Victim of LVMH dependency downgrade to Neutral

Transcription

1 EQUITIES LUXURY GOODS SAFILO NEUTRAL FROM OUTPERFORM EUR6.8 TARGET PRICE EUR6.3 (DOWNSIDE 8%) TARGET PRICE EPS 18e EPS 19e -43% -10% -7% Victim of LVMH dependency downgrade to Neutral 20 JANUARY 2017 at 07:23* Michele Baldelli, CFA (+44) Luca Solca (+44) LVMH starting to unveil its future plans in eyewear potentially negative for Safilo Bloomberg reports that LVMH (1/3 of sales, half of profitability) is close to acquiring a 10% stake in Marcolin, 3 rd frame manufacturer (owned by PAI Partners) after it was awarded the Céline. Diversification of suppliers is ongoing but it is still uncertain whether all LVMH eyewear will go to Marcolin. Growth may be muted until 2020 and any future move by LVMH may also jeopardise it after Indeed, Dior expires in 2020, Givenchy in 2021, Fendi in 2022 and Marc Jacobs in Visibility on future returns (3% 2016e ROCE, 5% ROCE exc. goodwill) materially decreases. Downgrade to Neutral TP to EUR6.3 (from EUR11) The low visibility should make investors look more to ST metrics and asset-based valuations. For this reason we revise down our TP from EUR11 to EUR6.3 as we shift methodology to an average of the CE excl. goodwill (EUR6.6) and of historical average multiples on 2018 figures (EUR6). A bear case scenario DCF (LVMH brands out on contract expiry) would point to c.eur4.5/share. EPS revised down 10% in 2018e and 7% in 2019e to incorporate the loss of Céline The Céline is to be lost from 2018 (revealed by the company in mid-december 2016). Luxottica/Essilor: only marginally negative on competition but a possible buyer is lost We believe that Luxottica already had a world-leading positioning and clear competitive advantages over Safilo. The merger reinforces its positioning against Safilo on bigger brands but Safilo is focused more on small / medium-sized brands. We think the most negative element of the proposed merger is the removal of a possible buyer for Safilo (i.e., Essilor) sales on 31 January, FY on 15 March more visibility on restructuring? We expect FY16 sales and adjusted EBITDA at EUR1.24bn and EUR97m respectively, roughly in line with consensus. We believe management will use the occasion of the sales or FY release to increase visibility on its restructuring plan. Besides this, we believe Safilo may be seeking a deal to sell its Gucci inventory to Kering ( expired in 2016). Price (19 January 2017) EUR6.8 Performance (1) 1w 1m 3m 12m Market cap (EURm) 428 Absolute(%) (11) (15) (31) (27) Free float (EURm) 220 Rel. Luxury Goods(%) (13) (20) (40) (46) EV (EURm) 521 Rel. MSCI Small Cap(%) (11) (17) (34) (37) 3m avg volume (EURm) 1.2 Reuters / Bloomberg SFLG.MI / SFL IM Country / Sub Sector Italy / Eyewear Financials 12/17e 12/18e 12/19e 12/20e Valuation metrics 12/17e 12/18e 12/19e 12/20e EPS, Adjusted (EUR) (0.20) P/E (x) EPS, IBES (EUR) Net yield (%) Net dividend (EUR) FCF yield (%) EV/Sales (x) Sales (EURm) 1,178 1,193 1,204 1,254 EV/EBITDA (x) EBITA, Adj. (EURm) EV/EBITA (x) Net profit, Adj.(EURm) (12.3) EV/CE (x) ROCE (%) Net Debt/EBITDA, Adj. (x) Source: Exane BNPP (estimates), Thomson Reuters (consensus) (1) In listing currency, with dividend reinvested * Date and time (London Time) on which the investment recommendation was finalised. It may differ from the date and time of broad dissemination on the website.see Appendix (on p6) for Analyst Certification, Important Disclosures and Non-US Research Analyst disclosures.

2 Figure 1: New versus old estimates we incorporate the loss of Céline 31 Dec Dec Dec 19 Old New Revision Old New Revision Old New Revision Sales 1, , % 1, ,193.1 (1%) 1, ,204.3 (1%) EBITDA, restated (0%) (4%) (3%) EBITA, restated % (8%) (5%) Net profit, restated (12.3) (12.3) (0%) (10%) (7%) Adjusted EPS (0.2) (0.2) (0%) (10%) (7%) Figure 2: Capital employed excluding goodwill per share points to EUR6.6 We believe investors will look to this valuation metric to gauge the stock pending visibility on a structural recovery of profitability and returns CE excluding goodwill/share ROCE excl. goodwill (%) 1.4% 6.4% 9.2% 11.2% 13.1% Figure 3: Historical average multiple would point to EUR6/share on 2018e figures The low visibility on the business may lead investors to value the business on short term metrics where the margins are still subdued due to the ongoing restructuring Multiple Hist. avg Historical 1y fwd EV/EBIT (x) ex Discounted back to Historical 1y fwd P/E (x) ex Discounted back to Figure 4: Current valuation should be supported by value of proprietary brands and retail network SOTP EURm 2018 sales 2018e EV/sales (x) 2018e EV/EBITDA (x) EV Comment Own brands % discount to Polaroid M&A EV/sales multiple Solstice (retail network) % discount to US transactions and Salmoiraghi & Vigano in IT EV of retail and own brands 454 Current group trading EV Will LVMH seek a 100% stake of Marcolin? Not an easy task LVMH s move to buy a 10% stake in Marcolin does in our view not automatically imply that they will seek full control of Marcolin to make eyewear in-house. First, the retail network of Marcolin (VIVA) is rather low-end and is therefore not fitting that well with the eyewear portfolio of LVMH. Second, we believe there may be a risk of losing some s if LVMH gets full control as some clients may turn to independent competitors. Indeed Marcolin depends on Tom Ford and Guess (almost half of Marcolin turnover) and these could opt to be managed by someone else. The investment reported by the press (EUR50m for 10% stake) would imply an equity value of EUR500m for Marcolin at 100% (EV would equal around EUR700m, 1.5x 2016e EV/sales, 12x 2016e EV/EBITDA). Safilo currently trades on 0.4x EV/sales. Marcolin has EUR450m sales vs EUR1.2bn for Safilo, it has almost no sales from proprietary brands (2% of sales, vs 25% for Safilo), >50% of sales are in the wholesale channel (>90% for Safilo) and c.eur14.5m of sales are generated with frames (Safilo EUR35m). Margins of the two groups are quite similar (6% EBIT margin in 2015 for Marcolin and 5% for Safilo). Exane BNP Paribas Research Safilo 20 January 2017 page 2

3 Figure 5: Key characteristics among top eyewear manufacturers (2015) Cost structure in the industry De Rigo Marcolin Luxottica Safilo COGS 44% 41% 32% 41% ADV & Promo 8% 7% 7% 11% Selling costs 35% 39% 33% 30% G&A 9% 7% 12% 13% EBIT margin 4% 6% 16% 5% Wholesale (% of sales, RHS) 57% 54% 41% 93% Proprietary brands (% of sales, RHS) 30% 2% 41% 25% % royalties on licensed brands NA 13.0% 10.6% 11.5% Sales agents 600 Frames (m units) Gross margin (%, LHS) 56% 59% 68% 59% Figure 6: Expiry dates of the various brands/groups managed by Safilo Licence brand Start of Last year of Licence brand Start of Last year of Licence brand Start of Last year of Elie Saab New (2015) 2025 Swatch New (2016) 2021 Kate New (2013) 2018 Spade/Jack Spade (US) Marc Jacobs Renewal Hugo Boss Renewal (2012) 2020 Banana Republic (US) Renewal (2013) 2018 Jimmy Choo Renewal Pierre Renewal 2020 Liz Clairborne Renewal (2013) 2017 Cardin (2009) (US) Max Mara Renewal (2016) 2023 Tommy Hilfiger Renewal (2014) 2020 Celine Renewal (2016) 2017 Fendi New (2013) 2022 Christian Dior Renewal (2016) 2020 Juicy Couture Renewal (2010) 2017 Givenchy New (2016) 2021 Bobbi New (2013) 2018 Gucci Renewal (2008) 2016 Brown Havaianas New (H2 16) 2021 Fossil Renewal (2013) 2018 Saks Fifth Avenue (US) Renewal (2011) 2016 Figure 7: Bear case scenario DCF incorporating the loss of all of LVMH brands point to EUR4.5/share EURm Terminal value ex-marc Jacobs Sales % change 8.5% -3.3% -4.7% -3.0% 4.0% 4.0% -16.3% -2.0% EBITDA EBITDA Growth -15.3% -5.2% -42.9% 40.9% 29.1% 19.0% -35.4% 13.6% -3.5% EBITDA margin 10.3% 8.0% 7.8% 4.7% 6.8% 8.7% 10.0% 7.7% 8.9% 9.0% EBIT EBIT Growth -26.1% -13.9% -81.0% 207.1% 72.4% 35.1% -57.9% 36.6% 20.5% EBIT margin 7.0% 4.8% 4.3% 0.9% 2.7% 4.6% 6.0% 3.0% 4.2% 5.3% Taxes Tax rate 34.3% 56.5% 30.0% 30.0% 30.0% 30.0% 30.0% 30.0% 30.0% 30.0% NOPAT WC change (41.3) 53.7 (0.6) (2.2) (10.0) (3.0) WC WC / Sales 22.8% 20.3% 21.1% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% Depreciation Depreciation/sales 3.2% 3.6% 3.8% 4.1% 4.1% 4.0% 4.7% 4.7% 4.7% CAPEX Capex / Sales -3.3% -3.7% -4.3% -4.0% -4.0% -3.9% -3.6% -3.6% -3.6% -3.7% Operating FCF Discounted FCF /2022 discounted FCF 170 Discounted terminal value 238 Enterprise Value Net debt Provisions for risks and other liabilities Restructuring charges -40 Restated minority interests -1 (+) Financial investments 51 Equity value 284 Number of shares (million) 62.6 Value per share (EUR) 4.5 Exane BNP Paribas Research Safilo 20 January 2017 page 3

4 Forthcoming events Date Event 31 Jan Preliminary Sales Mar FY 2016 Results 26 Apr AGM 9 May 2017 Q Results 2 Aug H Results 8 Nov Q Results Exane BNP Paribas Research Safilo 20 January 2017 page 4

5 Investment case, valuation and risks Safilo (Neutral, Target Price EUR6.3) Investment case Safilo s business (75% of sales) is risky and the latest moves by LVMH (investment in Marcolin) point to a possible loss of s when they expire. This limits visibility in terms of growth and returns. The almost no growth trend of the last decade could continue for another decade. The Luxottica/Essilor merger removes a possible buyer for Safilo but its use of cash may surprise on the upside if done to acquire a proprietary brand. Valuation methodology Our TP is based on average of the CE excluding goodwill (EUR6.6) and of historical average multiples on 2018 figures (EUR6, mirroring still subdued profitability/returns). Risks to rating and target price Risks relate to the loss of s, management s execution (the new management has a limited track record on this front), forex (USD and Chinese Yuan are the key currencies), the cyclicality of the business (with 93% of sales generated by wholesale and sunglasses accounting for 53% of sales, Safilo is more cyclical than Luxottica), and competition. Exane BNP Paribas Research Safilo 20 January 2017 page 5

6 DISCLOSURE APPENDIX Analyst Certification We, Michele Baldelli, Luca Solca, (authors of or contributors to the report) hereby certify that all of the views expressed in this report accurately reflect our personal view(s) about the company or companies and securities discussed in this report. No part of our compensation was, is, or will be, directly, or indirectly, related to the specific recommendations or views expressed in this research report. Non-US Research Analyst Disclosure The research analysts named below were involved in preparing this research report. Research analysts at Exane Limited and Exane SA are not associated persons of Exane Inc. and thus are not registered or qualified in the U.S. as research analysts with the Financial Industry Regulatory Authority (FINRA) or the New York Stock Exchange (NYSE). These non-u.s. analysts are not subject to the NASD Rule 2241 and NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account. Michele Baldelli Exane Limited Luca Solca Exane SA Exane SA is regulated by the Autorité des Marchés Financiers (AMF) in France, Exane Limited is authorised and regulated by the Financial Conduct Authority in the United Kingdom, and Exane Inc. is regulated by FINRA and the U.S. Securities and Exchange Commission in the United States. Research Analyst Compensation The research analyst(s) responsible for the preparation of this report receive(s) compensation based upon various factors including overall firm revenues, which may include investment banking activities. Research Analyst-Specific Disclosures The research analyst(s) responsible for the preparation of this report (or members of their household) may have a relationship with the companies covered by this research report, as described in the numbered disclosures below. The table immediately below indicates which, if any, of these disclosures apply to the research analyst(s) responsible for preparation of this research report. Research Analyst(s) Companies Disclosures NONE 1 The research analyst(s) responsible for the preparation of this report or a member of his/her household has/have a financial interest in the securities of the subject company/ies, as indicated in the previous table. 2 The research analyst(s) responsible for the preparation of this report or a member of his/her household serve(s) as an officer, director or advisory board member of the subject company/ies indicated in the previous table. 3 The research analyst(s) responsible for the preparation of this report received compensation from the subject company/ies indicated in the previous table in the past twelve months. Exane-Specific Regulatory Disclosures Exane SA, Exane Limited and Exane Inc. (collectively, Exane ) may have a relationship with the companies covered by this research report, as described in the numbered disclosures below. The table immediately below indicates which, if any, of these disclosures apply to Exane s relationship with the subject company/ies. Companies NONE Disclosures 1 Exane beneficially owns 1% or more of any class of common equity securities of the subject company/ies. 2 Exane managed or co-managed an offering of Equity securities for the subject company/ies in the past 12 months. 3 Exane received compensation for investment banking services from the subject company/ies in the past 12 months (the only investment banking services for Exane with regards to the subject company/ies are those when Exane is distributor or underwriter for Equity securities offerings managed-or co-managed by BNP Paribas, when BNP Paribas managed or co-managed an offering of Equity securities for the subject company/ies). 4 Exane expects to receive or intends to seek compensation for investment banking services from the subject company/ies in the next 3 months. 5 Exane SA and/or Exane Limited are/is a market maker and/or liquidity provider in the securities of the subject company/ies. 6 Exane Inc. received compensation for products and services other than investment banking services from the subject company/ies in the past 12 months. 7 Exane Inc. had an investment banking services client relationship with the subject company/ies in the past 12 months. 8 Exane Inc. had a non-investment banking, securities-related client relationship with the subject company/ies in the past 12 months. 9 Exane Inc. had a non-securities-related services relationship with the subject company/ies in the past 12 months. 10 Exane Inc. is a market maker in the securities of the subject company/ies. 11 Exane beneficially owns at least 0.5% long or short position of the subject company/ies. 12 Sections of this report, with the research summary, target price and rating removed, have been presented to the subject company/ies prior to its distribution, for the sole purpose of verifying the accuracy of factual statements. 13 Following the presentation of sections of this report to this subject company, some conclusions were amended. Commitment to transparency on potential conflicts of interest: BNP Paribas While BNP Paribas ( BNPP ) holds a material ownership interest in the various Exane entities, Exane and BNPP have entered into an agreement to maintain the independence of Exane's research reports from BNPP. These research reports are published under the brand name Exane BNP Paribas. Nevertheless, for the sake of transparency, we separately identify potential conflicts of interest with BNPP regarding the company/(ies) covered by this research document. BNP Paribas-related disclosures BNPP may have a relationship with the companies covered by this research report, as described in the numbered disclosures below. The table immediately below indicates which, if any, of these disclosures apply to BNPP s relationship with the subject company/ies. Companies NONE Disclosures 1 BNPP beneficially owns 1% or more of any class of common equity securities of the subject company/ies 2 BNPP managed or co-managed an offering of Equity securities for the subject company/ies in the past 12 months 3 BNPP acted as Advisor in a Public Offer involving the subject Company/ies in the past 12 months. 4 BNPP received compensation for investment banking services from the subject company/ies in the past 12 months 5 BNPP expects to receive or intends to seek compensation for investment banking services from the subject company/ies in the next 3 months 6 A member of senior BNPP management is a member of the Board of the subject company 7 BNPP beneficially owns at least 0.5% long or short position of the subject company/ies. Exane BNP Paribas Research Safilo 20 January 2017 page 6

7 Explanation of Research Ratings Stock Rating Exane s Ratings are relative ratings defined against the performance of the MSCI Index sectors. Outperform (O/P): The stock is expected to outperform the stock s MSCI sector over a 12-month investment horizon. Neutral: The stock is expected to perform in line with the performance of the stock s MSCI sector over a 12-month investment horizon. Underperform (U/P): The stock is expected to underperform the stock s MSCI sector over a 12-month investment horizon. Under review: The rating of the stock has been placed under review after significant news. Any possible change will be confirmed as soon as possible in the form of a new broadly disseminated report Restricted (RS): The stock is covered by Exane but there is no Rating and no Target Price because Exane is involved in an equity capital market transaction relating to the subject company. Not Rated (NR): The stock is covered by Exane but there is no Rating and no Target Price at this time. Not Covered (NC): Exane does not cover this company. Distribution of Exane BNP Paribas equity recommendations As at 02/01/2017 Exane BNP Paribas covered 590 companies. The companies that, for regulatory reasons, are not accorded a rating by Exane BNP Paribas are excluded from these statistics. For regulatory reasons, our ratings of Outperform, Neutral and Underperform correspond respectively to Buy, Hold and Sell; the underlying signification is, however, different as our ratings are relative to the sector. 37% of the companies covered by Exane BNP Paribas were rated Outperform. During the last 12 months, Exane acted as underwriter and/or distributor for BNP Paribas on 7% of the companies with this rating for which BNP Paribas acted as manager or co-manager in an offering of equity securities. BNP Paribas provided investment banking services to 67% of the companies accorded this rating*. 43% of the companies covered by Exane BNP Paribas were rated Neutral. During the last 12 months, Exane acted as underwriter and/or distributor for BNP Paribas on 4% of the companies with this rating for which BNP Paribas acted as manager or co-manager in an offering of equity securities. BNP Paribas provided investment banking services to 71% of the companies accorded this rating*. 20% of the companies covered by Exane BNP Paribas were rated Underperform. During the last 12 months, Exane acted as underwriter and/or distributor for BNP Paribas on 4% of the companies with this rating for which BNP Paribas acted as manager or co-manager in an offering of equity securities. BNP Paribas provided investment banking services to 67% of the companies accorded this rating*. * Exane is independent from BNP Paribas. Nevertheless, in order to maintain absolute transparency, we include in this category transactions carried out by BNP Paribas independently from Exane. For the purpose of clarity, we have excluded fixed income transactions carried out by BNP Paribas. Price and Ratings Chart Safilo Historical closing price & target price (as of 19/01/2017) Source: Exane BNP Paribas Historical rating & target price changes Date & Time of dissemination (UTC) Rating Target Price Closing Price Key changes Report and analyst covering the stock 22 Dec :52 + EUR11.00 EUR7.90 LUXURY GOODS: Cover Page! (M. Baldelli) 5 Dec :49 + EUR11.00 EUR7.92 ITALY: It's not the end of the world, for now (M. Baldelli) 28 Nov :17 + EUR11.00 EUR7.45 ITALY: Count-down to the Italian referendum (M. Baldelli) 10 Nov :35 + EUR11.00 EUR7.97 SAFILO: Good Q3 16 but cash generation is lagging (M. Baldelli) 7 Oct :37 + EUR11.00 EUR9.51 ESSILOR / LUXOTTICA / SAFILO: Eyewear Revolution: Collision Course (M. Baldelli) 3 Oct :21 + EUR11.00 EUR8.55 ITALY: All you need to know about the Italian referendum (M. Baldelli) 22 Sep :39 + EUR11.00 EUR8.81 Initiation of coverage SAFILO: Who Dior's Wins (M. Baldelli) The latest company-specific disclosures, valuation methodologies and investment case risks for all other companies covered by this document are available on Exane BNP Paribas Research Safilo 20 January 2017 page 7

8 SAFILO (Neutral) Price at 19 Jan. 17 / 12m Target Price EUR6.8 / EUR6.3-8% Reuters / Bloomberg: SFLG.MI / SFL IM Baldelli, CFA (+44) & Solca (+44) Eyewear Luxury Goods - Italy Com pany Highlights EURm 35.0 Enterprise value 521 Market capitalisation Free float m average volume 1.2 Performance (*) 1m 3m 12m 15.0 Absolute (15%) (31%) (27%) Rel. Sector (20%) (40%) (46%) 10.0 Rel. MSCI Small Cap (17%) (34%) (37%) 12m Hi/Lo (EUR) : % / % Target Price CAGR 2003/ /2020 EPS restated (**) (10%) 24% 3.7 CFPS (11%) 11% Price 14.3*CFPS Relative to MSCI Small Cap Price (yearly avg from Dec. 07 to Dec. 16) PER SHARE DATA (EUR) De c. 07 De c. 08 De c. 09 De c. 10 De c. 11 De c. 12 De c. 13 De c. 14 De c. 15 De c. 16e De c. 17e De c. 18e De c. 19e De c. 20e No of shares year end, basic, (m) Avg no of shares, diluted, excl. treasury stocks (m) EPS reported (0.20) EPS restated, fully diluted (0.20) % change 10.0% (71.3%) (43.6%) (12.3%) 67.0% (22.8%) 38.8% 25.5% (41.4%) (20.5%) NS NS 59.0% 35.1% Book value (BVPS) (a) Net dividend STOCKMARKET RATIOS Dec. 07 Dec. 08 Dec. 09 Dec. 10 Dec. 11 Dec. 12 Dec. 13 Dec. 14 Dec. 15 Dec. 16e Dec. 17e Dec. 18e Dec. 19e Dec. 20e P / E (P/ EPS restated) 21.9x 27.0x 17.5x 26.3x 16.9x 12.2x 21.0x 18.4x 26.5x 22.3x NC 17.3x 10.9x 8.0x P / E relative to MSCI Small Cap 180% 44% 34% 29% 47% 67% 114% 112% NC P / CF 13.2x 13.3x NC 15.7x 10.8x 5.9x 16.1x 13.2x 12.5x 7.5x 10.0x 7.1x 4.9x 4.3x FCF yield 0.1% (6.4%) (48.9%) 13.1% 5.6% 15.2% 3.9% (1.3%) 4.9% 2.9% 4.7% 3.6% 10.8% 11.5% P / BVPS 1.34x 0.47x 0.33x 0.68x 0.69x 0.39x 0.96x 0.92x 0.76x 0.50x 0.41x 0.38x 0.37x 0.35x Net yield 0.0% 0.0% 0.0% 0.0% 0.5% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Payout 0.2% 0.0% 0.0% 0.2% 8.2% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% EV / Sales 1.40x 0.88x 0.78x 0.77x 0.77x 0.52x 0.95x 0.88x 0.68x 0.50x 0.44x 0.42x 0.37x 0.32x EV / Restated EBITDA 9.6x 7.8x 12.1x 7.7x 6.9x 5.3x 8.8x 8.6x 8.5x 6.4x 9.4x 5.3x 4.0x 3.1x EV / Restated EBITA 12.2x 11.7x 49.0x 12.3x 9.8x 8.2x 12.6x 12.5x 14.3x 11.8x 52.6x 10.8x 6.8x 5.0x EV / NOPAT 20.3x 19.4x 81.7x 20.5x 16.4x 13.7x 21.0x 20.9x 23.8x 19.6x 81.0x 15.5x 9.8x 7.1x EV / OpFCF 20.4x 19.0x NS 6.4x 9.9x 6.0x 13.5x 46.6x 11.7x 14.3x 16.1x 13.4x 6.3x 5.2x EV / Capital employed (incl. gross goodw ill) 1.3x 0.7x 0.8x 0.8x 0.8x 0.6x 1.0x 0.9x 0.8x 0.6x 0.5x 0.5x 0.4x 0.4x ENTERPRISE VALUE (EURm ) 1,672 1, ,069 1, Market cap 1, Adjusted net debt (31) (80) + Other liabilities and commitments Revalued minority interests Revalued investments P & L HIGHLIGHTS (EURm ) Dec. 07 Dec. 08 Dec. 09 Dec. 10 Dec. 11 Dec. 12 Dec. 13 Dec. 14 Dec. 15 Dec. 16e Dec. 17e Dec. 18e Dec. 19e Dec. 20e Sales 1, , , , , , , , , , , , , ,254.3 Restated EBITDA (b) Depreciation (37.8) (42.6) (49.5) (40.0) (36.4) (41.2) (37.0) (38.0) (41.1) (44.2) (45.4) (47.2) (47.5) (47.9) Restated EBITA (b) (**) Reported operating profit (loss) (270.7) Net financial income (charges) (45.4) (57.8) (54.3) (39.6) (34.0) (29.3) (22.6) (8.6) (27.4) (10.7) (14.7) (10.3) (9.2) (4.1) Af filiates (1.0) (0.5) (2.1) (1.8) Other 0.0 (37.9) Tax (39.0) (12.0) (26.2) (24.2) (20.1) (17.4) (34.1) (25.4) (26.9) (22.3) (2.1) (15.9) (19.7) (22.9) Minorities (3.5) (2.8) (0.7) (3.8) (3.2) (0.7) (0.5) (0.4) (0.3) (0.4) (0.3) (0.3) (0.3) (0.3) Goodw ill amortisation Net attributable profit reported 51.0 (23.3) (351.4) (52.7) Net attributable profit restated (c) (12.3) CASH FLOW HIGHLIGHTS (EURm ) Dec. 07 Dec. 08 Dec. 09 Dec. 10 Dec. 11 Dec. 12 Dec. 13 Dec. 14 Dec. 15 Dec. 16e Dec. 17e Dec. 18e Dec. 19e Dec. 20e EBITDA (reported) (221.2) EBITDA adjustm ent (b) (45.0) (45.0) Other items (4.1) (15.1) (6.7) (6.9) (12.4) (6.5) (23.6) (18.5) (3.3) (10.0) Change in WCR (45.2) 27.1 (27.7) 58.5 (0.3) (41.3) 23.7 (0.4) (6.6) Operating cash flow Capex (43.7) (87.9) (34.6) (29.2) (24.7) (28.8) (36.7) (38.9) (47.8) (53.2) (47.7) (46.2) (44.5) (45.1) Operating free cash flow (OpFCF) (3.3) Net financial items + tax paid (80.5) (78.6) (68.8) (61.9) (54.0) (50.0) (47.1) (34.3) (38.0) (28.7) (12.4) (21.8) (24.6) (27.0) Free cash flow 1.5 (25.5) (72.0) (12.0) Net financial investments & acquisitions (0.1) (0.2) (62.6) 0.0 (6.7) (70.1) (3.5) (0.3) Other 23.7 (2.7) (5.7) (4.4) 25.6 (4.4) 0.0 Capital increase (decrease) (44.3) (3.7) (3.8) (0.6) Dividends paid (7.9) (27.0) (3.1) (2.1) (0.9) (2.7) Increase (decrease) in net financial debt (17.2) (331.9) (17.9) (23.0) (32.8) (19.2) (73.4) (40.2) (15.6) (40.9) (42.0) (49.5) Cash flow, group share (9) BALANCE SHEET HIGHLIGHTS (EURm ) De c. 07 De c. 08 De c. 09 De c. 10 De c. 11 De c. 12 De c. 13 De c. 14 De c. 15 De c. 16e De c. 17e De c. 18e Dec. 19e Dec. 20e Net operating assets 980 1, WCR Restated capital employed, incl. gross goodwill 1,326 1,378 1,049 1,024 1,047 1,063 1,026 1,110 1,104 1,113 1,091 1,089 1,084 1,088 Shareholders' funds, group share ,011 1,053 1,118 1,154 1,207 Minorities Provisions/ Other liabilities Net financial debt (cash) (7) (49) (98) FINANCIAL RATIOS (%) Dec. 07 Dec. 08 Dec. 09 Dec. 10 Dec. 11 Dec. 12 Dec. 13 Dec. 14 Dec. 15 Dec. 16e Dec. 17e Dec. 18e Dec. 19e Dec. 20e Sales (% change) 6.1% (3.6%) (11.9%) 6.8% 2.0% 6.7% (4.6%) 5.1% 8.5% (3.4%) (4.7%) 1.3% 0.9% 4.2% Organic sales grow th 10.2% 0.5% (13.1%) 4.3% 6.1% (0.5%) (3.7%) 5.9% (0.1%) (3.4%) (4.7%) 1.3% 0.9% 4.2% Restated EBITA (% change) (**) 4.3% (37.1%) (81.3%) 319.7% 27.1% (14.3%) 14.9% (2.2%) (26.1%) (14.2%) (81.2%) 362.1% 43.5% 22.4% Restated attributable net profit (% change) (**) 10.8% (71.3%) (43.6%) 136.3% 67.0% (15.3%) 39.8% 25.7% (41.1%) (20.5%) NC NC 59.0% 35.1% Personnel costs / Sales 21.8% 23.6% 25.1% 24.5% 23.9% 23.8% 24.3% 25.2% 24.5% 26.5% 27.4% 26.6% 26.0% 24.6% Restated EBITDA margin 14.7% 11.2% 6.5% 10.0% 11.1% 9.8% 10.9% 10.3% 8.0% 7.8% 4.7% 7.8% 9.4% 10.2% Restated EBITA margin 11.5% 7.5% 1.6% 6.3% 7.8% 6.3% 7.6% 7.0% 4.8% 4.3% 0.8% 3.8% 5.4% 6.4% Tax rate 41.7% 40.9% NC NC 39.3% 39.6% 68.0% 39.2% NC 70.0% 5.3% 19.8% 35.0% 30.0% Net margin 4.6% (1.8%) (34.7%) 0.4% 2.8% 2.3% 1.4% 3.3% (4.1%) 0.8% 3.2% 5.4% 3.0% 4.3% Capex / Sales 3.7% 7.7% 3.4% 2.7% 2.2% 2.4% 3.3% 3.3% 3.7% 4.3% 4.0% 3.9% 3.7% 3.6% OpFCF / Sales 6.9% 4.6% (0.3%) 12.1% 7.7% 8.6% 7.0% 1.9% 5.9% 3.5% 2.7% 3.1% 5.9% 6.1% WCR / Sales 29.0% 27.8% 30.0% 23.7% 23.8% 21.7% 21.7% 22.8% 20.3% 21.1% 20.0% 19.7% 19.3% 19.1% Capital employed (excl. gdw./intangibles) / Sales 46.0% 47.8% 50.7% 42.6% 42.7% 39.1% 43.7% 44.7% 40.6% 42.8% 43.0% 42.4% 41.5% 40.2% ROE 6.1% 1.8% 1.9% 2.6% 4.1% 3.2% 4.6% 5.0% 2.9% 2.2% (1.2%) 2.2% 3.4% 4.4% Gearing 61% 68% 133% 34% 30% 26% 22% 20% 13% 8% 6% 1% (3%) (7%) EBITDA / Financial charges 3.9x 2.2x 1.2x 2.7x 3.6x 3.9x 5.4x 14.1x 3.7x 9.0x 3.8x 9.1x 12.2x 31.2x Adjusted financial debt / EBITDA 2.9x 4.4x 9.0x 2.4x 2.0x 1.9x 1.5x 1.6x 1.2x 0.8x 1.1x 0.2x NC NC ROCE, excl. gdw./intangibles 15.0% 9.4% 1.9% 8.8% 11.0% 9.6% 10.4% 9.4% 7.1% 6.0% 1.3% 6.3% 9.2% 11.2% ROCE, incl. gross goodw ill 6.2% 3.8% 0.9% 4.0% 4.9% 4.2% 5.0% 4.5% 3.3% 2.8% 0.6% 2.9% 4.2% 5.2% WACC 10.6% 8.7% 7.5% 9.4% 9.7% 8.6% 9.8% 8.9% 9.0% 9.4% 9.3% 9.3% 9.3% 9.3% Latest Model update: 20 Jan. 17 (a) Intangibles: EUR646.24m, or EUR10 per share. (b) adjusted for capital gains/losses, impairment charges, exceptional restructuring charges, capitalized R&D, pension charge replaced by service cost (c) adj.for capital gains losses, imp.charges, capitalized R&D, am. of intangibles from M&A, exceptional restructuring, (*) In listing currency, w ith div. reinvested, (**) also adjusted for am. of intangibles from M&A, or for am. of gw ill for pre IFRS year Exane BNP Paribas Research Safilo 20 January 2017 page 8

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