Geox COMPANY REPORT ITALY. Under pressure

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1 COMPANY REPORT ITALY SPECIALIST RETAILERS UPDATE Geox Under pressure 30 July 2009 Cautious stance confirmed We confirm our cautious stance on Geox (3/Underperform, EUR5 TP), as: 1) its lower growth and profitability profile no longer justify the historic multiples; 2) in our view, sales growth is not sufficient to support expansion costs, leading to further margin pressure; 3) targets could be at risk, as sales might be lower than the backlog; and 4) poor sell-out rates could lead to more difficult and slower normalization of stock levels especially at the wholesale channel, making it harder to manage inventories, without implementing a higher discount policy. Different valuation due to weaker profit-growth-risk profile Historically, Geox traded at a substantial premium on multiples vs. its direct peers and currently it is trading at a 16% premium on 2010E PE. We no longer feel this is justified as: 1) past growth rates are not achievable anymore; 2) its EBIT and EPS CAGR (at -3% and -7% respectively over E) are no longer superior and are broadly in line with peers, as well as its cash generation and top line visibility. Not enough growth to sustain rising costs Geox has changed its customer insurance policy, which has helped improve the order intake for the AW collection (at -9% in Q2 vs. -13% reported in May) and now, the target is to close at -5%. However, in our view, the poor performance at the DOS level (-2% l-f-l in H1-09), coupled with weaker sell-out rates at the wholesale channel (limited visibility) mean that sales could continue to grow at a lower rate than the order backlog. Moreover, current sales are not sufficient to cover costs (G&A) for the aggressive expansion of the DOS network and profitability should remain under pressure in the coming quarters. EUR5 target price Estimates confirmed Based on the recovery of the AW09 collection, we are revising our top line assumption to -1% (from -3% prev.) and lift our 09EPS by 2.4%. We confirm our target price of EUR5. Geox is trading at 16x 2009 PE, broadly in line with peers. Francesca FERRAGINA Research Analyst fferragina@cheuvreux.com (39) Rating Target price (6 months) Price (29/07/2009) Reuters: GEO.MI Bloomberg: GEO IM 3/Underperform -6.4% EUR5 EUR5.34 Stock data Market capitalisation EUR1383m Free Float EUR330m Enterprise value EUR1322m No. of shares, adjusted 259.2m Daily volume EUR3.34m Performances 1 month 3 months 12 months Absolute perf. 4.8% -20.4% -29.7% Relative perf. -1.3% -25.8% -2.0% /04 06/05 01/06 08/06 03/07 10/07 05/08 12/08 07/09 Price/FTSE MIB INDEX Next event Q3-09 results due on 10 November. Sector focus Sector Top Picks Least favoured Shareholders Price Ahold, Carrefour, Inditex Lir (Mr Polegato) 71.0%, Free Float 23.9%, Capital Research & Management 5.1% To 31/12 (EUR) E 2010E Sales (m) EBITDA (m) EBIT (m) Net att. profit, rest ( Free ) cash flow (m) 54.0 (3.8) Clean EPS Net dividend E 2010E P/E (x) EV/EBITDA (x) Attrib. FCF yield (%) 1.5 NS Net debt/ebitda (x) (0.5) (0.3) (0.3) (0.5) Yield (%) ROCE (%) EV/Capital empl. (x) Please see important disclosures at the end of this document

2 Company profile Valuation Leading worldwide footwear player, flexible cost base Geox is the leading casual footwear brand in Italy and the second largest global player, with 20m shoes sold in FY-08A and >40 worldwide patents for breathable soles and garments. The company creates, produces, promotes and distributes men s, women s and children s shoes positioned in the mid-price range (EUR75-125). Its offer includes casual, sports and fashion shoes; and Geox has extended its breathable concept to apparel. All of its production is outsourced to China, India, Vietnam, Indonesia and Brazil. Mainly wholesale distribution; enlarging its retail presence Geox operates both wholesale (67% of H1-09 sales) and retail distribution networks (997 stores, o/w 227 DOS), consisting of both franchises (16% of sales) and directly operated stores (DOS 17%) was characterized by strong expansion of its network of directly operated stores (DOS), with the openings of 73 new stores. Now, Geox is consolidating its DOS chain and has sustained its franchising network by providing financial support. In H1-09, sales reached EUR483m (up 4%; o/w flat DOS l-f-l), with EUR65m of net profit. At Q2-09, Geox still boasted a net cash position at EUR76m. Europe still represents 80% of total sales Geox's main reference markets are Italy (36% of H1-09A sales), Germany (~14%), Iberia (~12%) and France (~9%). All in all, Europe, excluding Italy, accounts for 46% of revenues, while the US contributes only 6%. Shoes represented 91% of sales, while apparel accounted for 9% (vs. 7% last year), with a target of 12% by LIR holding controls Geox (71% stake) Geox is controlled by its founder, Mr. Mario Moretti Polegato, through his holding LIR Srl with a 71% stake. Geox targets a 50% DPS pay-out policy (a 5% DY at the current market price). At 9M-08, it also approved a buy-back program for up to 10% of the total shares. SWOT analysis Strengths Leading position in the casual footwear market Lean supply chain and flexible cost base Sound financial structure, with net cash Opportunities Successful diversification into apparel and non-technical sports footwear (NET system) Young network of stores Limited exposure to markets outside Europe Weaknesses Limited fashion appeal Issues with outsourced production (capacity, delays, anti-dumping regulations) Limited brand awareness outside Italy Threats Financial measures to sustain franchising partners could limit profitability Limited investment in 2009 could slow down growth in the coming years Possible quality issues for outsourced production We are fine tuning our E estimates and confirm our EUR5 target price for Geox based on our DCF analysis, which implies 6.4% downside vs. the current market price. We set a target price of EUR5for Geox, based on a DCF valuation. Our 8.5% WACC is based on: 1) 4.5% free risk rate; 2) 4% market risk premium; 3) 1 beta; 4) 1% perpetuity, given the reduced growth outlook. Geox trades at 8.5x 2010E EV/EBITDA (in line with peers) and 15x 2010E P/E, which implies a 16% premium vs. its direct peer group (Tod's, Adidas, Hugo Boss, Puma) and at a 30% discount to other European retailers (H&M, Benetton, Inditex, Luxottica). We believe that its superior fundamentals and efficient business model are fully factored into the current market price. Geox is fairly valued: 3/Underperform confirmed. Investment case We confirm our 3/Undeperform rating for Geox, based on the following factors: Its lower growth profile can no longer justify the historic premium on multiples. Geox's strong fundamentals are fully factored into the current market price and we see no reason for the current valuation to rise further. While the company guidance is now more feasible, with the AW collection down by -9% (vs. -13% in Q1), we feel that the poor performance at the DOS level (LFL at -2% in H1-09), coupled with a potentially sluggish sell-out rate at the wholesale channel (on which the company also has limited visibility) could mean that sales might continue to grow at a lower rate than the order backlog. In our view, Geox is not achieving enough growth to support expansion costs. Rising fixed costs for the DOS openings could continue to reduce profitability. Bad sell-out rates could jeopardize destocking at the wholesale channel and make working capital management more difficult. Franchising partners are in trouble and it might be reasonable for Geox to provide more financial support to the network, leading to further pressure on margin. 2

3 Summary GEOX: PEER COMPARISON Cautious stance confirmed We confirm our 3/Underperform rating and EUR5 target price for Geox. We maintain a cautious stance as: 1) the company's profit-growth-risk profile has changed profoundly in recent months and there are no longer any compelling reasons to justify its historic premium on multiples. 2) Rising fixed costs for the intensive wave of DOS openings in 2008 should continue to reduce profitability in the coming quarters and in the current trading environment, top line weakness and volatility will lead to further margin pressure. 3) While guidance is now more feasible, with the AW collection down by -9%, we feel that the poor performance at the DOS level (LFL at -2% in H1-09), coupled with a potentially sluggish sell-out rate at the wholesale channel (on which the company also has limited visibility) could mean that sales might continue to grow at a lower rate than the backlog. Cautious stance on company guidance The company guidance calls for: 1) a flat top line vs. our more cautious forecast for a -1% decline; 2) an EBITDA decline "within 200bp" (that would imply a 20.4% margin vs. 22.4% in FY-08A), as the DOS opened in 2008 should generate higher G&A costs; 3) EBIT down by 250bp (implying a 16.8% margin vs. 19.3% in FY-08A), due to lower volumes accounted at the top line level. Our EBIT margin estimate is also slightly more cautious at 16.5% (280bp decrease). 4) Capex should be reduced sharply to EUR45m vs. the peak level of EUR94 in 2008 (to finance the DOS expansion) and net cash should be slightly better than 2008 level (at EUR58m). Volumes and control of overhead costs are key In this report, we analyse the sensitivity of EBITDA and EPS to weaker sales trends in 2010, while leaving the current plan for DOS openings unchanged. We concluded that a 5% decrease in 2010E sales vs. our current assumptions (-2.5% vs. our current +2.8%) would reduce EPS by >20%. Geox's results are mainly driven by sales and control of overhead costs, as: 1) depreciation is limited, because production is outsourced; 2) financial charges have always been negligible, as the company has always maintained a net cash position; and 3) the tax rate remains stable in the region of ~35%, thanks to geographical optimization. As a result, we believe that the easiest way for Geox to sustain profits in a more severe consumption scenario would be by slowing down the projected DOS openings. Estimates fine tuned After Q2 results, we are fine tuning our estimates: our previous forecast for a -3% decline now seems too severe considering that the AW collection recovered slightly to -9% (from -13% in Q1). Our estimate for a -1% decrease in the top line y-o-y, is based on the SS collection at +6% and AW at -7%, in the middle of the range between the company target of -5% and the current trend. Higher volumes led us to slightly raise both our EBIT and EPS forecasts by 2% in 2009; while our E numbers remain broadly unchanged. PE EV/EBIT EV/SALES (EUR bn, %) Mkt. cap Adidas Hugo Boss Puma Tod's Average shoe peers GEOX Premium -3.6.% 16.1% -14.7% -2.1% 34.3% 34.1% 3

4 CONTENTS Summary 3 I Valuation approach 5 DCF valuation 5 Peer comparison 6 II Business structure and strategy 8 Company profile 8 A closer look at the footwear market 10 Top line slowdown vs. cost efficiency 11 Our view on 2009 targets 14 Sensitivity analysis: cost control is key -Our view on 2009 targets 14 III Estimates 16 Our DCF Valuation Environmental. Social. Governance Issues CHEUVREUX'S RETAIL TEAM Arnaud Joly (coord.) France (33) ( Direct ) ajoly@cheuvreux.com Francesca Ferragina Italy (39) ( Direct ) fferragina@cheuvreux.com Paul Hofman Benelux (31) ( Direct ) phofman@cheuvreux.com Jürgen Kolb Germany (49) ( Direct ) jkolb@cheuvreux.com Daniel Ovin Nordic (46) ( Direct ) dovin@cheuvreux.com Mary Psyllaki Greece (30) ( Direct ) mpsyllaki@cheuvreux.com 4

5 I Valuation approach We are fine tuning our E estimates and confirm our EUR5 target price for Geox based on our DCF analysis, which implies 6.4% downside vs. the current market price. Geox trades at a 16% premium on 2010 PE vs. its direct peers (Tod's, Adidas, Hugo Boss and Puma). We believe that its superior fundamentals and efficient business model are fully factored into the current market price. Moreover, the slowdown in the order backlog reduces visibility and raises the company's risk profile. 3/Underperfom confirmed. DCF valuation EUR5 target price confirmed Our DCF-based target price for Geox is EUR5, corresponding to an equity value of EUR1.3bn. EV accounts for EUR4.9 per share and cash for EUR0.1. GEOX: FCF AND DISCOUNTED FCF DETAILS Averages E 2011E 2012E 2013E 2014E 2015E 2016E Total Operating FCF Discounted Free Cash Flow In more details, we expect: 1) FCF to reach EUR72m in 2009, then it should gradually rise as less capex will be needed to sustain the expansion of the DOS network; 2) cash should reach EUR61m in FY-09 and increase to EUR137m in 2011E. GEOX: EV AND TERMINAL VALUE MULTIPLES (%) FCF Growth Target Value Percent x/sales x/ebitda x/ebita 1-8 years 5.3% % Terminal value 1.0% % x Enterprise value % x The terminal value account for 62% of our valuation and implies a terminal EV/EBITDA of 5.5x vs. the current 6.4x. GEOX: DCF VALUATION (EUR m, %) DCF Value Present value of future CF 473 Present value of terminal value 772 Enterprise value Financial assets and associates 0 Pension provision 0 Other provision 0 Net financial cash 61 Shareholder's Equity / Number of Shares Per Share 5.0 DCF Value 5.0 Share price 5.3 DCF Value Upside -5.4% GEOX: DCF ASSUMPTIONS Wacc Risk free rate 4.5% Risk premium 4.0% Beta 1.0% Cost of Equity 8.5% Gearing in market 0.0% value Debt Spread 1.8% Cost of Debt 6.5% Tax rate 33.0% Wacc 8.5% 5

6 Our DCF valuation runs until 2016 and is based on the following assumptions: 8.5% WACC, stemming from a 8.5% average cost of equity, which we calculated using an unlevered beta of 1. The cost of debt amounts to 6.5% and we assigned a market risk premium of 4%. 1% terminal growth rate. Peer comparison Geox traded historically and is still trading at a premium on multiples vs. its direct European peers: Tod's, Puma, Hugo Boss and Adidas. GEOX: HISTORIC PE COMPARISON apr-07 Jun-07 ago-07 Oct-07 Dec-07 feb-08 apr-08 June-08 ago-08 Oct-08 Dec-08 feb-09 apr-09 June-09 GEOX HUGO PUMA TODS ADIDAS PEERS AVERAGE Since 2007, Geox has traded at an average PE of 16x and an average EV/EBIT of 9.3x. At the moment, the stock is trading broadly in line with its historical average. GEOX: PE SINCE MAY 2007 GEOX: EV/EBITDA SINCE MAY Marc-0 Jun-07 Aug-07 Oct-07 Dec-07 feb-08 apr-08 June-08 GEOX ago-08 Oct-08 Average Dec-08 feb-09 apr-09 June May-07 Jul-07 Sep-07 nov-07 Jan-08 mar-08 May-08 EV/EBIT Jul-08 Sep-08 nov-08 Average Jan-09 mar-09 May 2009 Jul 2009 Several factors justified these multiples in the past: 1) Geox's superior growth (15% net sales CAGR) and profitability profile; 2) its solid financial structure and net cash position; 3) high operating leverage thanks to its flexible cost structure based on 100% outsourced production and a lean distribution system, with limited capex requirements; and 4) good visibility on the top line, thanks to the company's wholesale model. 6

7 Premium on multiples is not sustainable anymore GEOX: MULTIPLES COMPARISON (EUR m, %) PE EV/EBIT EV/SALES Mkt. cap Adidas EUR5.9bn Hugo Boss EUR1.2bn Puma EUR2.6bn Tod's EUR1.2bn Average shoes peers GEOX Premium on peers -4.7% 16.1% -14.7% -2.1% 34.3% 34.1% However, we believe that these factors are no longer sustainable: Geox should not continue to grow as it has done in the past: we expect sales to be down by 1%, with EBITDA down by 170bp in 2009E. Its profitability is starting to decline, as it aggressively expanded in the retail segment, with numerous DOS openings over the past year. This has been affecting the cost structure, with rising general and administrative expenses as well as higher personnel costs. GEOX: PAST AND PROSPECTIVE GROWTH PROFILE COMPARISON (%) Sales EBITDA Net profit 2008A 2009E 2010E 2011E 2008A 2009E 2010E 2011E 2009E 2009E 2010E 2011E Adidas 4.9% -3.1% 1.9% 3.1% 12.4% -37.2% 28.1% 13.6% 16.5% -56.0% 61.6% 21.7% Hugo Boss 3.3% -4.0% 1.0% 2.5% -12.7% 8.6% 4.9% 5.1% -27.3% 14.0% 8.5% 5.3% Puma 6.3% -5.0% 3.2% 1.8% -8.8% -34.5% 43.9% 20.9% -13.5% -39.8% 54.5% 23.9% Tod's 7.7% -0.1% 6.1% 6.7% 2.7% -9.7% 7.8% 9.2% 8.0% -14.0% 8.9% 11.0% Average 5.6% -3.0% 3.0% 3.5% -1.6% -18.2% 21.2% 12.2% -4.1% -23.9% 33.4% 15.5% GEOX 15.9% -3.0% 2.8% 3.5% -0.7% -13.3% 5.3% 6.9% 0.3% -31.0% 5.2% 7.3% Cash generation is no longer superior to peers, but broadly in line with the levels of its main competitors as seen in the table below. GEOX: CF MULTIPLES COMPARISON (x) PCF FCF yield Adidas Hugo Boss Puma Tod's Average GEOX Visibility on the top line has decreased, due to the fact that orders might be cancelled by customers and because its strict insurance policy requires Geox to carefully select its clients. Moreover, the re-order level is an issue at the moment. 7

8 II Business structure and strategy Geox is the leading casual footwear brand in Italy and the second largest player worldwide, with 23m shoes sold in FY-08A and >40 worldwide patents for "breathable" soles and garments. The company creates, produces, promotes and distributes men s, women s and children s shoes positioned in the mid-price range (EUR75-125). After five consecutive years of strong double digit growth (>30% for sales and 60% at the EPS level), Geox is starting to slow down and we expect pressure on sales and profitability to intensify in the coming quarters. While we feel that the company guidance is now more feasible, with the AW collection down by -9% (vs. -13% in Q1), the poor performance at the DOS level (LFL at -2% in H1-09), coupled with a potentially sluggish sell-out rate at the wholesale channel (on which the company also has limited visibility) could mean that sales might continue to grow at a lower rate than the order backlog. Moreover, there is not enough growth to support expansion costs for the DOS opened in 2008 and profitability could suffer, profoundly changing Geox's risk-growth profile. Company profile Leading footwear company Geox creates, produces, promotes and distributes Geox brand footwear (90.6% of sales in Q1-09) and apparel (9.4%). It specializes in developing innovative, technological solutions, creating "breathable" and waterproof products, protected by over 40 different patents in Italy and abroad. With more than 20m shoes sold in 2008, Geox is the market leader in Italy in its own segment and is the second leading brand world-wide in the International Lifestyle Casual Footwear Market (source: Shoe Intelligence, 2008). Mid-to-high price range Its products are positioned in the mid-to-high price range (EUR for adults and EUR31-75 for children) and the company can leverage on its reputation as a well-known Italian "family brand", with 3 lines for men, women and children, comprising classic, casual and sports collections. The company benefits from a highly fragmented and regional market, with many local players and limited international reach. GEOX: SALES BY PRODUCT Apparel 9% GEOX: SALES BY CHANNEL DOS 16% Franchising 16% Wholesale -Multi-brand 68% Footwear 91% Source: Geox Extensive international distribution network The group distributes its products through over 10,000 multi-brand selling points and through over 900 Geox shops (franchises and DOS). In 2008, the group opted to strengthen its direct distribution network and invested EUR77m to extend its network of stores. 8

9 For 2009, Geox aims to reduce its investments as much as possible. Now, its expansion strategy is based on: 1) opening new Geox Shops, but mainly franchises in high traffic zones in city centres and in major shopping malls; 2) increasing its market share and strengthening the loyalty of its multi-brand customers, through greater use of corner shops and shops-within-shops"; 3) it aims to balance the sales mix by raising the weight of men s and women s lines compared to the children s line. GEOX: SALES BY COUNTRY GEOX: CURRENT DISTRIBUTION NETWORK AT H1-09 USA 6% RoW 12% Geox shops Italy 37% Of which Geox DOS Italy Europe North America Rest of the World Europe ex. Italy 45% Under licence agreement Total Geox shops Europe is the main market Production cycle for collections Approximately 60% of the group s sales in 2008 were generated outside Italy and the European market, which accounts for 46% of group sales, is considered to be strategic. However, there is significant variation from country to country, depending on the specific characteristics of the market and the phase of market penetration. The production cycle for all of Geox's product lines revolves around the development, production and marketing of two principal collections per year: the Spring/Summer collection and the Fall/Winter collection. The production cycle spans approximately 14 months from the start of the development phase to the initial deliveries of products to the distribution network. The following chart presents a timeline for a typical Spring/Summer footwear collection production cycle. GEOX: SPRING/SUMMER COLLECTION PRODUCTION CYCLE Product development and sample collection FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC JAN FEB MAR APR X X X X X X X Sale campaign and order collection X X X X Procurement of raw material X X X X X X Production and outsourcing X X X X X X Logistics X X X X Distributions and sales X X X X Source: Geox Flexible production and cost base Geox produces all of its products in factories belonging to third parties in the Far East and South America and the company closely monitors all phases of production. The main advantage of this sort of structure is that it guarantees a lean cost base, with limited fixed costs and high operating leverage. Moreover, production is mainly order-driven and as a result, inventories are limited. Its production is based in: China, which accounts for about 25% of total outsourced production. Chinese suppliers mainly produce sports and casual footwear (leveraging on expertise developed with global players like Nike, Reebok, Puma) and the apparel collections. 9

10 71% controlled by LIR Brazil (>12% of total outsourced production), which mainly manufactures classic and fashion footwear. Vietnam (~20%), which produces children's shoes. India (~5%), which mainly manufactures leather shoes. Management is considering relocating part of the Brazilian production to India. Indonesia (~25%). Indonesian third-party factories handle a wide range of manufacturing processes, from leather work to m/w apparel collections. Geox is 71.1% controlled by LIR, an investment holding company that belongs entirely to Mr. Mario Moretti Polegato and his son, Mr. Enrico Moretti Polegato (who own 85% and 15% respectively of the share capital). A closer look at the footwear market Main characteristics of the footwear market: 1. It is a huge market. According to Datamonitor, in 2003, the total global footwear market was valued at approximately EUR240bn and was characterized by highly fragmented competition (except for technical sports footwear), with local players dominating domestic markets. Asia was the largest market for footwear, representing 44% of the global market, followed by Europe at 21% and the US at 18%. Geox is the Italian leader for classic and casual footwear (source: AC Nielsen). 2. Fragmented distribution and production, with strong competition based mostly on quality, design and marketing. In addition, the market relies heavily on the use of production facilities in Eastern Europe and Asia. In these geographic areas, the market for the sale of closed shoes is quite fragmented, while the market for non-technical sports footwear is highly concentrated. Brand recognition and capillary product distribution are two key prerequisites for successful market penetration and present a barrier to many hopeful market entrants. Geox is the Italian leader for classic and casual footwear Geox is the undisputed leader in Italy for classic and casual footwear (source: AC Nielsen). In addition, Geox was ranked the number #1 footwear brand in Italy and number #2 worldwide (14% market share source: Shoe Intelligence) in the lifestyle casual footwear market, behind #1 Clarks (21%), while Ecco (13%) is the #3 player. GEOX: MARKET POSITION AND POTENTIAL GEOX: INTERNATIONAL PRESENCE Units Sold (m) ,436 1,100 1,659 Brown Shoes Market Size* ( Western Europe and US) Value ( Value Eurobln) (Euro.bn) High High - end End Mass Market Large market estimated at Euro 240bn (brown and athletic shoes) Fragmented and regional: many local players with limited international reach Absence of direct competitors matching technology, style and brand awareness Source: Geox Source: Geox 10

11 Geox's reference market is appealing as the brown shoe segment accounts for EUR55bn, o/w EUR13.3bn in the "affordable luxury" market niche. In the white shoes market (50% of all shoe pairs in terms of volumes), the branded part of the market broadly accounts for EUR20bn: the undisputed leader is Nike, with 38% market share, followed by Adidas (23%) and another 15 players, with sales in excess of USD100m. Geox aims to both consolidate its leadership in Italy and strengthen its presence abroad by using the following well-consolidated strategy, which it generally deploys in 4 phases. Well-consolidated expansion strategy Market entry: This phase is characterized by the penetration of the wholesale distribution network, establishment of the commercial infrastructure and the launch of the first advertising campaigns. Building brand awareness: In the second stage, the offer is extended from 2 to 4 collections, and simultaneously the wholesale network is enlarged and the first Geoxbranded shops are opened. A&P expenses rise sharply. Boosting volumes: Penetration of the existing client base is crucial at this point, mainly through the Geox retail network supported by steady investment in A&P to reach break-even in terms of operating profitability. Consolidate leadership: Geox then extends its retail network through further penetration of the multi-brand channel, supported by ongoing advertising investments, with the goal of reaching an EBITDA margin target of 30%. In this tough market environment, Geox's development strategy is confirmed even if at lower speed rate. Top line slowdown vs. cost efficiency Focus on cash and working capital 2009 will be a difficult year and after a long period of growth, we believe that both sales and margins will start to contract for the first time. Given the company's selective approach to its client base, it is clear that now Geox's top priorities are cash generation and tight control of working capital rather than raising sales or volumes. GEOX: PERFORMANCE BY MARKET VS. GDP GROWTH FORECAST (%) 2006A 2007A 2008A 2009E 2010E 2011E Italy sales growth 12% 26% 13% 0% 2% 4% Italy weight on sales 38% 38% 37% 38% 37% 37% Italian GDP assumptions 2.1% 1.5% -1.0% -4.4% -0.3% NA Europe ex. Italy sales growth 48% 37% 12% -3% 1% 4% Europe ex. Italy weight on sales 43% 47% 45% 44% 44% 44% Eurozone GDP assumptions 3.0% 2.6% 0.9% -4.4% 0.1% NA USA sales growth 84% 110% 28% 1% 6% 10% USA weight on sales 3% 5% 6% 6% 6% 6% USA GDP assumptions 2.8% 2.0% 1.1% -3.2% 1.5% NA RoW sales growth 79% 29% 38% 4% 10% -1% RoW weight on sales 10% 10% 12% 12% 13% 13% RoW GDP assumptions 4.7% 5.8% 4.8% 0.2% 3.0% NA Resulting estimated growth 2.6% 2.5% 0.7% -3.8% 0.4% - Geox reported growth 34.6% 25.8% 15.9% Our expected growth % 0.9% - Variation 31.9% 23.3% 15.2% 3.1% 0.5% - 11

12 In the past, sales growth was sustained by international and network expansion and above all, by organic growth. In this tough economic environment, with negative GDP growth in all of the world's largest economies, combined with a rising unemployment rate, a negative top line performance is expected for 2009 followed by a mild recovery, favoured by the easy comparison base in Our estimates for Geox's operations in each country, are more positive than Cheuvreux's GDP growth assumptions, the positive gap is attributable to the stage of maturity of the business in each of the various markets and by the DOS and expansion of the wholesale network. DOS expansion is raising fixed costs In 2008, Geox decided to expand its DOS network (now 220 stores vs. 145 at the end of 2007 and 74 in 2005). This is the main reason for the 400bp margin decrease in FY-08: this strategy raised the fixed cost base, driven by the rising weight of rental costs and personnel expenses for the new DOS. GEOX: EBIT PERFORMANCE FY 2005 Q1-06 Q2-06 Q3-06 Q4-06 FY 2006 Q1-07 Q2-07 EBIT (8) (11) 94 (16) (12) 87 (21) (20) EBIT margin (%) Q3-07 Q4-07 FY 2007 Q1-08 Q2-08 Q3-08 Q4-08 FY 2008 Taking a closer look at the cost structure, it is evident that the gross margin decreased slightly, due to: 1) higher discounts; 2) provision for high inventories which were then sold in Q1-09; and 3) a different geographical mix for sales (but recovered at the EBITDA level). Since Geox cannot outsource any more of its production, we do not see any room to grow at this level. For 2009E, we expect a contraction as Geox will likely have to offer higher discounts to expedite inventory de-stocking and maintain the same gross margin level also for 2010 and GEOX: GROSS MARGIN TREND (2006A-11E) 2006A 2007A 2008A 2009E 2010E 2011E Cost of goods sold 46.2% 46.5% 47.6% 48.0% 48.0% 48.0% Gross margin 53.8% 53.5% 52.4% 52.0% 52.0% 52.0% Q1-09 Q2-09 DOS opened in 2008 should lead to EUR25m higher G&A costs in 2009 EUR30m investment to support the franchising network The effect of the retail expansion campaign is especially evident at the EBIT level, with rising personnel and G&A costs. In 2008, the 73 new DOS led to 35% higher personnel costs and 39% higher G&A expenses. The full impact of this strategy should emerge in 2009, as all of the DOS opened in 2008 are now fully operative. For 2009, Geox expects at least EUR25m higher G&A costs, which along with higher personnel costs, should lead to a 200bp reduction of EBIT. Our estimates (backed by the growth performed in H1-09) are more cautious, as we expect G&A costs to jump to EUR41m. Future growth will not be sustained by new DOS, but by the expansion of the franchising network, backed by EUR30m of capex to facilitate and sustain Geox's franchise partners, by assisting with the sub-leasing of shops or the financing of shop fixtures and furniture. 12

13 GEOX: COST STRUCTURE DETAILS (EUR m, %) 2006A 2007A 2008A 2009E 2010E 2011E G&A (94.6) (133.4) (185.4) (226.1) (227.9) (235.9) % Growth y-o-y 27% 41.1% 39.0% 21.9% 0.8% 3.5% As % of sales 15% 17% 21% 26% 25% 25% Personell cost (34.3) (46.7) (63.2) (82.3) (102.4) (127.5) % Growth y-o-y 22.2% 36.3% 35.2% 30.4% 24.4% 24.4% As % of sales 6% 6% 7% 9% 11% 14% It is important to note that from a relative standpoint, Geox still presents one of the most interesting and appealing EBITDA profiles in its sector: it is broadly aligned with Tod's, and second only to H&M and Inditex. GEOX: EBITDA MARGIN COMPARISON Peers EBITDA margin (%) 2008A 2009E 2010E 2011E Adidas Hugo Boss Puma Tod's Benetton H&M Inditex Average GEOX 22.4% 20.7% 21.5% 21.7% 13

14 Our view on 2009 targets According to the company guidance, in 2009 Geox aims to deliver: A flat top line. The company target is backed by a +6% increase in the SS collection, combined with a -9% decrease in AW collection. Management aim to close the year at -5%, driven by: orders to be recovered, the recovery of the mark-up at the DOS channel (as the backlog is valued at the sell-in value) and additional turnover from the outlet channel. Our estimate for a 1% decrease is based on AW at -7%, in the middle of the range between the current -9% decline reported in Q2 and the company target of -5% (for AW). Gross margin broadly in line with the 2008A level sustained by: 1) greater production efficiency, thanks to good planning; 2) flat raw material costs; 3) excess production capacity for many suppliers, which should lead to more favourable contractual conditions and help offset the higher labour costs. We expect the gross margin to edge down slightly to 52% (vs. 52.4% reported in FY-08). In our view, the main problem is the discount policy: Geox will likely have to offer higher discounts in order to expedite inventory de-stocking. Sales and distribution expenses are expected to be in the range of 4.8% on sales, in line with Our numbers are fully in line with the company guidance. Advertising & promotional costs should be reduced by 25-30% vs. 2008, thanks to: 1) lower advertising costs; 2) less exposure to TV advertising counterbalanced by an increase in billboard advertising; and 3) budget cuts in the US and Japan, owing to the tough trading environment. Our numbers are in line with the company guidance at -25%. EBITDA down within 200bp (this guidance implies a 20.4% margin vs. 22.4% in FY-08A), with EBIT down by 250bp (implying a 16.8% margin vs. 19.3% in FY-08A). Based on these indications, we estimate that G&A costs should rise by around 20%. Our estimates are broadly in line at the EBITDA level with a 170bp decrease, while given the higher depreciation level forecast (backed by the trend seen in H1-09), we derive 280bp decrease at the EBIT level. end. 35% normalized tax rate, up vs. 27% in FY-08A as some tax benefits should Capex should decline sharply to EUR45m from EUR94m in FY-08A represented a peak, due to the strong wave of retail expansion. In 2009, Geox should invest EUR30m to support its network of stores (DOS and franchises) plus an additional EUR15m for other investments (mainly IT and logistics). Net cash should slightly exceed the 2008 level (at EUR58m). We forecast EUR63m net cash position by year end. 14

15 GEOX: COMPANY TARGETS VS. CHEUVREUX ASSUMPTIONS GEOX 2009 TARGET CHEUVREUX Sales Flat -1.0% Gross margin Flat at 52.4% 52.0% Selling and Distribution 4.8% on sales in line with guidance Advertising and Promotion -25% vs level in line with guidance EBITDA Within 200bp decrease vs level 170bp decrease EBIT -250bp vs level 280bp decrease Tax rate 35% rate normalized in line with guidance Sensitivity analysis: cost control is key GEOX: SENSITIVITY ANALYSIS (EUR m, %) Current estimates 1 - SCENARIO 2- SCENARIO 2009E 2010E 2010E 2010E Sales % Growth y-o-y -0.7% 2.8% -2.7% -5.2% EBITDA % Margin 20.7% 21.5% 20.0% 18.7% Net profit EPS impact -12.6% -22.2% We analysed the sensitivity of EBITDA and EPS to weaker sales trends in 2010, leaving our assumptions for DOS openings unchanged and consequently, also the expected G&A costs. In the first scenario, we assumed that sales would remain flat vs (or -2.8% vs. our current numbers for 2010): in this case, we estimate that the EBITDA margin would fall by 150bp, with a 13% decrease in EPS. The second scenario is even more dramatic, based on 5.2% sales reduction: in this case, we estimate that the EBITDA margin would fall to 18.7% (or a 280bp decrease), with a negative impact of 22% at the EPS level. Although this is largely an academic exercise, as we believe that in the event of such a sharp decline in sales Geox could opt to rationalize selling and distribution or A&P costs, it is important to note that G&A costs (25.5% weight on sales) now account for the bulk of Geox's total costs. Given the huge number of DOS openings, we believe this can be considered a structural level for the coming years. GEOX: CURRENT SCENARIO ASSUMPTIONS CURRENT SCENARIO (%) Selling and distribution cost 4.8% General & Adm expenses 25.5% Advertising & Promotion 5.9% Under Geox's business model, its results are driven by sales and control of overhead costs, as: 1) depreciation is limited, because production is outsourced; 2) financial charges have always been negligible, due to constant net cash; and 3) the tax rate remains in the region of ~35%. As result, we believe that the easiest way for Geox to sustain profits in a more severe consumption scenario would be by slowing down the projected DOS openings. 15

16 III Estimates Q2 is a retail quarter and has a limited impact on FY results Better EBITDA in Q2, due to A&P costs postponed until H2 The second quarter has a limited weight on a FY basis, because it is a retail quarter: most deliveries are for the Spring/Summer collection and the related invoicing for these products is concentrated in the months of January, February and March, while both the delivery and invoicing for the Fall/Winter collection occur primarily in July, August, and September. Consequently, operating results for Q1 and Q3 are not comparable to operating results for Q2 and Q4, as the first and third quarter include the majority of the consolidated revenues, but not the majority of the fixed operating costs for these periods, which are spread out evenly throughout the year. Q2 results beat our and consensus estimates at the operating level, due to the postponement of some costs until H2. Sales were in line at +4% (+3% at constant FX) vs. +6% order backlog. Apparel performed very well more than doubling vs. Q2-08, while footwear was -4.8% in Q2. Wholesale was down by 19.5% partially counterbalanced by 16.3% growth at the DOS level, sustained by 44 additional openings (at +0.4% l-f-l, in line with our expectations). EBITDA was better than expected, but mainly due to A&P expenses, which were postponed until H2 (FY budget unchanged); depreciation at EUR14m was higher (vs. our EUR10m) and all in all, net profit was a touch better. Operating cash flow was EUR119m, thanks to strict control of working capital. Net cash at EUR76m (vs. EUR23m in Q1). GEOX: Q2-09A RESULTS (EUR m, %) Q2-09A Q2-09E % Chg. YoY Q2-08A H1-09A % Chg. YoY H1-08A Sales % % EBITDA (5.6) (12.0) 3% (5.4) % Margin nm nm nm 24.8% -2.8% 25.5% EBIT (14.2) (22.0) 19% (11.9) % Net profit (7.8) (9.2) nm (1.2) % 78.0 The improvement in the AW order backlog was the most important message to emerge from the Q2 results presentation. The collection is showing strong signs of recovery, with a decline of just -9% compared to -13% in May. This was mainly due to Geox's decision to modify its insurance policy. As a result, it has now accepted several orders that were suspended previously. Taking into account the orders and re-orders, the mark-up at the DOS channel and sales at the outlet channel, Geox now aims to close the year with the AW collection at -5%. FY guidance confirmed: flat sales and EBIT down by 250bp Geox reiterated its FY targets: flat sales, EBITDA margin down by max. 200bp, EBIT margin down by 250bp and EUR45m capex, with fewer DOS to be opened (down to 130 vs. 150 before). We believe that this guidance now looks more feasible, given the improvement in the AW performance; but we underline that clients could cancel orders, which could cause volatility at the top line level. 16

17 GEOX: NEW ESTIMATES (EUR m, %) NEW OLD 2009E 2010E 2011E 2009E 2010E 2011E Sales EBITDA Margin (%) 20.7% 21.5% 21.7% 20.0% 21.0% 22.0% EBIT Margin (%) 15.8% 16.5% 16.7% 15.7% 16.6% 17.6% Net profit EPS change 2.4% 1.8% -2.9% Based on Q2 results, we are revising our estimates. We feel that the 3% sales decline previously factored into our numbers is too severe in view of the improvement in the AW collection. Our new forecast for a -1% decline is based on: SS09 at 6% and our assumption that the AW collection will close at -7%, in the middle of the range between the current -9% result and the company target of -5%. On the back of higher volumes, we are raising our EBITDA margin from 20% to 20.7%. Due to higher depreciation during the quarter at EUR14m (vs. EUR10m expected), we are lifting our FY depreciation forecast from EUR37m to EUR43m. As a result, the EBIT margin remains broadly unchanged at 15.8%. After leaving the estimated financial charges and tax rate unchanged (at 35%), we are raising our EPS by 2.4% in 2009 and by 1.8% in DOS weight should reach 22% Looking at our E sales estimates by channel, we expect the weight of DOS to gradually increase to 22%, driven especially by a big jump in 2009 to 20%. Consequently, wholesale should decrease to 55% in GEOX: SALES BY CHANNEL (EUR m, %) 2008A 2009E 2010E 2011E Wholesales Multi-brand % growth 11.6% -9.7% -2.2% 0.0% % on sales 68.2% 62.0% 59.0% 57.0% Franchising % growth 13.8% 13.4% 14.2% 8.7% % on sales 15.8% 18.0% 20.0% 21.0% DOS % growth 41.4% 24.1% 7.9% 8.4% % on sales 16.0% 20.0% 21.0% 22.0% Apparel is still growing By product, our estimates are in line with the company targets: apparel should represent 12% of sales in 2010 and shoes should account for the remaining 88%. In particular, the order intake for SS09 collection was +3% for footwear and +39% for apparel, while AW stands at -12% for footwear and +7% for apparel. 17

18 GEOX: SALES AND MARGIN BY PRODUCT (EUR m, %) 2008A 2009E 2010E 2011E Apparel % growth y-o-y 62% 20% 10% 10% % weight on sales 9% 11% 12% 13% EBIT % margin 25% 24% 24% 21% Footwear % growth y-o-y 13% -3% 2% 3% % weight on sales 91% 89% 88% 87% EBIT % margin 18.8% 14.8% 15.5% 16.0% GEOX: P&L ESTIMATES DETAILS (EUR m, %) 2007A 2008E 2009E 2010E CAGR Gross profit % Gross profit margin % 53.5% 52.4% 52.0% 52.0% Selling and distribution cost % % on sales -4.8% -4.8% -4.8% -4.8% General & Adm. expenses % % on sales 17.3% 20.8% 25.5% 25.0% Advertising & Promotion % EBITDA % D&A % EBIT % Financial charges % Pre-tax profit % Tax % Tax rate -31.0% -26.6% 35.0% 35.0% Net profit % % growth 26.5% 0.3% -29.3% 8.0% Net margin 16.0% 13.8% 9.8% 10.3% 18

19 GEOX: CASH FLOW MOVEMENTS (EUR m, %) 2007A 2008E 2009E 2010E Net debt (beg. year) Cash flow WC change (49.2) (42.1) (17.5) (1.6) Capex (42.7) (94.3) (45.0) (55.0) Dividends (38.8) (62.0) (62.2) (34.9) Equity issue Net cash GEOX: FINANCIAL STRUCTURE (EUR m, %) 2007A 2008E 2009E 2010E Shareholders Equity Minority Interests Net cash

20 Our DCF Valuation WACC Risk-free rate 4.5% Risk premium 4.0% Beta 1.00 Cost of equity 8.5% Gearing in market value 0.0% Credit spread 2.0% Cost of debt 6.5% Tax rate 35.0% WACC 8.5% IMPLICIT BETA AND WACC AT THE CURRENT SHARE PRICE Implicit Beta 0.90 Implicit WACC 8.1% DCF SUMMARY (EUR m) E 2011E 2012E 2013E 2014E 2015E 2016E 2017E EBITDA NS Tax on EBITA (49) (53) (55) (58) (60) (62) (66) (68) NS Change in WCR (18) (2) (8) (12) (7) (8) (8) (8) NS Capex (45) (55) (55) (55) (60) (65) (65) (70) NS Financial investments NS Disposals NS Operating FCF NS Discounted free cash flow NS (EUR m) FCF growth DCF value % EV x/ebitda x/ebita Years % % Terminal value +1.0% % Enterprise value % DCF VALUE Enterprise value Financial assets and associates 0 Pension provisions 0 Other provisions 0 Net financial debt 64 Minority interests 0 Dilution 0 Shareholders' equity / Number of Shares (m) / Potential number of new shares (m) 0.00 Per Share, fully diluted (EUR) 5.05 Last Price (EUR) 5.34 SENSITIVITY OF OUR VALUATION TO CHANGES IN THE WACC/ DISCOUNT RATE AND IN GROWTH TO INFINITY (EUR) Discount rate or WACC (%) Growth rate to infinity (%)

21 Environmental. Social. Governance Issues. CORPORATE GOVERNANCE HIGHLIGHTS 1. What is the percentage of independent directors on the board? 60% 2. Does the company have a combined chair/ceo? No 3. The board has established separate audit, nomination and remuneration committees? Yes 4. Both executive and non-executive board members own shares under a share ownership plan? Yes 5. Is there a single shareholder or shareholder group which controls a majority of the voting power of the company? Yes 6. Is the company currently under investigation for accounting irregularities? No 7. Can the board block potential takeovers using a poison pill, preferred stock or a shareholder rights plan? No 8. Individual components of executive pay (salary, bonus, stock grants) are disclosed for key executives? Yes 9. Percentage of fixed remuneration (salary + benefits) compared to variable remuneration (bonus and long term share awards)? Not discl. 10. Variable awards are structured according to long term performance with penalties for poor performance? No 11. Percentage change in CEO's total remuneration over the last 3 years +28% in the last 2 years The information contained in this table is written and presented under the sole responsibility of GMI. CA Cheuvreux does not accept any responsibility for any loss which may arise from reliance on information contained in this table Source: GMI CORPORATE GOVERNANCE ANALYSIS Geox is controlled (70%) by LIR Holding, that belongs entirely to Mr. Mario Moretti Polegato and his son, Mr. Enrico Moretti Polegato with 85% and 15% stake respectively. 9 members sit on the Board of Directors: 3 are executive (2 of them represent core shareholder, which hold 70% of the capital) and 6 are non-executive and all of them are independent. We therefore consider Geox to be a controlled company with all other shareholders reduced to minority status. Shareholders cannot make any changes to the governance structure of this company without the support of the major shareholder LIR Holding. In our view, LIR could potentially have a significant influence on the board as both the Chairman (Mario Polegato) and Vice Chairman (Enrico Polegato) control 70% of the voting equity via their ownership of LIR Holding. Individual components of remuneration (salary and bonus) are disclosed for key executive directors. However it is unclear whether variable awards are structured according to long performance with penalties for a poor performance. There is no evidence of any poison pills or shareholder rights plans that could be used to diminish the rights of minority shareholders in the event of a takeover. However, any takeover attempt would require the support of the major shareholder. ENVIRONMENTAL AND SOCIAL ISSUES 1 Employment Analysis for Geox Job creation: What is the rate of new jobs created in recent years? Geox created >330 new jobs in 2007 and >500 in What is the proportion attributable to external growth vs. organic growth? New positions were mainly tied to the company's aggressive expansion strategy, which led to a wave of new store openings over the past year. Store employees nearly doubled in 2008, while the number of office staff and managers remained broadly stable. What is the projected headcount trend for the next few years? Strict control. What is the company's track record for managing headcount reduction plans? Geox has never implemented any redundancy plan and we feel it will probably not be necessary in the coming years. 2 Employment and Human Resources Analysis for Geox Human resources: 1) Does the company suffer from a shortage of qualified personnel for some positions? No. Geox stresses the importance of training its personnel. It launched the "Geox School" in 2001, which is a training centre designed to prepare new employees for entry into the group. It provides them with training in the company's policies, the characteristics of its products and the business development needs of the group. What is the hiring and retention policy? Geox aims to meet the bulk of its human resources needs internally and regular training courses are provided to better motivate staff. 2) How does the company ensure a defined level of service quality? Through strict internal control of outsourced products. What is the company's performance in terms of occupational health and safety? Geox's choice of suppliers is made objectively; it is based on competence and best price according to principles of transparency and correctness in line with strict internal procedures. All of the suppliers are obliged to comply with: 1) the prevailing laws, customs and usage of their country, 2) the prohibition, in staff recruitment, of any discrimination based on race, nationality, sex and religion; and 3) the exclusion of child labour or of non-consenting detainees. 3 Environment Analysis for Geox Is the company aware of environmental issues? Has it implemented an environmental management system? What is its performance and what noteworthy progress has been achieved? Geox does not report on its environmental performance so it cannot provide us with any specific indications or data. With regard to transport, Geox mainly uses ships, in order to reduce land transport as much as possible. 21