Italian Morning Sight 12 May 2009 Benetton Italy/Personal Goods Benetton (Hold) Q1 09 results Hold Q1 09 results: in line with our estimates Recommendation unchanged Share price: EUR 5.98 The facts: Benetton reported Q1 09 results yesterday during the trading time. closing price as of 11/05/2009 Our analysis: Q1 09 sales dropped by 3.4% y/y CN to EUR 449m (-2% at constant Target price: EUR 5.80 forex). In consolidated markets (Italy, Mediterranean area, Rest of Europe) revenues slowed Target Price unchanged down by 2.7% CN, while in emerging markets (India, China, Mexico, Turkey and Russia) Reuters/Bloomberg BNG.MI/BEN IM revenues held up with a +2% y/y CN performance (revenues were penalised by the Market capitalisation (EURm) 1,092 unfavourable exchange rate of the EUR vs the main emerging markets currencies but Current N° of shares (m) 183 benefitted from the EUR/USD and EUR/YEN exchange rate). Apparel (94.6% of total Q1 09 Free float 25% sales) revenues dropped by 4.2% y/y (with a negative currency effect of 1.3%), especially in Daily avg. no. trad. sh. 12 mth 352,570 the wholesale business (-7.4% y/y) which was affected by limited reorders and the Daily avg. trad. vol. 12 mth (m) 2 anticipated shipment occurred during the Christmas season. Retail sales grew by 6.6% Price high 12 mth (EUR) 8.81 thanks to new openings and the consolidation of the US activities (lfl retail sales dropped by Price low 12 mth (EUR) 4.42 4%). Abs. perf. 1 mth 4.82% Abs. perf. 3 mth -0.75% Benetton quarterly results Abs. perf. 12 mth -30.48% Q1 08 Q1 09 Q1 09E % Chg y/y Key financials (EUR) 12/08 12/09e 12/10e Revenues 465.0 449.0 451.0 -3,4% Sales (m) 2,128 2,056 2,097 Ebit 47.0 25.0 24.5 -46,8% EBITDA (m) 354 310 331 EBITDA margin 16.6% 15.1% 15.8% Ebit margin 10.2% 5.5% 5.5% EBIT (m) 254 190 215 Ebit adj. 41.0 29.0 -29,3% EBIT margin 11.9% 9.2% 10.2% Ebit margin adj. 9.0% 6.4% Net Profit (adj.)(m) 155 103 120 ROCE 7.6% 5.6% 6.2% Net income 29.0 18.0 14.6 -37,9% Net debt/(cash) (m) 689 678 646 Net income Adj 25.0 21.0 -16,0% Net Debt/Equity 0.5 0.5 0.4 Debt/EBITDA 1.9 2.2 2.0 Source company data, Banca Akros estimates Int. cover(EBITDA/Fin. int 8.6 8.4 8.9 EV/Sales 0.9 1.0 0.9 Gross profit came in at EUR 205m (45.5% of sales vs 46.1% of sales of Q1 08), lower by EV/EBITDA 5.7 6.4 5.9 EUR9m (vs Q1 08) almost exclusively due to the negative currency effect. EBIT was at EV/EBITDA (adj.) 5.7 6.4 5.9 EUR25m (Ebit margin 5.5%): the positive effect of EUR6m of savings were offset by the EV/EBIT 8.0 10.5 9.1 one off reorganization charges of EUR4m; we remind readers that Q1 08 EBIT benefited P/E (adj.) 6.8 10.0 8.6 P/BV 0.8 0.8 0.7 from the extraordinary income related to the sale of Villa Loredan. Total financial expenses OpFCF yield 22.5% 19.8% 21.6% lowered form EUR10m in Q1 08 to EUR4m in Q1 09. Net debt however increased from Dividend yield 4.7% 5.0% 5.0% EUR689m at YE 08 to EUR763m, (or EUR 74m increase, the lowest in 3 years time); we EPS (adj.) 0.89 0.60 0.70 expect Benetton to close the FY09E with the debt level aligned with the FY 08. The higher BVPS 7.49 7.77 8.13 DPS 0.28 0.30 0.30 level of debt was affected by the NWC increase (increase in trade receivables due to lower recourse of factoring especially in some emerging markets, such as Russia and Turkey). FCF remained stable in Q1 09 compared to Q1 08. 9.0vvdsvdvsdy 8.5 8.0 One of the important move of the reorganisation plan will be the delay in shipment of the 7.5 7.0 A/W collection from the end of Q2 09 to the beginning of Q3 09: that should allow savings 6.5 6.0 but should negatively impact the Q2 09E revenues by around EUR 80 / 100m. 5.5 5.0 4.5 Current trading conditions: April sales performance shows a lfl y/y decrease in retail; the 4.0 Apr 08 May 08 Jun 08 Jul 08 Aug 08 Sep 08 Oct 08 Nov 08 Dec 08 Jan 09 Feb 09 Mar 09 Apr 09 May 09 A/W 09 collection backlog orders (60% of visibility) shows a flat/slightly negative BENETTON DJ Stoxx Personal Goods (Rebased) Source: Factset performance y/y. More details available on Real Estate: Book Value at EUR 726m (EUR4.0/sh.) Analyst(s): Giada Cabrino, CIIA, Banca Akros Conclusion & Action: As expected, the results of the reorganization plan were not [email protected] visible yet in terms of net savings in Q1 09; we are confident to see it starting from Q2 09E +39 02 4344 4092 both in operating costs and in SG&A expenses; profitability could however remain stretched due to the adverse currencies’ effect. We expect a weak Q2 09E in terms of sales also due to technical reasons. For the time being we don’t see enough elements to justify a rerating of the stock. We maintain our Hold recommendation with a TP 5.8/sh and a FV 6.2/sh. Banca 13 Akros Italian Morning Sight 12 May 2009 DJ STOXX: Daily relative performance by sector Cyclical Non-Cyclical Financial TMT (DJ Stoxx 11/05: 206.59 - chg -1.39%) Media 0.21 Telecom 0.68 Technology -0.08 Financial Services -0.22 Insurance 0.07 Banks 0.44 Utilities 0.19 Personal Goods 0.32 Food & Beverage 1.29 Healthcare 1.05 Industrial G&S -0.94 Construction & Materials -1.92 Oil & Gas -0.72 Travel & Leisure -1.17 Auto & Parts -1.97 Retail -1.00 Basic Resources -1.15 Chemical 0.34 -4% -2% 0% 2% Source: FactSet Banca 14 Akros Italian Morning Sight 12 May 2009 Disclaimer This research has been prepared by Andrea Devita, Marco Cavalleri, Luigi Tramontana, Claudio Giacomiello, Paola Saglietti, Gabriele Gambarova, Dario Michi, Giada Cabrino (all members of AIAF), Francesco Previtera, Francesco Sala, Enrico Filippi, Aurelio Matrone and Marcello Renna (ordinary member of SIAT), who are financial analysts with Banca Akros SpA ("Banca Akros"), which is responsible for the preparation of the research. Banca Akros is a bank authorised to perform also investment services; it is part of the Bipiemme Banca Popolare di Milano Group (the “Group”) and it is duly subject to the management and co-ordination of Banca Popolare di Milano (the “Parent Company”). Banca Akros is registered with the Italian Banking Association code n. 5328 and is subject to the regulation and surveillance of Bank of Italy and Consob (Commissione Nazionale per le Società e la Borsa)." Banca Akros has prepared this research for its professional clients only, pursuant to Directive 2004/39/CE and Annex 3 of Consob Regulation on intermediaries (Resolution n. 16190). This research is being distributed as of 12 May 2009. In compliance with arts. 69 “quater” and “quinquies” of Consob Regulations for Issuers (“notification to the public regarding interest and conflict of interest”) Banca Akros hereby declared that it has a personal interest in some of the companies examined in this research, specifically: 1) Banca Italease, Gemina (until 4 March 2009) and Fiera Milano (in which Banca Akros’ parent group holds more than 2% or is a member of shareholders pacts); 2) Best Union Company (the Bank is a specialist and has been acting as Global Coordinator of the consortium and as Listing Partner for the IPO organized in 2008); 3) Amplifon, Banca Ifis, Biesse, I Grandi Viaggi, Negri Bossi, Prima Industrie, QF Investietico and Zucchi Ord. and Pref. (for which the Bank is a specialist); 4) Kedrion and Ross (the Bank has been a member of the pertinent consortia for the IPO organized in the last twelve months); 5) Also Enervit (the Bank has been acting as Advisor of the consortium for the IPO organized in the last twelve months); 6) Premafin (the Bank was a Liquidity Provider until 16 April 2008); 7) Sopaf (the Bank was acting as bond trustee and Global Coordinator of the consortium for the placement of convertible bonds organized in 2007); 8) Cremonini (the Bank was a specialist until 30 June 2008. On 2nd April 2008 the Board of Directors of the company appointed Banca Akros as Financial Advisor of the Issuer to prepare the fairness opinion on the content of the Offer and congruity of the consideration proposed by the Offerers within the total voluntary Public Offer of Acquisition of the company’s ordinary shares, with the aim to delist the company from the Italian Stock Exchange); 9) UniCredit and Mediobanca (the Bank has been a member of pertinent consortia for the placement of the non-negotiable bonds organized in the last twelve months). Financial analysts Andrea Devita, Marco Cavalleri, Luigi Tramontana, Claudio Giacomiello, Paola Saglietti, Gabriele Gambarova, Dario Michi, Giada Cabrino (all members of AIAF), Francesco Previtera, Francesco Sala, Enrico Filippi, Aurelio Matrone and Marcello Renna (ordinary member of SIAT), who prepared this research, have gained considerable experience with Banca Akros and other authorised brokerage houses.