be dynamic with changes in weights based on balance sheet figures.

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The WACC increases through time. 2022 is the sole exception; it is the year when we assume that the Greek credit rating upgrade from B3 to B2 will occur. APPENDIX 19: TERMINAL GROWTH

The terminal value growth is calculated as the weighted 2022 Real GDP Growth (IMF forecast) average (weights 2022 FOURLIS’ sales) of the 2022 real GDP Greece 1.00% growth of each country (2022 real GDP growth is forecasted by Bulgaria 2.50% IMF). Cyprus 2.20% Romania 3.30% Turkey 3.60% Terminal Value Growth 1.630% Source: IMF and Team Analysis

APPENDIX 20: FREE CASH FLOW TO EQUITY 2018F 2019F 2020F 2021F 2022F 2023F 2024F 2025F Free Cash Flow to 17,927,800 27,859,633 -4,995,609 43,396,001 35,580,337 68,833,845 30,967,796 60,188,828 the Firm (FCFF) WACC 10.83% 11.08% 11.48% 11.70% 11.35% 11.60% 12.08% 12.24% Discount Factor 90.23% 81.04% 72.18% 64.24% 58.41% 51.77% 45.02% 39.71% Present Value of 16,175,554 22,577,918 -3,605,638 27,879,482 20,782,544 35,635,227 13,942,350 23,900,379 Free Cash Flow Source: Team Analysis

Perpetual Growth Rate 1.6303% Present Value of FCFF During Finite Horizon 453,564,116

Present Value of Terminal Value 10,618,615 DCF Target Price 6.835€ Enterprise Value 464,182,731 Current Price (08.02.2018) 5.70€ Less: Total Debt 146,792,673 Upside (Downside) Potential 19.91% Plus: Cash & Cash Equivalents 33,472,789 Source: Team Analysis Equity Value 350,862,847

Number of Shares Outstanding 51,330,000 Source: Team Analysis

This report is published for educational purposes only by students competing in The CFA Institute Research Challenge. 27 Athens University of Economics and Business, Department of Accounting &Finance APPENDIX 21: MONTE CARLO SIMULATION We performed a Monte Carlo Simulation in order to understand the sensitivity of our model to variations in the adopted assumptions. The fact that our estimation is based on the elimination of macroeconomic Potential Years of full elimination of anomalies means that the greatest uncertainty comes from future trends in a country’s economy and Macroeconomic Anomalies Between industry. We tested the variables related to macroeconomic equilibriums, which determine the sales General Retail industry and specials forecast, looking into historical data and our own insight. retail industries Retail industries Min Base Max Given that FOURLIS’ stores in Greece constitute 62% of Potential Years of full Greece: Furniture 2046 2056 2072 its total revenues, the elimination of anomalies in the elimination of Macroeconomic Greece: Clothing 2049 2058 2076 Greek economy and retail industries will undeniably Anomalies Between General and Footwear have a major impact on the sensitivity of the price. Retail industry and countries’ Bulgaria: Furniture 2036 2046 2072 According to the following matrix, the potential years economies Bulgaria: Clothing when the Greek variables are estimated to reach an 2030 2037 2059 Country Min Base Max and Footwear equilibrium have relatively big range. For this reason, we Cyprus: Furniture 2034 2041 2055 Greece 2052 2059 2078 consider the yaer of market equilibrium one of the most Cyprus: Clothing 2018 2018 2019 sensitive variables used in our model. Bulgaria 2045 2058 2089 and Footwear Romania: Clothing Cyprus 2026 2030 2039 2018 2019 2020 and Footwear Romania 2021 2022 2024 Turkey: Clothing Simulation Statistic 2028 2033 2044 and Footwear Trials 100.000 Turkey 2046 2057 2084 Base Case 6.73 Mean 6.45 Median 6.48 Standard 0.432 Deviation Variance 0.186 Skewness -0.3150 Kurtosis 1.0102 Minimum 3.74 5% Percentile 5.71 25% Percentile 6.18 75% Percentile 6.75 95% Percentile 7.11 Maximum 11.33 Buy recommendation 68.51% scenarios Source: Team Analysis

APPENDIX 22: SENSITIVITY ANALYSIS

We ran sensitivity tests for all the variables that cannot be totally controlled and can directly affect the company.

Sensitivity analysis on Greece rating positive outlook (upgrade from B3 to B2) * Sensitivity analysis on Long-term Debt rate (from 2026 to 2059) Target Price Target Price Upside/Downside Rate (% change of base Year of (% change of base Upside/Downside (Recommendation) upgrade scenario target (Recommendation) scenario target price) price) 5.20 % €6.819 (-0.23%) 19.63% (BUY) 2020 €6.847 (0.17%) 20.12% (BUY) 4.95% €6.827 (-0.12%) 19.78% (BUY) 2021 €6.848 (0.19%) 20.14% (BUY) 4.70% €6.835 19.91% (BUY) 2022 €6.835 19.91% (BUY) 2023 €6.824 (-0.19%) 19.72% (BUY) 4.45% €6.844 (0.13%) 20.06% (BUY) 2024 €6.795 (-0.59%) 19.21% (BUY) 4.20% €6.852 (0,25%) 20.21% (BUY) * 21/2/2018 Moody's upgrade Greece rating from Caa2 to B3 * Until 2025 the Long-term Debt rate is calculated through Long-term with positive outlook loans analysis Source: Team Analysis Source: Team Analysis

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Sensitivity analysis on Operating Expenses premium IKEA Operating expenses annual INTERSPORT/TAF Operating Target Price (% change of Upside/Downside Premium growth (% change of base expenses annual growth (% base scenario target price) (Recommendation) scenario) change of base scenario) 1.35% 1.864% (11.75%) 2.51% (18.79%) 6.191 (-9.42%) 8.60% (HOLD) 1.10% 1.765% (5.82%) 2.31% (9.32%) 6.518 (-4.64%) 14.35% (BUY) 0.85% 1.668% 2.113% 6.835€ 19.91% (BUY) 0.60% 1.569% (-5.94%) 1.915% (-9.37%) 7.145 (4.53%) 25.35% (BUY) 0.35% 1.471% (-11.81%) 1.716% (-18.79%) 7.445 (8.93%) 30.61% (BUY) Source: Team Analysis

Sensitivity analysis on Terminal value Growth (from Sensitivity analysis on EUR to TRY Exchange Rate 2059+) Target Price Terminal Target Price Upside/Downside (% change of base Upside/Downside value (% change of base Rate (Recommendation) scenario target (Recommendation) growth scenario target price) price) 5.05 €6.983 (2.17%) 22.51% (BUY) 0.50% €6.815 (-0.30%) 19.56% (BUY) 4.80 €6.909 (1.08%) 21.21% (BUY) 1.00% €6.824 (-0.16%) 19.71% (BUY) 4.55 €6.835 19.91% (BUY) 1.63% €6.835 19.91% (BUY) 4.30 €6.761 (-1.08%) 18.61% (BUY) 2.00% €6.842 (0.10%) 20.04% (BUY) 2.50% €6.853 (0.27%) 20.23% (BUY) 4.05 €6.688 (-2.15%) 17.33% (BUY) Source: Team Analysis (**) Source: Team Analysis Sensitivity analysis on EUR to RON Exchange Rate (**) The range is based on 52-weeks range of the exchange rate Target Price (% change of base Upside/Downside We ran sensitivity test for all variables that FOURLIS’ executives can not totally control Rate scenario target price) (Recommendation) and meanwhile can directly affect the company. 4.75 €6.892 (0.83%) 20.91% (BUY) 4.70 €6.864 (0.42%) 20.42% (BUY) The results indicate that the Operating Expenses, which are determined exogenously 4.65 €6.835 19.91% (BUY) due to inflation and other macroeconomic factors, have the greatest impact on the 4.60 €6.806 (-0.42%) 19.40% (BUY) target price and therefore on our recommendation. While rest factors still affect the company (and the target price), their impact is of little significance. 4.55 €6.778 (-0.83%) 18.91% (BUY) (**) Source: Team Analysis

APPENDIX 23: RISK ASSESSMENT

This report is published for educational purposes only by students competing in The CFA Institute Research Challenge. 29 Athens University of Economics and Business, Department of Accounting &Finance APPENDIX 24: CORPORATE GOVERNANCE EVALUATION To analyse the strength of FOURLIS’ corporate governance, the Institutional Shareholder Service (ISS) Rating Methodology on Corporate Governance was utilized. The rating on corporate governances is as follows: Institutional Shareholder Service (ISS) Rating Methodology Audit and Risk Oversight 10 - Insignificant threat to shareholders The independent auditor had a positive opinion in the financial statements-they were represented on “true and fair view”-last year and no regulatory enforcement actions were imposed against the company. Furthermore, no changes were taken in audit firm for invalid and questionable reasons, which leads to insignificant threat to shareholders. Board Structure 6 - Moderate threat to shareholders Although the Board structure includes independent members as well as members of the Audit Committee, there lies a risk because of the hierarchies of FOURLIS family. Due to the level of trust inherent at family firms, governance issues such as internal hierarchies and rules, as well as the ability to follow and adhere to external corporate laws, tend to be taken less seriously at family businesses and this can be risky. Executive Management 8 - Low threat to shareholders Very experienced management team with a clear growth strategy. Management has successfully navigated the company through a variety of economic cycles and strategic moves and changes over the last years. Shareholder Rights and Takeover Defences 4 - Significant threat to shareholders The General Meeting of Shareholders is the supreme instrument and is entitled to resolve on any affair regarding the company. As far as takeover defence is concerned, there are no line of defense in the Group’s charter generating a threat to the shareholders. Compensation/Remuneration 10 - Insignificant threat to shareholders FOURLIS maintains a separate Nomination and Remuneration Committee which is responsible for reviewing and making proposals to the Board of Directors concerning the remuneration of each individual Board member and the stock option and share award programmes. It also proposes targets for performance-related compensation-and review the annual remuneration report. Disclosure and Transparency 8 - Low threat to shareholders Management provides quarterly earnings calls discussing a variety of key metrics. FOURLIS has a strong investor relations site, allowing investors to view information as far back as 2005. SCORE: 7.7/10 - Low threat to shareholders Source: Team Analysis

APPENDIX 25: CORPORATE GOVERNANCE: SHORT RESUME OF EXECUTIVES

Name Title Background Chairman of the Board of Holds a Masters Degree in Economic Development and Regional Planning from University of Fourlis Directors, Executive Member, California/Berkeley and a Masters Degree in International Business from Boston Vasileios Chairman of the Nomination University/Brussels. He is the Executive Chairman of Fourlis Holdings S.A. and a member of the and Remuneration Committee Board of Directors of Housemarket S.A. (IKEA). Holds a Business Administration degree from the University of Piraeus. He worked for 6 years (1985-1990) with Colgate Palmolive in the Finance department and 17 years (1990-2007) with Petalas Chief Executive Officer, PepsiCo assuming roles of increasing responsibility from CFO to Chairman and Managing Apostolos Executive Member Director. He is Vice Chairman of the Association of Chief Executive Officer (ACEO) and member of the Board of Directors of the Hellenic Retail Business Association (HRBA). Holds a Degree in Mathematics from the University of Patras and an M.B.A. in Finance from ALBA. He is licensed as a Special Trader on the Athens Derivatives Exchange (ADEX) and holds a Alevizos Finance Manager (Treasury, Trader's certificate from the International Currency Traders Association (ACI). He joined FOURLIS George IR, Risk Management) Group in April 2000 as Group Corporate Treasurer and currently he holds the position of Finance Manager. Holds a degree in Production Engineering and Management from the Technical University of Crete and an MSc in Operations Management from the University of Manchester. She is a Theodoulidou Finance Manager (Planning certified Internal Auditor (CIA), Control Self Assesment (CCSA) and Information Systems Auditor Maria and Controlling) (CISA). Her previous experience includes 6 years with KPMG, 3 of which in a senior management position. She joined the Group in 2000 as an Internal Audit Manager and today she is responsible for Planning and Controlling. She has in total 22 years of working experience in the field of Human Resources, from which 10 Spirou years as a Director, in the sectors of retail (AB Vasilopoulos-Delhaize Le Lion Group), the Human Resources Director Natasha industrial sector (Pirelli Hellas, M.J.Maillis Group) and the telecommunications (STET Hellas, Tellas). Joined the company on January 2008 as Human Resources Director. He has in total 25 years of working experience in the field of Information Technology, from which Vidoris Information Technology 5 years in Managerial positions, in the IT Software sector (IMS Informatics SA) and 13 years the Manolis Director automotive (TOYOTA Hellas) and the retail sector (IKEA). Holds a Bachelor's degree in Economics from Deree College and an M.B.A. from Dartmouth Corporate Social College. Upon her return to Greece in 1989, she joined FOURLIS Bros. S.A. (now FOURLIS Fourlis Lida Responsibility Director, HOLDINGS S.A.), in the Marketing Department. Since 1998 and for the next ten years, she held Executive Member Director the position of Human Resources Director. Currently she holds the position of Corporate Social Responsibility Director for the Group.

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