Initiation of Coverage – 11/16/2020

IERVOLINO ENTERTAINEMENT A PURE PRODUCTION PLAY ENTERS THE STAGE

Target: €6.7 Price: €3.14 Upside: +113% BUY

IPOed on AIM Milan in August 2019 (€1.95/share; €10.4m of Contacts proceeds), IE is specialised in the production mainly of cartoons, Babi Kulasingham but also films and series. We think this Italian company so far Equity Research rather unknown on the markets nevertheless deserves some +33 1 40 74 15 88 attention. IE is a rare play in the content industry, is growing [email protected] rapidly, supported by favourable regulation frameworks, and should also benefit from the increasing investments from SVOD platforms. IE is relevantly positioned with a business model Key data offering visibility and security thanks to its productions’ pre- Country Italy financing. FAANGs are not mistaken: Netflix and Apple are Subsector Media Content already enthusiastic about their productions. We initiate IE with Bloomberg IE IM Equity a rating to Buy. Market Cap. (EURm) 104,7 Free Float (%) 17,2% 30d avg. volume 11 777 The right place, at the right time: it’s great to be a European producer Financials 2019A 2020E 2021E 2022E 2023E Independent European producers are currently living a true golden Sales (EURm) 80,0 113,7 136,6 114,3 144,4 age. The ongoing battle between traditional broadcasters and "new Δ YoY (%) 131% 42% 20% (16%) 26% entrant" OTT players, such as Netflix and Amazon, has led to an Adj. EBIT (EURm) 22,7 24,8 28,5 24,7 31,8 increase in demand for content. This should structurally continue over Margin (%) 28,4% 21,8% 20,9% 21,6% 22,0% the coming years. Netflix sees Europe as its new "Eldorado", as the Net Income (EURm) 20,3 21,7 23,9 20,6 26,3 American market is beginning to saturate. Moreover, independent EPS, Adjusted (EUR) 0,58 0,59 0,65 0,56 0,72 producers will directly benefit from the AVMS Directive, which will Net debt (EUR) 1 12 16 5 (12) generally compel broadcasters to invest more at the European level. FCF (EURm) (11) (11) (3) 11 18 ROCE (%) 13,6% 35,8% 23,2% 19,8% 15,8%

Net Debt/Adj. EBIT (x) 0,0x 0,5x 0,6x 0,2x (0,4x) We like IE’s growth and defensive profile Valuation metrics Thanks to their experience and network, the founders, Andrea 2020E 2021E 2022E 2023E Iervolino and Lady Monika Bacardi, were able to attract talents and Adj. P/E (x) 4,8x 4,4x 5,1x 4,0x funds. The company is growing very fast (from €34.6m of total FCF Yield (%) (11%) (3%) 11% 18% revenues in 2018 to €113.7m expected in 2020), all with a secured EV/Sales (x) 0,9x 0,8x 0,9x 0,6x business model (any investment in content is fully backed) making use EV/EBITDA (x) 1,1x 1,0x 1,3x 0,9x of guaranteed minimums (GM) and subsidies that exceed the costs EV/EBIT (x) 4,1x 3,9x 4,2x 2,8x incurred for content production. Our model is based on a conservative scenario over the 2020E-2029E period. We thus assume cumulative Sources: Factset, TSAF’s estimates Capex of €924m and associated €1.2bn of revenues, implying a multiplying coefficient (GM + subsidies + catalogue revenue) / Production Capex) of 1.27x. Through its subsidiary in Serbia, the company also produces for third parties. In the long term, we estimate that 35% of revenues will be generated from production for third parties (where the EBIT margin is c.26%).

An attractive valuation, at a strong discount vs peers Taking into account the business model of the company, its positioning and its strong balance sheet and pipeline, we consider that a rerating should logically flow from a better knowledge of the case among investors. Though the right comparable seems to us to be Xilam, we have nevertheless included Wildbrain (formerly DHX Media) in the panel. Our valuation is a mix: 50% DCF (TP €6.0; WACC @12.3%; TGR @2%) and 50% multiple (TP €7.4; discount of 50% 2021E EV/Sales, EV/EBIT and PE).

E Q U I T Y R E S E A R C H

Iervolino Entertainment | 11/16/2020

Table of Contents

Investment Case ______3 Industry Dynamics in a Nutshell ______5 Iervolino Entertainment in a Nutshell ______7 Valuation ______8 A Booming Market for Video Content ______11 Company Description ______16 A Solid and Secure Business Model ______19 Financials ______29 Disclaimer ______35

TRADITION SECURITIES AND FUTURES 1

E Q U I T Y R E S E A R C H

Iervolino Entertainment | 11/16/2020

IERVOLINO ENTERTAINMENT IE IM EQUITY BUY Price (€) 3,14 Market cap. (€m) 104,7 30-D volume 11 777

Ratios & Valuation Balance Sheet (€m) 2019A 2020E 2021E 2022E 2023A 2019A 2020E 2021A 2022A 2023A EV/Sales (x) 0,9x 0,8x 0,9x 0,6x Cash & cash equivalents 8,0 6,6 2,5 13,0 24,6 EV/EBITDA (x) 1,1x 1,0x 1,3x 0,9x Accounts receivable 20,2 28,9 36,5 35,8 45,2 EV/EBIT (x) 4,1x 3,9x 4,2x 2,8x Inventory 0,0 0,0 0,0 0,0 0,0 P/E (x) 4,8x 4,4x 5,1x 4,0x Other current assets 21,8 20,7 20,7 20,7 20,7 FCF Yield (%) (10,3%) (10,6%) (2,9%) 10,8% 17,7% Total current assets 49,9 56,2 59,7 69,4 90,4 Leverage ratio (x) (0,0x) (0,1x) (0,1x) (0,1x) 0,1x Net PP&E 0,0 0,1 0,1 0,1 0,1 Gearing (%) (1,2%) (16,8%) (16,9%) (4,6%) 8,9% Net intangibles 49,2 79,6 102,3 113,1 115,1 Interest cover (x) Total investments 0,0 0,0 0,0 0,0 0,0 RoE (%) 90,8% 68,7% 56,0% 40,6% 40,7% Other non-current assets 3,9 4,2 4,2 4,2 4,2 RoCE (%) Total non-current assets 53,2 84,0 106,6 117,5 119,5 RoA (%) 42,0% 34,0% 31,4% 24,7% 27,2% Total assets 103,1 140,1 166,3 186,9 209,9 Inventory days 0 0 0 0 0 Receivable days 92 93 98 114 114 Accounts payable 26,4 32,0 34,2 34,2 37,0 Days payables outstanding Na 902 651 434 384 Short-term debt 7,5 6,1 6,1 6,1 0,0 BVPS (€) 1,36 1,90 2,55 3,11 3,83 Other current liabilities 20,2 20,2 20,2 20,2 20,2 FCF per share (€) (0,31) (0,30) (0,08) 0,31 0,51 Total current liabilities 54,1 58,3 60,5 60,5 57,2 Long-term debt 1,0 12,1 12,1 12,1 12,1 Other non-current liabilities 0,3 0,5 0,5 0,5 0,5 Total non-current liabilities 1,4 12,6 12,6 12,6 12,6 Growth & Margins (%) Total liabilities 55,4 70,8 73,1 73,1 69,7 2019A 2020E 2021E 2022E 2023E Preferred shares 0,0 0,0 0,0 0,0 0,0 Total revenue growth 131,1% 42,1% 20,2% (16,3%) 26,3% Total common equity 47,6 69,3 93,2 113,8 140,1 EBITDA growth 121,0% 25,9% 16,4% (29,5%) 29,4% Minority interest 0,0 0,0 0,0 0,0 0,0 EBIT growth 95,0% 12,0% 16,1% (8,7%) 23,8% Total liabilities & equity 103,1 140,1 166,3 186,9 209,9 EPS growth 99,2% 6,8% 10,4% (14,0%) 27,8% DPS growth 0,0% 0,0% 0,0% 0,0% 0,0% Net debt (0,5) (11,6) (15,7) (5,2) 12,5 Gross margin 100,0% 88,6% 85,9% 74,8% 75,6% EBITDA margin 100,0% 88,6% 85,9% 74,8% 75,6% EBIT margin 28,4% 21,8% 20,9% 21,6% 22,0% Cash Flow Statement (€m) Net margin 25,4% 19,1% 17,5% 18,0% 18,2% 2019A 2020E 2021E 2022E 2023E Net income 22,4 21,7 23,9 20,6 26,3 Add-backs 50,6 72,5 85,6 56,5 73,7 Income Statement (€m) Δ WC 0,2 0,8 1,0 0,8 0,8 2019A 2020E 2021E 2022E 2023E Others (0,1) (2,3) (3,6) (3,4) (4,6) Total revenue 80,0 113,7 136,6 114,3 144,4 Cash flow from operations 73,0 92,7 106,9 74,6 96,2 Cost of good sold 0,0 (13,0) (19,2) (28,8) (35,3) Capital expenditures (57,1) (100,6) (104,7) (64,0) (71,0) EBITDA 80,0 100,7 117,4 85,5 109,1 Acquisitions 0,0 0,0 0,0 0,0 0,0 Depreciation & amortization (52,7) (70,2) (82,0) (53,2) (69,0) Divestitures (0,2) 0,0 0,0 0,0 0,0 EBIT 27,3 30,5 35,4 32,3 40,1 Others 0,0 0,0 0,0 0,0 0,0 Net interest inc./(exp.) (2,1) (2,3) (3,6) (3,4) (4,6) Cash flow from investing (57,2) (100,6) (104,7) (64,0) (71,0) Income/(loss) from associates 0,0 0,0 0,0 0,0 0,0 Dividends paid 0,0 0,0 0,0 0,0 0,0 Pre-tax profit 25,1 28,2 31,8 29,0 35,4 Δ debt 2,5 9,7 0,0 0,0 (6,1) Provision for taxes (2,1) (2,3) (3,6) (3,4) (4,6) Δ equity 16,3 0,0 0,0 0,0 0,0 Minority interests 0,0 0,0 0,0 0,0 0,0 Others 0,0 0,0 (1,0) (0,8) (0,8) Preferred dividends 20,3 21,7 23,9 20,6 26,3 Cash flow from financing 18,8 9,7 (1,0) (0,8) (6,9) Net income (pre-exceptionals) 20,3 21,7 23,9 20,6 26,3 Δ cash 34,6 1,8 1,3 9,8 18,2 Net income (post-exceptionals) 43,3 47,6 52,2 46,2 57,1 Free cash flow (10,8) (11,1) (3,1) 11,3 18,5 Basic EPS 1,3 1,4 1,6 1,4 1,7 Diluted EPS 1,2 1,3 1,4 1,3 1,6 DPS (€) 0,0 0,0 0,0 0,0 0,0 Share Price Performance Since IPO (€) Dividend payout ratio (%) 0,0 0,0 0,0 0,0 0,0 Basic NoSHm 33,4 33,4 33,4 33,4 33,4 7 9 000 Fully diluted NoSHm 35,0 36,5 36,5 36,5 36,5 8 000 6

7 000 5 6 000

4 5 000

3 4 000

3 000 2 2 000

1 1 000

0 0

IERVOLINO ENTERTAINMENT (LHS) IPO Price (LHS) FTSE AIM Italia (RHS)

YTD 3M 6M 12M Absolute (%) (48%) 82% 81% 84% Relative to Index (ppts) (30) (13) (15) 2 Sources: Factset, TSAF’s estimates

TRADITION SECURITIES AND FUTURES 2

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Iervolino Entertainment | 11/16/2020

Investment Case

While the media sector is undergoing profound changes (churn, depressed advertising markets) caused by FAANGs, content remains key to acquiring and retaining customers. We believe independent content producers’ industry will continue to generate secular growth. Although the wave of growth in programming spending goes back a few years, we believe that it could not only remain dynamic over the next few years, but could even accelerate in the medium term in Europe.

The regulatory boost should accelerate the rerating of European premium producers... The European Audio-visual Media Services Directive (AVMSD), adopted in 2010 and revised in 2018 to include SVoD platforms in addition to TV broadcasters, will oblige platforms to finance European producers in order to get at least 30% of their content library produced in Europe. The transposition of such Directive into national law should take place soon in the various European countries and strengthen the attractiveness of European producers with quality and, preferably, exportable content.

Netflix has been an extraordinary success. However, its position is not without danger as rumbling from Media conglomerate grow... Broadcasters who use to fuel content to Netflix, are now pulling their top shows from the platform as they are facing direct competition. Majors are thinking twice before delivering their content. Some producers, like Disney or Comcast with Peacock, have started direct to consumer service and successfully launched their own platform. More than ever Netflix needs independent content producers to raise its library. Especially, producers that are not building their own online streaming service and strong enough to produce premium content. Hence the production growth rate for the indies overall may well be greater than that of the overall market, as they ride the steeper SVOD component of the growth wave. Also keep in mind that when you see “Netflix original”, this can be misleading as the end producers is probably not Netflix. Narcos, for example, one of the “Netflix Original series” successes was produced by Gaumont a French producer (GAM FP).

Even if it takes deep pocket to fight Netflix, Tech giant are ready to splurge cash It requires very credible challengers to displace Netflix, Tech giants like Amazon and Apple can rapidly pile up amount of cash to match and cross Netflix content spending. The entry of tech giants into the video space adds another dimension to the outlook. Considering the size of these entities we can surmise that there is significant upside to their own programme budgets. In our view, the tech giants add another leg to the content growth stool, which gives us incremental confidence that we are unlikely to experience a pullback in global spend. An important distinction between the traditional media companies and the new tech players is that the latter are far more focused on generating growth than margins and profitability. Their key success factors are subscribers and revenues, more so than EBITDA and EPS. This makes them more willing to make substantial investments in programming to achieve their growth goals. No doubt a company of the scale of Apple or Amazon can quickly shake Netflix's hegemony over SVOD.

IE well positioned to service the platforms; pipeline supplied and production ramp-up bodes well for the figures As above mentioned independence and quality thanks to its flagship IPs, Arctic Justice and Puffins (ongoing delivery), IE already has good visibility on deliveries over 2020E-22E and is already starting discussions for 2022E- 24E. We are expecting sales growth of +10% CAGR for 2020E-23E. The ramp-up of production should initially constrain the operating margin within the 20-22% range. Production for third parties and especially the "back-end revenue" (paid by the broadcaster for years 3-4) should boost the margin. Our conservative scenario targets a 23.5% EBIT margin based on a turnover generated from 55% of production (17-18%e EBIT margin), 35% of production for third parties (26%e EBIT margin), and finally, 10% for back-end and catalogue (90%e EBIT margin) and fixed charges of 4% of total revenue.

Attractive valuation: neither the business model nor the multiples of other animation producers are reflected TRADITION SECURITIES AND FUTURES 3

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Iervolino Entertainment | 11/16/2020

Wrongly, IE is being applied multiples of Italian peers producing mainly films for the cinema (undergoing structural difficulties exacerbated by the Covid-19 pandemic). IE's business model and the fact that its productions are mainly centred around animation and intended for SVOD platforms should, in the long term, lead investors to compare IE to companies such as Xilam (XIL FP) or EOne (ETO LN not listed anymore – acquired by HASBRO in 2019). We are convinced that a rerating should take place as investors make a distinction between IE and other Italian production companies.

Exhibit 1: Spot vs. TP Multiples

EV/Sales(x) EV/EBIT(x) P/E(x) 2020E 2021E 2020E 2021E 2020E 2021E IE @spot 0.9x 0.8x 4.1x 3.9x 4.8x 4.4x IE @TP 2.2x 1.8x 10.1x 8.8x 11.3x 10.2x Sources: Factset, TSAF’s estimates

Illustration of IE’s Undervaluation vs. Peers

Exhibit 2: Spot 2021E EV/Sales(x) Exhibit 3: Spot 2021E EV/EBIT(x)

17.9x 5.1x 15.1x

2.5x

3.9x 0.8x

IE XILAM WILDBRAIN IE XILAM WILDBRAIN

Sources: TSAF estimates, FactSet Sources: TSAF estimates, FactSet

Exhibit 4: Spot 2021E P/E(x)

24.6x

4.4x

IE XILAM

Sources: TSAF estimates, FactSet

TRADITION SECURITIES AND FUTURES 4

E Q U I T Y R E S E A R C H

Iervolino Entertainment | 11/16/2020

Industry Dynamics in a Nutshell 1/ Global investment in content has increased by 80% in a 11-year period and is expected to grow at a sustained pace 2/ Despite revenues under pressure, traditional players have not given up. Relative to their revenues, they have increased their investments in content by +9ppt to 50% on average (vs. 41% in 2013) 3/ Netflix, the leader in SVOD, has multiplied its investment in content by 5 in 5 years 4/ Number of EMEA subscribers will probably overtake US subscribers by 2021E 5/ In 2019, European region represented 22% of total Netflix’s total revenue but only 7% of content expenses. We are convinced that this mismatch will probably not last 6/ Netflix’s interest on animation is growing and should account for 26% of total Netflix’s content spending vs. 7% in 2018. That said, Netflix may quintuple its content spending on animation by 2022E

Exhibit 5: Worldwide investments in contents ($bn) Exhibit 6: % of Broadcasters’ Sales Reinvested in Contents

+5% CAGR 230 50%

180 41%

115 100

2013 2019 2008 2013 2019 2025E Average content spending in % of revenues Sources: Ampere Analysis, Statista Source: Ampere Analysis

Exhibit 7: Netflix Yearly Contents Spending ($bn) Exhibit 8: EMEA Netflix subscribers will top US subscribers soon

15 45%

40% +36% CAGR 12

9 35%

7 30%

4.6 25% 3.2

20% 2018 2019 2020E 2021E 2022E 2023E 2014 2015 2016 2017 2018 2019 % EMEA subscribers % US subscribers Source: Netflix Source: Ampere Analysis

TRADITION SECURITIES AND FUTURES 5

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Iervolino Entertainment | 11/16/2020

Exhibit 9: There is room for more European content spending Exhibit 10: Netflix pouring more money in Kid focused content from Netflix

93% 5.0 78%

26%

22% 1.1 9% 7% % of Netflix revenue % of total Netflix content spending Animation Spending ($bn) Animation in % of capex World except Europe Europe 2018 2022E Sources: Netflix, FactSet Sources: Loup Ventures, Netflix, FactSet

Key takeaways: SVOD platforms strongly drive growth in content spending but pressured traditional players are responding by bulking up their investments too. Netflix, the most advanced and developed SVOD play, is committed to invest more in Europe and in animation in the future. There are several rationales behind this: - A more constraining European regulation weighing on platforms; - The increase in their investments in Europe is nevertheless in line with logic and a strategy. Europe is one of the new "Eldorado" for SVOD players as the US market is becoming saturated. One of the only ways to grow on the US soil seems to be the increase in subscription prices (last price hikes the 29 October 2020). Moreover, SVOD carry out to have European production with a worldwide success. Animation is one area where European particularly excels.

TRADITION SECURITIES AND FUTURES 6

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Iervolino Entertainment | 11/16/2020

Iervolino Entertainment in a Nutshell

SWOT Analysis Strengths Weaknesses  Key people with strong experience; network and sector  Low liquidity and weak volume of shares traded recognition  Business model sometimes misunderstood (Capex/ FCF  Pure play in premium production; focus on animation depreciation) and revenues strongly correlated to  Pre-financed model and strong balance sheet production delivery schedule  Direct access to prestigious clients in the industry (Netflix, Apple...)

Opportunities Threats  M&A as a predator or a target  Strong dependence on key people  Implementation of the European AVMS Directive  Collapse of traditional players  Decrease in subsidies and other public support

Sources: TSAF, Company

Exhibit 11: IE revenues (€) 2018-2023E Exhibit 12: % Revenue from Third Part Production (Serbian subsidiary)

144 137 34% 33% 114 114

80 19% 16%

35

0%

2018 2019 2020E 2021E 2022E 2023E 2019 2020E 2021E 2022E 2023E

Sources: Company, TSAF’s estimates Sources: Company, TSAF’s estimates

Exhibit 13: Capex Spending Associated with Safe Amortization Exhibit 14: Strong FCF Generation is Coming Policy

220 120% 25 80% 97% 20 60% 100% 170 83% 83% 78% 15 40% 70% 80% 10 120 101 105 20% 5 82 60% 0% 63 70 64 71 69 0 70 52 53 (20%) 40% (5) (40%) 20 (10) 20% (15) (60%)

-30 2019 2020E 2021E 2022E 2023E 0% 2019 2020E 2021E 2022E 2023E CapEx (€m) D&A (€m) D&A/CapEx FCF (€m) FCF conversion

Sources: Company, TSAF’s estimates Sources: Company, TSAF’s estimates

TRADITION SECURITIES AND FUTURES 7

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Iervolino Entertainment | 11/16/2020

Valuation

Why not include Italian peers to our valuation? Simply because they are not really comparable. The Italian peers Notorious Pictures, Leone Film Group and Lucisano Media Group are film producers or distributors and are absent from the world of animation. Mondo TV, the only Italian company in the list producing cartoons, is also not comparable to IE because, in addition to non-premium production, the company applies an imprudent amortization policy in the sector (linear 7 years), weakening its Business Model with substantial one-offs risks, whilst other companies operating the industry are more conservative when applying a minimum amortization of 60% of assets upon delivery.

Exhibit 15: Small cap content producers – Xilam as the only real listed peer, Wildbrain being acceptable

Amortization International Production of Films Pure Production Company Premium Content Accounting Policy Premium Market & Minority Series Player

Chart Legend Strong Medium Weak Source: TSAF’s estimates Note that we have also excluded Mediawan (MDW FP) which should soon be delisted following a takeover bid.

A relevant high-end positioning applying a safe amortization policy XIL and EOne shared a low valuation for a long period of time before investors finally realized that their business model deserved a valuation premium. Pure content production players became scarce on the stock market following the takeover of EOne by Hasbro and of Mediawan by the founders supported by PE funds including KKR and BPI.

TRADITION SECURITIES AND FUTURES 8

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Iervolino Entertainment | 11/16/2020

Multiple valuation

Trading Multiples Valuation

Market Value (€m) EV/Sales EV/EBITDA EV/EBIT P/E P/BV FCF Yield EV/FCFF Company Name Country Equity EV Dec-20 Dec-21 Dec-22 Dec-20 Dec-21 Dec-22 Dec-20 Dec-21 Dec-22 Dec-20 Dec-21 Dec-22 Dec-20 Dec-21 Dec-22 Dec-20 Dec-21 Dec-22 Dec-20 Dec-21 Dec-22 2,020 2,021 2,022 2,020 2,021 2,022 2,020 2,021 2,022 2,020 2,021 2,022 2,020 2,021 2,022 2,020 2,021 2,022 2,020 2,021 2,022 Producers WildBrain Ltd. Canada 190 660 2.5x 2.5x 2.3x 12.9x 12.0x 12.2x 15.5x 15.1x 12.2x n/a 299.3x 57.0x 1.4x 1.3x 1.7x 10.0% 11.1% 10.5% 25.0x 21.9x 15.6x Xilam Animation SA France 225 227 9.7x 5.1x 4.7x 18.7x 8.0x 7.3x 44.7x 17.9x 14.9x 70.0x 24.6x 20.2x 3.8x 3.3x 2.8x (6.8%) (5.3%) (2.4%) n/a n/a n/a

Median 6.1x 3.8x 3.5x 15.8x 10.0x 9.8x 30.1x 16.5x 13.6x 70.0x 161.9x 38.6x 2.6x 2.3x 2.3x 1.6% 2.9% 4.1% 25.0x 21.9x 15.6x Avg. 6.1x 3.8x 3.5x 15.8x 10.0x 9.8x 30.1x 16.5x 13.6x 70.0x 161.9x 38.6x 2.6x 2.3x 2.3x 1.6% 2.9% 4.1% 25.0x 21.9x 15.6x

Iervolino Entertainment S.p.A. 105 105 0.9x 0.8x 0.9x 1.1x 1.0x 1.3x 4.1x 3.9x 4.2x 4.8x 4.4x 5.1x 1.5x 1.1x 0.9x (10.6%) (2.9%) 10.8% (9.2x) (35.7x) 9.1x vs. Peers' Median (85%) (79%) (74%) (93%) (90%) (86%) (86%) (77%) (69%) (93%) (97%) (87%) (42%) (52%) (59%) -1218bps -587bps 674bps (137%) (263%) (42%)

Peers' main financials

Market Value (€m) EBITDA margin EBIT margin CAGR '20-'23 RoE Dividend Yield Net Debt / EBITDA Capex as % of sales Company Name Country Equity EV Dec-20 Dec-21 Dec-22 Dec-20 Dec-21 Dec-22 Sales EBIT NI Dec-20 Dec-21 Dec-22 Dec-20 Dec-21 Dec-22 Dec-20 Dec-21 Dec-22 Dec-20 Dec-21 Dec-22 2,020 2,021 2,022 2,020 2,021 2,022 2,020 2,021 2,022 2,020 2,021 2,022 2,020 2,021 2,022 2,020 2,021 2,022 Producers WildBrain Ltd. Canada 190 660 20% 20% 18% 16% 16% 18% 4% 7% n/a (0.9%) 0.4% 3.0% 0.0% 0.0% 0.0% 5.5x 4.7x 5.1x 1% 1% 1% Xilam Animation SA France 225 227 52% 63% 64% 22% 28% 32% 28% 49% 59% 5.4% 13.4% 14.0% 0.0% 0.0% 0.0% 1.2x 0.7x 0.7x 123% 86% 79%

Median 36% 42% 41% 19% 22% 25% 16% 28% 59% 2.2% 6.9% 8.5% 0.0% 0.0% 0.0% 3.3x 2.7x 2.9x 62% 43% 40% Avg. 36% 42% 41% 19% 22% 25% 16% 28% 59% 2.2% 6.9% 8.5% 0.0% 0.0% 0.0% 3.3x 2.7x 2.9x 62% 43% 40%

Iervolino Entertainment S.p.A. 105 105 84% 81% 68% 22% 21% 22% 8% 9% 7% 20.7% 22.9% 19.7% 0.0% 0.0% 0.0% 0.1x 0.1x 0.1x 88% 77% 56% vs. Peers' Median 4795bps 3897bps 2681bps 286bps -149bps -334bps -790bps -1947bps -5205bps 1844bps 1593bps 1118bps 0bps 0bps 0bps (96.3%) (94.7%) (97.6%) 2644ppt 3321ppt 1622ppt Sources: Factset, TSAF’s estimates

Multiple valuation IERVOLINO ENT. EV/Sales EV/EBIT P/E 2021E figure (EURm) 136.6 28.5 23.9 2021E multiples median peers 3.8x 16.5x 24.6x 2021E multiples median peers @50% discount 1.9x 8.3x 12.3x 2020E EV 258 235 294 +/- equity bridge 6 6 11 2020E equity value 264 241 304 Fully diluted NOSHm 36.5 36.5 36.5 FV/share 7.2 6.6 8.3 % upside/downside 130% 110% 166%

Price target

€7.4 /sh

Sources: Factset, TSAF’s estimates

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Iervolino Entertainment | 11/16/2020

DCF Valuation In our DCF-based price target of €6.0, we use a WACC @12.3% and a TGR @2%.

DCF Valuation Model

FY ending on 31 Dec. (EURm) 2020E 2021E 2022E 2023E 2024E 2025E 2026E 2027E 2028E 2029E Sales 113.7 136.6 114.3 144.4 166.0 187.1 199.0 207.5 214.4 219.9 Δ % 42.1% 20.2% (16.3%) 26.3% 15.0% 12.7% 6.3% 4.3% 3.3% 2.6% EBITDA 95.0 110.5 77.9 100.8 116.2 132.3 141.3 147.0 150.5 152.9 EBITDA margin 83.5% 80.9% 68.1% 69.8% 70.0% 70.7% 71.0% 70.9% 70.2% 69.6% D&A (70.2) (82.0) (53.2) (69.0) (79.0) (90.5) (96.2) (99.2) (100.6) (101.4) D&A as a % sales (61.8%) (60.0%) (46.5%) (47.8%) (47.6%) (48.4%) (48.3%) (47.8%) (46.9%) (46.1%) EBIT 24.8 28.5 24.7 31.8 37.2 41.8 45.2 47.8 50.0 51.6 EBIT margin 21.8% 20.9% 21.6% 22.0% 22.4% 22.4% 22.7% 23.0% 23.3% 23.5% Tax rate 9.5% 13.0% 14.0% 15.0% 17.0% 19.0% 20.5% 22.0% 23.0% 23.0% Taxes on EBIT (2.4) (3.7) (3.5) (4.8) (6.3) (8.0) (9.3) (10.5) (11.5) (11.9) NOPAT 22.4 24.8 21.3 27.0 30.8 33.9 35.9 37.3 38.5 39.7 CAPEX (100.6) (104.7) (64.0) (71.0) (81.0) (95.4) (105.8) (99.2) (100.6) (101.4) % sales (88.5%) (76.6%) (56.0%) (49.2%) (48.8%) (51.0%) (53.2%) (47.8%) (46.9%) (46.1%) WC (3.1) 2.3 1.5 8.1 14.3 19.8 22.5 24.4 26.0 27.4 % sales (2.7%) 1.7% 1.3% 5.6% 8.6% 10.6% 11.3% 11.8% 12.1% 12.5% Δ WC (3.2) (5.3) 0.8 (6.6) (6.1) (5.5) (2.8) (1.9) (1.6) (1.4) Free Cash Flow (11.2) (3.2) 11.2 18.4 22.7 23.5 23.5 35.4 36.9 38.4 Time coefficient 0.1 1.1 2.1 3.1 4.1 5.1 6.1 7.1 8.1 9.1 DF 1.0 0.9 0.8 0.7 0.6 0.6 0.5 0.4 0.4 0.3 Cash conversion on EBIT (45.1%) (11.3%) 45.3% 57.9% 61.0% 56.1% 52.1% 74.0% 73.8% 74.4% Discounted FCF (11.0) (2.8) 8.8 12.8 14.1 13.0 11.6 15.5 14.4 13.3

Sum of discounted FCF 89.6 Terminal trailing EV/EBIT 2029E 7.4x + Discounted Terminal Value 134.4 TGR % EV 60.0% 6.0 1.0% 1.5% 2.0% 2.5% 3.0% = Enterprise Value 224.0 11.3% 6.4 6.6 6.9 7.1 7.4 - Equity Bridge 5.5 11.8% 6.0 6.2 6.4 6.6 6.9 = Equity Value 218.5 WACC 12.3% 5.6 5.8 6.0 6.2 6.4 Fully diluted NoSHm 36.5 12.8% 5.3 5.4 5.6 5.8 6.0 Price target 6.0 13.3% 5.0 5.1 5.3 5.4 5.6

Sources: Factset, TSAF’s estimates

DCF valuation according to various scenarios Scenario 1 Scenario 2 Scenario 3 2020E-29E CapEx 923.7 923.7 923.7 2020E-29E Revenues form MG,Backend &Subsidies 1,172.3 1,247.0 1,339.4 Implied multiplier (x) 1.27x 1.35x 1.45x 2020E-29E Revenues From Third Part 530.4 530.4 530.4 2020E-29E Total Revenues 1,702.7 1,777.4 1,869.7

DCF Valuation outcome (WACC @12.3%; TGR @2%) 6.0 8.0 10.3 Sources: Factset, TSAF’s estimates

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A Booming Market for Video Content Technology at the service of video content consumption The trends towards mobile data consumption made possible by the technological breakthroughs of the last two decades combined with the gradual digitisation of consumption habits are boosting online and mobile content’s consumption. Both 5G and WIFI 6 standards are expected to be powerful catalysts triggering further consumption of video content, while video consumption and other applications continue to feed a considerable demand for bandwidth by households.

Exhibit 16: Global growth in mobile devices and connections Exhibit 17: 5G will be 13x faster than the average phone connection speed

Source: Cisco Annual Internet Report, 2018–2023 Source: Cisco Annual Internet Report, 2018–2023

Exhibit 18: Historical development and future of wired and Exhibit 19: High demand for bandwidth and video in the wireless technologies connected home of the future

Source: Cisco Annual Internet Report, 2018–2023 Source: Cisco Annual Internet Report, 2018–2023

Towards a deep change in consumption habits, more OTT; more time spend on video, especially scripted, shorter video on mobile device The global SVOD market is expected to grow at a sustained rate of +11% 2017A-25E CAGR (i.e. x2.3) vs. +8% CAGR for the Italian market (i.e. x1.8), showing a substantial megatrend.

Exhibit 20: VoD Worldwide Market ($bn) Exhibit 21: SVoD Italian Market ($bn)

$120bn $800m +8% CAGR +11% SVoD 96.0 $700m 734 748 $100bn CAGR 89.2 714 683 81.7 $600m 634 $80bn 74.3 67.3 $500m 571 61.0 53.0 486 $60bn 48.9 $400m 441 45.8 410 $300m $40bn $200m $20bn $100m

$0bn $0m 2017 2018 2019 2020E 2021E 2022E 2023E 2024E 2025E 2017 2018 2019 2020E 2021E 2022E 2023E 2024E 2025E

Video Srtreaming (SVoD) Pay-per-View (TVoD) Video Downnloads Total Video Srtreaming (SVoD) Source: Statista 2020 Source: Statista 2020

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Broadcasters’ audience is stalling as SVOD platforms (e.g. Netflix, Amazon) and social networks (Facebook, YouTube) continue to gain market shares. Thus in 2019 in the UK, the penetration rate of SVOD in households amounted to 50.5% to be compared with 11% on average in other developed countries.

Exhibit 22: Share of Public TV vs. OTT Subscription Exhibit 23: SVoD Penetration Rate

$60bn 56.2 18% 52.7 48.5 17% $50bn 43.5 16% 37.5 $40bn 15% 30.8 14% $30bn 22.8 13% $20bn 16.0 12% 10.6 11% $10bn 10% $0bn 9% 2017 2018 2019 2020E 2021E 2022E 2023E 2024E 2025E 2017 2018 2019 2020E 2021E 2022E 2023E 2024E 2025E Global Italy Public TV Subscription OTT Sources: Ampere Analysis, Statista Sources: Ampere Analysis, Statista

Non-linear (“non- linear is ‘on demand” vs linear TV is when television programming follows a schedule) consumption is on the rise, on-linear content is often viewed on a device other than a television, like smartphone. As internet speeds and the number of alternate devices that are capable of viewing media on have increased, so has the number of people who consume non-linear media. This new consumption tends to promote scripted content including series; animation, film (vs unscripted content: talk show, game shows, reality TV…)

Exhibit 24: Share of Linear vs. Non-Linear Exhibit 25: Video Consumption per Device

11% 13% 16% 19% 22% 26%

89% 87% 85% 81% 78% 74%

2015 2016 2017 2018 Italy Global

Linear share Non-linear share (on-demand) Regular TV set Other device

Sources: IHS Markit ; ERGO Digital Trends 2019, Ampere Analysis Sources: IHS Markit ; ERGO Digital Trends 2019, Ampere Analysis

Historically, the consumption of video content (usage time) has always been increasing. Italy is following the same trend, with an average daily consumption of 218', close to the world average. This trend is expected to continue over the coming years.

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Exhibit 26: Viewing time per user and per day

223 222

218 218

205 204

2017 2018 2019

Global Italy

Source: Ampere Analysis

Thanks to the rise of mobile devices as a means of content consumption, short format videos have become entertaining for many consumers. For content creators and advertisers, the good news is that consumers who frequently watch short videos form a lucrative market segment. According to Deloitte on Digital Media Trends, the proportion of US consumers watching short videos (15’ or less) has reached 74% in 2018. The figures are even higher for Generation Z (84%) and Millennials (81%). In addition, c.40% of Americans spend more than one hour a week watching short video clips on social networks platforms.

Exhibit 27: Technology to serve video consumption

I would be willing to provide more personal information online 23% if I could receive more targeted ads 48%

I find it valuable to receive location-based ads on my 25% smartphone 50%

I would like my advertising experience to be different based 42% on the device 63%

I would be willing to view advertising with streaming if it 46% significantly reduced the subscription cost 68%

I would be more satisfied with my digital viewing experience if 40% the ads were more targeted and relevant 71%

Others People who frequently watch short form video clips

Source: Deloitte

Produce local, sell global: content as a strategic asset Producers will benefit from the new European AVMS Directive aimed at stimulating the local production of films and TV series in order to promote and preserve local culture and economic activity as it should act as a powerful catalyst. More specifically, the European Parliament has introduced in 2018 new quotas in terms of contents' origins; SVOD services are required to offer at least 30% European content in their library and to showcase this content (vs. 22% in 2019), triggering the need for massive investments in order to comply with this regulation. Through these actions, the underlying dynamic of the EU is also to support independent European producers; So, to comply with regulation requirement SVOD has to invest massively. To combine business with pleasure they are more willing to invest in content that more willing to have audience in global stage.

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Independent producers are perfectly positioned to benefit from massive investments in content, especially animation. Premium local content has been a highly sought-after asset in recent years, since it is (i) a powerful audience driver for TV broadcasters and (ii) a differentiating factor for streaming platforms; more specifically, SVOD's global platforms (e.g. Netflix, Amazon Prime Video, Hulu) continue to invest heavily in their local content catalogue in order to differentiate themselves from the competition, exclusivity being the keystone of streaming services. These 3 players have invested an aggregated $24bn in 2019, (i.e. +23% YoY) and are preparing to increase the share of local productions aggressively in 2020E (c.$30bn in 2020E, i.e. +25% YoY, i.e. +29% 2013A-20E CAGR), particularly in Europe. The content produced by these platforms is becoming gradually more important in the global film landscape, with the consecration of Roma (a Netflix production) at the Oscars in 2019, for example, the first film in the competition authorised to compete even though it had not been released in theatres.

Exhibit 28: Pioneer SVoD platforms’ investments in contents

$20bn

$18bn

$16bn

$14bn

$12bn

$10bn

$8bn

$6bn

$4bn

$2bn

$0bn 2013 2014 2015 2016 2017 2018 2019 2020E

Source: Statista

In 2019, Netflix had the best market share for SVOD in Italy at 30%, followed by Amazon Prime Video and TIMVision (20% each). To be noted that Italian situation is broadly in line with the European situation.

Exhibit 29: Market Share of SVoD platforms in Italy in 2019

Others 10% You Tube 5% Netflix Now TV 30% 5%

Infinitytv 10%

TIMVision Amazon Prime 20% Video 20%

Source: Ampere Analysis

Tailwinds from traditional players The decline in broadcasters' audiences coupled with the drop in advertising spending is hampering their ability to increase CPMs and leaves us doubtful about their ability to retain their share of total media time in the face of OTTs. Despite pressure on subscribers, revenues and margins, we continue to see the traditional players (broadcast and pay sectors) reflect robust growth in the own programming investments. Our interpretation is that TRADITION SECURITIES AND FUTURES 14

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the OTT players have forced a reaction from them. It’s not surprising that old media increased their proportion of revenue devoted on content spending from 41% to 50%. Exhibit 30: Progressive Market Fragmentation

Commercial broadcasters

Public broadcasters

Mulithchannel Contents creators Progressive offerings (DTT, Consumers and rights holders Pay-TV) Fragmentation

SVOD services (Netflix, Amazon)

Online video (YouTube, Facebook)

Sources: Company, TSAF

The Covid-19 pandemic has only accelerated the trend. The current public health crisis linked to the Covid-19 pandemic has led to a widespread lockdown. This has had a positive impact on the OTT market, as the restrictions imposed on the free circulation of people during the pandemic resulted in a general increase in the consumption of video content. According to some industry experts, the lockdown alone would have led to an incremental growth of +5% in the consumption of SVOD worldwide. The impact of Covid-19 on the media industry has materialised in the following ways: - Reduction in advertising budgets. Ad spend is strongly correlated to GDP, and past recessions have resulted in declines steeper than GDP decline. With a larger forecast GDP decline projected by many economists, ad revenue could drop significantly. - Cord cutting, however, may accelerate beyond the 6.5% drop in 2019 (per eMarketer), as cancellation of sports (a key driver for pay TV) reduces the pay TV value proposition. Also rising unemployment can shift people towards lower cost streaming alternatives. - Changing consumption habits with greater digital penetration (especially streaming and social media) - Production delays. Most movie and TV production has been paused, which is creating a potential gap or “dark period” that companies will need to address in terms of content and distribution strategy, potentially launching direct to home movies and reviving archive content.

To address production issues, IE have implemented several actions: reallocation of budget and workforce, specialization in animation, adopting remote work.

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Company Description

Founded in Rome in 2011 by Andrea Iervolino (significant track record in content production since 2004, 66+ productions to his credit, often interviewed and quoted in Forbes) and Monika Bacardi (40+ productions, some of them Hollywood, co-founder of AMBI Pictures), then IPOed in August 2019 on the AIM Italia segment @€1.95/share (including €10.4m in primary), IE is a company active in the media content production to compete in the global race for quality content. The Group aims at developing quality local content with a strong international appeal and maintaining control over content rights to create value over the long term. IE has a secure business model because it does not directly finance its production activities and retains full control of content rights. IE is uniquely positioned to "play" in the growing content industry, which is expected to benefit from more investment from SVOD platforms and is also protected by EU quotas. In addition, it should be noted that IE began investing directly in Hollywood-style content productions in 2018 with the collaboration of international stars (e.g. Johnny Depp, Morgan Freeman, Antonio Banderas, Mark Rylance, John Travolta, Robert Pattinson, etc.). Over time, the company has developed a solid experience in the production of successful, market-validated content following very good audience figures (e.g. upon their release, "Arctic Dogs" and "Waiting for the barbarians" were among the most watched films on Netflix USA and Apple TV UK respectively).

The Group’s history Below are represented the main events that have taken place since the group's inception in 2011, highlighting the strong development of the company, particularly through the strong expertise of Andrea Iervolino. This has been confirmed by the numerous awards received, the in-house integration of production activities and the success of the IPO completed in 2019. As a reminder, AI has 66+ production credits, each time creating an ad-hoc SPV in order to secure its financing packages.

Exhibit 31: Group’s History

Since 2003 2014 2018 2020 Involved in the AI receives Merger of all €8m 7Y Bond Cinema Mimmo Rotella the production issue Production Award as Best activities into Industry with Producer IE Production Outstanding producing of the audience roles working animated web results in the United series Arctic especially on States with Justice and Apple TV acclaimed the movie The stars Poison Rose

2011 2015 2019 Co-founded AI becomes IPO on AIM IE production “Ambassador Italia company in of Italian @€1.95/share Rome with Cinema in the (ow €10.4m of Monika world” proceeds) Bacardi

Source: Company

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The Group’s ownership structure IE is majority owned by Andrea Iervolino (co-founder, chairman & CEO) through his HoldCo called IA Media SA (i.e. holding 33.1% of the capital and 59.7% of the voting rights). Monika Bacardi (co-founder) holds 49.7% of the capital and 30% of the voting rights through her HoldCo called MB Media SA. The free float is limited, accounting for 17.2% of the capital and 10.4% of the voting rights, thus limiting the stock liquidity.

Exhibit 32: Ownership Structure – Voting Rights Exhibit 33: Ownership Structure – Share Capital

Free Float 10.4% Free Float 17.2%

Andrea Iervolino 33.1%

Monika Baccardi 30.0% Andrea Iervolino 59.7%

Monika Baccardi 49.7% Source: Company Source: Company

Andrea Iervolino’s Track Record Andrea Iervolino (co-founder, chairman & CEO) has 15+ years of experience in the field of film (co-) production (66+ productions credits), working with top actors such as Johnny Depp, Morgan Freeman, Robert Pattinson, Halle Berry, John Travolta, Margot Robbie, Freida Pinto, etc.

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Exhibit 34: Track record of Andrea Iervolino in production (66 credits)

Film Role Year Film Role Year Lamborghini P Announced Rupture P 2016 Memento P Announced Lavender EP 2016 State of Consciousness P Pre-production Tutte le strade portano a Roma P 2015 The Devil May Care P Pre-production Bilal: A New Breed of Hero EP 2015 Eddie & Sunny P Filming Andròn: The Black Labyrinth P 2015 Together Now P Filming Shiraz - La città delle rose Co-P 2015 Arctic Friends P 2020 Survivor Co-P 2015 Bernie le dauphin 2 P 2019 Hope Lost EP / P 2015 Arctic Justice P 2019 Tre tocchi EP / P 2014 Semper Fi EP 2019 En toute humilité: The Humbling Co-P 2014 Giving Back Generation EP 2019 2047: Sights of Death P 2014 Waiting for the Barbarians P 2019 Fear P 2014 The Poison Rose P 2019 Il telefono P 2014 Safe Spaces EP 2019 Bad Girl P 2013 C'era una volta Steve McQueen P 2019 L'invito P 2013 Trading Paint - Oltre la leggenda P 2019 Come il vento Co-P 2013 Bernie il delfino P 2018 Il week end degli eroi P 2013 Welcome Home EP 2018 The Stalker P 2013 Future World P 2018 Outing - Fidanzati per sbaglio P 2013 Qui e ora P 2018 La mia mamma suona il rock P 2013 Hypnose EP 2018 Una notte da paura P 2012 Bent - Polizia criminale P 2018 Si può fare l'amore vestiti? EP 2012 Les maîtres de l'illusion EP / P 2018 E io non pago P 2012 Beyond the Sun P 2017 Il paese delle piccole piogge P 2012 La musica del silenzio P 2017 Operazione vacanze P 2012 Black Butterfly P 2017 Napoletans P 2011 In Search of Fellini EP 2017 L'arrivo di Wang Co-P 2011 To the bone P 2017 Almeno tu nell'universo Co-EP 2011 Finding Soraya P 2016 Una cella in due Co-P 2011 East End P 2016 Gorbaciof Co-EP 2010 This Beautiful Fantastic P 2016 Dopo quella notte P 2010 In Dubious Battle - Il coraggio degli ultimi P 2016 L'allenatore nel pallone 2 AP 2008 The Bleeder Co-P 2016 Il mercante di Venezia Co-EP 2004

AP= Assistant Producer, Co-EP= Co-Executive Producer, Co-P= Co-Producer, EP= Executive Producer, P= Producer Source: IMDb

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Iervolino Entertainment | 11/16/2020

A Solid and Secure Business Model IE is a pure production and co-production company focused on world-class productions of quality content, producing audio-visual works designed according to the Hollywood majors' model, for international distribution, based on subjects and scripts, in collaboration with internationally renowned directors and actors. Positioned in a niche market segment materializing an upward megatrend, the group has shaped a solid and secure BM that creates long-term value for its shareholders. Its BM is based on the elements listed below:

 European AVMS Directive (2018): aimed at stimulating local production of films and TV series in order to promote and preserve local culture A favorable and economic activity, with VoD services being required to offer at least 30% European content in their libraries and to showcase this content regulatory (vs. 19% in 2018), highlighting the need for massive investments in order to comply with this regulation framework  Franceschini Law (2016 in Italy): favorable tax regime allowing to cover up to 30% of production costs within the limits of €10m and €8m p.a. for the production of series and films respectively)

Massive investments in  SVoD platforms and TV broadcasters are investing heavily in content, representing a substantial market opportunity for content producers content s

A secure Business  No production is launched without prior pre-financing required to complete the project (i.e. 80-100% guaranteed minimum paid by the Model with high distributor(s), tax credits and other forms of incentives specific to this type of industry), thus offering security and high visibility, similar to an visibility infrastructure

 Production and distribution activities are human enterprises that depend on a few key people (i.e. Andrea Iervolino with 66+ productions to his credit) able to develop strong relationships with: Key People  Talents (e.g. Johnny Depp, Morgan Freeman, Margot Robbie, Antonio Banderas, Mark Rylance, John Travolta, Robert Pattinson, etc.)  Financial Sponsors

International  Production made in in English and addressed to an international audience (unlike its Italian peers) Production

An opportunistic  Focus on millennials and youth in recent years through the production of short videos positioning that  Maximizing visibility, impact and value creation creates value

 Direct orientation of distribution activities Ownership of IPs  The essential part of value creation lies in the creation and exploitation of a catalog of rights  Ownership of content rights is negotiated by producers, TV broadcasters, SVoD platforms and distributors

Exposure to the commercial  Back-end payments and the value of the exploitation rights of the works success of the project

A business model based on key people The content production industry is based on human relations relying on key personalities capable of building relationships with actors, distributors, and investors. As far as IE is concerned, these functions are fully carried out by two key personalities who have been working together for many years, namely Andrea Iervolino and Monika Gomez Del Campo Bacardi, whose profiles are described below.

Exhibit 35: A Business Model Made of Key People

 Co-founder & CEO of IE  Co-founder of AMBI Media Group  15+ years of experience in the production industry with 66 productions  Appointed Ambassador of the Italian cinema in the world in 2015  Many Best Producer awards (e.g. Venice Film Festival in 2016, 2014)

 Member of the Bacardi family who owns the world's largest privately-held spirits company  Co-founder of IE  Co-founder of AMBI Media Group

Sources: Company, TSAF TRADITION SECURITIES AND FUTURES 19

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Thanks to their in-depth knowledge of the industry, Andrea Iervolino and Lady Bacardi have been able to develop and forge strong relationships with renowned actors (e.g. Johnny Depp, Morgan Freeman, Robert Pattinson, Halle Berry, John Travolta, Margot Robbie, Freida Pinto, Sarah Jessica Parker, Heidi Klum, Keanu Reeves, Al Pacino, etc.).

Exhibit 36: Strong Relationships in the Industry

Sources: Instagram, TSAF

A top-of-the-range production Thanks to its attractive BM as well as its established relationships in the industry, IE is able to collaborate with the best actors in the world in order to make state of the art productions.

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Iervolino Entertainment | 11/16/2020

Exhibit 37: State of the Art Productions Actor Nomination Award Actor Nomination Award

 2  2  1

Morgan Freeman James Franco

 3  1

Alex Baldwin Mark Rylance

 2  1  1

Johnny Depp John Cleese

Nominated: 7 Nominated: 1 Golden Globes, 2 MTV Movie + TV Academy Awards Awards

John Travolta Peter Stormare

Map Key

Academy Golden BAFTA Emmy MTV Movie Award Globe Academy Award Award

Source: Company

Content production process IE is a pure play of contents production in that it does not deal with the distribution, printing and advertising phases, a feature which allows it to transfer many of the risks typical of the industry to distributors and sales agents. IE generates or buys ideas "from scratch" from various internal and external sources (e.g. the film "Waiting for the Barbarians" is based on the script of the homonymous book) and, through idea development and creative adaptation, IE creates valuable IPs. The content production cycle takes on average 15-20 months, providing high visibility on revenues and CFs according to the deliverable schedule. Seasonality: It should be noted that there is a strong seasonality of deliveries mostly concentrated on the deliverables.

The value chain of content production consists of 4 main phases, more specifically: - Development (c.35% of the total work): Creation, writing, organization and planning of the project. During such phase, a preliminary budget is forecasted, key actors are selected, the main creators are selected, the main locations are identified and several draft screenplays can be written. It is the groundwork to show what the project will be and how much it will cost to produce. It starts as soon as a producer thinks about a project or a screenwriter starts writing words on a page. - Pre-production (c.15%): pre-financing covering at least the entire costs of production, script, casting, search for locations, equipment and crew. - Production (c.10%): The writer, director, producer and countless other creative minds finally see their ideas captured. Such phase is usually the shortest one, even though it is crucial to the film, and it represents TRADITION SECURITIES AND FUTURES 21

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the most part in terms of the budget allocation. Production is the busiest period, with the days getting longer to be as efficient as possible with all the rented equipment and locations. - Post-production (c.40%): Post-production when the footage is edited, visual effects are added, music is composed, and titles are finalized. For footage to become a film or digital media, it needs to go through a successful post-production phase. Editing is one of the most important parts of making a film, but it’s easy to overlook. Editors need to create a pace for the film. If a film is drags or the plot develops at too accelerated of a rate, the blame can be placed on bad editing. Despite its name, post-production happens in conjunction with filming. Since the editors, effects artists, sound designers, and composers don’t need to be on-call for scenes, they can spend this time fulfilling their roles. They can also help to point out issues with filming that are preventing them from doing the best job possible.

Exhibit 38: Content Production Cycle

Preliminary Valuation Pre-production Production Post-production Distribution (5-7 months) (2-3 months) (c.2 months) (6-8 months)

 The pre-preparation The preparation stage  The production or  The main  The distribution stage consists of includes these activities: shooting stage components of the stage refers to writing the identifies the period post-production circulating the  In-depth study of the preliminary during which the stage are film movie in the Screenplay screenplay, project is filmed editing, recording cinemas and/or  Determination of the preparing the of the music, other distribution expense estimate budget and creation of special channels. It is  Scheduling the identifying the key effects, dubbing, handled by various location and figures (cast, etc. agents that play the production director, etc.) of the intermediary role timelines project between the  Design of the  These elements are production company storyboard then submitted to the and the end  Signing of the sales agents consumer, and are agreements with the responsible for supplier companies publishing the films and with those that and for circulating should handle post- them, with the production ultimate goal being  Construction of the to maximize the set movie’s success.

Production

Source: Company

Usually, once a film is created, the production company sells its distribution rights or licenses to sales agents who are responsible for finding the right distribution channels. At this stage, IE begins to get paid (usually through aMG), although producers often receive advance payments as production starts and progresses.

When compared with other Hollywood Style Production, IE’s production shows a lower cost per minute resulting from a mix of both (i) Europe’s lower costs of production (e.g. payroll, subsidies), (ii) a better cost management as basic works are outsourced in low cost countries (e.g. colouring is completed in Asia).

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Exhibit 39: Cost per minute in premium animation production ($m)

The Incredibles 2 1.69 Coco 1.67 The Secret Life of Pets 1.62 Baby Boss 1.29 Ferdinand 1.03 Zootopia 0.86 Hotel Transilvania 3 0.83 The Little Prince 0.75 The Nut Job 0.49 Leap 0.34 Arctic Justice - Web Series 0.20

Source: Company

Content distribution Distribution is the last stage of a project for producers. It can be theatrical distribution, sale to a TV channel or to a streaming service. Whatever the distribution plan, producers will have spent many hours planning and marketing their work to ensure the largest audience and the greatest return on investment. With the digital age and the rapid convergence of technologies, viewers are watching content in new and different ways, which means that the distribution phase is constantly evolving. Although distribution is the final stage of the project, the distribution and marketing channel for the project will be planned in pre-production. The fragmentation of the distribution market made possible by the progressive digitalization of the industry, with the multiplicity of players (i.e. cinema, TV, SVOD, AVOD and TVOD) allows producers to optimize their reach, as well as to influence content prices. IE, as a production company, buys, creates and manages IPs which represent the bulk of its revenues. Once IE produces a new film, web series or short form video, this content becomes indefinitely protected by IPs. IE then sells some of its IPs to sales agents (usually the rights to distribute the content) who then take care of finding appropriate distributors for an optimal reach of end-users. The distribution is therefore directly managed by the sales agents and possibly by local distributors who have already purchased IE's production and who ensure payment of the guaranteed minimum, thus securing the group's Business Model.

Exhibit 40: Main Distributors

Cinema Local TV SVoD AVoD TVoD

Sources: Company, TSAF

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Management of IPs IE is a pure content producer, which by definition creates, buys and directly manages the exploitation rights of works produced in perpetuity and worldwide, in all languages and on all distribution channels, representing the bulk of the group's revenues. IE exploits the rights thus acquired either by transferring them definitively (in whole or for certain territories, languages or sales channels) or by granting them a distribution license for certain territories, languages, channels and periods (at the end of which the rights become available to the company). In addition, sales agents and distributors frequently advance to the company a portion of future revenues from the exploitation of audio-visual works (i.e. minimum guaranteed rights), paid in part according to the progress of the productions, even before the start of the productions or during them, it being understood that IE also retains the right to receive other percentages of such revenues (i.e. backend) after the distributor has recovered the exploitation of the licensed rights, an amount equal to the minimum guaranteed and, as a general rule, some distribution costs.

Exhibit 41: IPs Management

Intellectual Property (IP)

 Film  Sequel Film  Prequel  Remake  Spin-off Distribution channels

Country 1 Country 2 Country 3 Country 4 Country n TV Show  Series #1, 2, 3, etc.

WEB Show  Series #1, 2, 3, etc.

Home Theatrical PayTV / Free TV Digital Library Video Pay per Video view Game

Other  Marchandise  Books Products  Events, etc. Source: Company

A distinct competitive positioning with a secure and profitable business model The exhibit below shows the different actors involved in the film production and distribution process up to the audience. IE is positioned at the top of the pyramid, supported by several distinctive elements, including a Business Model with high profitability and a limited risk profile.

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Exhibit 42: A Secure Business Model

Strong  IE carries out its activities on a global scale profitability  Holds the IP rights of the productions

Sales agents or  IE carries out production activities only international  The production budget is submitted to a sales agent, who distributors ensures a minimum non-revocable guaranteed amount to Low risk IE  The various distributors handle the print & advertising costs Local distributors

Local distribution platforms

Source: Company

IE intends to maintain its global positioning, thanks to its ability to reach major international distributors thanks to its high-end international content. We can see from the exhibit below that IE has a unique position in Italy compared to its peers. This is due to its high-end positioning in international film production, web video production, animated film production, all with an international spectrum.

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Exhibit 43: IE has a unique positioning in Italy International film Animation International Local market Company Film Production production Web production production market footprint footprint specialization

Chart Legend Strong Medium Weak Sources: Factset, TSAF’s estimates

IE also offers a distinct international positioning by presenting itself as an international production company. It is present along the entire value chain, with the voluntary exception of distribution, with the aim of offering a de-risky Business Model to its shareholders. IE's productions are present on the international markets under European, not American, productions labels, although the group produces intensively in the US.

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Exhibit 44: IE has a distinct positioning on the international scene International film Animation International Company production Web production Distribution production market footprint specialization

Chart Legend Strong Medium Weak Sources: Factset, TSAF’s estimates

A Business Model eligible for tax shields IE benefits from substantial tax credits in Italy with state aid for video content producers and R&D efforts.

Exhibit 45: Italian Tax Shields’ Rules  The Italian tax credit for movies production / web series productio aims at attracting investments flows to the Italian film industry  The mentioned movies and web series are cinematographic and audiovisual works who have the Italian nationality and meet the culture eligibility requirements as for law Movies & Web  Tax payers entitled to use tax credit as a form of payment for income or regional taxes as well as social Series security contributions Productions  Starting form 2018, ta credit is transferable to a financial and insurance banking intermediaries  30% of the eligible costs of the movies / web series (40% for productions active between February 23rd and November 23rd 2020)  €10m maximum annual credit  The Italian R&D credit aims at encouraging investments in the R&D activities irrespective of business sector  Tax payers are entitled to use tax credit as a form of payment for income or regional taxes as well as social security contributions R&D  No minimum amount required  12% of eligible R&D expenditure  €3m maximum annual credit

Sources: Factset, TSAF’s estimates

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It is also worth mentioning that, following the opening of the group's new subsidiary in Serbia, IE has signed an agreement with the Serbian State, which is a tax-free zone for content production taxes. This gives them the advantage of deducting c.20-30% of their total production with no maximum amount p.a. As a result, we expect that IE will not pay any taxes in Serbia.

A secure business model offering high visibility IE covers more than its production costs thanks to the above-mentioned agreements with sales agents and distributors, allowing them to recognise revenues and tax shields, as was the case for its film "Waiting for the barbarians" released in 2019.

Exhibit 46: For its Animated "Waiting for the barbarians", IE Covered 128% of its Total Production Costs

as a % of production cost

100% 100% 7% 107% 21% 128%

3.2 1.0 19.1 14.8 14.8 15.9

Production cost Minimum Auciliary Total Cinema tax Total revenues Guaranteed revenues contractualized credit revenues

Source: Company

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Financials

IE has experienced strong growth in its activity since the internalization of the production activity within the group, having accounted for 80% of FY19 turnover. The tax credits item (17% of FY19 turnover) refers to (i) tax relief granted to contents production companies in relation to costs incurred for the production of audio-visual works of Italian nationality and (ii) R&D tax credits relating to the conception, study, design and prototyping of new advanced processing methods applicable to short form content.

Exhibit 47: Revenues Evolution (€m) Exhibit 48: FY2019 Revenues Breakdown Other 90 Tax Credit 0% 80 17% 70 80 Celebrity 60 Mgmt x2.3 2% 50 55 ADV 40 1% 30 x5.5 35 20 10 10 0 2018 2019 1H2019 1H2020 Production 80% Sources: Company, TSAF’s estimates Sources: Company, TSAF’s estimates

Thanks to the announced deals and productions agreements, we have a good visibility on timing and values for 70% of the top line, in the forecast period (2020E-22E).

Exhibit 49: Revenues Evolution (€m) Exhibit 50: FY2019 Revenues Breakdown

144 137 34% 33% 114 114

80 19% 16%

35

0%

2018 2019 2020E 2021E 2022E 2023E 2019 2020E 2021E 2022E 2023E

Sources: Company, TSAF’s estimates Sources: Company, TSAF’s estimates

Two main drivers are the ramp-up of the production and the growth of the Serbian subsidiary: - IE set up in June 2020 a 100% controlled subsidiary in Serbia (Iervolino Studios d.o.o.), dedicated to the production of animation products and development of new distribution markets, such as Russia or Central Europe. IE issued a Memorandum of Understanding (MoU) with the Republic of Serbian and Archangel IE to enhance its capacity and flexibility. This is also a 100% controlled subsidiary in Serbia and this was created for production of short animation products, especially for providing third part. Our forecast from 2020E to 2029E is based on assumptions that the overall total revenues for the period is the result of 1.27X IE's 2020E-2029E total content spending and €530M total revenues, with the aim to provide third part (31% of the total sales for the next 10-year period).

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“V-shape” margin

We forecast a margin tightening in 2020E and 2021E but room for modest or strong expansion from there (depending on the content multiplier, especially backend). In 2020 the margin should land at 21.8% and we assume a 90bps drop of EBIT margin in 2021E, mainly due to the sharp increase in content investments and fewer backend. Moreover, the Serbian subsidiary will not be at full pace. Scale up will allow for margin expansion. Also, it should be noted that Management completed a HR reorganization process in order to allow remote work, we therefore assume c.€1.5m one-off implementation cost in 2020.

Exhibit 51: EBIT margin evolution 35 30% 30 28,4% 26% 25 21,8% 22,0% 20,9% 21,6% 20 22% 15 18% 10 14% 5 22,7 24,8 28,5 24,7 31,8 0 10% 2019 2020E 2021E 2022E 2023E EBIT (€m) % EBIT MARGIN

Sources: Company, TSAF’s estimates

Onwards, we expect margin expansion driven by positive revenue mix (more backend and production for third part) and benefits from incremental scale.

In our 1.27x scenario: 23.5% 2029E EBIT margin target. What does this multiple of x1.27 mean? For each €1 spent by IE in content, we estimate that IE will get back €1.27 revenue coming from minimum guarantee (MG) + tax credits and subsidies + backend and/or library revenue.

Our 1.27X scenario is conservative stance, considered that MG+ tax credits and subsidies already give to IE for each €1 spent on content, around €1.15-€1.20 of total sales.

A more bullish scenario of 1.35x would add further 350bps in EBIT margin target. Our blue sky scenario implies a 1.45x scenario that implies a 31% EBIT margin target.

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Exhibit 52: The right accounting depreciation policy

220 120% 97%

100% 170 83% 83% 78%

70% 80% 120 101 105

82 60% 63 70 64 71 69 70 52 53

40%

20 20%

-30 2019 2020E 2021E 2022E 2023E 0% CapEx (€m) D&A (€m) D&A/CapEx

Sources: Company, TSAF’s estimates In 2020E and 2021E, we assume respectively €101M and €105M of investment in productions including ongoing productions aim to be delivered in 2021-2022. In our scenario, 2022E investment in content decrease acutely. Third part production is up and our 2022 sales estimations remains for now cautious (our pipeline visibility regarding after 2022 is low) What we like is content amortization policy is very conservative. We estimate that IE amortize 70-85% of the content the first year and the remaining over the next four years. Finally, the company should maintain low net debt levels and is expected to become cash positive by 2022E, thanks to reducing capex/productions and favourable working capital dynamics.

Exhibit 53: A strong FCF generation to come 25 59% 80% 20 45% 60% 15 18,7 40% 10 11,2 20% 5 (11%) 0% 0 (5) (3,2) (20%) (10,8) (11,2) (10) (40%) (15) (48%) (45%) (60%) 2019 2020E 2021E 2022E 2023E FCF (€m) FCF conversion

Source: TSAF’s estimates

Sound balance sheet Interim production financing is used to fund working capital during production until receivables are collected from various third-part sources (including governments). In line with our usual treatment (and the company’s), we exclude production net debt from our calculation of “adjusted net debt”. This short-term financing (QUASI working capital) is independent of IE's senior credit facility and is arranged and secured on a “production by production” basis. Our medium term forecast assumes that changes in working capital are largely offset by interim production financing. Dividend Policy IE has not paid any dividends to date. We believe IE will abstain from paying dividends in the future, with M&A being a priority for use of cash flow

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Exhibit 54: A sound financial structure 20 0,8x 0,6x 15 0,5x 0,6x 15,8 10 0,4x 11,8 0,2x 5 0,2x 0,5 5,3 0 0,0x 0,0x (5) -0,4x - 0,2x (10) (12,4) - 0,4x (15) - 0,6x 2019 2020E 2021E 2022E 2023E Net DEBT (€m) NET DEBT/EBITA

Sources: Company, TSAF’s estimates In the last months, IE took the opportunity of funding its business with a longer time horizon, given that most of its facilities are expiring during the current year. Management announced: - in June, the issue of a €4.1mn term loan, granted by the Italian Fondo Centrale di Garanzia, with a 5-year duration and a 2.5% spread over 3M Euribor - in July, the issue of a 7-year bond (plain vanilla debt) for €8mn, underwritten by Banca Intesa and bearing a cost of 4.07%

A solid balance sheet to increase M&A option, M&A is one of the group's strategic priorities In order to support the increasing in-house post production workload (driven by the Serbian business and the increasing weight of OTT clients), IE intends to grow further its pool of creative talents and production capacity via M&A. IE wishes to complete some transactions aiming at increasing its critical size. More specifically, IE is looking for independent studios with complementary expertise. In addition, IE would also be a good target for any potential buyer. The speculative bias of the deal, highlighted by the asset quality, as well as the strong speculation on this asset type, should be highlighted. As a reminder, some of IE's peers have experienced takeover bids (e.g. Mediawan's taken over in July 2020 by KKR, Entertainment One's taken over in 2019 by Hasbro at high share premiums and multiples). As a reminder, IE operates mainly in animation, a market segment in which multiples are the highest because of higher recurrence.

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DCF Scenario Sensitivity

Scenario 1 Scenario 2 Scenario 3 2020E-29E CapEx 923.7 923.7 923.7 2020E-29E Revenues form MG,Backend &Subsidies 1,172.3 1,247.0 1,339.4 Implied multiplier (x) 1.27x 1.35x 1.45x 2020E-29E Revenues From Third Part 530.4 530.4 530.4 2020E-29E Total Revenues 1,702.7 1,777.4 1,869.7

DCF Valuation outcome (WACC @12.3%; TGR @2%) 6.0 7.6 9.7 Sources: Factset, TSAF’s estimates

1.35x Scenario we use a WACC @12.3% and a TGR @2%, in our 1.35x multiplier scenario, we derive a TP of €8.

FY ending on 31 Dec. (EURm) 2020E 2021E 2022E 2023E 2024E 2025E 2026E 2027E 2028E 2029E

Sales 114.4 140.8 119.9 150.6 173.0 195.0 207.9 217.5 225.7 232.6 Δ % 43.0% 23.0% (14.9%) 25.6% 14.9% 12.7% 6.6% 4.6% 3.8% 3.1% EBITDA 95.7 114.7 83.4 107.0 123.2 140.2 150.3 157.1 161.9 165.7 EBITDA margin 83.6% 81.4% 69.6% 71.1% 71.2% 71.9% 72.3% 72.2% 71.7% 71.2% D&A (70.2) (82.0) (53.2) (69.0) (79.0) (90.5) (96.2) (99.2) (100.6) (101.4) D&A as a % sales (61.4%) (58.3%) (44.4%) (45.9%) (45.7%) (46.4%) (46.3%) (45.6%) (44.6%) (43.6%) EBIT 25.5 32.7 30.3 38.0 44.2 49.8 54.1 57.8 61.3 64.3 EBIT margin 22.3% 23.2% 25.3% 25.2% 25.5% 25.5% 26.0% 26.6% 27.2% 27.7% Tax rate 9.5% 13.0% 14.0% 15.0% 17.0% 19.0% 20.5% 22.0% 23.0% 23.0% Taxes on EBIT (2.4) (4.2) (4.2) (5.7) (7.5) (9.5) (11.1) (12.7) (14.1) (14.8) NOPAT 23.1 28.4 26.0 32.3 36.7 40.3 43.0 45.1 47.2 49.5 CAPEX (100.6) (104.7) (64.0) (71.0) (81.0) (95.4) (105.8) (99.2) (100.6) (101.4) % sales (87.9%) (74.3%) (53.4%) (47.2%) (46.8%) (48.9%) (50.9%) (45.6%) (44.6%) (43.6%) WC (3.1) 2.3 1.5 8.1 14.3 19.8 22.5 24.4 26.0 27.4 % sales (2.7%) 1.6% 1.3% 5.4% 8.3% 10.1% 10.8% 11.2% 11.5% 11.8% Δ WC (3.2) (5.3) 0.8 (6.6) (6.1) (5.5) (2.8) (1.9) (1.6) (1.4) Free Cash Flow (10.5) 0.4 16.0 23.7 28.5 29.9 30.6 43.2 45.6 48.2 Time coefficient 0.1 1.1 2.1 3.1 4.1 5.1 6.1 7.1 8.1 9.1 DF 1.0 0.9 0.8 0.7 0.6 0.6 0.5 0.4 0.4 0.3 Cash conversion on EBIT (41.1%) 1.2% 52.8% 62.3% 64.5% 60.0% 56.6% 74.7% 74.4% 74.9% Discounted FCF (10.3) 0.4 12.5 16.5 17.7 16.5 15.1 18.9 17.8 16.8

Sum of discounted FCF 121.7 Terminal trailing EV/EBIT 2029E 7.4x + Discounted Terminal Value 168.9 TGR % EV 58.1% 8.0 1.0% 1.5% 2.0% 2.5% 3.0% = Enterprise Value 290.6 11.3% 8.5 8.8 9.1 9.5 9.9 - Equity Bridge (2.1) 11.8% 8.0 8.3 8.5 8.8 9.2 = Equity Value 292.7 WACC 12.3% 7.6 7.8 8.0 8.3 8.6 Fully diluted NoSHm 36.5 12.8% 7.1 7.3 7.5 7.8 8.0 Price target 8.0 13.3% 6.7 6.9 7.1 7.3 7.5

Sources: Factset, TSAF’s estimates

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1.45x Blue-Sky Scenario we use a WACC @12.3% and a TGR @2%, in our 1.45x multiplier scenario, we derive a TP of €10.3;

FY ending on 31 Dec. (EURm) 2020E 2021E 2022E 2023E 2024E 2025E 2026E 2027E 2028E 2029E

Sales 115.4 146.0 126.7 158.3 181.7 204.8 218.9 229.9 239.7 248.4 Δ % 44.2% 26.5% (13.2%) 24.9% 14.8% 12.7% 6.9% 5.0% 4.2% 3.6% EBITDA 96.6 119.8 90.3 114.7 131.9 150.0 161.3 169.5 175.9 181.5 EBITDA margin 83.8% 82.1% 71.3% 72.5% 72.6% 73.3% 73.7% 73.7% 73.4% 73.1% D&A (70.2) (82.0) (53.2) (69.0) (79.0) (90.5) (96.2) (99.2) (100.6) (101.4) D&A as a % sales (60.9%) (56.2%) (42.0%) (43.6%) (43.5%) (44.2%) (43.9%) (43.1%) (42.0%) (40.8%) EBIT 26.4 37.8 37.1 45.7 52.9 59.6 65.1 70.3 75.3 80.1 EBIT margin 22.9% 25.9% 29.3% 28.9% 29.1% 29.1% 29.7% 30.6% 31.4% 32.3% Tax rate 9.5% 13.0% 14.0% 15.0% 17.0% 19.0% 20.5% 22.0% 23.0% 23.0% Taxes on EBIT (2.5) (4.9) (5.2) (6.9) (9.0) (11.3) (13.3) (15.5) (17.3) (18.4) NOPAT 23.9 32.9 31.9 38.8 43.9 48.2 51.8 54.8 58.0 61.7 CAPEX (100.6) (104.7) (64.0) (71.0) (81.0) (95.4) (105.8) (99.2) (100.6) (101.4) % sales (87.2%) (71.7%) (50.5%) (44.9%) (44.6%) (46.6%) (48.3%) (43.1%) (42.0%) (40.8%) WC (3.1) 2.3 1.5 8.1 14.3 19.8 22.5 24.4 26.0 27.4 % sales (2.6%) 1.6% 1.2% 5.1% 7.9% 9.6% 10.3% 10.6% 10.9% 11.0% Δ WC (3.2) (5.3) 0.8 (6.6) (6.1) (5.5) (2.8) (1.9) (1.6) (1.4) Free Cash Flow (9.7) 4.9 21.9 30.2 35.7 37.8 39.4 52.9 56.4 60.3 Time coefficient 0.1 1.1 2.1 3.1 4.1 5.1 6.1 7.1 8.1 9.1 DF 1.0 0.9 0.8 0.7 0.6 0.6 0.5 0.4 0.4 0.3 Cash conversion on EBIT (36.5%) 12.9% 58.9% 66.1% 67.5% 63.5% 60.5% 75.3% 74.9% 75.3% Discounted FCF (9.5) 4.3 17.1 21.0 22.1 20.9 19.4 23.2 22.0 21.0

Sum of discounted FCF 161.5 Terminal trailing EV/EBIT 2029E 7.5x + Discounted Terminal Value 211.5 TGR % EV 56.7% 10.3 1.0% 1.5% 2.0% 2.5% 3.0% = Enterprise Value 372.9 11.3% 10.9 11.3 11.7 12.1 12.6 - Equity Bridge (2.1) 11.8% 10.3 10.6 10.9 11.3 11.7 = Equity Value 375.1 WACC 12.3% 9.7 10.0 10.3 10.6 10.9 Fully diluted NoSHm 36.5 12.8% 9.2 9.4 9.7 9.9 10.3 Price target 10.3 13.3% 8.7 8.9 9.1 9.4 9.6

Sources: Factset, TSAF’s estimates

Producer Multiple

Market Value (€m) EV/Sales EV/EBITDA EV/EBIT P/E P/BV Company Name Ticker Country Equity EV Dec-20 Dec-21 Dec-22 Dec-20 Dec-21 Dec-22 Dec-20 Dec-21 Dec-22 Dec-20 Dec-21 Dec-22 Dec-20 Dec-21 Dec-22 2,020 2,021 2,022 2,020 2,021 2,022 2,020 2,021 2,022 2,020 2,021 2,022 2,020 2,021 2,022 Producers Lions Gate Entertainment Corp Class A LGF.A-US United States 1,649 4,124 1.6x 1.4x 1.2x 10.8x 10.8x 8.9x 44.9x 37.9x 24.7x n/a 187.9x 78.2x 0.7x 0.7x 0.7x WildBrain Ltd. WILD-CA Canada 190 660 2.5x 2.5x 2.3x 12.9x 12.0x 12.2x 15.5x 15.1x 12.2x n/a 299.3x 57.0x 1.4x 1.3x 1.7x Mediawan SA MDW-FR France 388 614 2.1x 1.4x 1.4x 15.5x 10.1x 8.4x 18.4x 10.8x 9.6x 32.0x 12.3x 10.2x 1.7x 1.5x 1.3x Xilam Animation SA XIL-FR France 225 227 9.7x 5.1x 4.7x 18.7x 8.0x 7.3x 44.7x 17.9x 14.9x 70.0x 24.6x 20.2x 3.8x 3.3x 2.8x Leone Film Group SpA LFG-IT Italy 33 103 1.7x 1.2x 1.0x 3.9x 2.2x 2.0x 258.1x 20.6x 11.6x n/a 10.2x 5.1x 0.8x 0.7x 0.7x Lucisano Media Group S.p.A. LMG-IT Italy 16 46 1.2x 1.0x n/a 3.7x 2.6x n/a 14.5x 8.2x n/a 10.8x 4.7x n/a 0.4x 0.4x n/a Mondo TV S.p.A. MTV-IT Italy 50 90 2.2x 1.9x 1.8x 3.0x 2.6x 2.2x 6.7x 5.8x 4.4x 10.5x 9.4x 6.5x 0.8x 0.7x 0.7x Notorious Pictures S.p.A. NPI-IT Italy 30 24 1.4x 0.5x 0.4x 4.1x 2.0x 1.3x n/a 6.1x 4.1x n/a 8.5x 5.9x 1.3x 1.1x 1.0x

Median 1.9x 1.4x 1.4x 7.4x 5.3x 7.3x 18.4x 12.9x 11.6x 21.4x 11.2x 10.2x 1.0x 0.9x 1.0x Avg. 2.8x 1.9x 1.8x 9.1x 6.3x 6.1x 57.5x 15.3x 11.6x 30.8x 69.6x 26.2x 1.4x 1.2x 1.3x

Iervolino Entertainment S.p.A. 105 110 0.9x 0.8x 0.9x 1.1x 1.0x 1.3x 4.1x 3.9x 4.2x 4.8x 4.4x 5.1x 1.5x 1.1x 0.9x vs. Peers' Median (52%) (42%) (33%) (85%) (81%) (82%) (78%) (70%) (64%) (77%) (61%) (50%) 46% 19% (11%)

Sources: Factset, TSAF’s estimates

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Disclaimer

This research publication (the “Research report”) is produced by Tradition Securities And Futures SA (“TSAF”). TSAF is a public limited company registered in France under the number 450 959 341 RCS Paris, licensed by the French Prudential Control and Resolution Authority (“ACPR”) and regulated by the Autorité des Marchés Financiers (“AMF”). TSAF’s branches based in the European Union are authorized and regulated by the ACPR and by the applicable national competent authority. This Research report is the property of TSA and may not be reproduced, distributed or published by any recipient for any purpose without a prior written consent of TSAF. This Research report is available via third-party aggregators such as Refinitv Reuters, Factset, Bloomberg. TSAF is not responsible for the re-distribution of Research reports by third-party aggregators

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Valuation methods "DCF method": discounting future cash flows generated by the business’s operations. Cash flows are determined using the analyst’s financial forecasts and models. The discount rate used corresponds to the weighted average cost of capital, which is defined by the weighted average cost of the company's debt and the theoretical cost of equity as estimated by the analyst. "Trading multiples method": application of stock-market valuation multiples, or multiples observed for recent transactions. These multiples may be used as benchmarks and be applied to the company’s financial aggregates to determine their valuation. The sample is prepared by the analyst based on the company's characteristics (size, growth, profitability etc.). The analyst may also apply a premium/discount based on his perception of the company’s specificities. "Net asset-based method (NAV)": estimation of the value of the equity on the basis of the revalued assets and corrected for the value of the liability. "Discounted dividend method": discounted future value of estimated dividend flows and share buybacks. The discount rate applied is generally the cost of capital. "Sum of the parts": this method consists of estimating a company's different operations by using the most appropriate valuation method for each one, then calculating the sum.

Distribution to Non-US Investors The Research report, when distributed outside of the U.S., is intended exclusively for non-U.S. customers of TSAF and cannot be divulged to a third-party without prior written consent of TSAF. This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. This Research report has been prepared in accordance with regulatory provisions designed to promote the independence of investment research. “Chinese walls” (information barriers) have been implemented to avert the unauthorized dissemination of confidential information and to prevent and manage situations of conflict of interest. This Research report has been prepared in accordance with French regulatory provisions designed to promote the independence of investment research. While TSAF endeavours to update its Research report from time to time, there may be legal and/or other reasons why TSAF cannot do so and, accordingly TSAF disclaims any obligation to do so.

Distribution to US Investors This report was prepared, approved, published and distributed by TSAF, a company located outside of the United States (a “non-US Company”). This Research report cannot be distributed to a US Investors. Neither the Research TRADITION SECURITIES AND FUTURES 35

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report nor any analyst who prepared or approved the report is subject to U.S. legal requirements or the Financial Industry Regulatory Authority, Inc. (“FINRA”) or other regulatory requirements pertaining to Research reports or research analysts. The non-US Company is not registered as a broker-dealer under the Exchange Act or is a member of the Financial Industry Regulatory Authority, Inc. or any other U.S. self-regulatory organization. The non- US Company is the employer of the research analyst(s) responsible for this Research report. The research analysts preparing this report are resident outside the United States and are not associated persons of any US regulated broker-dealer and therefore the analyst(s) is/are not subject to supervision by a US broker-dealer, and are not required to satisfy the regulatory licensing requirements of FINRA or required to otherwise comply with US rules or regulations regarding, among other things, communications with a subject company, public appearances and trading securities held by a research analyst account.

Breakdown of recommendations As at 15/10/2020, the recommendations issued by the TSAF Research team break down as follows: Nbr of issuers Recommendation Covered issuers o/w Sponsored research covered Buy 100% 100% Hold 1 0% 0% Sell 0% 0% Although the information in this document is based on sources believed to be reliable, TSAF and its affiliates do not warrant its accuracy, completeness, or reliability. The responsibility of TSAF, its affiliates, directors, administrators, employees or agents can not be held liable for the fact of this document or its contents, in particular, in case of error, inaccuracy or omission. Neither TSAF nor its affiliates, directors, administrators, employees or agents can be held liable for any loss suffered as a result of the use of this document or the information it contains, including any harmful consequences of an investment made. by a reader. Their responsibility cannot be engaged in this respect.

Analyst Certification. Each of the analysts identified in this report certify, with respect to the companies or securities that the individual analyses, that :

(1) the views expressed in this report reflect his or her personal views about all of the subject companies and securities and such recommendations were elaborated independently; and, (2) no part of his or her compensation was, is or will be directly or indirectly dependent on the specific recommendations or views expressed in this report.

Conflict of interest At the time of publication of this Research report, TSAF and/or one of its affiliates may have a conflict of interest with the issuer(s) mentioned. While all reasonable effort has been made to ensure that the information contained is not untrue or misleading at the time of publication, no representation is made as to its accuracy or completeness and it should not be relied upon as such. Past performances offer no guarantee as to future performances. All opinions expressed in the present document reflect the current context, which is subject to change without notice. The views expressed in this Research report accurately reflect the analyst’s personal views about the subject securities and/or issuers and no part of his compensation was, is, or will be, directly or indirectly, related to the specific views contained in the Research report. This Research report does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients or investors. Clients and any other recipients of this Research report should consider whether any advice or recommendation in this Research report is suitable for their particular circumstances and, if appropriate, seek professional advice, including tax advice.

The opinions and opinions of the authors may differ. Thus, TSAF and its affiliates may publish conflicting analyzes and / or reach different conclusions based on the information presented in this document. The opinions and TRADITION SECURITIES AND FUTURES 36

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assessments expressed herein may be modified or waived without prior notice. TSAF is under no obligation to update and update the information contained in this document. TSAF may maintain or have maintained relations with the companies concerned by this document or provided them with investment services.

Declaration of conflict of interest: Has TSAF, led or co-led in the past 12 months a public offering of securities for the issuer(s)? No At the date of the distribution of this report, does TSAF,provide to the Issuer a liquidity No provider agreement with the issuer(s)? Has a copy of this Research report, with the target price and/or rating removed, been presented to the issuer(s) prior to its distribution, for the sole purpose of verifying the Yes accuracy of factual statements? Have the conclusions of this report been amended following disclosure to the issuer(s) and No prior its distribution? Is TSAF, aware of any additional material conflict of interest? No Has the analyst responsible for the drafting of the present document acquired securities from No the issuer(s) concerned by the present financial analysis? Have TSAF and the issuer agreed on the provision of Research report, including circulation Yes of investment recommendation report related to the issuer(s)?

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