EQUITY RESEARCH - Initiation of Coverage th October 17 , 2017 III

The fragrance of luxury

We initiate coverage of Culti Milano with an OUTPERFORM rating, based on a Target

Price of €5.74 per share.

Culti Milano is the company that has created the iconic interior fragrance diffuser through OUTPERFORM natural rattan reeds. Styling and design are among the most successful heritages of the Current Share Price (€): 4.41 modern story of the city, Milan, where Culti was born and established its brand. Today Culti has a unique attitude towards the luxury segment of Made in Italy lifestyle. Its classic Target Price (€): 5.74 luxury collections stand out of the crowd for creativity and imagery.

Culti Milano - Performance since IPO “Made in Italy” design, underpinning first class home fragrances 110 Culti Milano addresses exclusive values and messages, such as understatement, identity,

100 brand image, exploration vs. shopping, superior quality, prestige gifts and perception of a special home. The Made in Italy product portfolio takes advantage of the world-renowned 90 Italian craftsmanship and style, which generates universal appeal for its products, commands a price premium and effectively becomes a barrier to entry tor non-Italian 80 operators.

70 Jul-17 Aug-17 Sep-17 Oct-17 Premium and luxury markets largely unexplored Culti Milano Share Price FTSE AIM Italia Index Source: S&P Capital IQ - Note: 17/07/2017=100 The growing success of lifestyle concept unveiled a largely unexplored global demand for the finest design products. Culti has gained favour as the ideal partner to bring lifestyle Company data experience to stores wishing to preserve and upscale their identity in the luxury home ISIN code IT0005257347 wellness and décor market. Bloomberg code CULT IM Reuters code CULT.MI Share Price (€) 4.41 Growing room in an industry ready for change and looking for emerging leaders Date of Price 17/10/2017 The industry direction is clear: high luxury branded home offerings distributed in selected Shares Outstanding (m) 3.1 own flagship stores, and premium collections through home décor retailers and corners. Market Cap (€m) 13.6 Market Float (%) 28.0% French and Italian crafters are leading the quality game and supply the best retailers in the Daily Volume 250 global market. Avg Daily Volume YTD 10,401 Target Price (€) 5.74 Asset-light model with potential for capital return Upside (%) 30% Return on capital will be achieved by continuing to run the business with an asset-light Recommendation OUTPERFORM model, with significant capital discipline, favoring cash generation and a balanced capital Share price performance structure. Store openings will be limited to a few key flagship locations. This, on the 1M 3M 1Y premises that a large DOS network would hinder capital turnover and would not be able to Culti Milano - Absolute (%) -0.7% -12.4% n.a. profitably sustain sales in a market destined to be dominated by high luxury brands and FTSE AIM Italia (%) -1.7% 0.1% n.a. 1Y Range H/L (€) 5.50 4.30 specialized retailers. Culti’s strategic positioning is creating room to improve the average YTD Change (€)/% n.a. n.a. price-tag on its products, lifting EBITDA margins towards those of luxury goods operators Source: S&P Capital IQ commanding premium prices.

Luigi Tardella - Co-Head of Research [email protected] Key financials and estimates €m 2016PF 2017E 2018E 2019E Viviana Sepe - Research Analyst Net sales 5.0 5.7 6.6 7.5 [email protected] EBITDA 0.3 0.7 1.1 1.4 Margin 6.8% 12.9% 16.3% 18.6% EBIT 0.1 0.4 0.6 1.1 EnVent Capital Markets Limited Margin 1.7% 7.3% 9.2% 14.2% 42, Berkeley Square - London W1J 5AW (UK) Net Income 0.01 0.3 0.4 0.7 Phone +44 (0) 20 35198451 Trade Working Capital 0.8 1.0 1.3 1.5 TWC/Sales 17% 18% 19% 19% This document may not be distributed in the United States, Canada, Japan or Australia or to U.S. persons. Net (Debt) Cash 0.1 3.9 4.2 4.7 Equity 3.8 8.5 8.9 9.7 Source: Company data and EnVent Research

1. INVESTMENT CASE

Company

Culti Milano (Culti) is an Italian home fragrance company positioned in the premium and luxury segments, designing and distributing products under its own brand, through three flagship stores in Italy and a wide presence

in European and Asian prestige department stores. The full line of products is also promoted through the online

site (www.culti.com).

2016 net sales: €5m - Geographical breakdown: Italy 26%, Rest of Europe 42%, Japan 18%, Asia and Australia 12%, USA and RoW 2%. One of the main strategic goals of the Company is to rebalance its geographical presence through the opening of new DOS (Directly Operated Stores) in Italy and in other European and US cities.

Drivers

Industry drivers

Made in Italy. The Italian home fragrance industry has a high quality production and style recognized worldwide, plus can call for higher prices around the world purely by carrying such a tag. No other country enjoys such “best in class” endorsements, or reputation , worldwide. The Italian industry, as a whole, has until recently underestimated this potential to strive and penetrate in international markets. This reputation, to be viewed as a competitive advantage and difficult to be challenged by competitors of other geographies, provides unique opportunities to

those Italian companies able to make the most of the unexplored potential of Made in Italy products conceived for

lifestyle lovers.

Home fragrances niche market still underexploited and open to home luxury and lifestyle. The performance of luxury brands in the last two decades has been mainly driven by the relentless increase of the population of the so called HNWI - High Net Worth Individuals. Exposure to population in emerging markets, both locally present and through customers travelling abroad and buying goods in Europe, together with the global reach of digital communication, have boosted internationally the awareness of the best products and brands. This, in turn, has paved the way and prepared fertile ground for dedicated home collections of luxury brands, a new business opportunity for industry segments which were previously “uncharted territory”.

Switching to lifestyle brands. Many fashion labels and luxury brands propose themselves as lifestyle symbols.

Several luxury apparel brands have expanded their product offering to include lifestyle products and service lines

such as housewares, furniture, fine dining and hotels. The trend has just begun, and the relative maturity of

apparel and traditional accessories opens doors to a new wave of stylish home products. Italian companies are the best positioned in this arena thanks to their design and creativity capabilities.

Online luxury sales expect strong growth. Over 2009-2014, online sales of luxury goods had an annual growth rate of 27%, vs. 7% of offline (Source: McKinsey, Digital inside: Get wired for the ultimate luxury experience, 2015). McKinsey estimates that online sales will double from 6% in 2015 to 12% in 2020, tripling to 18% by 2025. This trend will continue, both for brands’ directly operated websites and for the online offering of department stores and retailers.

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Digital communication and online sales suitable for the home fragrances industry. Digital communication and word of mouth are radically changing the way shoppers make their decisions, challenging established brands and offering more accessibility to emerging ones, both in B2B and B2C markets. Unlike other luxury sectors, as there is a lack of dominant brands in the general home lifestyle segment, this makes it easier to reach shoppers and buyers

in a number of touch points, without having to struggle with a pre-imagined restricted list of brands to choose from. In the general expectation of strong growth of online sales within the fashion and luxury segments, online purchases are trouble-free. In addition, repeat purchases of returning customers would be swift and easy, also promising better margins when compared to other trade channels.

Company drivers

Brand image. Culti Milano’s luxury brand represents world renowned Italian design and style, being the Company producing with Italian selected craftsmen and using high quality materials. The Made in Italy tag attracts a premium price and has strong appeal globally. Over the decades, Culti has built a reputation for being Milan's home fragrance connoisseur, and intends to strengthen its brand awareness to become a lifestyle company. Culti

Milano stands for sophisticated fragrances, well-being in one’s preferred places and emotional dependence on its own fragrance.

Iconic products. Culti has a unique attitude towards innovation and focus on well-being and lifestyle of consumers.

Its home fragrances collections stand out of the crowd for creativity, boldness and imagery. In 1990, Culti introduced, in a conservative and sluggish market, collections that marked a change for the entire industry. Culti’s most popular fragrances Tessuto and Aramara have been on the market for 25 years and are recognized as a status symbol.

Lean business model and wide distribution network. Culti’s business model is diverse from most competitors and is structured to be lean, based on the direct management of the value chain, with the main focus on style and product development like a “maison”. The production is outsourced through a suppliers and assemblers network selected for high quality standards.

Culti’s distribution model is based on a worldwide network of agents and distributors, with corner shops and walls in over 40 European and Asian department stores, 3 flagship stores in Italy (two in Milan and one in Naples) and the e-commerce channel.

International presence. Diversified global reach, with further room to expand in the USA, in Europe and in Asia.

The projected opening of new flagship stores in some strategic geographical locations, whose realization has begun with the opening of a flagship store in Naples in October 2017, represents the next step to achieve a stronger worldwide presence.

Culti free from the maturity risk. A typical concern for luxury companies is the sustainability of growth and a permanent question is how high is the chance of becoming mature and lose appeal. Probably the most challenging task for industry leaders is reconciling volume and profit targets with retention of exclusivity and identity. Culti’s business model is likely to be immune from the lifecycle of fashion products and of ever-changing trends being based on iconic standards that are bound to last for generations.

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Challenges

Winning the digital gamble. Several major brands are going digital, establishing a revenue stream from e- commerce and profiting of the benefits of digital advertising and online presence, through a well-built corporate website, presence on social media and on main online multi-brand stores. Differently, luxury players are more cautious about digital and e-commerce. Culti is no exception, having a direct relationship with end consumers for a part only of its business, while direct e-commerce could be a conflicting channel with the multi-brand, multiproduct stores network. However, we expect that the growing importance of digital media will sooner or later force to go digital. The challenge is in guessing the right timing. First typical phase is selling online either through partners or through their own e-shop, only offering a reduced product range and not advertising it much. Then, it would be critical to reach not too late the tipping point when to scale-up quickly e-commerce operations, with significant investments.

Slowdowns of markets pushes promotional sales. With the growing middle class seeking good quality and consumers in mature markets looking for bargains, the off-price channel in the luxury goods market has more than doubled over the past three past years, reaching 11% as a percentage of total market in 2016. The share of markdown is quickly increasing across formats and reached 37% of the personal luxury goods market in 2016.

(Source: Bain & Company, Luxury goods worldwide market study: Fall – Winter 2016),

Low exposure to key markets. The establishment of a structured presence into the traditionally most important markets for luxury goods, namely North America and the so called luxury cities, might require time and significant investments.

Currency issues. Most European luxury goods manufacturers produce in Euro (in France and Italy) and sell throughout the world, with important exposure to the US Dollar and Dollar-linked currencies. Changes in the

Euro/Dollar exchange ratios are critical to exports.

M&A and cash management. The most common issue with acquisitions in the fashion and luxury sector is that they do not produce many synergies. As a consequence, given the high multiples commanded by the potential sellers, cash generation and payback could become an issue in any potential deal.

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2. PROFILE

Heritage and innovation

Culti is an Italian home fragrances company positioned in the luxury segment, specialized in designing and distributing its products under its own brand “Culti A mix of styling, design and Milano”. Styling and design are one of the most successful heritages of the modern high quality fragrances story of the city, Milan, where Culti has created and established its brand. The combination of natural, sophisticated and exclusive fragrances, with an innovative way to propose them, is the challenge at the basis of Culti’s brand and products.

History and key developments

Culti was established in Milan in 1990 by Mr. Alessandro Agrati, an interior

designer who created the first fragrance diffuser based on the combined effect of A new creative idea for home luxurious fragrances and natural rattan reeds. fragrance The first stage of life of Culti was characterized by a fast sales growth. In 1995, the

product portfolio had achieved more than 7,000 items.

In 2004, Intek Group, an Italian diversified holding company with interests in three

sectors - manufacturing, finance and services - acquired a stake in the Company.

In 2010, a restructuring period started, by repositioning the product and the brand

and by reducing the product portfolio from 7,000 to 400. In the meantime, the

Company reorganized the sales network in Italy and Europe, started new Organization restructuring distribution agreements in Japan, South Korea, Switzerland North America, Middle and brand renewal East and BRIC. The expansion in new promising markets, mainly Japan and selected

Asian cities, signed the new worldwide perspective of the Company.

Today Culti represents one of the excellences of the Made in Italy among home

décor luxury goods, thanks to the high quality production and the unique

combination of fragrances and design.

Culti Milano went public in July 2017 on AIM Italia of the Italian Stock Exchange.

Through its IPO on AIM Italia on July 17th, 2017, Culti raised €4.5m. The initial

market cap was €16m.

Shareholders

Intek Group S.p.A. 72%

Market 28%

Source: Company data

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Key people

Name Role Background • Since 2017: Chairman, Culti Milano • Currently: Vice-Chairman, BasicNet; Board Member, Intek Franco Spalla Chairman Group • 30 years of experience as Board member in Italian companies (Fenera Holding, Beni Stabili, Electrolux)

• Since 2014: CEO, Culti Milano Pierpaolo Manes CEO • 2011-2014: Finance division, KME Group; Financial Analyst, Intek Group

• Since 2016: Accounting and tax manager, Intek Group Holding • Since 2015: CFO, Culti Milano • 2011-2016: Administration, I2 Capital Partners SGR Sergio Crestani CFO • 2009-2011: Accounting and tax manager, Intek Group • 2007-2009: Internal audit manager and controller, Finleasing Lombarda • 2001-2007: Controller, SG Leasing • 1998-2001: Auditor, SG Leasing

• Since 2015: Sales & Marketing Manager, Culti Milano • 2014-2015: E-Commerce Manager, Pipeaporter.com Sales & • 2011-2015: Export Manager, Savinelli Giovanni Maria Casale Marketing • 2007-2011: Investment banking (Rotschild, All Funds Bank, Manager Lehman Brothers, Value Partners) and Consulting (Accenture, MBS Consulting)

• Interior designer and architect with experience in home Style Alessandro Agrati living and luxury hotels Director • 1990: Founder, Culti Milano

Source: Company data

Culti’s IPO and stock market performance on AIM Italia

Culti Milano on AIM Italia Stock market AIM Italia - MAC ISIN code IT0005257347 Bloomberg code CULT IM Reuters code CULT.MI IPO date 17/07/2017 Offer Price (€) 5.20 Money raised (€m) 4.5 Market Cap at IPO (€m) 16.1 Shares outstanding 3,095,500 Current Share Price (€) 4.41

Current Market Cap (€m) 13.6

Source: Company data and S&P Capital IQ, update: 17/10/2017

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Share price performance since IPO 110 200,000

100 150,000 90 80 100,000 70

60 50,000 50

40 0 Jul-17 Aug-17 Sep-17 Oct-17

Culti Milano Volumes Culti Milano Share Price FTSE AIM Italia Index Source: Company data and S&P Capital IQ, update: 17/10/2017 - Note: 17/07/2017=100

Use of the IPO proceeds:

1. International and retail expansion

- Target markets: Italy, Europe, North America, Middle and Far East

- New Directly Operated Stores

2. Branding

- Digital marketing, also through partnerships with fashion bloggers and social influencers

- E-commerce channel - Co-branding, through partnerships with designers and stylists

Source: Company data

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3 . INDUSTRY INSIGHTS

Industry logics

Fragrances versus other luxury goods

The home fragrances segment shares with fashion, apparel and accessory industries several peculiarities and values, such as desirability as a lifestyle comfort good, flavor of elegance and good taste.

The main differences are that use and visibility is private vs. public, substitution is consumption-driven at a faster pace, price ranges are narrower and quality is perceived more for “personal feel” than as a consequence of trends. Ambient fragrance industry logics appear to have some overlap with the home décor and furniture industry, mainly related to desirability and except for durability.

Nevertheless, there are significant similarities with the luxury industry: price ranges for items are wide, the shopping experience is a must and stylish packaging

is a key element of the experience. Since top-end items are not out of reach for the

affluent but not rich, there are no real limits to increase the offer of home

fragrances luxury brands having their own personality and values, commanding premium prices.

Values

The combination of these factors explains why impulse purchasing is present in

ambient fragrance industry as in the fashion and apparel industry: purchasing Impulse purchase decisions are driven by styling and by the amazing power of fragrances. Branding

looks less powerful than others segments.

Values driving purchasing of luxury home fragrances are exclusivity, fascinating

packaging, benefits on the image of customer’s image and home.

Current distribution models

Our analysis of distribution networks in the fragrance industry, based on available

information on selected European companies, shows that:

 Distribution is varied. High-end department stores and home décor and design shops are the key players in the distribution chain.

 Differently from global luxury brands, most global home fragrances brands do not run an extensive DOS network in the key international fashion districts.

This is no surprise, as home fragrances purchasing drivers are quite different Costly directly operated from other luxury goods, mainly in terms of desirability, frequency of stores purchase and average consumer annual expense, while the cost of a

pervasive retail network is comparable to that of a global fashion/luxury

house.

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 Large European retailers, offering home fashion such as Zara Home and H&M Home, which have progressively repositioned from a mass market strategy to Home fashion a lifestyle offering, have become dominant retailers leveraging on their strong market presence and extensive traffic originated through their accessible

fashion image.

Market powers

Competitive forces

• No substitute products • Fragrances suppliers: high power

• Packaging suppliers and outsourcing manufacturers: average power

Suppliers Substitutes

Rivalry among existing firms • High rivalry • Competition on product quality and exclusivity, design and style

New entrants Customers • Low barriers to entry • End-customers: average • Threat by global luxury and power perfume brands • Distributors and department stores: high power

Source: EnVent Research

 Fragrances suppliers’ power is high. However, materials and supplies,

manufacturing process and treatments are widely available.

 Substitute products do not represent a threat.

 End-customer power is average. Fitting not being an issue, seasonality being irrelevant and collections having a long life. Home lifestyle shops and department stores exercise significant power towards producers.

 Barriers to entry are low, as no significant investments are necessary. Where

competition is based on product quality, creativity, exclusivity and brand

perception, and, as a competitive advantage, Made in Italy, especially in high- quality and luxury brand collections, these are powerful differentiation factors which may dissuade new entrants from making moves to enter the market.

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Home fragrances distribution channels: an operator’s perspective

Given the importance of the distribution, we see a number of factors that may influence strategic distribution decisions within the industry, with a strong impact on financial performance of traditional players.

Traditional independent multi-brand stores Pros: Cons: • Pervasive presence • Diminishing market share • Continuity • Low innovation attitude • Ability to communicate product values • Small orders and inefficient logistics • Pricing on the high side

Department stores Pros: Cons: • Chase for the best luxury brands • Increasingly gaining power • Pricing on the high side • Contractual terms • Visibility of brand, retention of • Stable outlook independent image • Proper management of corners of licensed luxury brand sales in key international markets at a low cost

DOS (Directly Operated Stores)

Pros: Cons: • Raise image of brand • Significant investment and • High margins management to preserve image • Profitability low when yield and volumes are below critical threshold

Online Pros: Cons: • Healthy margins • Dilutes brand image by facilitating • Ease of communication comparisons among major brands

• Growing market share • Mass market tool

• Pressure on pricing • Requires dedicated skills and resources

Source: EnVent Research

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4 . INDUSTRY APPEAL

Outlook

Resilient demand for luxury and lifestyle goods, despite disappointing global

economy. While the global economy is struggling to maintain momentum, the luxury industry, as already experienced in previous cases of crisis or turmoil, shows resiliency. Luxury and lifestyle goods companies’ sales growth in 2016 slowed A countercyclical industry significantly, but still perform better than the overall economy and the leading consumer products companies. The unceasing growth trend of high net worth individuals and global travelers, helped by online personalized media marketing,

continues to display its effects on the international awareness and image of global

brands, the ones reputed “best in class” for top quality lifestyle goods.

Global demand for air care products is set to be solid and to double through 2020, according to Euromonitor, from 3.7% 2010-2015 CAGR to 6.2% 2015-2020 CAGR (Source: Euromonitor, 2016).

S&P Global luxury index vs. Global 1200 (2006-current) 250

200

150

100

50

0

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

S&P Global Luxury S&P Global 1200

Source: EnVent Research on Bloomberg data (update: 5 May 2017) - 02.01.2006=100

Made in Italy: a major asset. Italy is where the finest luxury goods in the world are

produced, leveraging on a long heritage and tradition, craftsmanship and style, in

addition to a prolific design talent. These factors underpin the cachet of Made in

Italy as a powerful branding tool around the world for Italian luxury companies.

Digital & Luxury. Three out of four luxury purchases are influenced by what consumers see, do and hear online, according to a McKinsey-Altagamma, Digital Luxury Experience observatory of July 2015.

Luxury consumers are highly digital and social, use the web to source information for their needs, just as any other type of consumer, including shopping experience. This high frequency navigation exposes consumers to a relentless fire of shopping offers and to a continuous retargeting from shopping sites visited. Clicking on a product means to receive, for days, messages on that product together with

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comparable offers from those competitors that have a retargeting advertising program. The long-term effect is that brands risk dilution, while new brands have a shorter and easier walk to awareness. Another outcome from a technological impact point-of-view is that points-of-sale, while allowing the potential customer the indispensable visual and tangible Changing consumer habits experience, will lose part of their power as the “sole” space a product range can be mean business models are fully exhibited: a high quality website can today display an entire product range changing industry-wide with all the necessary details. The consumer will be thus often attracted to view the physical outlets or, at the least, evoke the image of a company through an outstanding website.

Although luxury companies are still very cautious with e-commerce, they are slowly beginning to accept that the digital experience is redefining the relationship

between shoppers and operators: luxury consumers are digital-minded, so luxury

companies must adapt, certainly a challenge but also an opportunity. An estimated

75% of luxury sales are influenced by digital (which could go up to 100% by 2025),

hence there is no choice but to rethink market engagement strategies (McKinsey-

Altagamma, Digital Luxury Experience observatory, 2015). More opportunity than risk for home fragrances and the The emerging lifestyle and home luxury product segments may see more Made in Italy icon opportunity than risk: brands are less strong than in the fashion or hard luxury

segments, customer loyalty is weak, while the power of the Made in Italy icon is

unquestionable. The latter is spontaneously enhanced by digital communication,

where only few base concepts survive: Made in Italy is one of them.

Luxury e-commerce. Despite less than 10% of luxury goods purchases are carried out online, luxury e-commerce is growing yearly at 25-30%. Online sales of luxury goods outperformed the total market, growing at a 27% 2009-2014 CAGR vs. 7% for offline sales. The digital impact on luxury goods purchases will likely increase as Half of prestige shoppers mobile penetration increases and millennials become the majority of luxury purchase online home scents customers (Source: McKinsey, Digital inside: Get wired for the ultimate luxury and candles experience, 2015). When making purchase decisions, 75% of luxury consumers conduct research online first. (Source: Google Think Insights, How affluent shoppers buy luxury goods, 2014). The luxury fragrance industry is experiencing a faster trend: according to a confidential US research for a large scent producer,

half of prestige shoppers purchase online.

Online revolution/digital word of mouth. E-commerce and digital advertising have revolutionized and hyper-accelerated communication standards. Disrupting effects having an important impact are price transparency and reduced communication costs. These effects may appear to be conflicting: on one hand reduced marketing spend, on the other fast circulation of price comparison information intensifies competition and adds downward pricing pressure. Winners and losers will be hard to predict, the consumer industry being affected more than others.

Brand loyalty erosion. Thanks to the ease of information on available alternatives and the shopper’s continuous web engagement, today’s digitally demanding

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consumers are less loyal than ever to brands, constantly seeking the correct purchase price or a specific shipping offer. When a consumer looks for a product on the web, it is contemporarily shown an array of alternative offers. When it views a competitor offering a better deal or shipping terms, a consumer easily changes its mind.

Hospitality. Certain home fragrance producers have a dedicated collection for hotels and airlines. We expect premium hotels and airlines to increasingly move towards offering lifestyle experience, switching from standard to branded accessories.

Home rising, air care taking off. Global demand for air care products is set to double through 2020, according to Euromonitor, from 3.7% 2010-2015 CAGR to 6.2% 2015-2020 CAGR. The largest, and mature, markets for air care products are North America and Europe, which accounted together for nearly 65% of the market in 2015. The regions expected to experience the strongest growth between 2015-2020 are the emerging Latin America, Middle East and Africa.

Fragmentation is the rule, good news. In the higher-end product segments, such as luxury design, high quality classics, contemporary lifestyle and luxury, operators see a further array of traditional producers’ brands, new brands, specialized retailers and some luxury brands joining the marketplace. None of these brands is still recognized as clear leader or member of the small group of leaders, outside of the industry insiders.

The millennials surprise. Penetration of home fragrances purchases is higher among millennials (30%) than among individuals aged +35 (19%), according to a confidential market research conducted in the US in 2016. This is because recently many millennials have abandoned man-made materials for wood, stone and organic materials and prefer to describe things as crafted, not manufactured. Consumers under 35 don’t want to be labeled or relegated to what they see as common, but want to identify personally with the products they use. Their relationship with the scents they buy will become increasingly intimate, continuing to drive the niche scent trend in home fragrance.

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5 . BUSINESS MODEL AND STRATEGY

Bringing lifestyle to stylish homes and high-end department

stores across the world

Mission and values

High-end Made in Italy lifestyle experience, sophisticated and exclusive fragrances,

luxury design and iconic brand.

Product portfolio

400 items for a scented home

Home fragrances (diffusers and candles) 14 fragrances: diffusers 6 fragrances: candles CLASSIC STYLE DÉCOR STYLE CULTI COLORS SPRAY CANDLES

Complements

LIGHTNING DOCKS FOR DIFFUSERS HOME SACHET

Car fragrance

diffusers CAR SACHET

Source: Company data

Product mix (% of 2016 net sales)

Candles Other Sachets 3% 5% 4% Spray Luxurious fragrance diffusers 5% Refill are the core products Diffusers 15% 69%

Source: Company data

Supply chain

- The strategic phases of the supply chain (product design, production planning and procurement) are carried out in-house - Materials (fragrances, glass bottles, natural rattan bamboo reed sticks, wood,

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packaging) are purchased from premium suppliers - Assembling and logistics are outsourced in Italy - Marketing and communication is conceived internally

Design and production flow

R&D and Design Supply Make and logistics Sell

In-house Outsourced Outsourced In-house • Design and style • Fragrances • Assembling • Quality control proposal • Glass containers • Logistics • Marketing • Sampling • Wood • Promotion • Approval & • Packaging • Distribution development agreements • Production and procurement planning

Source: Company data

Sales and distribution

The Company’s distribution strategy is multichannel-based, with the two main channels being wholesale and retail. Currently its distribution network consists of:

- 3 own stores in Italy (two in Milan and one in Naples) – 60/180 sqm

- Corner shops – 10/30/60 sqm - and walls – 180/240/320 cm - in 40 European and Asian department stores (KaDeWe, Lane Crawford, Harrods, Selfridges, laRinascente, Fortnum&Mason) - Global salesforce of representatives in Europe and distributors in Japan, China, South Korea, Singapore, USA and India

- Independent interior design concept stores and art & design stores In 2016, wholesale represented 93% of sales, retail 6% and online 1%.

Regional mix (% of 2016 net sales)

USA RoW Asia & Australia 2% 1% 12%

Europe Japan 42% 18%

Italy 26% Source: Company data

Culti House, a styled perfumery for interior

Culti plans to improve its presence in the markets where wants to become a venue of the Made in Italy design and style focused on the interior fragrances niche.

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Flagship stores

The organic growth strategy is based on the opening of DOS in some of the fashion A unique olfactory cities in the world. The rationale is to gain visibility by being where luxury customers go. Rome and other European (London, Munich) and American (New experience in a multisensory York) cities are main candidates. showroom The current network based on corners and walls in department stores in Europe

and Asia will continue activity.

Digital and classic marketing/advertising

Culti will also invest in marketing through different channels. Digital marketing will require an estimated investment of €100k per year to improve visibility on search engines and other online advertising instruments. Even fashion blogging will be used to catch up with the consumers most active in social networks (Instagram, Facebook).

As being a luxury design brand, Culti is likely to continue advertising its brand and products in the main specialized magazines (Décor, Vogue, Interni, Wallpaper, Monocle) at a cost of about €100k per year.

Culti will also invest €100k per year to involve a selected number of stylists and designers to share brand development through co-branding projects with luxury cars and hotels.

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6 . MARKET

Global air care market

The closest proxy to appreciate the market size and trends of the luxury home

fragrance industry is represented by the air care market, which includes the large

commodity market and the niche premium markets and encompasses the

following product categories:

- Continuous air fresheners: scented candles, diffusers, perfumed sachets, wax

melts

- Instant air fresheners: instant sprays and atomizers

- Electrical air fresheners: electrical perfumed plugs

The global air care market grew at a 3.7% CAGR from around $8bn in 2010 to $9.5bn in 2015, according to Euromonitor, an independent market research firm. In 2016 the market is estimated at $9.6bn. Euromonitor estimates that future growth will be higher (6.2% 2015-2020 CAGR), reaching almost $12bn in 2020.

Exhibit 6.1 Il mercato globale dei profumatori per l'ambiente Global air care2010 market - 2020 , 2010-2020 bn

$14 CAGR 2010-2015 CAGR 6.2% $12 2010-2015 3.7% $10

$8

$6

$4 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Source: Euromonitor, 2016

In 2015, North America and Western Europe accounted for two thirds of the global air care market, accounting for respectively 38% and 25% of total market, followed by Asia Pacific (17%).

For the future, Euromonitor estimates that North America and Western Europe will experience limited growth, due to maturity achieved and well-established world leadership, while Asia Pacific, Middle East and Africa will record higher growth rates, driving the global market growth.

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Exhibit 6.2 Global air care market – Breakdown by geography Australasia Eastern Europe 2% 6% Western Europe Latin America 25% 7% Middle East and Africa 5% Asia Pacific 17%

North America 38% Source: Euromonitor, 2016

Exhibit 6.3 Tasso di crescita mondiale 2014-2019E Global air care market – Yearly growth trend by geography

20%

15%

10%

5%

0%

-5% 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Western Europe North America Asia Pacific Middle East and Africa Latin America Eastern Europe Australasia Source: Euromonitor, 2016

Luxury industry

Given Culti’s products appeal and positioning, the luxury market represents the reference industry to look at for market drivers and trends.

The overall luxury industry, which was worth over €1,000bn worldwide in 2016 according to Bain & Company, encompasses, amongst others, personal goods

(where personal fragrances are included) and designer furniture, which are market segments to look at for Culti.

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Exhibit 6.4 Global luxury industry, 2016E (€bn) Data in €bn Yachts and cruises Private jets 9 18 Designer furniture 33 Art 39 Luxury Cars Food > €1,000bn 438 46

Wine and spirits 66 Personal goods Hospitality 249 183 Source: Bain & Company, Luxury Goods Worldwide Market Study Fall-Winter 2016

In 2016 the global luxury industry grew by 4% vs. 2015 (at constant exchange

rates), driven by luxury cars (+8%), cruises (+5%) and hospitality (+4%). Wines and

spirits, and food segments all grew, reflecting a redirection of luxury spending

away from goods and towards personal experiences.

The personal luxury goods segment was flat at €249bn; this is the third year in a

row of modest growth and it represents a new normal after several events that

have all led to significant uncertainty and lower consumer confidence.

The designer furniture segment grew by 3% in 2016 on prior year (constant rates).

(Source: Bain & Company, Luxury Goods Worldwide Market Study Fall-Winter

2016).

Industry drivers

Demographics and socio-economic factors are key drivers for the demand of luxury goods:

Macroeconomic trends: changes in worldwide GDP. Global growth is expected to recover modestly in 2017 (+2.7%), after a difficult year for world economy due to stagnant global trade, subdued investment, and heightened policy uncertainty (2.3% in 2016). Weak investment is expected to weigh on medium-term prospects for many emerging markets and developing economies (Source: World Bank, Global economic prospects, 2017). In addition, external events such as political turmoil, socio-political conflicts and terrorism may impact demand for luxury goods and global travel.

Rising number and wealth of high net worth consumers. Global HNWI wealth is Wealthy people and forecasted to top $106tn by 2025, from $58.7tn in 2015, growing at a 2015-2025 globetrotters are the market CAGR of 6%. The global HNWI population reached 15.4m in 2016 (Source: makers Capgemini - RBC Wealth Management, World Wealth Report, 2015).

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Exhibit 6.5 HNWI WealthHNWI Wealth distributiondistribution forecast forecast ($trillion) 106.0 2.3 4.4 11.7

19.9 Africa 58.7 56.4 Middle East 52.6 1.4 1.4 2.3 25.7 Latin America 46.2 1.3 2.3 7.4 2.1 7.7 CAGR Europe 1.3 7.7 1.8 13.6 +6% North America 7.5 13 12.4 Asia-Pacific 10.9 16.2 16.6 14.9 42.1 12.7

17.4 12 14.2 15.8

2012 2013 2014 2015 2025F Source: Capgemini - RBC Wealth Management, World Wealth Report, 2016 Note: High Net Worth Individuals (HNWI) are defined as those having investable assets of at least US$1m, excluding primary residence, collectibles, consumables and other durables.

Growth of global travel, with globetrotters aware of international price Growing importance of the dynamics. Global travel is feeding an appetite for luxury experiences. Increased traveling consumer tourism flows drive spending for luxury goods. International tourists are expected

to increase from 1.2bn in 2015 to 1.8bn by 2030.

Exhibit 6.6

Tourism toward 2030: international arrivals

Source: UNWTO, Tourism Highlights, 2016

Expansion of the middle class in emerging markets. The average disposable income and purchasing power for the new middle-class in emerging countries is

continuing to grow.

Global brand perception is Increasing urbanization and power of the mega-cities. The world’s top 600 cities shaped in key metropolitan are expected to drive two-thirds of global economic growth by 2025. Out of the 25 largest growth-contributing cities, 21 are located in emerging markets. (Source: areas McKinsey, The glittering power of cities for luxury growth, 2014)

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Global personal luxury goods market

The global personal luxury goods market has enjoyed significant growth over the past few years (double-digit yoy growth in 2010-2012). Since 2013, the market has decelerated and entered a more normalized growth phase. In 2016, it generated revenues of €249bn. According to Bain & Company forecasts, the global luxury goods market is set to grow at a 3-4% CAGR until 2020, in line with the historical trend.

Exhibit 6.7 Global personal luxury goods market (€bn)

300 15% 280- 12% -1% 285 251- 3% 251 249 10% 3% 254 10% 224 200 11% 212 218 7% -2% 13% 192 5% 8% -8% 170 167 173 Pace of luxury industry 159 153 growth slowing 0% 100

-5%

0 -10% 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016E 2017E 2020E Socio-economic Chinese market Subprime crisis turbulence crisis

Source: Bain & Company, Luxury Goods Worldwide Market Study Fall-Winter 2016

Exhibit 6.8

Global personal luxury goods market by product, 2016E

Accessories Apparel 30% 23%

Other

4%

Hard Luxury Beauty 22% 21% CAGR 10-16E 10% 10%

6% 5% 4%

Accessories Hard Apparel Beauty Other

Luxury Source: Bain & Company, Luxury Goods Worldwide Market Study Fall-Winter 2016

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Key market trends by geography

The US are still the largest luxury market for personal luxury goods, but shrank by 3%, as Asia. Europe too shrank, by 1%. Among regional markets, only Japan grew in 2016, up 10% at current exchange rates (Source: Bain & Company, Luxury Goods Worldwide Market Study Fall-Winter 2016). China reached the more developed luxury markets in terms of size. BRICS also represent growth opportunities for global brands in the future. Beyond personal goods, Chinese consumers increased their spending in luxury cars, fine food, luxury hospitality and designer furniture.

New emerging countries in the Middle East and Asia are fast becoming core drivers

of domestic and tourist spending growth.

The long-term outlook, according to Bain & Company, remains positive, thanks to a large and growing middle class in China with more disposable income for luxury purchases.

Exhibit 6.9 Global personal luxury goods market by geography, 2016E Europe 33% USA 31% Europe, USA, Japan: key markets Rest of World 5%

Asia Pacific Americas 8% Japan 2%

21%

Source: Bain & Company, Luxury Goods Worldwide Market Study Fall-Winter 2016

By destination, most regions rely on tourist spending, except the Americas, where

purchases are still made mainly by locals. Europe is a market where luxury

purchases are made both by locals and by tourists. In 2016, Europe remained

dependent on tourism; consumers from mature markets continued to buy primarily in the domestic market and Chinese shoppers continued to spend everywhere.

Made in Italy leading the edge: the challenge is to stress the gap, to avoid others filling the gap Italy has around 30 companies among the 100 largest luxury goods companies around the world. Together with France, they have a 40% share of top 100 companies, also in terms of luxury goods sales (Source: Deloitte, Global Powers of Luxury Goods, 2016, based on FY2014 data). This luxury brand reputation is

strongest in the fashion sector, driven by direct family custody of their brand

design values, with the majority of these companies being owned / operated by

their founding families, often with their own name as brand. Iconic fashion brands

are licensed to other luxury goods companies, extending their product range into

fragrances, cosmetics, home linen, eyewear and watches.

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The appeal of Made in Italy is undisputed and Italy is by far the country with more fashion and luxury brands worldwide, so it represents the ideal environment for the process of brand expansion beyond the original core.

Exhibit 6.10 “Made in” preference (Italy vs. US) by consumer nationality (% of respondents) - Focus on personal luxury goods 40%

30%

Made in Italy keeps being the 20% most powerful weapon

10%

0% 1 2 3 4 5 6 7

Source: BCG - Fondazione Altagamma, The True-Luxury Global Consumer Insight, 2017

Distribution trends Made-in Italy Made-in US The increasing concentration of fashion and luxury sales in certain countries, cities

and commercial areas has driven most of top brands to invest in their DOS to have

an adequate coverage of the must-be-in luxury places.

Exhibit 6.11 Top 15 luxury cities, 2015

27

bn New York, Paris, London, € 13 13 Tokyo: must to be in 9 8 7 6 6 5.5 5 5 4.5 4 3.9 3.8

Source: Bain & Company, Luxury Goods Worldwide Market Study Fall-Winter 2015

According to Bain & Company, wholesale is still the dominant distribution channel within the personal luxury goods market, with two-thirds of total global sales in 2016. However, sales in mono-brand retail stores grow fast (+29% in 2016).

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Exhibit 6.12 Global personal luxury goods market by channel, 2016E

73% 72% 71% 69% 68% 66% 65% 79% 77% 75% Growing retail and monobrand 31% 32% 34% 35% 21% 23% 25% 27% 28% 29%

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Retail Wholesale Source: Bain & Company, Luxury Goods Worldwide Market Study Fall-Winter 2016

E-commerce reached a 8% market share in 2016, doubling its penetration since 2013. The USA have the primacy of online sales, with US department stores and brands as leaders of online sales. The Word of Mouth, both physical and digital, had an influence on consumers by 57% in 2016 (vs. 43% in 2013). The digital WoM - social media, blogs - has grown by 9% in 2014, doubling its importance (11% in 2013 to 20% in 2014). (Source: BCG – Fondazione Altagamma, True-Luxury Global Consumer Insight, 2015)

Exhibit 6.13 Online personal luxury goods sales (€bn)

8% 7%

5%

E-commerce has grown 4% tenfold since 2005 3%

2% Market shares online sales 1%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016E Source: Bain & Company, Luxury Goods Worldwide Market Study Fall-Winter 2015

Stock market performances Luxury goods are often described as a ‘momentum sector’ since multiples tend to expand when earnings estimates are raised.

The industry shows resiliency to exogenous macroeconomic factors (financial crisis

or turmoil), but is less resilient to social and political events.

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Exhibit 6.14 Sensitivity of the luxury sector to political-financial exogenous factors Forward PE (1997-2012)

Source: HSBC (EMEA Equity Research), Luxury goods, 2012

Luxury goods companies tend to trade on forward-looking price/earnings ratios because they are usually not very capital/debt-intensive. Historically, the sector has traded at an average 50% premium to the market). The sector traded in a forward PE range over 20 in 2002-07. Since the 2008-09 downturn, it has traded more between 15-20 in the mid to high teens. Presently it is trading again between 15-25, depending on size and business model. In the sector most of the companies are managed, and their equity held, by families. Consequently, management of brands, people and profits is done with a long-term in mind, more than the next month.

Profitability in luxury goods companies (based on total consolidated revenue and net income) has been consistently higher than other consumer product companies (see Chapter Market Metrics).

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7 . COMPETITION

High rivalry in a fragmented market

Competitors in the air care market can be analyzed from a quality/price perspective, from mass-market to luxury, and by design and styling attributes, from classic to modern or fashion. Industry players can be segmented into:  Homecare multinationals, which produce mass-market air care products whose main drivers are price and functionality (Johnson, Reckitt Beckinser, P&G)

 Global established fashion/luxury brands, which produce internally or

outsource their home fragrances collections No brand to be considered as  generally recognized market Specialty companies which mainly produce perfumes, but also bath and body leader care products and home fragrances (Bath&Body Works, Rituals)  Niche home and body fragrance specialists, where brand image and product quality represent purchase drivers (Jo Malone, Diptyque, Nest, Voluspa)  International fast-fashion retailers with dedicated home and fragrances collections (Zara Home and H&M Home)

Exhibit 7.1 Industry players

PRESTIGE SPECIALTY MASS Fragrance < BRIDGE > Fragrance Choice < MASSTIGE > Functionality Brand Image Shopping Experience Value Pricing Aspirational Quality, yet Value

Source: Company data

In the coming years, a shift from mass-market to premium products is expected, thanks to millennials, increasingly interested in the purchase of luxury products that can generate sensory experiences and positive emotions.

Distribution models

Home fragrances companies generally sell wholesale, with agreements to distribute their products in the finest department stores, interior design concept stores and home décor shops across the world. In some cases, also in apparel stores. Looking at the main Italian home fragrances companies, the general trend,

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as for Culti’s strategy, is to establish a direct presence through a mono-brand store network on the origin territory and in key fashion cities.

Culti’s competitors: brands exporting the Italian concept of Made in Italy reed diffusers

Italy

Dr. Vranjes. Luxury home fragrance reed diffusers, refills and room sprays. 2016 sales: €16m (€12m in 2015) – 65% abroad Average price for 500 ml. diffuser: €70 Sales channels: flagship stores, corners in department stores, shop-in-shops in malls, interior design concept stores, multi-brand apparel shops and e-commerce.

Italy: 7 stores

UK: 1 shop-in-shop in London (Harrods) Japan: 1 flagship store in Tokyo

Millefiori Milano. Home fragrances reed and electric diffusers, room sprays, car fragrances (subsidiary of Jarden Corp./Newell Group). 2016 sales: €23m Average price for 500 ml. diffuser: €50 Sales channels: 3 DOS in Italy (Milan and Rome), corners in department stores (La

Rinascente and Coin), multi-brand shops, e-commerce.

Locherber Milano. Home fragrances reed diffusers, room sprays, fragrance sachets, car fragrances. 2016 sales: €12m (revenues refer to Cosval Group which sells also other brands in other businesses: hair products and cosmetics) Average price for 500 ml. diffuser: €55 Sales channels: 1 DOS in Italy (Milan), corners in department stores (La Rinascente), multi-brand shops.

Acqua dell’Elba. Perfumes and home fragrance diffusers.

2015 sales: €9m

Average price for 500 ml. diffuser: €60 Sales channels: 20 mono-brand shops in Elba isle and other 8 in Rome, Florence, Venice, Siena, Como, Lucca and Palermo, corner in department stores (La Rinascente), multi-brand home décor shops and niche perfumeries.

Crespi Milano. Home fragrance reed diffusers, catalytic lamps, candles and cosmetics. 2015 sales: €1m in 2015

Average price for 250 ml. diffuser: €30

Sales channels: multi-brand shops (Italy), e-commerce.

Source: EnVent Research on public data, Companies’ websites and financial statements

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Positioning

Like other segments within the wider home luxury industry, the high-end home fragrance industry is dominated by Italian, French and English/US companies.

Exhibit 7.2 Industry players overview

Pricing Body Perfumes/Cosmetic High

Body Home Product diversification

Source: Company data

No leading brands, no leading companies

The picture is that of an industry without a clear leader and without super brands. There is no company whose sales volume and whose value clearly stands out of the crowd. There is a clear Italian, French and English/US predominance as quality leaders and high-end production market makers, but most players are dimensionally small and their brands do not enjoy the awareness and image of fashion and luxury brands.

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8 . FINANCIAL ANALYSIS

Warming up…

Culti’s performance has been quite stable, with sales in the range of €5-6m per year between 2011 and 2016. In 2016 net sales were €5m, of which almost 75% generated abroad, mainly in Europe and Asia. Until 2012, the revenue mix included the core business of home fragrances and also other businesses, which were later dismissed, such as contract & interior design, apparel and textile. Since then, Culti has been focusing on its core business of home fragrances.

2016 financial statements herewith enclosed are in the pro-forma format to show

the effect of the 2017 debt-conversion from the shareholder Intek in equity, which

brought equity to increase from €0.1m at year-end 2015 to €3.8m. H1 2017 is properly comparable with 2016 pro-forma B/S.

Profit and Loss €m 2016PF H1 2016 H1 2017 Net sales 4.9 2.0 2.7 Other revenues 0.04 0.02 0.03 Net sales in H1 2017 +35% Total revenues 5.0 2.0 2.7 vs. H1 2016 YoY % - - 35.6% COGS (2.3) (0.9) (1.2) Product Margin 2.6 1.2 1.5 78% of sales generated Margin 53.1% 57.3% 54.8% abroad in H1 2017 Sales & Marketing (0.9) (0.5) (0.5) (+43% vs. H1 2016) Gross Margin 1.7 0.7 1.0 Margin 34.2% 33.7% 37.6% G&A (0.8) (0.4) (0.4) Product mix: Leases (0.4) (0.4) (0.3) - Diffusers (89% of total sales) Other operating costs (0.2) (0.1) (0.1) +34% vs. H1 2016 EBITDA 0.3 (0.3) 0.2 - Candles +51% vs. H1 2016 Margin 6.8% -15.0% 7.4% D&A (0.3) (0.1) (0.1)

EBIT 0.1 (0.4) 0.1

Margin 1.7% -17.8% 2.4% EBT 0.1 (0.4) 0.1 Back to profitability and Margin 2% -20% 2% break-even in H1 2017 Income taxes (0.1) 0.00 (0.03) Net Income (Loss) 0.01 (0.4) 0.03 Margin 0.3% -19.5% 1.1% Source: Company data

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Balance Sheet

€m 2016PF H1 2017 Inventory 1.4 1.6 Trade receivables 0.7 0.8 Trade payables (1.2) (1.3) Trade Working Capital 0.8 1.0 Other assets (liabilities) 0.3 0.1 Net Working Capital 1.1 1.1 Intangible assets 2.5 2.8 Other non-current assets 0.3 0.3 Non-current assets 2.8 3.1 Provisions (0.2) (0.2) Net Invested Capital 3.7 4.0

Net Debt / (Cash) (0.1) 0.2 Equity 3.8 3.8 Sources 3.7 4.0

Source: Company data

Cash Flow

€m 2016PF H1 2017 EBIT 0.1 0.1

Current taxes (0.1) (0.0)

D&A 0.3 0.1

Cash flow from operations 0.3 0.2 Trade Working Capital (0.6) (0.2) Culti Milano’s brand Other assets and liabilities 0.2 0.2 acquisition in 2016 for €2.2m Brand (2.2) 0.0 Capex (0.4) (0.5) Capex in H1 2017 includes Free cash flow (2.7) (0.3) Financial investments (0.1) (0.0) €0.4m IPO costs Contribution 3.7 0.0

Net cash flow 0.9 (0.3)

Net (Debt) Cash - Beginning (0.8) 0.1 Net (Debt) Cash - End 0.1 (0.2) Change in Net (Debt) Cash 0.9 (0.3)

Source: Company data

The contribution for €3.7m refers to the debt-conversion in equity from the shareholder Intek.

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9 . OUR ESTIMATES

… Ready for take-off

Management guidance At the IPO, Management announced some highlights on 2017 forecasts:

 Net sales €5.9m

 Adjusted EBITDA €1.1m (18% margin) - EBITDA would not consider IPO costs

Key growth drivers

We expect Culti to grow higher than the industry average, thanks to:

 Organic sales expansion, driven by a growing share of international sales, mainly coming from the USA, which is still an uncharted territory  Relaunch of Culti Milano’s brand

Financial projections

Assumptions

Net sales • ‘16-19 CAGR 15%

• COGS at 45% • Sales & Marketing at 20% COGS and • G&A, leases (headquarter, showrooms and stores) and other operating costs other 5% increase yoy costs • Headcount and personnel expense 5% increase – Personnel split among: style and production (COGS), Sales & Marketing, G&A

Income • Corporate tax (IRES): 24% taxes • Regional tax on production activity (IRAP): 3.9% • Trade working capital estimated by: -DSO 40 (historical level), average between domestic and foreign sales Working -DPO 140 (historical level) Capital -DOI 100 (historical level) • Other working capital stable as a percentage of sales

• Use of IPO proceeds on marketing expense and new openings €300k per year Capex • IPO costs: €0.9m

Source: EnVent Research

Our estimates include the equity injection coming from the IPO on AIM Italia and their use, that we assume in €300k per year for investments in marketing and new openings.

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Profit and Loss

€m 2016PF 2017E 2018E 2019E

Net sales 5.0 5.7 6.6 7.5 YoY % - 15.0% 15.0% 15.0% COGS (2.3) (2.5) (2.7) (3.1) Product Margin 2.6 3.2 3.8 4.4 Margin 53.1% 57.0% 58.2% 58.6% Sales & Marketing (0.9) (1.1) (1.2) (1.4) Gross Margin 1.7 2.2 2.6 3.0 Margin 34.2% 38.0% 39.2% 39.6% G&A (0.8) (0.8) (0.8) (0.9) Leases (0.4) (0.4) (0.5) (0.5) Other operating costs (0.2) (0.2) (0.2) (0.2) EBITDA 0.3 0.7 1.1 1.4 Margin 6.8% 12.9% 16.3% 18.6%

D&A (0.3) (0.3) (0.5) (0.3)

EBIT 0.1 0.4 0.6 1.1

Margin 1.7% 7.3% 9.2% 14.2%

EBT 0.1 0.4 0.6 1.1 Margin 1.5% 7.2% 9.2% 14.2% Income taxes (0.1) (0.1) (0.2) (0.3) Net Income 0.01 0.3 0.4 0.7

Margin 0.3% 4.7% 6.2% 9.8%

Source: Company data for 2016PF - EnVent Research for 2017E-2019E

For 2017-2019, we forecast sales to increase by 15% yoy (15% ‘16-19 CAGR), higher than the expected industry performance (6% ‘15-20 CAGR).

Cost of goods sold mainly includes materials (fragrances, glass containers, others), external works, storage and the cost of personnel employed in the style and production functions, that accounted for nearly 50% of sales in 2016. We forecast a slight increase in product margin, driven by efficiencies in procurement of materials. Sales & Marketing includes transportation, advertising, fee expense paid to distributors, plus the cost of personnel employed in the marketing function and working in the boutiques.

Gross margin was 34% in 2016 and is expected to increase to 40% in 2019, reflecting the yet to be achieved strategic re-positioning of the brand and sales volumes increase objective. G&A and other operating costs are assumed as central corporate expenses, being not directly linked to sales volumes. G&A also includes the cost of administrative personnel. Leases include the Company’s headquarter and DOS. Present overall personnel cost is 16% of sales and headcount is foreseen between 15 and 20. Culti recorded 2016 EBITDA at €0.3m (7% margin). According to our projections, the combined effect of the improved gross margin and operating leverage would rapidly bring the EBITDA margin over 10% in 2017 and over 18% in 2019. Being the

Company debt and interest-free, most of the margin would go to the bottom line, with a net income of €0.7m in 2019.

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Balance Sheet

€m 2016PF 2017E 2018E 2019E

Inventory 1.4 1.6 1.8 2.1 Trade receivables 0.7 0.8 0.9 1.0 Trade payables (1.2) (1.3) (1.4) (1.6) Trade Working Capital 0.8 1.0 1.3 1.5 Other assets (liabilities) 0.3 0.2 0.2 0.2 Net Working Capital 1.1 1.2 1.5 1.7 Intangible assets 2.5 3.4 3.2 3.2 Other non-current assets 0.3 0.3 0.3 0.3 Non-current assets 2.8 3.7 3.5 3.5 Provisions (0.2) (0.2) (0.2) (0.2) Net Invested Capital 3.7 4.7 4.8 4.9

Net Debt (Cash) (0.1) (3.9) (4.2) (4.7) Equity 3.8 8.5 8.9 9.7 Sources 3.7 4.7 4.8 4.9

Source: Company data for 2016PF - EnVent Research for 2017E-2019E

In 2016 Culti increased its trade working capital, from €0.3m at year-end 2015 to €0.8m at year-end (17% as a percentage of sales).

Cash Flow

€m 2016PF 2017E 2018E 2019E

EBIT 0.1 0.4 0.6 1.1

Current taxes (0.1) (0.1) (0.2) (0.3) D&A 0.3 0.3 0.5 0.3 Cash flow from operations 0.3 0.6 0.9 1.1 Trade Working Capital (0.6) (0.2) (0.2) (0.2) Other assets and liabilities 0.2 0.1 (0.0) (0.0) Brand (2.2) (0.0) 0.0 0.0 Capex - operating (0.4) (0.3) (0.3) (0.3) Free cash flow (2.7) 0.2 0.3 0.6 Financial investments (0.1) (0.0) 0.0 0.0 Contribution 3.7 0.0 0.0 0.0 Capex - IPO cost 0.0 (0.9) 0.0 0.0 IPO proceeds 0.0 4.5 0.0 0.0 Net cash flow 0.9 3.8 0.3 0.6 Net (Debt) Cash - Beginning (0.8) 0.1 3.9 4.2 Net (Debt) Cash - End 0.1 3.9 4.2 4.7 Change in Net (Debt) Cash 0.9 3.8 0.3 0.6

Source: Company data for 2016PF - EnVent Research for 2017E-2019E

Culti is set to generate cash flow with an EBITDA cash conversion ratio forecasted to be over 75% in 2017-2019.

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Ratio analysis

KPIs 2016A 2017E 2018E 2019E

ROE neg. 3% 5% 8% ROS (EBIT/Sales) 2% 7% 9% 14% ROIC (NOPAT/Invested Capital) 2% 6% 9% 16% DOI 101 100 100 100 DSO 41 40 40 40 DPO 154 140 140 140 TWC/Sales 17% 18% 19% 19% Cash flow from operations / EBITDA 87% 80% 81% 77% FCF / EBITDA neg. 27% 29% 39% Source: EnVent Research

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10 . MARKET METRICS

Selection criteria of luxury, perfume and cosmetics companies

Culti’s high-end profile leads us to identify as comparable luxury companies,

growth stocks positioned as “best in class” in the fashion industry and perfume and

cosmetics companies.

We do not see fully comparable public companies in the luxury home fragrance

segment, however we believe that luxury brands and perfume/cosmetics

specialists look at the same customers and use similar distribution and

communication logics, better representing market metrics and values to look at.

We have clustered the companies in fairly homogenous groups, in order to detect

performance consistencies and other peculiarities that could help understand the

market sentiment and its relevance with market values.

The comparability of Culti with those companies is partial, however, we see good

reasons to use the industry metrics in our calculation of the value range:

 The Company’s positioning in the luxury and high-end Made in Italy product layers means a wide and profitable potential market  The Company’s products are global and enjoy strong positioning in markets where Made in Italy commands premium pricing

Key data comparison

The following chart shows a summary of key data and financial metrics of the selected industry players. Relevant details are in Annex 1 – Market metrics.

Rev. CAGR EBITDA % EBITDA % EBITDA % EBITDA % Company 5Y 2016 Avg. 5Y Min 5Y Max 5Y Premium

Mean 11.2% 18.3% 20.7% 16.5% 23.9%

Median 6.1% 17.1% 20.8% 17.1% 22.6% Italian fashion stocks Mean 7.6% 18.2% 19.3% 17.6% 20.9%

Median 4.7% 17.2% 17.4% 16.7% 19.7%

Flavours and fragrances Mean 9.2% 21.2% 20.6% 18.9% 21.9%

Cosmetics Mean 3.9% 16.8% 17.1% 15.5% 18.9% Median 2.8% 17.5% 18.5% 16.0% 20.1%

Combined Mean 7.8% 18.2% 19.2% 16.8% 21.3% Combined Median 5.2% 17.5% 19.5% 17.1% 21.1% Source: EnVent Research on S&P Capital IQ data

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Looking at the peer sample financials, we note that: - The groups analyzed present consistent growth rates in the last five years, except for cosmetics, whose growth was lower. This confirms the assumption that the market demand of quality lifestyle goods is stable or growing, despite

markets or geopolitical turmoil. The home décor retailers show strong growth

rates too.

- Operating margins are consistent among the groups. Almost all companies delivered rewarding profitability. The entire industry looks healthy and consistently promising.

Culti’s current profitability (7% EBITDA margin) is lower than that of the analyzed industry clusters, that consistently ranges 13-20%; according to our projections, Culti is set to be in line with the industry average within 2019. We see substantial value creation opportunities in growth rates.

Market multiples

EV/Revenues EV/EBITDA Company Avg. 5Y 2016 2017E 2018E Avg. 5Y 2016 2017E 2018E

Premium

Mean 2.5x 1.6x 1.7x 1.7x 12.2x 9.2x 9.7x 9.6x Median 2.3x 1.5x 1.9x 1.7x 12.1x 9.1x 10.5x 10.5x

Italian fashion stocks

Mean 2.5x 1.9x 2.5x 2.5x 14.3x 10.1x 12.5x 13.7x Median 2.7x 1.6x 1.7x 2.5x 14.2x 8.0x 11.2x 14.8x

Flavours and Fragrances Mean 3.1x 3.4x 3.9x 3.7x 14.8x 16.2x 17.5x 16.3x

Cosmetics

Mean 2.4x 2.5x 2.6x 2.5x 13.4x 14.9x 15.5x 14.0x

Median 2.4x 2.4x 2.5x 2.2x 13.5x 14.1x 16.8x 14.8x

Combined Mean excl. F&F 2.4x 2.0x 2.3x 2.2x 13.2x 11.6x 12.6x 12.2x

Combined Median excl. F&F 2.4x 1.8x 2.0x 1.9x 12.9x 10.9x 11.1x 11.8x

Source: EnVent Research on S&P Capital IQ data - update: 16/10/2017

We have excluded from the mean and median market multiples the Flavours and

Fragrances cluster, which is composed of B2B suppliers of fragrances, whose multiples are shown to better signal the expected growth rates and industry appeal.

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Regression analysis

Given the consistency - over the years and across segments - of growth, profitability and market multiples, we have aggregated clusters’ data.

Regression analysis on EV/Revenues 3.5x CULTI VALUE AREA EV/Revenues ranging Flavours 3.0x from 2x to 2.5x, based on and 2018 and 2019 EBITDA margin at 16-19% fragrances Cosmetics 2.5x

2.0x

Premium Italian 1.5x fashion stocks 2016 EVRevenues / 1.0x

0.5x

0.0x 0% 5% 10% 15% 20% 25% EBITDA Margin 2016 Source: EnVent Research on S&P Capital IQ data - update: 16/10/2017

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11 . VALUATION

Key valuation issues

Luxury goods stocks historically have shown strong growth, trading at a premium valuation to the general market - We believe that the typical factors that may impact the fashion and luxury industry are less critical for the home fragrances industry. We see a lower risk profile if compared to the luxury industry at large.

High-end consumer behavior - There is evidence that consumption of luxury goods, more than GDP growth, is driven by social, cultural and psychological factors as well as financial issues. Consumer confidence might have been sluggish in many developed markets in 2010 and 2011, but demand for luxury products remained strong, driven by wealthy consumers.

Pricing power - Luxury brands do not really compete on price but rather on design

and desirability. During the downturn, prices generally held up. In recovery phases,

brands tend to launch higher-priced and higher margin products.

Purchasing in bad time - It is reasonable to believe that in the luxury goods industry, when there is an economic slowdown, consumers tend to postpone purchases rather than downgrade to cheaper products. As such, strong brands face a lower risk of being substituted by cheaper brands.

Value drivers and use of market data

Key value drivers are:

- Unbeatable reputation of Made in Italy products - Wide and wealthy underlying reference market, with room to increase prices on high-end products, consequently improving operating margins - Non-capital-intensive business model, balanced financial structure and stable cash flow generation driven by international sales

Consistent metrics among industry segments

Fashion and luxury industry metrics consistency, and rewarding performances,

form a reliable base to identify correlations within the industry at large and below

in its main sub-segments. Fundamentals show that, for all segments, growth rates

have been outperforming general consumer indexes in troubled years and that

equities also outperformed. Operating profits have been on the high side for all

peers observed and multiples are consistent and well correlated.

Accordingly, we have looked at several metrics, which include discounted cash

flows and industry multiples such as EV/Revenues, EV/EBITDA and P/E. We have

also used a regression model to identify a suitable value growth path for Culti.

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Discounted Cash Flows

We have run our DCF model with the following assumptions: - Risk free rate: 1.6% (Italian 10-year government bonds interest rate – 3Y average. Source: Bloomberg, September 2017) - Market return: 13.6% (1Y average. Source: Bloomberg, September 2017)

- Market risk premium: 12%

- Beta: 0.9 (Median of luxury and cosmetics companies. Source: EY, The luxury

and cosmetics financial factbook, 2016)

- Cost of equity: 12.4%

- Cost of debt: 3.5% (Source: EnVent Research)

- Tax rate: 27.9% (IRES+IRAP)

- 40% debt/(debt + equity) as target capital structure

- WACC 8.4%

- Perpetual growth rate after explicit projections: 2% - Terminal Value assumes a normalized sustainable EBITDA margin of 20%

DCF Valuation €m 2016PF 2017E 2018E 2019E Perpetuity Net sales 4.9 5.7 6.5 7.5 7.6 EBITDA 0.3 0.7 1.1 1.4 1.5

Margin 6.9% 13.0% 16.5% 18.7% 20.0% EBIT 0.1 0.4 0.6 1.1 1.4 Margin 1.7% 7.4% 9.3% 14.3% 18.0% NOPAT 0.1 0.3 0.4 0.8 1.0 D&A 0.3 0.3 0.5 0.3 0.3 Cash flow from operations 0.3 0.6 0.9 1.1 1.3 Trade Working Capital (0.6) (0.2) (0.2) (0.2) 0.0 Other assets and liabilities 0.2 0.1 (0.0) (0.0) (0.0) Brand (2.2) (0.0) 0.0 0.0 0.0 Capex (0.4) (0.3) (0.3) (0.3) (0.3) Free cash flow (2.6) 0.2 0.3 0.6 1.0 WACC 8.4% Long-term growth (G) 2.0% Discounted Cash Flows 0.2 0.3 0.5 Sum of Discounted Cash Flows 1.0 Terminal Value 15.3 Discounted TV 12.5 Enterprise Value 13.5 Net Debt as of 30/06/2017 (0.2) IPO proceeds 4.5 Equity Value 17.8

DCF - Implied multiples 2017E 2018E 2019E

EV/Revenues 2.4x 2.1x 1.8x EV/EBITDA 18.3x 12.6x 9.6x Source: EnVent Research

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Valuation based on market multiples

The lack of listed companies among competitors and the diversities of home fragrances products, when compared to fashion and luxury companies, in principle could represent a concern in applying multiples to Culti, but we observe that: - Growth is driven by the same factors and dynamics - Gross margins would be lower, but the low investment in directly operated retail stores would lower risk, stabilize EBITDA and improve cash flow

- The recurring correlation between EBITDA and Revenue multiples helps to

calculate enterprise values that correctly reflect the industry appeal and risk

profile, duly adjusted according to the profitability of its various segments

- Low capex usually means low debt, thus financial risk is inherently limited and

does not represents an issue

We have applied to our 2017-2018 estimates:

- 2017-2018E EV/Sales and EV/EBITDA multiples from the Premium, Italian

fashion stocks, Cosmetics peer groups

- 2017-2018E EV/Sales multiple resulting from the regression analysis

€m

Premium Culti Valuation - Multiples Multiple EV Net Cash Equity Value

2017E Sales 5.7 1.7x 9.9 4.3 14.2 2018E Sales 6.6 1.7x 11.1 4.3 15.4 Mean 14.8

2017E EBITDA 0.7 9.7x 7.1 4.3 11.4 2018E EBITDA 1.1 9.6x 10.3 4.3 14.6

Mean 13.0

Italian fashion stocks Culti Valuation - Multiples Multiple EV Net Cash Equity Value

2017E Sales 5.7 2.5x 14.3 4.3 18.6

2018E Sales 6.6 2.5x 16.5 4.3 20.8 Mean 19.7

2017E EBITDA 0.7 12.5x 9.2 4.3 13.5 2018E EBITDA 1.1 13.7x 14.6 4.3 18.9 Mean 16.2

Cosmetics

Culti Valuation - Multiples Multiple EV Net Cash Equity Value

2017E Sales 5.7 2.6x 15.0 4.3 19.3

2018E Sales 6.6 2.5x 16.2 4.3 20.5 Mean 19.9

2017E EBITDA 0.7 15.5x 11.4 4.3 15.7 2018E EBITDA 1.1 14.0x 15.0 4.3 19.3 Mean 17.5

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Regression analysis Culti Valuation - Multiples Multiple EV Net Cash Equity Value 2017E Sales 5.0 2.0x 10.2 4.3 14.5 2018E Sales 5.7 2.3x 13.1 4.3 17.4 Mean 15.9 Source: EnVent Research

Valuation summary

Our valuation of Culti Milano, based on the DCF model and 2-year forward industry multiples, provides the following:

Equity Value range (€m) 17.8 18.1 15.6 15.9

DCF Mean EV/Sales Mean Regression on EV/EBITDA Sales Source: EnVent Research

We believe that the market valuation of Culti should be driven mainly by looking at the EV/Sales multiple, which is the most proper for growth stocks going forward, aside from EV/EBITDA. We also believe that our valuation may be deemed conservative as per the 2% perpetual growth rate used after explicit projections, which is well below the growth rate experienced in the luxury industry in the last years (2008-2016 revenue CAGR of luxury peer groups minimum 9%; average 15% - see Annex).

Target Price

The DCF valuation model based on our estimates yields a Target Price of €5.74 per share, +10% on the IPO placement price of €5.20 and with a potential upside of 30% on the current share price. As a consequence, we initiate the coverage of Culti Milano with an OUTPERFORM recommendation on the stock.

Culti Milano Price per Share € Please refer to important Target Price 5.74 disclosures at the end of this Current Share Price (17/10/2017) 4.41 report. Premium / (Discount) 30%

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ANNEX 1: MARKET METRICS

Key data comparison

Rev. CAGR EBITDA % EBITDA % EBITDA % EBITDA % Company 5Y 2016 Avg. 5Y Min 5Y Max 5Y Premium

Phillips-Van Heusen 13.5% 13.8% 13.0% 11.8% 13.8% Ralph Lauren 6.1% 14.9% 18.0% 14.9% 20.0% Michael Kors 43.5% 29.1% 29.5% 22.2% 32.9% Coach 1.8% 19.3% 27.1% 19.3% 34.5% Hugo Boss 3.5% 17.1% 20.8% 17.1% 22.6% Tod's 1.0% 17.4% 21.2% 17.4% 26.0% Jimmy Choo 9.2% 16.8% 15.4% 13.0% 17.3%

Mean 11.2% 18.3% 20.7% 16.5% 23.9% Median 6.1% 17.1% 20.8% 17.1% 22.6%

Italian fashion stocks Moncler 20.8% 33.8% 33.5% 32.6% 33.8% Brunello Cucinelli 13.0% 17.2% 17.4% 16.7% 17.8% Giorgio Fedon 4.3% 6.3% 6.4% 5.1% 8.3% Piquadro 1.8% 11.5% 14.6% 11.5% 21.6% Italia Independent 0.6% neg. neg. neg. 17.0% Cover 50 5.2% 22.2% 24.9% 22.2% 26.8%

Mean 7.6% 18.2% 19.3% 17.6% 20.9% Median 4.7% 17.2% 17.4% 16.7% 19.7%

Flavours and fragrances

Givaudan 5.4% 21.0% 20.2% 18.3% 21.1% IFF 8.4% 21.6% 21.5% 20.0% 23.2% Symrise 13.7% 21.0% 20.2% 18.3% 21.4%

Mean 9.2% 21.2% 20.6% 18.9% 21.9%

Cosmetics

L'Oréal 4.5% 21.1% 20.4% 19.6% 21.1% Estée Lauder 7.3% 19.2% 18.8% 17.4% 20.1% Shiseido 2.7% 9.0% 10.1% 9.0% 11.5% Beiersdorf 2.8% 17.5% 15.9% 15.2% 17.5% Coty 1.9% 17.8% 15.8% 14.0% 17.8% Natura Cosméticos -0.5% 16.0% 20.4% 16.0% 23.8% L'Occitane 8.9% 17.4% 18.5% 17.0% 20.4%

Mean 3.9% 16.8% 17.1% 15.5% 18.9% Median 2.8% 17.5% 18.5% 16.0% 20.1%

Combined Mean 7.8% 18.2% 19.2% 16.8% 21.3% Combined Median 5.2% 17.5% 19.5% 17.1% 21.1% Source: EnVent Research on S&P Capital IQ

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Market multiples

EV/Revenues EV/EBITDA Company Avg. 5Y 2016 2017E 2018E Avg. 5Y 2016 2017E 2018E Premium

Phillips-Van Heusen 1.6x 1.2x 1.4x 1.4x 12.3x 9.1x 10.5x 10.7x Ralph Lauren 1.7x 1.1x 0.9x 1.0x 9.4x 7.2x 5.9x 7.2x Michael Kors 4.5x 1.5x 1.5x 1.7x 16.4x 5.0x 6.0x 8.0x Coach 2.5x 2.2x 2.1x 1.6x 9.3x 11.5x 8.9x 7.6x Hugo Boss 2.3x 1.5x 2.0x 2.0x 11.0x 8.9x 11.0x 10.5x Tod's 2.6x 2.1x 1.9x 1.9x 12.1x 12.0x 11.2x 10.5x Jimmy Choo 2.2x 1.8x 2.4x 2.3x 15.3x 10.9x 14.2x 12.8x

Mean 2.5x 1.6x 1.7x 1.7x 12.2x 9.2x 9.7x 9.6x Median 2.3x 1.5x 1.9x 1.7x 12.1x 9.1x 10.5x 10.5x

Italian fashion stocks

Moncler 4.7x 3.9x 5.2x 4.7x 14.2x 11.5x 15.4x 14.0x Brunello Cucinelli 3.7x 3.2x 3.8x 3.4x 21.1x 18.4x 21.8x 19.7x Giorgio Fedon 0.4x 0.5x 0.5x 0.5x 6.1x 7.9x 6.9x 5.3x Piquadro 1.3x 0.9x na na 9.0x 8.0x na na Italia Independent 2.7x 2.1x 1.7x 1.5x 21.2x neg. n.m. 15.7x Cover 50 na 1.1x 1.4x na na 4.9x 5.9x na

Mean 2.5x 1.9x 2.5x 2.5x 14.3x 10.1x 12.5x 13.7x Median 2.7x 1.6x 1.7x 2.5x 14.2x 8.0x 11.2x 14.8x

Flavours and Fragrances

Givaudan 3.4x 3.9x 4.3x 4.1x 16.6x 18.5x 19.3x 18.1x IFF 2.9x 3.3x 4.0x 3.8x 13.3x 15.4x 17.6x 16.3x Symrise 2.9x 3.1x 3.3x 3.1x 14.5x 14.8x 15.6x 14.5x

Mean 3.1x 3.4x 3.9x 3.7x 14.8x 16.2x 17.5x 16.3x

Cosmetics

L'Oréal 3.3x 3.7x 4.0x 3.9x 16.3x 17.7x 17.8x 17.1x Estée Lauder 2.7x 2.7x 3.5x 3.4x 14.6x 14.1x 18.2x 16.5x Shiseido 1.0x 1.4x 2.0x 1.9x 10.4x 15.7x 19.4x 16.8x Beiersdorf 2.3x 2.4x 2.8x 2.7x 14.6x 13.8x 15.7x 14.8x Coty 2.2x 4.2x 2.5x 2.2x 13.5x 23.5x 16.8x 14.2x Natura Cosméticos 2.4x 1.5x 1.9x 1.6x 11.6x 9.5x 10.3x 9.3x L'Occitane 2.4x 1.8x 1.7x 1.6x 12.9x 10.3x 10.1x 9.1x

Mean 2.4x 2.5x 2.6x 2.5x 13.4x 14.9x 15.5x 14.0x Median 2.4x 2.4x 2.5x 2.2x 13.5x 14.1x 16.8x 14.8x

Combined Mean excl. F&F 2.4x 2.0x 2.3x 2.2x 13.2x 11.6x 12.6x 12.2x Combined Median excl. F&F 2.4x 1.8x 2.0x 1.9x 12.9x 10.9x 11.1x 11.8x Source: EnVent Research on S&P Capital IQ - update: 16/10/2017

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Luxury industry growth rates

Revenue Mkt Cap Company CAGR 9Y CAGR 9Y Luxury LVMH 10.3% 19.0% Kering (previously PPR) -4.0% 21.0% Hermès 14.5% 18.5% Prada 15.5% -1.6% Burberry 12.4% 29.0% Salvatore Ferragamo 9.6% 17.2%

Mean 9.7% 17.2% Median 11.3% 18.7%

Premium Phillips-Van Heusen 20.8% 31.9% Ralph Lauren 9.7% 10.3% Michael Kors 45.6% 10.8% Coach 9.0% 8.5% Hugo Boss 6.0% 17.7% Kate Spade -9.0% 37.6% Tod's 4.5% 10.5% Jimmy Choo 16.9% -16.0%

Mean 13.0% 13.9% Median 9.4% 10.7%

Italian fashion stocks Moncler 11.7% 1.5% Brunello Cucinelli 19.2% 11.1% Giorgio Fedon 3.2% 6.7% Piquadro 5.3% 5.6% Italia Independent Group 8.1% -28.3% Cover 50 23.2% na

Mean 11.8% n.m. Median 9.9% n.m.

Combined Mean 11.5% 15.5%

Source: EnVent Research on S&P Capital IQ - Note: 2008-2016 revenue CAGR

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DISCLAIMER (for more details go to www.enventcapitalmarkets.co.uk under “Disclaimer”)

This publication has been prepared by Luigi Tardella, Co-Head of Research Division, and Viviana Sepe, Research Analyst, on behalf of the Research & Analysis Division of EnVent Capital Markets Limited (“EnVentCM”). EnVent Capital Markets Limited is authorised and regulated by the Financial Conduct Authority (Reference no. 651385). Italian branch registered number is 132.

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prevention and management of conflicts of interest (for more details go to www.enventcapitalmarkets.co.uk under “Disclaimer” and “Procedures for prevention of conflicts of interest”).

CONFLICTS OF INTEREST In order to disclose its possible conflicts of interest, EnVentCM states that it acts or has acted in the past 12 months as Nominated Adviser (“Nomad”) and Global Coordinator to the subject Company on the AIM Italia-Mercato Alternativo del Capitale, a Multilateral Trading Facility regulated by Borsa Italiana (for more details go to www.enventcapitalmarkets.co.uk under “Disclaimer” and “Potential conflicts of interest”).

CONFIDENTIALITY Neither this publication nor any portions thereof (including, without limitation, any conclusion as to values or any individual associated with this publication or the professional associations or organizations with which they are affiliated) shall be reproduced to third parties by any means without the prior written consent and approval from EnVentCM.

VALUATION METHODOLOGIES EnVentCM Research & Analysis Division calculates range of values and fair values for the companies under coverage using professional valuation methodologies, such as the discounted cash flows method (DCF), dividend discount model (DDM) and multiple-based models (e.g. EV/Revenues, EV/EBITDA, EV/EBIT, P/E, P/BV). Alternative valuation methodologies may be used, according to circumstances or judgement of non-adequacy of most used methods. The target price could be also influenced by market conditions or events and corporate or share peculiarities.

STOCK RATINGS The “OUTPERFORM”, “NEUTRAL”, AND “UNDERPERFORM” recommendations are based on the expectations within 12-month period of date of initial rating (shown in the chart on the front page of this publication). Equity ratings and valuations are issued in absolute terms, not relative to market performance. Rating rationale: OUTPERFORM: stocks are expected to have a total return of at least 20% in the mid-term; NEUTRAL: stocks are expected to have a performance consistent with market or industry trend and appear less attractive than Outperform rated stocks; UNDERPERFORM: stocks are among the least attractive in a peer group; UNDER REVIEW: target price under review, waiting for updated financial data and/or key information; SUSPENDED: no rating / target price assigned, due to insufficient fundamental information basis, or substantial uncertainties; NOT RATED: no rating or target price assigned. The stock price indicated is the reference price on the day indicated as “Date of Price” in the table on the front page of this publication.

DETAILS ON STOCK RECOMMENDATION AND TARGET PRICE Date Recommendation Target Price (€) Share Price (€) 17/10/2017 OUTPERFORM 5.74 4.41

ENVENTCM RECOMMENDATION DISTRIBUTION (October 17th, 2017)

Number of companies covered: 6 OUTPERFORM NEUTRAL UNDERPERFORM SUSPENDED UNDER REVIEW NOT RATED Total Equity Research Coverage % 33% 67% 0% 0% 0% 0% of which EnVentCM clients % * 100% 100% 0% 0% 0% 0% * Note: Companies to which corporate and capital markets services were supplied in the last 12 months.

This disclaimer is constantly updated on the website at www.enventcapitalmarkets.co.uk under “Disclaimer”. Additional information are available upon request.

© Copyright 2017 by EnVent Capital Markets Limited - All rights reserved.

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