De Longhi · De Longhi bought a perpetual licence for the Braun brand from P&G, for home care products only. It was consolidated at the beginning of last year. ... De Longhi is a

6 March 2014 Target price change

De Longhi

Italy | Home & apparel

Buy (Buy) Target price EUR 16.50

Current price EUR 14.42

Giorgio Iannella [email protected] +39 02 8062 8330

Cash machine

Reuters DLG.MI Bloomberg DLG IM Index FTSE Italy

Market data

Market cap (EURm) 2,156

Free float 33%

No. of shares outstanding (m) 150

Avg. daily trading volume('000) 148

YTD abs performance 21.5%

52-week high (EUR) 15.03

52-week low (EUR) 10.85

FY to 31/12 (EUR) 2013E 2014E 2015E

Sales (m) 1,633.0 1,755.0 1,874.9

EBITDA adj (m) 230.0 252.9 279.7

EBIT adj (m) 187.5 208.9 234.2

Net profit adj (m) 111.1 127.8 147.4

Net fin. debt (m) 43.7 -11.9 -69.5

FCF (m) 62.0 95.9 104.1

EPS adj. and fully dil. 0.74 0.85 0.99

Consensus EPS 0.75 0.87 0.99

Net dividend 0.27 0.31 0.36

FY to 31/12 (EUR) 2013E 2014E 2015E

P/E (x) adj and ful. dil. 19.4 16.9 14.6

EV/EBITDA (x) 9.5 8.4 7.4

EV/EBIT (x) 11.7 10.2 8.9

FCF yield 2.9% 4.5% 4.9%

Dividend yield 1.9% 2.2% 2.5%

Net debt/EBITDA (x) 0.1 -0.1 -0.3

Gearing 6.2% -1.5% -7.8%

ROIC 15.8% 17.0% 18.1%

EV/IC (x) 2.7 2.5 2.3

De Longhi has rapidly caught up with the market performance this year, but we believe there is still value in the stock, given its high competitive quality and sound growth profile. We expect 3Y CAGRs of 15% in EPS and 25% in FCF, supported by the growth outlook for small appliances worldwide, the company’s premium positioning and the additional contribution expected from Braun. We raise our TP from EUR13.5 to EUR16.5 and confirm our Buy rating.

Premium niche leader De Longhi is a global leader in the production and distribution of small domestic appliances. It operates through four well-established brands: De Longhi, Kenwood, Ariete and Braun. It is market leader in coffee makers and food preparation machines in Western Europe, with market shares of 30% and 20% respectively, and world leader (ex-US/China) in coffee machines, with 32% of the market (it was 21% five years ago). Its strategic focus is on the premium niche: half of sales come from the top price quartile of the market. This is supported by A&P spend of 9-10% of sales. Two-thirds of production comes from China, and two-thirds of sales from Europe.

Braun addition is a transformational deal De Longhi bought a perpetual licence for the Braun brand from P&G, for home care products only. It was consolidated at the beginning of last year. Thanks to its strong brand awareness and the measures taken by De Longhi (new products, new markets and an A&P push), Braun is expected to deliver a 27% 3Y CAGR in sales and contribute half the group’s additional EBITDA.

Sound growth ahead: 3Y CAGR of 15% in EPS and 25% in FCF We see global demand for small domestic appliances growing in the mid-high single digits in the foreseeable future. De Longhi is expected to deliver 3Y CAGRs in 2014-16 of 10% in EBITDA, 15% in EPS and 25% in FCF. Our new estimates (EPS cut by 5% for 2013 and 7% for 2014-15) factor in a higher FX drag: EUR15m on EBITDA this year, after EUR22m last year.

Buy confirmed – TP up from EUR13.5 to EUR16.5 FCF generation is the key positive here. De Longhi has already digested the Braun deal (priced at EUR221m) and it is set to turn cash-positive this year. We expect EBITDA conversion into FCF at close to 40% in 2014-16E. Current valuation is not compelling, as the stock has caught up with the market performance since the beginning of February. However, we believe that visibility on earnings momentum and cash generation is fairly high. Our rolled-over DCF now yields a TP of EUR16.5 (from EUR13.5), based on higher cash flow growth and lower cost of equity. Buy confirmed.

IMPORTANT. Please refer to the last page of this report for “Important disclosures” and analyst certification(s)

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De Longhi Target price change

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Summary

Company profile No1 in coffee makers and food preparation machines in West Europe, with c. 30% and 20% market share, and in the world ex-US/China. Premium player: 50% of products in the top price quartile of the market. Coffee makers and food preparation machines put together 3/4 of group sales. 1/3 of sales from emerging countries, 65% of production in China.

Management structure

Giuseppe De' Longhi Chairman

Fabio De' Longhi CEO

Fabrizio Micheli CFO

Key shareholders

De' Longhi Soparfi 67.0%

EPS and P/E FCF and gearing Balance sheet structure, 2013E

Valuation

Base case DCF is based on long-term (2nd stage) 5% growth of sales

Best case DCF is based on long-term (2nd stage) 10% growth of sales

Worst case DCF is based on long-term (2nd stage) 0% growth of sales

Target price

Risk to our rating Slowdown of the demand for coffee makers and food preparation machines, bad execution on Braun integration, higher currency headwinds.

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Contents

Quality: premium niche leader ........................ 4

Focus on small domestic appliances… 4

…four-fifths of the business from kitchen and coffee 6

…and two-thirds from Europe 8

Two-thirds of production from China 9

Leading position in coffee and kitchen 9

Growth: sound 15% EPS 3Y CAGR ahead ..... 14

The reference market: small domestic appliances… 14

…coffee and kitchen segments 15

The Braun addition 18

Estimates review: 2014-15 EPS cut by 7% due to forex 21

FY 2013 results preview: margins diluted by Braun, FX 21

Sales estimates by region 23

Cash machine 24

Valuation: more upside ahead ......................... 25

DCF: EUR16.50 (our new TP) 25

Peer comparison (versus SEB) 26

Research ratings and important disclosures 33

Legal and disclosure information .................... 35



Quality: premium niche leader With its four SDA brands (De Longhi, Kenwood and Ariete owned; Braun under

licence), De Longhi is market leader in coffee makers and kitchen machines in

Western Europe, with market shares of 30% and 20% respectively, and world

leader (ex-US/China) in coffee makers, with 32% of the market, versus 21% five

years ago. Its premium position (half of sales in top price quartile) is supported by

A&P spend at 9-10% of sales.

Focus on small domestic appliances…

De Longhi is a global leading player in the production and distribution (almost entirely

wholesale) of small domestic appliances (SDA), operating through four brands:

De Longhi (57% of sales in 2013, in our estimates): under the family name brand,

the company produces and distributes coffee makers (bean-to-cup, espresso, filter

coffee, combi, grinders, Nespresso and Nescafé systems), kitchen machines (deep

fryers, electric ovens, kettles, toasters, ice-cream makers), air conditioning systems

(with the Pinguino brand), heating products (oil-filled radiators, convectors, fan and

ceramic heaters), dehumidifiers and ironing products. Coffee (the new successful

venture started at the beginning of ‘00s, at the heart of the investment case)

represents about 55% of De Longhi brand’s sales, Nespresso 20%.

Kenwood (30%): under the UK brand bought in May 2001 (via a PTO), De Longhi

produces and distributes kitchen machines (food mixers and processors) and

various other appliances for food preparation (blenders, hand blenders, hand

mixers, kettles, toasters, coffee makers, bread makers, ice-cream makers, food

slicers, electric knives). Kitchen machines currently represent 54% of Kenwood’s

sales, while hand blenders are the main remaining item, with 8% of the total.

Ariete (4%): under the Italian brand bought by Kenwood in 1995, De Longhi

produces and distributes kitchen machines and food preparation appliances

(ovens, electric grills, blenders, hand blenders, centrifuges, squeezers, choppers,

electric graters, electric mills, beaters, toasters, bread makers, ice-cream and

yoghurt makers), along with house cleaning, ironing and personal care products.

Braun (9%): under the perpetual license for the German brand bought from P&G in

September 2012 (only for homecare products, excluding personal care), De Longhi

produces and distributes hand blenders (50% of Braun’s sales 2013, in our

estimates), steam irons (15%) and other kitchen appliances (food preparation units,

basic “drip” coffee makers, kettles and juicers, for the remaining 35%). There are

two main overlaps between the brands’ product offering, namely with Kenwood in

hand blenders and De Longhi in steam irons. Braun may take the lead in both, in

light of its stronger positioning.

De Longhi is a typical Italian family-run business (De Longhi family owns 67% of the share

capital, after an 8% stake placement of 16 November 2012, at EUR9.50), which has become

a niche global champion. Notably, it is also an example of successful generational

succession, a key issue for this kind of company. Today, the CEO is Fabio De Longhi (46),

the son of the founder, Giuseppe De Longhi (74), the Chairman of the company.

One company, four brands

Family-run business, successful succession



The company’s origins go back to the beginning of last century, when the De Longhi family

was active in the production of wood-burning stoves. In the 1950s, it was organised as a

structured entrepreneurial activity, focused on the production of components for domestic

heating systems. The De Longhi brand first became known in 1970s, when Giuseppe De

Longhi’s company started selling the first finished products, mobile oil radiators, initially

manufactured by third parties, then internally produced from 1975. In 1980, the De Longhi

brand was registered and the internationalisation process kicked off. The company rapidly

became the global leader in mobile heating systems, after successfully entering the US and

Japanese markets.

In 1985-87, De Longhi embarked on a diversification process, which enlarged its product

offering to air conditioning and treatment systems as well as small appliances for cooking.

In the following few years, the company made some acquisitions to enlarge and reinforce

its production structure and started building up a direct distribution network (first step in

the UK, in 1986).

In 1992, De Longhi launched its first machines for espresso coffee, adding the second big

leg to its business portfolio. Then in 2007, it started working as a partner of Nestle for the

distribution of Nespresso’s coffee machines.

Under the current structure, De Longhi SpA is the result of the spinoff of the professional

business (professional air treatment plants and radiators, incorporated into listed DeLclima

SpA) from the old group, which now only includes the household business (small domestic

appliances). The spinoff project was approved on 21 July 2011 and took effect on 1 January

2012. It was aimed at allowing the two equity stories to become clearer, enhancing the

equity value of both companies.

Table 1: De Longhi pre-spin-off: two different business models

Household Professional

B2C B2B Resilient More cyclical

Global Europe and China Lifestyle led and highly innovative Technological barriers and tailored engineering

Market-driven Solutions and service Emerging markets > 30% Strong opening to Chinese market

Secular trend in coffee and gourmet Air conditioning leading growth and profitability

Source: Company data

Following the spinoff, De Longhi is the only company, among the leading listed players, to

be exclusively focused on SDA (100% of group sales). Groupe SEB is at 68% of sales (the

rest is cookware), Philips 9% (47% of Lyestyle division), Electrolux 8%, Whirlpool estimated

at 5-10% (out of 18% disclosed for cooking) and Indesit <1% (new business, entered last

year).

De Longhi was the best-performing stock on the Italian stock exchange in the five years

following the Lehman Brothers bankruptcy (from 15 September 2008 to 28 August 2013),

with a total return of 450%, followed by Banca Generali, Tod’s, Txt, Azimut and Brembo.

A bit of history: from heating systems...

…to kitchen appliances

…and coffee machines

Fully focused on SDA

Best stock in Milan in five years post-Lehman

The spinoff of professional business



…four-fifths of the business from kitchen and coffee

In terms of the divisional breakdown of sales 2013 (not disclosed yet), kitchen and coffee

together could represent four-fifths of the group’s total. The other activities are much

smaller, including air conditioning and heating at 12% and ironing and cleaning at 6%.

Chart 1: De Longhi’s sales by activity 2013E

Source: Company data, Kepler Cheuvreux

Historically, the coffee business was just a small activity for De Longhi, representing 7% of

sales in 2001, then the distribution agreement with Nespresso led the segment to 24% of

sales in 2007 and proprietary cappuccino makers (Nespresso-De’ Longhi “Lattissima”) and

fully automatic machines (branded De Longhi) led it up further to 39% in 2012. In our

estimates for last year, on top of a flattish trend of the company’s sales, coffee decreased to

36% of the total, mostly as a result of the overall mix rebalancing following the addition of

Braun, which just has a small presence in the activity. At the same time, over this period,

cooking machines went from 45% of the total in 2001 to 43% last year, portable air

conditioning and heating systems from 29% to 12% and ironing and cleaning systems from

15% to 6%.

Table 2: De Longhi’s sales by activity 2007-13E

EUR m 2007 2008 2009 2010 2011 2012 2013E YOY 6Y CAGR

Coffee machines 237 322 338 420 537 597 581 -3% 16% % of total 24% 30% 30% 33% 38% 39% 36% Kitchen machines 382 407 438 493 519 568 702 24% 11% % of total 39% 38% 39% 39% 36% 37% 43% Air conditioning/heating 242 225 222 233 247 240 204 -15% -3% % of total 25% 21% 20% 18% 17% 16% 12% Ironing/Cleaning 87 96 89 106 93 86 98 14% 2% % of total 9% 9% 8% 8% 7% 6% 6% Other 21 21 24 28 33 40 47 19% 14% % of total 2% 2% 2% 2% 2% 3% 3% Total 970 1,072 1,111 1,281 1,429 1,530 1,633 7% 9%


Coffee machines 36%

Kitchen machines 43%

Air conditioning & heating

12%

Ironing & Cleaning

6%

Other 3%

Kitchen and coffee account for four-fifths of total sales

Coffee boosted by Nespresso and fully automatic



In our estimates, Nespresso represents 32% of De Longhi’s coffee sales (and 12% of the

group’s total sales). This is equally split between coffee makers produced by third parties,

and the “Lattissima” cappuccino maker produced by De Longhi.

Much more important is the contribution of fully automatic machines, representing 47% of

coffee sales (and 17% of the group’s total sales).

Chart 2: De Longhi’s split of total…

Chart 3: …and coffee sales 2013E

Source: Company data, Kepler Cheuvreux Source: Company data, Kepler Cheuvreux

The coffee business lines can be described as follows:

Nespresso third parties: this refers to the coffee makers produced by two

independent OEMs (Swiss Eugster and Hungarian Flextronics), a closed system for

Nespresso capsules, for which De Longhi is one of the authorised distributors in

more than ten countries worldwide.

Nespresso Lattissima: this refers to the cappuccino makers patented (for the milk

frothing technology) and produced by De Longhi (with exclusive manufacturing

rights), for which De Longhi is the only authorised distributor in more than 40

countries worldwide.

Nescafé Dolcegusto: this refers to the coffee makers produced by an independent

OEM (Chinese Vik), a closed system for Nescafé pods, for which De Longhi is one of

the two authorised distributors in 17 countries worldwide.

Fully automatic: This refers to the bean-to-cup coffee makers, top-end of the

espresso coffee market in terms of pricing and margins, a segment in which De

Longhi is the world leader, with 34% market share.

Other: This refers to traditional systems for coffee making (mocha, drip, filter, etc.),

where De Longhi has still a significant presence, holding 31% global market share.

Nespresso 3rd parties

6% Nespresso Lattissima

6%

Full automatic

17%

Dolce Gusto

2%

Other 5%

Non-coffee

64%

Nespresso 3rd parties

16%

Nespresso Lattissima

16%

Full automatic

47%

Dolce Gusto

6%

Other 15%

Nespresso accounts for one third of group coffee sales…

…fully automatic for almost one half



…and two-thirds from Europe

In terms of sales by region in 2013 (not disclosed yet), Europe, including ex-URSS countries,

should account for two-thirds of the group’s total. Developed market (excluding

Australia/New Zealand and ex-URSS countries) should account for the remaining third.

Chart 4: De Longhi’s sales by region 2013E


The geographical sales mix has not significantly changed over the last three years, as

Europe remained at around two-thirds of the total in 2013 as in 2010. As for the last year’s

trend, it must be taken into account that: 1) currency was a drag in a number of countries,

like the UK (the pound has fallen by 4% YOY versus the euro), Russia (RUB -6%), Australia

(AUD -10%), the US (USD -3%) and Japan (JPY -21%); 2) Braun, consolidated on 1 January,

mostly benefited the Middle East (UAE), Germany/Switzerland/Austria and eastern

European markets.

Table 3: De Longhi’s sales by region 2010-13E

EUR m 2010 2011 2012 2013E YOY 3Y CAGR

Italy 169 176 171 196 14% 5% % of total 13% 12% 11% 12% Germany 141 172 187 212 14% 15% % of total 11% 12% 12% 13% UK 110 120 125 122 -2% 4% % of total 9% 8% 8% 7% Ex-URSS 95 111 118 114 -3% 6% % of total 7% 8% 8% 7% Other CEE 31 40 47 54 14% 21% % of total 2% 3% 3% 3% RoE 325 347 334 376 13% 5% % of total 25% 24% 22% 23% Australia & NZ 88 133 147 121 -18% 11% % of total 7% 9% 10% 7% NAFTA 95 101 115 114 0% 6% % of total 7% 7% 7% 7% Japan 46 57 75 33 -56% -11% % of total 4% 4% 5% 2% MEIA 103 80 85 131 54% 8% % of total 8% 6% 6% 8% RoW 77 92 126 160 27% 27% % of total 6% 6% 8% 10% Total 1,281 1,429 1,530 1,633 7% 8%


Italy 12%

Germany 13%

UK 8%

Ex-URSS 7%

Other CEE 3%

RoE 23%

Australia & NZ 7%

NAFTA 7%

Japan 2%

MEIA 8%

RoW 10%

Geo-mix was stable over last three years

Europe generates two-thirds of total sales



Two-thirds of production from China

In terms of production, De Longhi seems to favour a “make” rather than a “buy” strategy.

The bulk of the high-end production sold under the group’s brand names is internalised.

The only exceptions are the coffee makers produced for Nespresso and Dolcegusto

partnerships (while the cappuccino maker Lattissima is fully internally produced), which are

outsourced by Nestle to third-party OEMs (2+1) and then supplied to De Longhi.

Conversely, low-end production is outsourced to small external producers, which work

according to De Longhi’s specifications and use the moulds it provides.

Currently, measured on COGS, around 50% of the group’s internal production is based in

Italy and the remaining 50% is in China. Accordingly, 65% of total production, insourced

and outsourced, comes from China. De Longhi directly entered China in 2001 with the

acquisition of Kenwood, which was already producing there (in Dongguan). This was

followed by a massive delocalisation campaign in 2005, aimed at generating significant cost

savings. De Longhi was among the first movers to proceed in this direction, taking a tough

but essential step forward to preserve its competitiveness.

It must be noted here that China also poses risks, in the form of the currency risk related to

the USD-peg (periodically tightening or easing) and the cost inflation risk related to the

current wage trend (that more than tripled from 2003 to 2013).

This is also why De Longhi bought a new plant in Romania (Cluji) from Nokia in Q1 2012, for

a total of EUR40m. The plant started operating at the beginning of last year, with a

production cost of one-quarter that of Italy, and double that of China. It will be dedicated to

coffee makers (starting from four lines for the assembly of super-automatic machines, this

year), adding new capacity to the highly specialised state-of-the-art Italian plant

(Mignagola), as well as other productions that are currently outsourced, including Braun

products (today Braun outsources its entire product range, the only exception being the

electric engines for Minipimer handblenders, produced in Germany).

Table 4: De Longhi’s production plants

Country Location Production

Italy Mignagola (Treviso) Lattissima, full-automatic Romania Cluji – new Coffee, kitchen (to come) China Dongguan (New Tricom) Homecare, kitchen China Zhongshan Dongshen (On Shiu) Electric radiators, kitchen China Zhongshan Nantou (50% JV with TCL) Portable air conditioning, dehumidifiers Russia Republic of Tatarstan – stopped Oil filled radiators – moved to China


Leading position in coffee and kitchen

According to the company’s indications, based on quite large market panels, De Longhi is

world leader in six SDA segments: espresso coffee (with the De Longhi brand), food

preparation and kitchen machines (Kenwood, De Longhi and Braun), as well as a more

specific niche of handblenders (Braun), oil-filled radiators and portable air conditioning

systems (De Longhi).

65% of COGS in China…

…posing currency and wage inflation risks

World leader in six segments

More “make” than “buy”

New plant in Romania reduces exposure to China



The SDA market (split by segment and region in the chart below) is quite crowded. Most of

the big players are well diversified into different segments and/or regions. Economies of

scale are key in this business. Expanding brand awareness and bargaining power towards

retailers are the main sales drivers (via both volumes and prices), making multi-product and

multi-region strategies the most successful.

Chart 5: De Longhi’s main competitors by region


De Longhi differentiates itself through its tight focus on premium segment. This is reflected

by the sales split by price. As shown in the following chart, in 2012 (the latest available

data) De Longhi derived slightly more than half of its sales from the top-end quartile of the

market (ASP is above EUR172), versus main European competitors all below one third.

Braun’s product range, in terms of the same data referred to 2013 (not disclosed yet), is set

to translate into some erosion of the group’s ASP.

Chart 6: De Longhi sales by price, 2012


P > EUR172 52%

EUR71 < P < EUR172 26%

EUR36 < P < EUR71 17%

P < EUR36 5%

SDA market is crowded

Focus on premium: half of sales in top-end price quartile

Braun to dilute ASP a bit



Such a premium positioning has been sustained by a constant effort in both advertising &

promotion and research & development spending, on average at 7% and 2% of sales

respectively over 2005-13E. In particular, following the spinoff which separated household

from professional activity, the commitment to invest in brand awareness became even

more pronounced.

We expect the A&P commitment to remain particularly pronounced in the near future, as

well, as the Braun brand will need to be re-launched and even repositioned slightly higher

in terms of ASP, through ad hoc campaigns.

Chart 7: De Longhi’s A&P and R&D spending as a percentage of sales, 2005-13E

* Household only, post-spinoff Source: Company data, Kepler Cheuvreux

As a result, De Longhi holds leading market shares in both the coffee and cooking

businesses.

In coffee machines, on a worldwide basis excluding the US and China, the company is

number one, with an overall market share of 32%. As for sub-segments, it is also number

one in fully automatic, with a 34% market share, and number two in capsules, with a 31%

market share, following SEB with 38%.

Chart 8: Market shares in coffee machines, worldwide ex-US/China (July 2012/June 2013)

Source: Kepler Cheuvreux on GFK data

6.0% 5.6% 5.7% 5.7% 6.8% 7.1%

9.7% 9.2% 9.0%

2.3% 2.3% 1.9% 2.1% 2.4% 2.3% 2.0% 2.0% 2.0%

05 06 07 08 09 10 11* 12* 13E*

A&P R&D

De' Longhi 32%

SEB 17%

Philips 14%

Jura 8%

Bosch 6%

Other 6-14th 13%

Other 15th... 10%

A&P and R&D commitment

Braun to reposition a bit higher

32% market share in coffee, worldwide ex-US/China…



The following table shows how much ground De Longhi has gained in the last five years in

the coffee business – even where it is not yet number one, like in capsules.

Table 5: Market shares in coffee machines, worldwide ex-US/China (2008-13)

Jul-07/Jun-08 Jul-12/Jun-13

All coffee De Longhi 21.1% 32.4% SEB 19.2% 16.7% Philips 21.4% 14.2% Jura 12.3% 7.7% Bosch 5.2% 5.6% Other 6-14th 9.3% 13.3% Other 15th... 11.5% 10.1% Capsules De Longhi 20% 31% SEB 46% 38%


In western Europe, De Longhi is number one in both the coffee and cooking businesses,

with gradually rising market shares, up to 30% and 18% respectively in 2012 (the latest

available data). In cooking, following the Braun addition (mostly thanks to hand blenders),

we estimate that it rose to 20% in 2013.

Chart 9: Western Europe, mkt shares: coffee

Chart 10: …and kitchen

Source: Company data Source: Company data

It is worth comparing De Longhi with its main competitor, French Groupe SEB, which is the

leader in the SDA market worldwide – and is listed as well. In 2013, SEB’s sales were up

2.5% YOY at current and 5.4% at constant forex. Europe (ex-France), North America and

Asia/Pacific (mostly China) were positive, while Russia has been negative since H2.

Table 6: SEB’s sales by region, 2010-13

EUR m 2010 2011 2012 2013 YOY const. FX 3Y CAGR

France 712 706 688 666 -3.3% -3.3% -2.2% Rest of western Europe 787 807 759 821 8.2% 8.8% 1.4% North America 404 410 457 468 2.3% 5.6% 5.0% South America 346 427 451 426 -5.5% 6.5% 7.2% Asia/Pacific 764 920 992 1,087 9.6% 11.4% 12.5% CE/Russia & Other 639 693 713 693 -2.7% 0.7% 2.7% Total 3,652 3,963 4,060 4,161 2.5% 5.4% 4.4%


26% 27% 30%

59% 59% 55%

15% 14% 15%

2010 2011 2012

De' Longhi Other brands Private labels

16% 17% 18%

43% 43% 42%

41% 40% 40%

2010 2011 2012

De' Longhi Other brands Private labels

...from 21% five years ago

Market share in western Europe: 30% in coffee and 20% in cooking

Compared with SEB...



In 2013, SEB’s operating profit was pretty much unchanged, down 1% YOY to EUR364m,

with a 40bp margin squeeze, from 9.1% to 8.7% (reported on 27 February). This is well

below the 11.4% we estimate for De Longhi (to be reported on 10 March).

De Longhi is a premium player, with higher ASP/margins than SEB. While its margins have

been boosted by the rising weight of Kenwood’s kitchen business and fully automatic

coffee makers (De Longhi is an OEM, while SEB has just entered the segment as a pure

distributor), SEB’s profitability has been eroded by emerging markets and often dilutive

acquisitions.

Chart 11: De Longhi versus SEB, EBITDA adjusted margin 2005-13

* Reported for SEB, estimated for De Longhi Source: Company data, Kepler Cheuvreux

Table 7: De Longhi versus SEB

EUR m De Longhi SEB

Activities, as a percentage of sales 2013 SDA 100% (Coffee 36%, Kitchen 43%) SDA 68% / Cookware 32% World leadership Espresso, food preparation, kitchen, Cookers (pressure/steam), ironing, handblenders, portable conditioning, electric kettles, toasters, deep fryers, oil-filled radiators scales, cookware Market share in espresso coffee 32% (1st) world ex-US/China 17% (2nd) world ex-US/China Presence Direct presence in 35 countries worldwide In nearly 150 countries worldwide Sales by region 2013 Europe 66% (DE 13%, IT 12%, UK 8%) Europe 50% (FR 16%) RoW 34% (MEIA 8%, AU&NZ 7%, NA 7%) RoW 50% (AP 26%, NA 11%, SA 10%) COGS by region 2013 In-house 65% (China 35%, Italy 30%) In-house 73% (Europe 36%, Asia 26%) Outsourcing 35% Outsourcing 27% Sales 2013 / YOY growth (at const. FX) 1,633 / +6.7% (+10%) 4,161 / +2.5% (+5.4%) EBITDA adj. margin 2013 14.1% (est.) 11.4% 8Y CAGR 2005-13 of sales / EBITDA +7% / +15% (est.) +7% / +6% ROCE 2013 ( EBIT / D+E ) 25.0% (est.) 18.7% No. of employees end-2013 6,100 25,000 Sales/employee (EUR k) 268 166 Shareholding (shares/voting rights) De Longhi founder’s family 67% Founder’s group 43.4% / 59.3% Free float 33% FFP 17.2% / 13.1% Employees 3.5% / 4.1% Free float 35.9% / 23.5%


8.0% 8.3%

10.3% 10.5% 11.2%

13.0%

14.7% 15.2%

14.1% 13.1%

12.2% 12.2% 12.2% 13.1% 13.4%

12.9% 11.7% 11.4%

05 06 07 08 09 10 11 12 13*

De' Longhi (SDA only) SEB (SDA+cookware)

…De Longhi is more profitable



Growth: sound 15% EPS 3Y CAGR ahead There’s more growth in SDA than LDA. Innovation is the key driver for such

status-related products. Global demand growth is estimated at mid-high single

digit pace (but competition to remain fierce). We assume De Longhi is set to

deliver 3Y CAGRs 2014-16E of 7% in sales, 10% in EBITDA, 15% in EPS and 25%

in FCF. Braun is expected to generate half of the group’s additional EBITDA.

The reference market: small domestic appliances…

De Longhi operates in a highly competitive, but nicely growing market. In fact, in small

domestic appliances (SDA), competition is tough – played on product innovation, pricing

and distribution (as a premium player, De Longhi competes on product differentiation:

quality and innovation), but demand appears to be more resilient or growing faster here

than in large domestic appliances (LDA).

One of the main reasons for this, mostly with regard to developed (mature) markets, is

related to the relatively smaller weight of replacement demand, which accounts for slightly

more than half of the total in LDA. Due to much lower penetration and much lower unit

prices, product innovation (R&D) and brand awareness (A&P) appear more likely to spur

new demand in SDA than in LDA. Basically, demand for SDA is driven by strong reactivity

to product innovation, new features, design and a certain “conspicuous” consumption of

status-related products.

This is reflected in the different performances of the two markets in a mature areas like

western Europe: the sales CAGR (in value) is estimated at +3% over 2007-13 for SDA

versus -1% for LDA.

Chart 12: Western European market of large and small domestic appliances (2007-13, EURbn)


According to SEB, the global SDA market is estimated at around EUR30bn in 2012 (or

EUR43bn including cookware), versus EUR136bn for LDA.

According to Euromonitor, the global five-year scenario is overall positive for SDA, but

regionally polarised in terms of driving segments. Air treatment should be the driver in

emerging areas, coffee makers in North America and vacuum cleaners in western Europe.

0

5

10

15

20

25

07 08 09 10 11 12 13

LDA SDA

More growth in SDA...

...fuelled by innovation to status-related products

SDA CAGR 2007-13 in western Europe: +3%

A EUR30bn market globally



…coffee and kitchen segments

Coffee makers and food preparation machines (three-quarters of De Longhi‘s revenues)

are among the healthiest segments in the worldwide SDA market, but also more and more

competitive, as sound growth and returns attract new entrants.

Coffee, and more specifically espresso coffee, is enjoying a secular growing trend on a

global scale. This has the form of a structural change in consumption habits across various

regions worldwide. New technologies, like capsules (closed) and full-automatic (bean-to-

cup), have given a crucial boost as well.

Nespresso’s performance offers some of the best proof, as the sales CAGR 2000-13 is 25%

(up to EUR2.6bn in 2013, 30% of the world capsule market).

The global coffee machine market is currently worth EUR3.8bn, of which EUR1.9bn in

espresso (single-serve) and EUR0.9bn in drip coffee (American). The top four players hold

c.70% of the market: SEB (Krups), De Longhi, Philips (Saeco) and Bosch-Siemens.

Demand for coffee makers remains on the rise in most of the world’s regions. In 2012

(latest data available), with the exception of western Europe (flat), all other areas were

growing nicely: eastern Europe +8%, Middle East +44%, Asia +76%, North America +13%,

Latam +21% and Australia/New Zealand +34%.

In western Europe, the espresso makers’ market was estimated at around EUR1.24bn in

2012, 70% of the world total. The 8Y CAGR 2004-12 was +9% overall, with capsules up

19% (EUR470m), fully automatic up 9% (EUR630m) and filter coffee down 4% (EUR135m).

The first two segments are those where De Longhi is a leading player worldwide.

Chart 13: Espresso coffee makers, western European market


For coffee, growth prospects remain sound, thanks to new opportunities: converting tea

drinkers to coffee (a slow trend); attracting low-quality coffee drinkers to better coffee (a

faster trend, supporting for instance the shift from capsules to higher-quality bean-to-cup);

China: consumption rapidly growing (currently at c. 10%); the US: espresso coffee makers’

sales were up 13% YOY in 2012.

322 372 427 441 494 518 537 605 631 114 140 182 270

343 410 457 504 470

196 189

182 189

172 151

149 151 136

04 05 06 07 08 09 10 11 12

Full-automatic Capsules Other

Coffee and kitchen, the healthiest segment of SDA market

Coffee’s secular trend

Espresso coffee makers, a EUR1.9bn market globally…

…and EUR1.2bn in western Europe, 8Y CAGR of 9%

New opportunities for future growth



Over a three-year horizon, we assume that demand for coffee machines could progress by

mid-high single digits globally and low-mid single digits in western Europe. Market leader

(ex-US/China) and premium player De Longhi is well poised to fully profit from such trends,

thanks to its constant focus on product innovation (R&D) and brand promotion (A&P), its

production integration and tight control of its distinctive expertise (Lattissima cappuccino

maker and fully automatic) and the ongoing partnership with Nespresso and Dolcegusto.

Chart 14: Coffee makers, the current offer


The food preparation market has also been experiencing trends that favour machine

producers, like customers’ propensity to trade up towards high-end and specialised

machines as well as evolving preferences and behaviours in food consumption worldwide,

moving towards healthy, organic, fresh, low fat and… cooking at home.

The western European market of kitchen machines is currently worth EUR3.7bn, with

EUR2.5bn in the breakfast segment and EUR1.2bn in food preparation.

Among SDA segments, kitchen machines (split into food preparation and breakfast) were

the only area which enlarged its weight on the total business, rising from 35% of 2007 to

39% of 2012, still on the rise compared to 38% in 2011.

The two biggest sub-segments are food mixers and handblenders. The De Longhi group is

very well represented In both areas, with Kenwood’s high-end Cooking Chef and Braun’s

Minipimer handblender.

De Longhi’s entrance into the business was a good move, through the acquisition of

Kenwood in the UK in 2001 (GBP46m PTO). Since then, the company has taken full

advantage of a fast-growing market: sales of the Kenwood brand (excluding Ariete)

reached GBP120m in 2001 and GBP360m in 2012, implying an 11% 11-year CAGR.

De Longhi’s new launch (in March): Lattissima Pro, price EUR499 and USD599

Nespresso new launch (in February): VertuoLine, for both American coffee and espresso, price USD299

De Longhi to benefit from growing demand

Cooking at home is fashionable again

Kitchen machines, a EUR3.7bn market in western Europe

De Longhi’s Cooking Chef



Chart 15: Food preparation, western European market


Global demand for kitchen machines has enjoyed sustained growth (in the teens) for years

and is forecast to keep the same pace in the near future. Last year, in western Europe, it was

up 13% YOY. Over a three-year period, we assume it will continue to grow nicely, at a 10%

annual pace globally and mid-high single-digit in western Europe.

With regard to the coffee and kitchen segments, De Longhi is certainly exposed to a nicely

growing business. This was the case in the past and is set to remain so for the foreseeable

future, as in both sectors consumer demand seems to be driven by structural underlying

drivers, which are substantially related to changing habits (in favour of espresso coffee and

cooking at home) and status-related consumption (small appliances are fashionable

gadgets). However, the growth potential of the business should not be exaggerated. In

terms of the group's sales over the next three years, we believe 4-5% annual organic

growth is a reasonable assumption (the addition of Braun should allow the company to do

better). This takes into some account that:

Competition is getting tougher (new entrants, e.g. Breville as the second

authorised distributor of Nespresso in Australia since last year).

Innovation moves fast (new products, e.g. new coffee machine launched by

Nespresso in the US this year, VertuoLine, for both drip and espresso).

Trade relationships are becoming increasingly demanding (online is an additional

opportunity and a threat at the same time - management of both is a complex

issue).

In such a competitive environment, De Longhi's business model looks solid, which should

allow the company to continue to nicely perform. Key strengths are a strategic focus on the

premium segment, four well-established brands (De Longhi, Kenwood, Ariete and Braun),

internal production of top-end products (cappuccino maker Lattissima and fully automatic

espresso coffee makers), direct control of expertise (milk frothing system patent for

Lattissima).

We expect the company to remain a winner in the sector worldwide.

10.2% 10.8% 11.4% 11.8% 12.2% 12.4%

24.7% 25.7% 26.2% 25.9% 26.2% 26.1%

37.8% 36.7% 35.8% 35.5% 35.1% 35.1%

27.3% 26.8% 26.5% 26.9% 26.5% 26.4%

07 08 09 10 11 12

Food preparation Breakfast Home care Personal care

Growth set to continue, even faster than in coffee

We forecast group annual organic sales growth of 4-5%

De Longhi to remain a winner



The Braun addition

The Braun deal is transformational for De Longhi. One of the most popular brands in the

SDA field globally is now in the hands of one of the leading SDA players, whose tight focus

on premium niche and large international network should be of help in enhancing the

brand’s performance. The deal was finalised at end-2012, and Braun’s results have been

consolidated since 1 January 2013.

On 16 April 2013, De Longhi announced a perpetual licensing agreement for German brand

Braun with P&G for small kitchen machines, ironing systems and selected household

appliances. Braun's personal care products were excluded (male dry shaving, female

electric hair removal, oral care, hair care and beautronics). This is why P&G retained

ownership of the brand, as it is still running the personal care business (with sales four

times larger than in home care). De Longhi has a right of first refusal if the personal care

business is ever put up for sale.

De Longhi also acquired patents and expertise connected with the home care business, the

inventory related to the relevant product categories, a few productive assets (production

lines and moulds) and 120 employees in Germany (80 working in R&D and marketing and

40 in the production of electric engines for Minipimer handblenders).

On 31 August, after the completion of the authorisation process and the fulfilment of other

conditions, the finalisation of the deal was announced and took effect from 1 September.

The new activity was consolidated by De Longhi from 1 January 2013.

The transaction value amounts to EUR221m, split as follows:

EUR50m paid when the deal took effect, on 1 September 2012.

EUR45m paid for the inventory bought in 2012 (EUR12m) and 2013 (the total

amount was just indicated in EUR40-50m range, we assume the midpoint).

EUR93m fully paid on 31 December 2012, in a single payment (while it was

originally agreed that the payment would be split over 15 years, in constant annual

instalments, including accrued interests).

A variable earn-out sum depending on Braun's sales performance in the first five

years following the deal (in two instalments calculated on the basis of Braun's

result in the first three and the following two years). The total amount cannot

exceed EUR122m. The NPV of this amount was written down from EUR64m at the

end of 2012 to EUR33m now.

The EUR221m EV is also the equity value, as no debt was involved in the transaction. This

implies a 7.4x EBITDA 2015E multiple (the first year at full tilt for Braun). The deal was not

overpaid in our view, also in consideration of its substantial strategic relevance.

Braun is a transformational deal for De Longhi, as it is a widely known and well-recognised

brand worldwide (with a German premium perception). Braun preserved its brand

awareness, even though under P&G it was not present in some of the major markets

worldwide, like the UK, France, the US, Australia, Japan and Latam. It also seems –

according to company surveys – that Braun is associated not only with product categories

it actually sells, but even with products it does not.

Braun (licence) bought end-2012

Perpetual licensing agreement for home care products

Consolidated from 1 January 2013

Fairly paid, at 7.4x EBITDA 2015E

Strong brand awareness, German premium

EUR221m transaction value



Chart 16: Pre-deal Braun’s brand awareness by country (blue: operated; orange: not operated)


We estimate Braun's sales for 2013 at EUR145m, split as follows:

By region, Europe accounted for 70% (ex-URSS countries 25% and Germany,

Switzerland and Austria 20% put together), Middle East (mostly UAE) and Far East

(mostly Japan) 15% each.

By activity, handblenders accounted for 45%, steam irons 15% and other kitchen

gadgets 40% (as for coffee, Braun just has a small presence in drip coffee, but is not

present in espresso). Overall, kitchen machines accounted for 85% of the total.

Chart 17: Braun 2013 sales, by region…

Chart 18: …and activity (KECH estimates)

Source: Kepler Cheuvreux Source: Kepler Cheuvreux

Braun generated EUR184m sales in 2012, the last year under P&G management, and we

estimate EUR145m for 2013, the first year under De Longhi’s management. This was below

the EUR160-170m early-2013 guidance, mostly due to the weaker-than-expected

performance in Russia (due to commercial issues on pricing and weak currency).

In 2005, the last year under Gillette (bought by P&G), we estimate Braun generated sales of

around EUR450, which could be regarded as a reasonable reference, implicitly as a long-

term target, to measure its potential at full steam.

92% 90%

78%

64%

84% 82% 74%

70% 65%

Spain Germany Italy Russia France UK Australia US Japan

DE/CH/AT 20%

Ex-URSS 25%

RoE 25%

Middle East (UAE)

15%

Far East (Japan)

15%

Hand-blenders

45%

Other kitchen gadgets

40%

Steam irons 15%

Braun mostly present in Europe and kitchen machines

We estimate EUR145m sales in 2013 for Braun

Sales of around EUR450m in 2005 under Gilette



Braun has huge potential, in terms of sales growth and margin expansion. De Longhi's

management intends to exploit it through a combination of measures, as follows:

New products, new countries: in 2014, it will enter markets in the UK, France and possibly

Australia, with handblenders and steam irons (among the strongest products in current

Braun's portfolio) plus a couple of new kitchen lines (with new design). In 2015, De Longhi

will address the US market with a new full-range Braun offer, and will also introduce

ironing systems all across regions.

Repositioning (A&P and R&D): De Longhi will implement an abmitious advertising and

promotion strategy for Braun as well, the same strategy it adopts for all its brands (it

successfully adopted this strategy for Kenwood following its acquisition in 2001). Braun's

A&P spending could amount to 15% of sales in 2014 and remain at least at 10% over the

next two years. Also, R&D expenses, aimed at fuelling innovation, could be above the

group's average, at 5-6% of the brand's sales in the period.

Insourcing (Romania): Braun currently outsources its entire supply, except only for engines

for Minipimer handblenders. Part of this supply could be gradually insourced, located in the

group's new Romanian plant. This should give a small additional boost to the group's

margins, via stronger operating leverage. As there is no disclosure from the company about

the insourcing programme, we assume about one third of the total supply could be

insourced over the next 2-3 years.

In our estimates, this could translate into a 27% sales CAGR 2014-16E and almost 7x

EBITDA over the period, with the margin reaching the level we expect for De Longhi's pre-

Braun perimeter at the end of the period (15.5% in 2016E).

The following table summarises Braun’s and De Longhi's old perimeter contribution to the

group's expected performance. Braun is expected to contribute 42% and 50% to the

cumulated increase in group sales and EBITDA over 2014-16E; quite a significant addition.

Table 8: De Longhi - sales and EBITDA adj. before and after Braun 2012-16E

EURm 2012 2013E 2014E 2015E 2016E 3Y CAGR

De Longhi old perimeter Sales 1,530 1,488 1,555 1,625 1,698 4.5% growth 7.0% -2.8% 4.5% 4.5% 4.5% EBITDA adj. 232 223 236 250 263 5.7% margin 15.2% 15.0% 15.2% 15.4% 15.5% BRAUN Sales 184(pf) 145 200 250 300 27% growth -21% 38% 25% 20% EBITDA adj. 7 17 30 47 86% margin 5.0% 8.5% 12.0% 15.5% De Longhi new perimeter Sales 1,530 1,633 1,755 1,875 1,998 7.0% growth 7.0% 6.7% 7.5% 6.8% 6.6% EBITDA adj. 232 230 253 280 310 10.4% margin 15.2% 14.1% 14.4% 14.9% 15.5%


New products, new countries

Repositioning (A&P and R&D)

Insourcing (Romania)

A 27% sales CAGR over 2014-16E

50% of additional group EBITDA in 2014-16E



Estimates review: 2014-15 EPS cut by 7% due to forex

We have cut our sales estimate for 2014-15 by 2%, the same as the gap between our

estimate and reported sales for 2013 (out on 31 January), lowered our EBITDA and EBIT

estimates by 2% for 2013, and by 3% for 2014-15. EPS is cut by 5% for 2013 and 7% for

2014-15. This is entirely due to higher forex headwinds now in sight.

The currency devaluation versus the euro is not over, with regard to the RUB, USD, AUD,

JPY (the only exception being the strengthening GBP). We have to factor in a further

devaluation, as implied by the current forex level, projected over the full year (assumed as a

FY 2014 average). Basically, the currency drag we expected for H1 (taking into account

forex turbulence that emerged last summer) is now set to extend into H2. The EUR8m

lower EBITDA we now forecast for this year is entirely connected to higher currency

headwinds (based on the same EBITDA/sales as last year: we estimate EUR22/EUR50m for

2013 and EUR15/EUR30m for 2014).

Table 9: De Longhi, KECH’s new versus old estimates 2013-15E

2013E 2014E 2015E EURm old new change old new change old new change

Sales 1,633* 1,790 1,755 -2% 1,915 1,875 -2% EBITDA 233 228 -2% 259 251 -3% 286 278 -3% EBIT 190 186 -2% 214 207 -3% 239 232 -3% EBT 151 147 -3% 178 170 -5% 206 196 -5% Net profit 115 110 -5% 136 126 -7% 157 146 -7% EPS (EUR) 0.77 0.73 -5% 0.91 0.85 -7% 1.05 0.98 -7% NFP -75 -44 41% -20 12 NM 46 70 52%

* Reported on 31 January Source: Kepler Cheuvreux

FY 2013 results preview: margins diluted by Braun, FX

De Longhi reported preliminary sales for Q4/FY 2013 on 31 January. Full results are due to

be released on 10 March.

Sales were +7% YOY to EUR1,633m in the FY (1.5% below our EUR1,655m and consensus

EUR1,658m), after +10% in Q4 to EUR595m.

At constant currency, sales were up 10% in FY 2013 and 15% in Q4 2013. The currency

drag amounted to EUR50m in FY 2013, as a consequence of the main currencies’

devaluation versus euro: GBP -4% YOY (representing about 8% of sales), USD -3% (c. 7%),

AUD -10% (c. 7%), RUB -6% (7%) and JPY -21% (2%).

We estimate Bran’s sales contribution (not disclosed) at EUR145m in FY 2013, after

EUR55m in Q4. This reflects the typically high seasonality of the SDA business in Q4 2013

(sustained by the Christmas season), which we expect to be stronger than the EUR25-

EUR35m-EUR30m seen in 9M 2013.

Net of the Braun addition, we estimate De Longhi’s old perimeter at EUR1,488m sales in FY

2013 and EUR540m in Q4 2013, respectively -2.8% and -0.3% YOY LFL. The organic

performance gradually improved along the year: -7.0% in Q1, -3.5% in Q2, -2.1% in Q3 and

-0.3% expected in Q4. This was the result of the improving performance in Europe

(reported at +17% in Q4 2013), both western and eastern Europe, even though the latter

was hit by mismanagement issues and following the reorganisation in Russia (in Q3 2013).

...entirely due to FX

EPS cut by 5% for 2013 and 7% for 2014-15…

FY 2013 results out on 10 March

Sales already reported, +7% YOY…

…or +10% at constant FX

EUR145m from Braun

-2.8% YOY LFL (ex-Braun), Q4 flat helped by strong Europe



Germany (fuelled by Braun) and Italy were the strongest countries in western Europe,

while Poland and Ukraine were among the best performers in eastern Europe, offsetting

weak Russia. Extra-European business represented one-third of the total and was broadly

flat YOY, dragged down by contracting Australia (where Nespresso authorised the second

distributor, Australian Breville, which eroded De Longhi’s market share).

Table 10: De Longhi - sales by macro-region (2012-13, quarterly)

EUR m Q1-12 Q2-12 Q3-12 Q4-12 FY-12 Q1-13 Q2-13 Q3-13 Q4-13 FY-13

West Europe 169 180 187 313 848 175 191 206 361 932 Growth YOY % 0.2% 5.0% 1.6% 4.2% 3.0% 3.5% 6.5% 9.9% 15.3% 9.9% East Europe 43 25 39 54 160 41 27 39 67 175 Growth YOY % 30.2% 6.4% -11.2% 16.3% 9.6% -3.5% 10.5% 0.6% 25.9% 9.5% Total Europe 212 204 226 366 1,008 216 219 245 428 1,107 Growth YOY % 5.1% 5.1% -0.8% 5.8% 4.0% 2.1% 7.0% 8.3% 16.8% 9.8% Middle East / India / Africa 18 24 28 16 85 27 36 40 28 131 Growth YOY % -1.1% 6.2% 99.3% -37.8% 7.3% 53.7% 48.3% 43.2% 80.4% 53.6% Asia / Pacific / Americas 88 98 90 160 437 77 96 82 139 395 Growth YOY % 28.7% 16.9% 9.6% 10.1% 14.9% -12.6% -2.2% -8.8% -12.8% -9.6% Total sales 318 327 344 541 1,530 321 350 367 595 1,633 Growth YOY % 10.4% 8.5% 6.2% 4.9% 7.0% 0.9% 7.2% 6.6% 9.9% 6.7% De Longhi 296 315 337 540 1,488 Growth YOY % -7.0% -3.5% -2.1% -0.3% -2.8% Braun 25 35 30 55 145


As for earnings, we expect margins to be slightly down YOY, as a consequence of the

dilution produced by Braun (assumed at 5.0% margin in FY 2013, versus 15.0% for De

Longhi’s old perimeter) and the currency burden (assumed at EUR22m). We expect the

group’s adjusted EBITDA to be down by 1% YOY and EBIT down 2%. Net profit could

decrease further, down 7% YOY, due to higher bills for currency hedging (EUR4m) as well

as a higher tax rate (by 190bp to 25.0%).

Table 11: De Longhi - sales and earnings (2012-13E, quarterly)

EUR m Q1-12 Q2-12 Q3-12 Q4-12 FY-12 Q1-13 Q2-13 Q3-13 Q4-13E FY-13E

Sales* 318 327 344 541 1,530 321 350 367 595 1,633 Growth YOY % 10% 9% 6% 5% 7% 1% 7% 7% 10% 7% Gross profit 149 156 164 267 735 161 167 176 284 788 Margin % 47.0% 47.8% 47.5% 49.2% 48.1% 50.1% 47.7% 47.8% 47.8% 48.3% Growth YOY % 9% 11% 0% 8% 7% 8% 7% 7% 7% 7% EBITDA adj. 43 39 56 94 232 45 39 51 95 230 Margin % 13.5% 12.0% 16.3% 17.4% 15.2% 13.9% 11.1% 14.0% 16.0% 14.1% Growth YOY % 8% 21% 1% 15% 11% 4% -1% -8% 1% -1% EBITDA 41 33 55 95 225 45 38 51 94 228 Margin % 13.0% 10.1% 16.0% 17.6% 14.7% 13.9% 11.0% 14.0% 15.8% 14.0% Growth YOY % 7% 3% 4% 20% 10% 7% 17% -7% -1% 2% EBIT 34 25 46 85 189 34 28 41 83 186 Margin % 10.6% 7.5% 13.4% 15.6% 12.4% 10.6% 7.9% 11.2% 13.9% 11.4% Growth YOY % 6% -1% 0% 21% 10% 1% 12% -11% -2% -2% EBT 31 13 38 72 154 26 18 33 71 147 Growth YOY % 8% -31% 20% 20% 11% -17% 34% -14% -1% -4% Net profit adj. 23 10 31 54 118 19 13 25 53 110 Growth YOY % 17% -12% 20% 45% 26% -17% 30% -18% -3% -7%

* Sales 2013 were reported on 31 January Source: Company data, Kepler Cheuvreux

Extra-European business flat, at one-third of the group’s total

Margins diluted by Braun and FX



Sales estimates by region

Our sales estimates for this year and the next three (split by country/region) are

summarised in the following table. We project a 3Y group sales CAGR of 7%.

Our estimates are based on the assumption that 4-5% is the normal organic annual pace of

the SDA business globally and De Longhi is poised to perform at least in line with the

market. Braun’s additional sales are mostly in the UK, France and Australia in 2014 and the

US in 2015. Current forex levels are taken as a proxy of the 2014-16 averages. We assume

a currency drag of EUR30m and EUR15m for sales and EBITDA in 2014.

Table 12: De Longhi - sales by region 2010-16E

EUR m 2010* 2011* 2012 2013E 2014E 2015E 2016E

SALES BY COUNTRY/REGION Italy 169 176 171 196 210 220 231 Germany 141 172 187 212 227 239 250 UK 110 120 125 122 135 142 149 Ex-URSS 95 111 118 114 100 106 112 Other CEE 31 40 47 54 57 61 64 Rest of Europe 325 347 334 376 398 418 439 Australia & NZ 88 133 147 121 117 123 129 North America 95 101 115 114 119 127 136 Japan 46 57 75 33 33 34 36 RotW (MEIA) 181 172 211 291 359 405 450 Total 1,281 1,429 1,530 1,633 1,755 1,875 1,998 AS A % OF TOTAL Italy 13% 12% 11% 12% 12% 12% 12% Germany 11% 12% 12% 13% 13% 13% 13% UK 9% 8% 8% 8% 8% 8% 7% Ex-URSS 7% 8% 8% 7% 6% 6% 6% Other CEE 2% 3% 3% 3% 3% 3% 3% Rest of Europe 25% 24% 22% 23% 23% 22% 22% Australia & NZ 7% 9% 10% 7% 7% 7% 6% North America 7% 7% 8% 7% 7% 7% 7% Japan 4% 4% 5% 2% 2% 2% 2% RotW (MEIA) 14% 12% 14% 18% 20% 22% 23% Total 100% 100% 100% 100% 100% 100% 100% YOY GROWTH % Italy 4% -2% 14% 7% 5% 5% Germany 22% 9% 14% 7% 5% 5% UK 9% 4% -2% 10% 5% 5% EUR:GBP YOY (1/x) -1% 7% -4% 3% 0% 0% EUR:GBP 0.87 0.81 0.85 0.82 0.82 0.82 Ex-URSS 18% 6% -3% -13% 6% 6% EUR:RUB YOY (1/x) -1% 2% -6% -15% 0% 0% EUR:RUB 40.87 39.91 42.30 49.48 49.48 49.48 Other CEE 30% 19% 14% 6% 6% 6% Rest of Europe 7% -4% 13% 6% 5% 5% Australia & NZ 50% 10% -18% -3% 5% 5% EUR:AUD YOY (1/x) 7% 9% -10% -10% 0% 0% EUR:AUD 1.35 1.24 1.38 1.53 1.53 1.53 North America 7% 13% 0% 4% 7% 7% EUR:USD YOY (1/x) -5% 8% -3% -3% 0% 0% EUR:USD 1.39 1.29 1.33 1.37 1.37 1.37 Japan 24% 31% -56% 0% 5% 5% EUR:JPY YOY (1/x) 5% 8% -21% -7% 0% 0% EUR:JPY 110.97 102.62 129.57 139.67 139.67 139.67 RotW (MEIA) -5% 23% 38% 23% 13% 11% Total 12% 7% 7% 7% 7% 7% At constant FX 11% 5% 10% 9% 7% 7%

* Household only Source: Company data, Kepler Cheuvreux

7% sales 3Y CAGR

EUR15m FX headwinds expected on 2014 EBITDA



Cash machine

Putting together the earnings and cash flow models (below), we can appreciate the key

quality of De Longhi: a generous cash flow generation, based on ~40% FCF/EBITDA. We

anticipate 3Y CAGR of 7% for sales, 10% for EBITDA, 15% for EPS and 25% for FCF.

Table 13: De Longhi - earnings model 2010-16E

EUR m 2010 2011 2012 2013E 2014E 2015E 2016E

Sales 1,281 1,429 1,530 1,633 1,755 1,875 1,998 Growth YOY % NA 11.6% 7.0% 6.7% 7.5% 6.8% 6.6% COGS 672 742 795 845 906 966 1,028 Gross profit 609 687 735 788 849 908 970 Margin % 47.5% 48.1% 48.1% 48.3% 48.4% 48.5% 48.5% Opex 324 339 362 411 426 443 460 % of sales 25.3% 23.7% 23.7% 25.2% 24.3% 23.6% 23.0% A&P 115 139 141 147 170 186 200 % of sales 9.0% 9.7% 9.2% 9.0% 9.7% 9.9% 10.0% EBITDA adj. 170 210 232 230 253 280 310 Margin % 13.2% 14.7% 15.2% 14.1% 14.4% 14.9% 15.5% Non-recurring items -3 -6 -8 -2 -2 -2 -2 EBITDA 167 203 225 228 251 278 308 Margin % 13.0% 14.2% 14.7% 14.0% 14.3% 14.8% 15.4% Depreciation 18 20 24 31 32 33 34 EBITA 149 183 201 197 219 245 274 Margin % 11.6% 12.8% 13.1% 12.1% 12.5% 13.1% 13.7% Amortisation 12 11 12 12 12 13 13 Impairment 1 0 0 0 0 0 0 EBIT 135 172 189 186 207 232 261 Margin % 10.6% 12.1% 12.3% 11.4% 11.8% 12.4% 13.0% Associates 6 0 0 0 0 0 0 Net interest items -7 -7 -12 -12 -12 -12 -12 Financial discounts -13 -15 -15 -15 -16 -17 -18 Other financial items -10 -12 -8 -12 -10 -8 -8 EBT 112 139 154 147 170 196 223 Margin % 8.7% 9.7% 10.1% 9.0% 9.7% 10.4% 11.2% Taxes 31 44 36 37 42 49 56 Tax rate % 28.0% 32.0% 23.1% 25.0% 25.0% 25.0% 25.0% Minorities 0 0 0 1 1 1 1 Excep./Disc. (post-tax) -5 -4 0 0 0 0 0 Net profit 75 90 118 110 126 146 166 Margin % 5.8% 6.3% 7.7% 6.7% 7.2% 7.8% 8.3% EPS (EUR) 0.50 0.60 0.79 0.73 0.85 0.98 1.11 DPS (EUR) 0.15 0.33 0.29 0.27 0.31 0.36 0.41 Payout % 29% 55% 37% 37% 37% 37% 37%


Table 14: De Longhi - cash conversion model 2011-16E

EUR m 2011 2012 2013E 2014E 2015E 2016E

Net profit 91 118 110 127 147 167 Non-cash costs 31 36 43 44 46 47 Change in WC 70 6 36 25 35 36 Capex 41 62 55 50 53 57 Capex/Sales 2.9% 4.1% 3.4% 2.8% 2.8% 2.8% Tangibles 34 53 45 40 43 46 Intangibles 7 9 10 10 11 11 Free cash flow 10 85 62 96 104 122 FCF/EBITDA % 5% 38% 27% 38% 37% 40% Acquisitions 0 140 0 0 0 0 Dividends 22 49 43 40 46 54 Capital measures 0 0 0 0 0 0 Share buy-back 0 0 0 0 0 0 Other changes -79 -107 31 0 0 0 Change in NFP -91 -210 49 56 58 68


Sound FCF generation



Valuation: more upside ahead We assume 5% long-term growth in sales and a 14% sustainable EBIT margin.

Based on slightly faster cash flow growth in the long run and lower cost of equity

(9% from 10%, reflecting a lower equity risk premium and free-risk rate on Italian

stocks), our DCF now yields a TP f EUR16.5 versus EUR13.5 previously. Upside is

14%. We confirm our Buy rating.

DCF: EUR16.50 (our new TP)

We value De Longhi using a DCF model (rolled over), based on the following assumptions:

Sales growth in the "second-stage" period 2017-23E of 5.0% (sustainable organic

growth, as we determined above). Global demand drivers, which are structural in

coffee and kitchen businesses, should remain at work.

EBIT margin expanding from 13.0% of 2016E up to 14.0% of 2019E, then stable for

the following years. Operating leverage is set to gradually increase, along with

progressive insourcing at the Romanian plant.

Cash flow long-term CAGR lifted from 7% to 8% (on D&A and WC fine-tuning).

Capex above the maintenance level, currently indicated at EUR40-50m by the

company. We assume capex at 3% of sales over 2014-23E.

WACC of 9.0% - from previous 10% – intended just as a cost of equity, based on

slightly squeezed risk free and risk premiums, both at 4.5%, reflecting Italy’s

generally increasing appeal (lower risk perceived).

Our DCF valuation yields EUR16.50 per share, which is our new TP (up from EUR13.50).

Table 15: De Longhi - DCF model

EURm 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E TV

Sales 1,755 1,875 1,998 2,098 2,203 2,313 2,429 2,550 2,678 2,811 Growth % 7.5% 6.8% 6.6% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% EBIT 207 232 261 280 302 324 340 357 375 394 Margin % 11.8% 12.4% 13.0% 13.4% 13.7% 14.0% 14.0% 14.0% 14.0% 14.0% Taxes -52 -58 -65 -70 -75 -81 -85 -89 -94 -99 NOPAT 155 174 195 210 226 243 255 268 281 296 Change in WC -25 -35 -36 -31 -32 -33 -34 -36 -37 -39 Depreciation 44 46 47 49 50 52 53 62 71 80 Capex -50 -53 -57 -60 -63 -66 -69 -73 -76 -80

Net cash flow 124 131 150 168 182 196 205 222 239 256 3,176 Time factor 0.8 1.8 2.8 3.8 4.8 5.8 6.8 7.8 8.8 9.8 Present value 116 113 118 122 121 119 115 114 112 111 1,371 WACC 9.0% 9.0% 9.0% 9.0% 9.0% 9.0% 9.0% 9.0% 9.0% 9.0% Perpetual growth rate 1%

Share value derived from: WACC derived from: Enterprise value 2,531 Interest costs, pre-tax 6.0% thereof terminal value 54% Tax rate 27.5% Net debt at year start (incl. PP) 65 Interest costs, after taxes 4.4% Equity value 2,467 Required ROE 9.0% Shares outstanding (m) 150 Risk premium 4.5% Risk-free 4.5% Share value (EUR) 16.50 Beta 1.0


DCF yields EUR16.50, our new TP (EUR13.50)



Peer comparison (versus SEB)

The only direct listed peer for De Longhi is French Groupe SEB.

Current multiples suggest De Longhi is widening its premium above historical average, at

least on EV multiples.

Table 16: De Longhi versus SEB

EV/Sales EV/EBITDA P/E 2014E 2015E 11-13 avg 2014E 2015E 11-13 avg 2014E 2015E 11-13 avg

De Longhi 1.22 1.11 0.99 8.4 7.4 6.8 16.9 14.6 14.6 SEB 0.88 0.82 0.96 7.6 6.6 7.2 15.9 13.0 13.0 DLG/SEB 38% 35% 4% 11% 12% -5% 6% 12% 12%

Source: Kepler Cheuvreux

Same indications we obtain putting valuations into historical perspective. De Longhi went

through a clear relative re-rating versus SEB in the period running from the beginning of

2012 (when the spinoff of the professional business took effect) to the start of 2013 (when

fears about European recession and slower the expected integration of Braun started

undermining the stock’s performance). Currently, De Longhi is re-rating again, due to SEB’s

weak performance connected with higher than expected currency headwinds.

The two following charts show this comparison in terms of relative EV/EBITDA and P/E

NTM for 2009-14.

Chart 19: De Longhi versus SEB, EV/EBITDA 2009-14

Source: FactSet

2

4

6

8

10

12

14

De'Longhi S.p.A. (DLG-IT)

DLG-IT 7169517 Milan Com mon stock

06-Mar-2009 to 05-Mar-2014 (Weekly) Average: 6.7 High: 11.9 Low: 3.3 Latest: 9 .7

Enterprise Value to EBITDA Average

'09 '10 '11 '12 '130,4

0,6

0,8

1

1,2

1,4

1,6

1,8

©FactSet Research SystemsData Source: FactSet Fundamentals,

Average: 0.97 High: 1.68 Low: 0.54 Latest: 1.30

Enterprise Value to EBITDA - Relative to SEB SA Average

Relative valuation: De Longhi is rerating again

Currently at premium to SEB



Chart 20: De Longhi versus SEB, P/E NTM 2009-14

Source: FactSet

4

6

8

10

12

14

16

18

De'Longhi S.p.A. (DLG-IT)

DLG-IT 7169517 Milan Com mon stock

06-Mar-2009 to 05-Mar-2014 (Weekly) Average: 11.2 High: 16.5 Low: 5.8 Latest: 15.7

Price to Earnings - NTM Average

'09 '10 '11 '12 '130,6

0,7

0,8

0,9

1

1,1

1,2

1,3

1,4

1,5

1,6

©FactSet Research SystemsData Source: FactSet Estimates ,

Average: 0.94 High: 1.52 Low: 0.65 Latest: 1.13

Price to Earnings - NTM - Relative to SEB SA Average



Valuation

FY to 31/12 (EUR) 2010 2011 2012 2013E 2014E 2015E

Per share data EPS adjusted high 0.63 0.82 0.74 0.85 0.99 % Change high 30.5% -9.9% 15.0% 15.4% EPS adjusted and fully diluted 0.63 0.82 0.74 0.85 0.99 % Change 30.5% -9.9% 15.0% 15.4% EPS reported high 0.60 0.79 0.73 0.85 0.98 % Change high 30.7% -7.0% 15.2% 15.5% EPS Consensus 0.75 0.87 0.99 Cash flow per share high 0.34 0.99 0.78 0.98 1.05 Book value per share 4.00 4.23 4.67 5.25 5.91

DPS 0.15 0.33 0.29 0.27 0.31 0.36 Number of shares, YE (m) 0.0 149.5 149.5 149.5 149.5 149.5 Number of shares, fully diluted, YE (m) 0.0 149.5 149.5 149.5 149.5 149.5 Share price Latest price / year end 5.9 6.8 10.9 11.9 14.4 14.4 52 week high (Year high) 6.1 9.3 11.3 13.0 52 week low (Year low) 2.8 5.8 6.3 10.8 Average price (Year) 3.7 7.5 9.2 11.9 Enterprise value (EURm)

Market capitalisation 0.0 1,121.9 1,373.7 1,786.4 2,155.8 2,155.8 Net financial debt -208.5 -117.4 92.9 43.7 -11.9 -69.5 Pension provisions 0.0 -15.5 -20.6 -21.0 -21.8 -22.6 Market value of minorities 3.7 4.8 9.2 10.4 11.2 Market value of equity affiliates (net of tax)

0.0 0.0 0.0 0.0 0.0 0.0

Others 0.0 0.0 0.0 0.0 0.0 0.0 Enterprise value 992.7 1,450.9 2,187.6 2,132.4 2,074.8 Valuation P/E adjusted 0.0 11.9 11.1 19.4 16.9 14.6 P/E adjusted and fully diluted 11.9 11.1 19.4 16.9 14.6 P/E consensus 19.2 16.6 14.6

P/BV 1.9 2.2 3.1 2.7 2.4 P/CF 0.0 21.8 9.3 18.4 14.8 13.7 Dividend yield (%) 3.9% 4.4% 3.2% 1.9% 2.2% 2.5% FCF yield (%) 0.9% 6.2% 2.9% 4.5% 4.9% ROE (%) 31.5% 20.0% 16.6% 17.2% 17.6% ROIC (%) 43.9% 19.8% 15.8% 17.0% 18.1% EV/Sales 0.69 0.95 1.34 1.22 1.11 EV/EBITDA 4.7 6.2 9.5 8.4 7.4 EV/EBIT 5.6 7.4 11.7 10.2 8.9



Income statement

FY to 31/12 (EURm) 2010 2011 2012 2013E 2014E 2015E

Sales 1,281.4 1,429.4 1,530.1 1,633.0 1,755.0 1,874.9 % Change na 11.6% 7.0% 6.7% 7.5% 6.8% EBITDA reported 166.6 203.4 224.6 228.0 250.9 277.7 % Change na 22.1% 10.4% 1.5% 10.1% 10.7% Depreciation and amortisation -29.7 -30.7 -35.6 -42.5 -44.0 -45.5 Goodwill impairment -1.5 -0.2 0.0 0.0 0.0 0.0 Other financial result and associates 0.0 0.0 0.0 0.0 0.0 0.0 EBIT reported 135.5 172.5 189.0 185.5 206.9 232.2

% Change na 27.3% 9.6% -1.8% 11.5% 12.2% Net financial items -29.9 -33.7 -34.9 -38.2 -37.3 -36.4 Associates 6.0 0.0 0.0 0.0 0.0 0.0 Others 0.0 0.0 0.0 0.0 0.0 0.0 Earnings before tax 111.6 138.8 154.0 147.3 169.6 195.9 % Change na 24.4% 11.0% -4.4% 15.1% 15.5% Tax -31.3 -44.4 -35.6 -36.8 -42.4 -49.0 Net profit from continuing operations 80.3 94.4 118.5 110.5 127.2 146.9

% Change na 17.6% 25.4% -6.7% 15.1% 15.5% Net profit from discontinuing activities -5.2 -3.9 0.0 0.0 0.0 0.0 Net profit before minorities 75.1 90.5 118.5 110.5 127.2 146.9 Minorities -0.2 -0.3 -0.5 -0.8 -0.8 -0.8 Net profit reported 74.9 90.2 118.0 109.7 126.4 146.1 % Change na 20.5% 30.7% -7.0% 15.2% 15.5% Adjustments 2.0 4.2 5.3 1.4 1.4 1.4 Net profit adjusted 77.0 94.5 123.3 111.1 127.8 147.4 % Change na 22.8% 30.5% -9.9% 15.0% 15.4%

Gross profit 609.0 687.1 735.3 788.0 848.7 908.5 EBITDA adjusted 169.6 209.6 232.3 230.0 252.9 279.7 EBIT adjusted 138.4 178.7 196.7 187.5 208.9 234.2 Gross profit margin (%) 47.5% 48.1% 48.1% 48.3% 48.4% 48.5% EBITDA margin (%) 13.2% 14.7% 15.2% 14.1% 14.4% 14.9% EBIT margin (%) 10.8% 12.5% 12.9% 11.5% 11.9% 12.5% Net profit margin (%) 6.0% 6.6% 8.1% 6.8% 7.3% 7.9% Tax rate (%) 28.0% 32.0% 23.1% 25.0% 25.0% 25.0% Payout ratio (%) na 29.1% 54.7% 36.7% 36.7% 36.7%

EPS reported (EUR) high 0.60 0.79 0.73 0.85 0.98 % change na high 30.7% -7.0% 15.2% 15.5% EPS adjusted (EUR) high 0.63 0.82 0.74 0.85 0.99 % change na high 30.5% -9.9% 15.0% 15.4% EPS adj and fully diluted(EUR) na 0.63 0.82 0.74 0.85 0.99 % change na na 30.5% -9.9% 15.0% 15.4% DPS (EUR) 0.15 0.33 0.29 0.27 0.31 0.36 % change na 126.0% -12.1% -7.0% 15.2% 15.5% Consensus Sales (EURm) 1,633.0 1,744.3 1,893.0 Consensus EBITDA (EURm) 230.3 251.0 275.3

Consensus EBIT (EURm) 186.0 209.0 232.7 Consensus EPS (EUR) 0.75 0.87 0.99 Consensus DPS (EUR) 0.29 0.33 0.38



Cash flow statement

FY to 31/12 (EURm) 2010 2011 2012 2013E 2014E 2015E

Net profit before minorities 75.1 90.5 118.5 110.5 127.2 146.9 Depreciation and amortisation 29.7 30.7 35.6 42.5 44.0 45.5 Goodwill impairment 1.5 0.2 0.0 0.0 0.0 0.0 Change in working capital 0.0 -70.0 -6.2 -36.0 -25.3 -34.9 Others 0.0 0.0 0.0 0.0 0.0 0.0 Cash Flow from operating activities 106.3 51.5 147.8 117.0 145.9 157.5 % Change na -51.6% 187.3% -20.8% 24.7% 7.9% Capex 0.0 -41.5 -62.3 -55.0 -50.0 -53.4

Free cash flow 106.3 10.0 85.5 62.0 95.9 104.1 % Change na -90.6% 755.4% -27.5% 54.6% 8.5% Acquisitions 0.0 0.0 -140.0 0.0 0.0 0.0 Divestments 0.0 0.0 0.0 0.0 0.0 0.0 Dividend paid 0.0 -21.8 -49.3 -43.4 -40.3 -46.5 Share buy back 0.0 0.0 0.0 0.0 0.0 0.0 Capital increases 0.0 0.0 0.0 0.0 0.0 0.0 Others 0.0 -79.3 -106.5 30.6 0.0 0.0 Change in net financial debt 106.3 -91.1 -210.3 49.3 55.6 57.6 Change in cash and cash equivalents na -118.4 30.6 -35.3 55.6 57.6

Attributable FCF na 10.0 85.8 62.3 96.4 104.6 Cash flow per share (EUR) high 0.34 0.99 0.78 0.98 1.05 % Change na high 187.3% -20.8% 24.7% 7.9% FCF per share (EUR) na 0.07 0.57 0.42 0.64 0.70 % Change na na 755.6% -27.4% 54.7% 8.6% Capex / Sales (%) 0.0% 2.9% 4.1% 3.4% 2.8% 2.8% Capex / D&A (%) 0.0% 135.1% 175.2% 129.4% 113.6% 117.4% Cash flow / Sales (%) 8.3% 3.6% 9.7% 7.2% 8.3% 8.4%

FCF / Sales (%) 8.3% 0.7% 5.6% 3.8% 5.5% 5.6% FCF Yield (%) na 0.9% 6.2% 2.9% 4.5% 4.9% Unlevered FCF Yield (%) na 2.5% 7.3% 3.7% 5.5% 6.1%



Balance sheet

FY to 31/12 (EURm) 2010 2011 2012 2013E 2014E 2015E

Cash and cash equivalents 347.9 229.5 260.1 224.8 280.4 338.0 Inventories 0.0 278.0 273.8 317.6 341.3 364.6 Accounts receivable 0.0 349.5 381.2 399.3 429.1 458.4 Other current assets 0.0 -22.9 -23.3 -18.8 -13.5 1.7 Current assets 347.9 834.1 891.8 922.8 1,037.2 1,162.7 Tangible assets 0.0 109.1 158.6 172.6 180.6 190.5 Goodwill 0.0 41.6 115.6 85.0 85.0 85.0 Other Intangible assets 0.0 134.2 249.0 247.5 245.5 243.5

Financial assets 0.0 0.7 0.7 0.7 0.7 0.7 Other non-current assets 0.0 0.0 0.0 0.0 0.0 0.0 Non-current assets 0.0 285.5 523.9 505.9 511.9 519.8 Short term debt 79.9 61.0 115.3 70.0 70.0 70.0 Accounts payable 0.0 330.8 351.7 377.9 406.1 433.9 Other short term liabilities 0.0 0.0 0.0 0.0 0.0 0.0 Current liabilities 79.9 391.7 467.1 447.9 476.1 503.9 Long term debt 59.5 51.1 237.7 198.5 198.5 198.5 Pension provisions 0.0 -15.5 -20.6 -21.0 -21.8 -22.6 Other long term provisions 0.0 -61.5 -56.3 -60.1 -64.6 -69.0 Other long term liabilities 0.0 0.0 0.0 0.0 0.0 0.0

Non-current liabilities 59.5 -25.9 160.7 117.3 112.0 106.8 Shareholders' equity 0.0 597.8 631.8 698.2 784.3 883.9 Minority interests 0.0 2.0 2.2 3.0 3.8 4.6 Total equity 0.0 599.8 634.0 701.2 788.0 888.5 Balance sheet total 139.4 965.5 1,261.8 1,266.3 1,376.1 1,499.2 % Change na 592.9% 30.7% 0.4% 8.7% 8.9% Book value per share (EUR) na 4.00 4.23 4.67 5.25 5.91 % Change na na 5.7% 10.5% 12.3% 12.7%

Net debt -208.5 -132.9 72.3 22.6 -33.7 -92.1 Net financial debt -208.5 -117.4 92.9 43.7 -11.9 -69.5 Trade working capital 0.0 296.7 303.3 339.0 364.3 389.2 Working capital 0.0 273.8 280.0 320.1 350.7 390.8 Inventories/sales 0.0% 19.4% 17.9% 19.4% 19.4% 19.4% Invested capital 0.0 558.7 803.2 825.3 861.9 909.9 Net debt / EBITDA (x) -1.2 -0.6 0.3 0.1 -0.1 -0.3 Net debt / FCF (x) -2.0 na 0.8 0.4 -0.4 -0.9 Gearing (%) na -19.6% 14.7% 6.2% -1.5% -7.8% Goodwill / Equity (%) na 6.9% 18.2% 12.1% 10.8% 9.6%



Divisions and regions

FY to 31/12 (EUR) 2010 2011 2012 2013E 2014E 2015E

Key assumptions De Longhi stand-alone sales 1,530.1 1,488.0 1,555.0 1,624.9

De Longhi stand-alone sales growth 0.1 0.0 0.0 0.0 Braun sales 0.0 145.0 200.0 250.0 Braun sales growth 0.0 -0.2 0.4 0.3 De Longhi stand-alone EBITDA 232.3 222.8 235.9 249.7 De Longhi stand-alone EBITDA growth 0.2 0.1 0.2 0.2 Braun EBITDA 0.0 7.3 17.0 30.0 Braun EBITDA growth 0.0 0.1 0.1 0.1 Sales by division Coffee 420.3 537.5 596.7 581.3 624.8 667.5 Kitchen 493.3 518.9 567.7 702.2 754.6 806.2 Conditioning & Heating 233.2 247.3 240.2 204.1 219.4 234.4 Ironing & Cleaning 106.4 92.9 85.7 98.0 105.3 112.5

Other 28.2 32.9 39.8 47.4 50.9 54.4 EBIT by division EBIT margin (%) Geographic breakdown of sales, adjusted (%) Eurozone 43.3% 42.5% 39.8% 42.3% 41.9% 41.2% of which Germany 11.0% 12.0% 12.2% 13.0% 12.9% 12.7% of which Italy 13.2% 12.3% 11.2% 12.0% 11.9% 11.7% of which Others 19.1% 18.2% 16.4% 17.3% 17.0% 16.7% Europe ex Eurozone 24.8% 25.1% 24.5% 23.6% 22.3% 22.0%

of which Russia 7.4% 7.8% 7.7% 7.0% 5.7% 5.7% North America 7.4% 7.1% 7.5% 7.0% 6.8% 6.8% Asia 16.5% 19.7% 22.7% 19.2% 29.0% 30.0% of which Japan 3.6% 4.0% 4.9% 2.0% 1.9% 1.8% Middle East 7.7% 5.3% 5.3% 7.6% 0.0% 0.0% Currency exposure of sales (%) EUR 43.3% 42.5% 39.8% 42.3% 41.9% 41.2% USD 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% GBP 8.6% 8.4% 8.2% 7.5% 7.7% 7.6% JPY 3.6% 4.0% 4.9% 2.0% 1.9% 1.8%

Hedging policy Exstensive hedging of currency (mostly USD), raw materials (steel, plastic and copper) and interest rates.



Research ratings and important disclosures Disclosure checklist - Potential conflict of interests Stock ISIN Disclosure (See Below) Currency Price

De Longhi IT0003115950 nothing to disclose EUR 14.42

Philips NL0000009538 nothing to disclose EUR 25.12

SEB FR0000121709 nothing to disclose EUR 58.84

Source: Factset closing prices of 05/03/2014 Stock prices: Prices are taken as of the previous day’s close (to the date of this report) on the home market unless otherwise stated.

Key:

Kepler Capital Markets SA (KCM) holds or owns or controls 100% of the issued shares of Crédit Agricole Cheuvreux SA (CA Cheuvreux), collectively hereafter KEPLER CHEUVREUX .

1. KEPLER CHEUVREUX holds or owns or controls 5% or more of the issued share capital of this company; 2. The company holds or owns or controls 5% or more of the issued share capital of Kepler Capital Markets SA; 3. KEPLER CHEUVREUX is or may be regularly carrying out proprietary trading in equity securities of this company; 4. KEPLER CHEUVREUX has been lead manager or co-lead manager in a public offering of the issuer’s financial instruments during the last twelve months; 5. KEPLER CHEUVREUX is a market maker in the issuer’s financial instruments; 6. KEPLER CHEUVREUX is a liquidity provider in relation to price stabilisation activities for the issuer to provide liquidity in such instruments; 7. KEPLER CHEUVREUX acts as a corporate broker or a sponsor or a sponsor specialist (in accordance with the local regulations) to this company; 8. KEPLER CHEUVREUX and the issuer have agreed that KEPLER CHEUVREUX will produce and disseminate investment research on the said issuer as a service to the issuer; 9. KEPLER CHEUVREUX has received compensation from this company for the provision of investment banking or financial advisory services within the previous twelve months; 10. KEPLER CHEUVREUX may expect to receive or intend to seek compensation for investment banking services from this company in the next three months; 11. The author of, or an individual who assisted in the preparation of, this report (or a member of his/her household), or a person who although not involved in the preparation of the report had or could reasonably be expected to have access to the substance of the report prior to its dissemination has a direct ownership position in securities issued by this company; 12. An employee of KEPLER CHEUVREUX serves on the board of directors of this company; 13. As at the end of the month immediately preceding the date of publication of the research report Kepler Capital Markets, Inc. beneficially owned 1% or more of a class of common equity securities of the subject company; 14. KEPLER CHEUVREUX and UniCredit Bank AG have entered into a Co-operation Agreement to form a strategic alliance in connection with certain services including services connected to investment banking transactions. UniCredit Bank AG provides investment banking services to this issuer in return for which UniCredit Bank AG received consideration or a promise of consideration. Separately, through the Co-operation Agreement with UniCredit Bank AG for services provided by KEPLER CHEUVREUX in connection with such activities, KEPLER CHEUVREUX also received consideration or a promise of a consideration in accordance with the general terms of the Co-operation Agreement; 15. KEPLER CHEUVREUX and Crédit Agricole Corporate & Investment Bank (“CACIB”) have entered into a Co-operation Agreement to form a strategic alliance in connection with certain services including services connected to investment banking transactions. CACIB provides investment banking services to this issuer in return for which CACIB received consideration or a promise of consideration. Separately, through the Co-operation Agreement with CACIB for services provided by KEPLER CHEUVREUX in connection with such activities, KEPLER CHEUVREUX also received consideration or a promise of a consideration in accordance with the general terms of the Co-operation Agreement; 16. UniCredit Bank AG holds or owns or controls 5% or more of the issued share capital of KEPLER CAPITAL MARKETS SA. UniCredit Bank AG provides investment banking services to this issuer in return for which UniCredit Bank AG received consideration or a promise of consideration; 17. CACIB holds or owns or controls 15% of more of the issued share capital of KEPLER CAPITAL MARKETS SA. CACIB provides investment banking services to this issuer in return for which CACIB received consideration or a promise of consideration; 18. An employee of UniCredit Bank AG serves on the board of directors of KEPLER CAPITAL MARKETS SA; 19. Two employees of CACIB serve on the board of directors of KEPLER CAPITAL MARKETS SA. CACIB provides investment banking services to this issuer in return for which CACIB received consideration or a p romise of consideration; 20. The services provided by KEPLER CHEUVREUX are provided by Kepler Equities S.A.S., a wholly-owned subsidiary of KEPLER CAPITAL MARKETS SA.

Rating history:

KEPLER CHEUVREUX current rating for De Longhi is Buy and was issued on 08/05/2013. The preceding rating was Hold and was issued on 13/11/2012,

We did not disclose the rating to the issuer before publication and dissemination of this document.

Rating ratio Kepler Cheuvreux Q4 2013 Rating breakdown A B Buy 45.5% 0.0% Hold 29.0% 0.0% Reduce 21.0% 0.0% Not Rated/Under Review/Accept Offer 4.5% 0.0% Total 100.0% 0.0% Source: Kepler Cheuvreux A: % of all research recommendations B: % of issuers to which Investment Banking Services are supplied

From 9 May 2006, KEPLER CHEUVREUX’s rating system consists of three ratings: Buy, Hold and Reduce. For a Buy rating, the minimum expected upside is 10% in absolute terms over 12 months. For a Hold rating the expected upside is below 10% in absolute terms. A Reduce rating is applied when there is expected downside on the stock. Target prices are set on all stocks under coverage, based on a 12-month view. Equity ratings and valuations are issued in absolute terms, not relative to any given benchmark.

Analyst disclosures The functional job title of the person(s) responsible for the recommendations contained in this report is Equity Research Analyst unless otherwise stated on the cover.

Name of the Equity Research Analyst(s): Giorgio Iannella

Regulation AC - Analyst Certification: Each Equity Research Analyst(s) listed on the front-page of this report, principally responsible for the preparation and content of all or any identified portion of this research report hereby certifies that, with respect to each issuer or security or any identified portion of the report with respect to an issuer or security that the equity research analyst covers in this research report, all of the views expressed in this research report accurately reflect their personal views about those issuer(s) or securities. Each Equity Research Analyst(s) also certifies that no part of their compensation was, is, or will be, directly or indirectly, related to the specific recommendation(s) or view(s) expressed by that equity research analyst in this research report.

Each Equity Research Analyst certifies that he is acting independently and impartially from KEPLER CHEUVREUX shareholders, directors and is not affected by any current or potential conflict of interest that may arise from any KEPLER CHEUVREUX activities.

Analyst Compensation: The research analyst(s) primarily responsible for the preparation of the content of the research report attest that no part of the analyst’s(s’) compensation was, is or will be, directly or indirectly, related to the specific recommendations expressed by the research analyst(s) in the research report. The research analyst’s(s’) compensation is, however, determined by the overall economic performance of KEPLER CHEUVREUX.



Registration of non-US Analysts: Unless otherwise noted, the non-US analysts listed on the front of this report are employees of KEPLER CHEUVREUX, which is a non-US affiliate and parent company of Kepler Capital Markets, Inc. a SEC registered and FINRA member broker-dealer. Equity Research Analysts employed by KEPLER CHEUVREUX, are not registered/qualified as research analysts under FINRA/NYSE rules, may not be associated persons of Kepler Capital Markets, Inc. and may not be subject to NASD Rule 2711 and NYSE Rule 472 restrictions on communications with covered companies, public appearances, and trading securities held by a research analyst account.

Please refer to www.keplercheuvreux.com for further information relating to research and conflict of interest management.

Regulators Location Regulator Abbreviation

Kepler Capital Markets S.A - France Autorité des Marchés Financiers AMF

Kepler Capital Markets, Sucursal en España Comisión Nacional del Mercado de Valores CNMV

Kepler Capital Markets, Frankfurt branch Bundesanstalt für Finanzdienstleistungsaufsicht BaFin

Kepler Capital Markets, Milan branch Commissione Nazionale per le Società e la Borsa CONSOB

Kepler Capital Markets, Amsterdam branch Autoriteit Financiële Markten AFM

Kepler Capital Markets, Zurich branch Swiss Financial Market Supervisory Authority FINMA

Kepler Capital Markets, Inc. Financial Industry Regulatory Authority FINRA

Kepler Capital Markets, London branch Financial Conduct Authority FCA

Kepler Capital Markets, Vienna branch Austrian Financial Services Authority FMA

Crédit Agricole Cheuvreux, SA - France Autorité des Marchés Financiers AMF

Crédit Agricole Cheuvreux España S.V Comisión Nacional del Mercado de Valores CNMV

Crédit Agricole Cheuvreux Niederlassung Deutschland Bundesanstalt für Finanzdienstleistungsaufsicht BaFin

Crédit Agricole Cheuvreux S.A., branch di Milano Commissione Nazionale per le Società e la Borsa CONSOB

Crédit Agricole Cheuvreux Amsterdam Autoriteit Financiële Markten AFM

Crédit Agricole Cheuvreux Zurich Branch Swiss Financial Market Supervisory Authority FINMA

Crédit Agricole Cheuvreux North America, Inc. Financial Industry Regulatory Authority FINRA

Crédit Agricole Cheuvreux International Limited Financial Conduct Authority FCA

Crédit Agricole Cheuvreux Nordic AB Finansinspektionen FI

Kepler Capital Markets S.A and Crédit Agricole Cheuvreux SA, are authorised and regulated by both Autorité de Contrôle Prudentiel and Autorité des Marchés Financiers.

For further information relating to research recommendations and conflict of interest management please refer to www.keplercheuvreux.com..



Legal and disclosure information Other disclosures

This product is not for retail clients or private individuals.

The information contained in this publication was obtained from various publicly available sources believed to be reliable, but has not been independently verified by KEPLER CHEUVREUX. KEPLER CHEUVREUX does not warrant the completeness or accuracy of such information and does not accept any liability with respect to the accuracy or completeness of such information, except to the extent required by applicable law.

This publication is a brief summary and does not purport to contain all available information on the subjects covered. Further information may be available on request. This report may not be reproduced for further publication unless the source is quoted.

This publication is for information purposes only and shall not be construed as an offer or solicitation for the subscription or purchase or sale of any securities, or as an invitation, inducement or intermediation for the sale, subscription or purchase of any securities, or for engaging in any other transaction. This publication is not for private individuals.

Any opinions, projections, forecasts or estimates in this report are those of the author only, who has acted with a high degree of expertise. They reflect only the current views of the author at the date of this report and are subject to change without notice. KEPLER CHEUVREUX has no obligation to update, modify or amend this publication or to otherwise notify a reader or recipient of this publication in the event that any matter, opinion, projection, forecast or estimate contained herein, changes or subsequently becomes inaccurate, or if research on the subject company is withdrawn. The analysis, opinions, projections, forecasts and estimates expressed in this report were in no way affected or influenced by the issuer. The author of this publication benefits financially from the overall success of KEPLER CHEUVREUX.

The investments referred to in this publication may not be suitable for all recipients. Recipients are urged to base their investment decisions upon their own appropriate investigations that they deem necessary. Any loss or other consequence arising from the use of the material contained in this publication shall be the sole and exclusive responsibility of the investor and KEPLER CHEUVREUX accepts no liability for any such loss or consequence. In the event of any doubt about any investment, recipients should contact their own investment, legal and/or tax advisers to seek advice regarding the appropriateness of investing. Some of the investments mentioned in this publication may not be readily liquid investments. Consequently it may be difficult to sell or realise such investments. The past is not necessarily a guide to future performance of an investment. The value of investments and the income derived from them may fall as well as rise and investors may not get back the amount invested. Some investments discussed in this publication may have a high level of volatility. High volatility investments may experience sudden and large falls in their value which may cause losses. International investing includes risks related to political and economic uncertainties of foreign countries, as well as currency risk.

To the extent permitted by applicable law, no liability whatsoever is accepted for any direct or consequential loss, damages, costs or prejudices whatsoever arising from the use of this publication or its contents.

KEPLER CHEUVREUX (and its affiliates) have implemented written procedures designed to identify and manage potential conflicts of interest that arise in connection with its research business, which are available upon request. The KEPLER CHEUVREUX research analysts and other staff involved in issuing and disseminating research reports operate independently of KEPLER CHEUVREUX Investment Banking business. Information barriers and procedures are in place between the research analysts and staff involved in securities trading for the account of KEPLER CHEUVREUX or clients to ensure that price sensitive information is handled according to applicable laws and regulations.

Country and region disclosures

United Kingdom: This document is for persons who are Eligible Counterparties or Professional Clients only and is exempt from the general restriction in section 21 of the Financial Services and Markets Act 2000 on the communication of invitations or inducements to engage in investment activity on the grounds that it is being distributed in the United Kingdom only to persons of a kind described in Articles 19(5) (Investment professionals) and 49(2) (High net worth companies, unincorporated associations, etc.) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (as amended). It is not intended to be distributed or passed on, directly or indirectly, to any other class of persons. Any investment to which this document relates is available only to such persons, and other classes of person should not rely on this document.

United States: This communication is only intended for, and will only be distributed to, persons residing in any jurisdictions where such distribution or availability would not be contrary to local law or regulation. This communication must not be acted upon or relied on by persons in any jurisdiction other than in accordance with local law or regulation and where such person is an investment professional with the requisite sophistication to understand an investment in such securities of the type communicated and assume the risks associated therewith.

This communication is confidential and is intended solely for the addressee. It is not to be forwarded to any other person or copied without the permission of the sender. This communication is provided for information only. It is not a personal recommendation or an offer to sell or a solicitation to buy the securities mentioned. Investors should obtain independent professional advice before making an investment.

Notice to U.S. Investors: This material is not for distribution in the United States, except to “major US institutional investors” as defined in SEC Rule 15a-6 ("Rule 15a-6"). Kepler Cheuvreux refers to Kepler Capital Markets, Société anonyme (S.A.) (“Kepler Capital Markets SA”) and its affiliates, including CA Cheuvreux, Société Anonyme (S.A.). Kepler Capital Markets SA has entered into a 15a-6 Agreement with Kepler Capital Markets, Inc. ("KCM, Inc.”) which enables this report to be furnished to certain U.S. recipients in reliance on Rule 15a-6 through KCM, Inc.

Each U.S. recipient of this report represents and agrees, by virtue of its acceptance thereof, that it is a "major U.S. institutional investor" (as such term is defined in Rule 15a-6) and that it understands the risks involved in executing transactions in such securities. Any U.S. recipient of this report that wishes to discuss or receive additional information regarding any security or issuer mentioned herein, or engage in any transaction to purchase or sell or solicit or offer the purchase or sale of such securities, should contact a registered representative of KCM, Inc.

KCM, Inc. is a broker-dealer registered with the Securities and Exchange Commission (“SEC”) under the U.S. Securities Exchange Act of 1934, as amended, Member of the Financial Industry Regulatory Authority (“FINRA”) and Member of the Securities Investor Protection Corporation (“SIPC”). Pursuant to SEC Rule 15a-6, you must contact a Registered Representative of KCM, Inc. if you are seeking to execute a transaction in the securities discussed in this report. You can reach KCM, Inc. at 600 Lexington Avenue, New York, NY 10022, Compliance Department (212) 710-7625; Operations Department (212) 710-7606; Trading Desk (212) 710-7602. Further information is also available at www.keplercapitalmarkets.com. You may obtain information about SIPC, including the SIPC brochure, by contacting SIPC directly at 202-371-8300; website: http://www.sipc.org/

KCM, Inc. is a wholly owned subsidiary of Kepler Capital Markets SA. Kepler Capital Markets SA, registered on the Paris Register of Companies with the number 413 064 841 (1997 B 10253), whose registered office is located at 112 avenue Kléber, 75016 Paris, is authorised and regulated by both Autorité de Contrôle Prudentiel (ACP) and Autorité des Marchés Financiers (AMF).

Nothing herein excludes or restricts any duty or liability to a customer that KCM, Inc. may have under applicable law. Investment products provided by or through KCM, Inc. are not insured by the Federal Deposit Insurance Corporation and are not deposits or other obligations of any insured depository institution, may lose value and are not guaranteed by the entity that published the research as disclosed on the front page and are not guaranteed by KCM, Inc.

Investing in non-U.S. Securities may entail certain risks. The securities referred to in this report and non-U.S. issuers may not be registered under the U.S. Securities Act of 1933, as amended, and the issuer of such securities may not be subject to U.S. reporting and/or other requirements. Rule 144A securities may

http://www.keplercapitalmarkets.com/



be offered or sold only to persons in the U.S. who are Qualified Institutional Buyers within the meaning of Rule 144A under the Securities Act. The information available about non-U.S. companies may be limited, and non-U.S. companies are generally not subject to the same uniform auditing and reporting standards as U.S. companies. Securities of some non-U.S. companies may not be as liquid as securities of comparable U.S. companies. Securities discussed herein may be rated below investment grade and should therefore only be considered for inclusion in accounts qualified for speculative investment.

Analysts employed by Kepler Capital Markets SA, a non-U.S. broker-dealer, are not required to take the FINRA analyst exam. The information contained in this report is intended solely for certain "major U.S. institutional investors" and may not be used or relied upon by any other person for any purpose. Such information is provided for informational purposes only and does not constitute a solicitation to buy or an offer to sell any securities under the Securities Act of 1933, as amended, or under any other U.S. federal or state securities laws, rules or regulations. The investment opportunities discussed in this report may be unsuitable for certain investors depending on their specific investment objectives, risk tolerance and financial position.

In jurisdictions where KCM, Inc. is not registered or licensed to trade in securities, or other financial products, transactions may be executed only in accordance with applicable law and legislation, which may vary from jurisdiction to jurisdiction and which may require that a transaction be made in accordance with applicable exemptions from registration or licensing requirements.

The information in this publication is based on sources believed to be reliable, but KCM, Inc. does not make any representation with respect to its completeness or accuracy. All opinions expressed herein reflect the author's judgment at the original time of publication, without regard to the date on which you may receive such information, and are subject to change without notice.

KCM, Inc. and/or its affiliates may have issued other reports that are inconsistent with, and reach different conclusions from, the information presented in this report. These publications reflect the different assumptions, views and analytical methods of the analysts who prepared them. Past performance should not be taken as an indication or guarantee of future performance, and no representation or warranty, express or implied, is provided in relation to future performance.

KCM, Inc. and any company affiliated with it may, with respect to any securities discussed herein: (a) take a long or short position and buy or sell such securities; (b) act as investment and/or commercial bankers for issuers of such securities; (c) act as market makers for such securities; (d) serve on the board of any issuer of such securities; and (e) act as paid consultant or advisor to any issuer. The information contained herein may include forward-looking statements within the meaning of U.S. federal securities laws that are subject to risks and uncertainties. Factors that could cause a company's actual results and financial condition to differ from expectations include, without limitation: political uncertainty, changes in general economic conditions that adversely affect the level of demand for the company's products or services, changes in foreign exchange markets, changes in international and domestic financial markets and in the competitive environment, and other factors relating to the foregoing. All forward-looking statements contained in this report are qualified in their entirety by this cautionary statement.

France: This publication is issued and distributed in accordance with Articles L.544-1 and seq and R. 621-30-1 of the Code Monétaire et Financier and with Articles 313-25 to 313-27 and 315-1 and seq of the General Regulation of the Autorité des Marchés Financiers (AMF).

Germany: This report must not be distributed to persons who are retail clients in the meaning of Sec. 31a para. 3 of the German Securities Trading Act (Wertpapierhandelsgesetz – “WpHG”). This report may be amended, supplemented or updated in such manner and as frequently as the author deems.

Italy: This document is issued by Kepler Capital Markets, Milan branch and Crédit Agricole Cheuvreux S.A., branch di Milano, authorised in France by the Autorité des Marchés Financiers (AMF) and the Autorité de Contrôle Prudentiel (ACP) and registered in Italy by the Commissione Nazionale per le Società e la Borsa (CONSOB) and is distributed by Kepler Capital Markets S.A and Crédit Agricole Cheuvreux, Société Anonyme (S.A.), authorised in France by the AMF and the ACP and registered in Italy by CONSOB. This document is for Eligible Counterparties or Professional Clients only as defined by the CONSOB Regulation 16190/2007 (art. 26 and art. 58).Other classes of persons should not rely on this document. Reports on issuers of financial instruments listed by Article 180, paragraph 1, letter a) of the Italian Consolidated Act on Financial Services (Legislative Decree No. 58 of 24/2/1998, as amended from time to time) must comply with the requirements envisaged by articles 69 to 69-novies of CONSOB Regulation 11971/1999. According to these provisions Kepler Capital Markets S.A and Crédit Agricole Cheuvreux, Société Anonyme (S.A.)warns on the significant interests of Kepler Capital Markets S.A and Crédit Agricole Cheuvreux, Société Anonyme (S.A.)indicated in Annex 1 hereof, confirms that there are not significant financial interests of Kepler Capital Markets S.A and Crédit Agricole Cheuvreux, Société Anonyme (S.A.)in relation to the securities object of this report as well as other circumstance or relationship with the issuer of the securities object of this report (including but not limited to conflict of interest, significant shareholdings held in or by the issuer and other significant interests held by Kepler Capital Markets S.A and Crédit Agricole Cheuvreux, Société Anonyme (S.A.)or other entities controlling or subject to control by Kepler Capital Markets S.A and Crédit Agricole Cheuvreux, Société Anonyme (S.A.)in relation to the issuer which may affect the impartiality of this document]. Equities discussed herein are covered on a continuous basis with regular reports at results release. Reports are released on the date shown on cover and distributed via print and email. Kepler Capital Markets, Milan branch and Crédit Agricole Cheuvreux S.A., branch di Milano analysts are not affiliated with any professional groups or organisations. All estimates are by Kepler Capital Markets S.A and Crédit Agricole Cheuvreux, Société Anonyme (S.A.) unless otherwise stated.

Spain: This document is only intended for persons who are Eligible Counterparties or Professional Clients within the meaning of Article 78bis and Article 78ter of the Spanish Securities Market Act. It is not intended to be distributed or passed on, directly or indirectly, to any other class of persons. This report has been issued by Kepler Capital Markets, Sucursal en España and Crédit Agricole Cheuvreux España S.V, registered in Spain by the Comisión Nacional del Mercado de Valores (CNMV) in the foreign investments firms registry and it has been distributed in Spain by it or by Kepler Capital Markets S.A and Crédit Agricole Cheuvreux, Société Anonyme (S.A.) authorised and regulated by both Autorité de Contrôle Prudentiel and Autorité des Marchés Financiers. There is no obligation to either register or file any report or any supplemental documentation or information with the CNMV. In accordance with the Spanish Securities Market Law (Ley del Mercado de Valores), there is no need for the CNMV to verify, authorise or carry out a compliance review of this document or related documentation, and no information needs to be provided.

Switzerland: This publication is intended to be distributed to professional investors in circumstances such that there is no public offer. This publication does not constitute a prospectus within the meaning of Articles 652a and 1156 of the Swiss Code of Obligations.

Canada: The information provided in this publication is not intended to be distributed or circulated in any manner in Canada and therefore should not be construed as any kind of financial recommendation or advice provided within the meaning of Canadian securities laws.

Other countries: Laws and regulations of other countries may also restrict the distribution of this report. Persons in possession of this document should inform themselves about possible legal restrictions and observe them accordingly.

Local insight, European scale

Amsterdam Kepler Cheuvreux Benelux Johannes Vermeerstraat 9 1071 DK Amsterdam

+31 20 573 06 66

Frankfurt Kepler Cheuvreux Germany Taunusanlage 18 60325 Frankfurt

+49 69 756960

Geneva Kepler Cheuvreux SA Route de Crassier 11 1262 - Eysins Switzerland

+41 22361 5151

London Kepler Cheuvreux UK 12th Floor, Moorhouse 120 London Wall London EC2Y 5ET

+44 20 7621 5100

Madrid Kepler Cheuvreux Espana Alcala 95 28009 Madrid

+3491 4365100

Milan Kepler Cheuvreux Italia Corso Europa 2 20122 Milano

+39 02 855 07 1

Paris Kepler Cheuvreux France 112 Avenue Kleber 75016 Paris

+33 1 53653500

Stockholm Kepler Cheuvreux Nordic Regeringsgatan 38 10393 Stockholm

+468 723 5100

Vienna Kepler Cheuvreux Vienna Schottenring 16/2 Vienna 1010

+43 1 537 124 147

Zurich Kepler Cheuvreux Switzerland Stadelhoferstrasse 22 Postfach 8024 Zurich

+41 433336666

North America Boston Kepler Capital Markets, Inc 225 Franklin Street, Floor 26 Boston MA 02110 +1 617-217-2615

New York Kepler Capital Markets, Inc. 600 Lexington Avenue, Floor 28 10022 New York, NY USA

+1 212-710-7600

San Francisco Kepler Capital Markets, Inc 50 California Street, Suite 1500 San Francisco, CA 94111

+1 415-439-5253

Kepler Cheuvreux has exclusive international distribution rights for UniCredit’s CEE product.

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