Mariella Burani. Italy. 2/Outperform. Hell for leather. Textile & Apparel. 04 April 2006 Initiating coverage

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1 Italy Mariella Burani 2/Outperform Textile & Apparel 04 April 2006 Initiating coverage Closing Price (03/04/06) EUR19.25 Target price +21.0% EUR23.30 Market capitalisation EUR576m BCI To 31/12 (EUR) - IFRS E 2007E 2008E Sales (m) Net att. profit, rest. (m) Free Cash Flow (m) EBITDA margin (%) Clean EPS Reported EPS P/E (x) Attrib. FCF yield (%) EV/EBITDA (x) EV/EBIT (x) ROCE (%) ROE (%) P/BV (x) Net debt/ebitda (x) Net dividend Yield (%) Next event : Q1-06 results due on 15 May Hell for leather We initiate our coverage of with a 2/Outperform rating and a EUR23.30 target price. One company, many strong local brands, lower risk. We feel MBFG's multi-brand strategy reduces revenue volatility and allows the group to gain a stronger foothold in local markets. Key growth drivers: Eastern Europe and Asia. MBFG's wellestablished position in Eastern Europe and the recent partnership with leading Asian distributor Itochu, should sustain the group's expansion strategy. We expect these markets to account for 29% of total sales by 2008 vs. 22% in Value creation from Antichi Pellettieri IPO. The listing of MBFG's leather goods subsidiary should boost the market value of its fastest growing business (25% sales CAGR in 05-08). Based on a valuation in the luxury sector range, the IPO could add a further EUR1.40 to MBFG's fair value. Double-digit growth for the next few years. We forecast a 14% net sales CAGR for the next three years, while EBITDA should rise at a 23% pace, boosted by the higher-margin leather goods business and better efficiency. As a result, we estimate a >32% EPS CAGR for the next three years /01 08/01 04/02 12/02 08/03 04/04 12/04 08/05 03/06 mêáåé mêáåél_`f 52-week range EUR8.945-EUR19.5 Free Float EUR233m No. of shares, adjusted m Daily volume EUR2.95m Reuters/Bloomberg MBFG.MI/MBFG IM 1 month 3 months 12 months Absolute perf. 19.6% 37.1% 109.2% Relative perf. 16.6% 26.1% 75.6% Alberto CHECCHINATO Research Analyst achecchinato@cheuvreux.com (39) Shareholders: Burani Family 50.8%, L Capital 6.4%, Free Float 42.8% Please see important disclosures at the end of this document

2 CONTENTS Investment recommendation I Valuation approach...page 06 DCF valuation at EUR P.06 Impact of Antichi Pellettieri listing... P.07 Premium on 06E P/E, but significant discount on PEG... P.08 II Company profile and outlook...page P.09 Business outlook and strategy... P.09 III Estimates summary...page 14 CHEUVREUX'S RETAIL TEAM Vincent Buzelin (coord.) France vbuzelin@cheuvreux.com Alberto Checchinato Italy achecchinato@cheuvreux.com Michael Dennis UK mdennis@cheuvreux.com Arnaud Joly France ajoly@cheuvreux.com Jurgen Kolb Germany jkolb@cheuvreux.com Lars Norrby Nordic lnorrby@cheuvreux.com Francisco Riquel Spain friquel@cheuvreux.com John-David Roeg Benelux jdroeg@cheuvreux.com Philip Rudman UK prudman@cheuvreux.com 2

3 Company profile Valuation (MBFG), is one of Italy's leading fashion players in the "accessible luxury" market. In 2005, revenues reached EUR483m. MBFG's two main businesses are apparel (64% of sales) and leather goods (31%). Over the last few years, it has acquired several small firms, which enjoy strong brand awareness in certain key foreign markets. International sales account for 70% of total turnover: Western Europe (44% of sales), Eastern Europe (7%) and Russia (7%) are the key markets. The company operates a 241-shop network (159 DOS, 82 franchises), which it has also expanded through acquisitions of luxury goods chains (e.g. in Austria, Switzerland). Direct distribution covers 72% of all turnover (36% DOS, 6% franchising, 30% direct clients). MBFG's board recently approved the Initial Public Offering of Antichi Pellettieri, its leather goods subsidiary. The IPO should be finalized by 2006 and MBFG should retain a >50% stake in the company. MBFG is controlled by its founders, the Burani family, who control a combined 50.8% stake. L Capital, LVMH's investment fund, holds a 6.4% interest in the company and a 10% stake in Antichi Pellettieri. Our DCF-based valuation yields a EUR23.3 target price for MBFG. DCF valuation: 7.9% average WACC Our main assumptions are: 1) 4% risk-free rate; 2) 4% market risk premium; 3) 1.05 un-levered beta; 4) 2.5% perpetuity growth rate. We arrive at a cost of equity ranging from 9.2% to 8.3%, resulting in an average WACC of 7.9%. Our valuation implies a 8.5x terminal EV/EBITDA multiple, in line with the current 07E figure. Peer comparison: 20% discount on EV/EBITDA The stock currently trades at 22.3x on 06E P/E, implying a 9% premium vs. the average of the luxury and apparel sectors. However, the PEG ratio in , is 0.78, i.e. 49% lower than the 1.54 average of its peers. Based on EV/EBITDA, the stock appears to be cheaper than its peer group, trading at 9.7x in 06E, 20% below the sector average. Investment case SWOT analysis We initiate our coverage of MBFG with a 2/Outperform rating based on: Its exposure to high-growth markets. Its recent acquisitions have allowed MBFG to enter the Eastern Europe and Asian markets with wellestablished brands. The favourable economic outlook and the new partnership with Itochu should be key growth drivers in the next few years. Improving efficiency. We believe MBFG could improve its operating performance by: 1) outsourcing more production to low-cost countries; 2) eliminating overlapping structures in foreign markets; 3) developing a more integrated control chain, following the planned minority buy-out at its subsidiaries. IPO of Antichi Pellettieri. Based on an IPO range between MBFG's current multiples and the sector average, we estimate that the AP listing could unlock up to EUR1.40 of additional value per share on top of our target price, plus an extraordinary dividend estimated at EUR0.67 per share. Strengths 1. Broadly diversified brand portfolio 2. High proportion of margin-accretive, direct sales 3. Exposure to high-growth economies 4. Production is 90% outsourced Weaknesses 1. Limited brand visibility vs. pure luxury players 2. Fragmented group structure 3. Italy is now a mature market for the company 4. Successful franchising agreements under-utilized Opportunities 1. Potential synergies from integration of subsidiaries 2. Minority buy-out possible at favourable prices 3. Faster growth at AP, self-financed thanks to the IPO 4. Increasing outsourced production to low-cost countries Threats 1. Competition from secondary luxury brand lines 2. Harsher economic outlook in emerging markets 3. Cost duplication from multiple brand management 4. New duties on production outsourced outside the EU 3

4 Sales breakdown by market (2005A) Sales and ROCE Russia 7.5% Eastern Europe 7.5% North America Rest of Asia 3.0% Japan 4.3% 2.3% Rest of World 1.6% Italy 29.7% UMM SMM QMM OMM NRKM NMKM RKM M MKM Rest of Europe 44.1% OMMN OMMO OMMP OMMQ OMMR OMMS OMMT OMMU p~äéë=eãf ol`b=~ñíéê=í~ñ=ebfi=êáöüíjü~åç=ëå~äé Margins (%) Gearing and ROE OM NR NM R M NMM UM SM QM OM M ORKM OMKM NRKM NMKM RKM MKM OMMN OMMO OMMP OMMQ b_fqa^=ã~êöáå kéí=ã~êöáå OMMR OMMS OMMT OMMU b_fq^=ã~êöáå OMMN OMMO OMMP dé~êáåö OMMQ OMMR OMMS OMMT OMMU oéëí~íéç=oçbi=êáöüíjü~åç=ëå~äé EV Multiples Valuation Summary PM OR OM NR NM R M OMMN OMMO OMMP OMMQ oéëík=bslb_fqa^ bslp~äéëi=êáöüíjü~åç=ëå~äé OMMR OMMS OMMT OMMU oéëík=bslb_fq^ OKM NKR NKM MKR MKM Total (EUR m) Per share NPV of FCFO NPV of Terminal Value EV A net debt (169) (5.66) Minorities (68) (2.27) Equity value Average WACC 7.9% Perpetual growth rate 2.5% Terminal EV/EBITDA 8.5x MBFG: Peer comparison (EUR m, %) Performance P/E EPS PEG EV/EBITDA Peers 1-mo. 3-mo. 06E 07E CAGR Ratio 06E 07E Luxury goods average 2.2% 7.7% % Apparel average 2.4% 10.6% % Luxury/Apparel average 2.3% 8.9% % MBFG 19.6% 37.1% % MBFG vs. Luxury goods 2.2% 7.7% 12.4% -1.8% -51.8% -22.9% -27.0% MBFG vs. Apparel 2.4% 10.6% 4.3% -6.6% -44.9% -16.1% -18.6% MBFG vs. Luxury/Apparel avg. 2.3% 8.9% 9.0% -3.8% -49.3% -20.4% -23.9% 4

5 INVESTMENT RECOMMENDATION We initiate our coverage of (MBFG) with a target price of EUR23.30 and a 2/Outperform rating. We feel the stock is an attractive investment opportunity, despite the impressive recent performance (+41% y-t-d), due to appealing growth prospects in the Eastern European and Asian markets, unexploited synergy potential after its recent acquisition campaign and the prospective value creation from the Antichi Pellettieri IPO (its highly profitable, rapidly growing leather goods unit). Wide brand portfolio safeguards against revenue volatility and aids market penetration. Unlike other major European fashion houses, which leverage on the strength of a single label, MBFG has built up a well-diversified brand portfolio in different markets. Each of the brands acquired by MBFG over the last few years has a specific product focus and is a major player in a key geographical market, shielding the company against both single brand and country-specific shocks. International expansion in high-growth markets. Over the next few years, we expect MBFG to target the fastest growing markets in Eastern Europe and Asia to: 1) exploit above-average macroeconomic growth in these regions (expected GDP growth of >6% in vs. ~2.5% in the EU), which could open up the potential market for MBFG faster than for the pure luxury players; 2) develop the franchising network, which would permit faster penetration for a relatively low investment; 3) leverage on the partnership with Itochu, one of Asia's leading players in fashion distribution, which could pave the way for significant expansion in the Middle/Far Eastern and Japanese markets. Scope to improve operational efficiency. We believe that in order to increase its critical mass and geographic coverage during the recent acquisition campaign, MBFG had to sacrifice some operational efficiency: as a result, the company's EBITDA margin stood at 12.7% in 2005 vs. the sector average of 19.3%. Key profitability drivers should be: 1) lower costs, as more production will be outsourced to low cost countries; 2) an integrated logistics and distribution platform for brands operating in the same geographical areas; 3) better control over its subsidiaries after the remaining minorities are bought out. The Antichi Pellettieri IPO could unlock hidden value for MBFG shareholders. We see the AP listing as a potential catalyst for MBFG's price performance as: 1) it would allow MBFG to distribute an extraordinary dividend of up to ~EUR0.67 per share (3.5% yield); 2) it would enhance the visibility of the leather goods division, which we feel will be the key growth driver in the coming years; 3) if the IPO valuation hits the middle of the valuation range between its current multiples and the luxury goods sector average, it would add up to EUR1.40 to our fair value. Double-digit growth ahead. We believe net sales will grow from EUR483m in 2005 to EUR717m in 2008 (14% CAGR), driven partly by the Coccinelle acquisition, which should raise the contribution of the profitable leather goods division to 40% in 2006 from current 31%. EBITDA should rise at a ~23% CAGR in the next three years, with the margin rising to 15.6% in 2008 from 12.7% in Net profit should climb to EUR43m by 2008 (32% CAGR) and we expect cash flow generation to rise from EUR38m in 2005 to EUR69m in 2008 (22% CAGR). Our DCF-based target price is EUR23.30, based on the following assumptions: 4% risk-free rate, 4% market risk premium, 2.5% perpetual growth rate and an avg. WACC of 7.9%, leading to a terminal EV/EBITDA multiple of 8.5x. The stock trades at a 9% premium to peers based on 06E P/E, but at a 49% discount based on its 0.78 PEG ratio value. MBFG also presents a 20% discount vs. the sector avg. on 06E EV/EBITDA. MBFG: Estimates summary (EUR m, %) 2005A 2006E 2007E 2008E CAGR Sales % EBITDA % EBIT % Net profit % Cash flow % 5

6 I VALUATION APPROACH Our DCF valuation yields a EUR23.3 target price for (MBFG), implying 21% upside vs. the current price. 7.9% average WACC DCF valuation at EUR23.3 In our valuation, we assumed: 1) 4% risk-free rate; 2) 4% market risk premium; 3) 1.05 un-levered beta; 4) 2.5% perpetuity growth rate. As a result, our cost of equity forecast ranges from 9.2% to 8.3% in the period, based on an average WACC of 7.9%, assuming that MBFG's financial structure will gradually be de-geared. MBFG: Cost of equity (%) 2006E 2007E 2008E 2009E 2010E 2011E Un-levered beta Levered beta Risk-free rate (%) 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% Market risk premium (%) 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% Ke (%) 9.2% 9.1% 8.9% 8.7% 8.5% 8.3% Kd (%) 3.8% 3.5% 3.2% 3.0% 2.8% 2.8% D/(D+E) 25.5% 23.4% 20.5% 15.8% 9.6% 2.1% 8.5x terminal EV/EBITDA multiple consistent with current market valuation MBFG should be able to generate EUR33m of FCF in 2007 and EUR63m by 2011 (18% CAGR). We derived a EUR935m EV for MBFG, based on the NPV of FCFO of EUR190m (20% of EV) in the period and a terminal value of EUR745m (80% of EV). We valued minorities at EUR68m, of which: 1) we estimate a EUR45m cash-out from the exercise of MBFG's call options on its minorities before the Coccinelle acquisition; 2) EUR23m for the 49% stake in Coccinelle. Our valuation implies a terminal EV/EBITDA multiple of 8.5x, in line with the 2007E value at which the stock currently trades. MBFG: DCF valuation (EUR m, EUR, %) Net debt 2006E 2007E 2008E 2009E 2010E 2011E TV FCF WACC (%) 7.8% 7.8% 7.7% 7.7% 7.8% 8.0% 8.1% 8.1% Discount ratio Discounted FCF Value per share (EUR) (5.66) Minorities (68) Minorities value per share (EUR) (2.27) DCF valuation

7 Impact of Antichi Pellettieri listing MBFG to remain majority shareholder post-ipo MBFG recently announced that it plans to list its leather goods division, Antichi Pellettieri (AP). The company recently sold a combined 6.3% stake (3% to Coccinelle and 3.3% to a major luxury retail chain, Itochu Corporation, which is based in Japan and the Far East), implying a transactional 06E EV/EBITDA multiple of 8.5x and a total EV of ~EUR300m. After these deals, the company should control 78.2% of AP, while the residual stakes should be held by L Capital (10%) and AP's management team (5.5%). We expect MBFG to retain a 55% stake in AP after the IPO. We believe that the recent re-rating of the stock (+20% 1-month performance) is largely due to the listing of AP. Therefore, we tried to assess the potential impact of the listing on our fair value for MBFG. Our analysis is based on the following assumptions: our MBFG valuation (excluding AP) based on the 2007E EV/EBITDA for the apparel sector; our sensitivity analysis of AP's IPO value based on the current 2007E EV/EBITDA multiple for MBFG compared to the luxury sector (which we feel is more appropriate in view of AP's top-end leather products business). AP listing would be value-accretive for MBFG Assuming a valuation in line with the sector average, we derived a EUR439m EV for the apparel business, which implies a stand-alone valuation for AP of 9.8x on 07E EV/EBITDA ~12% below the luxury goods sector average. If AP's valuation rises towards the luxury sector average, we estimate that the IPO would be: 1) 2% valueaccretive for MBFG, if we apply a 10% discount vs. luxury companies to account for its smaller size or 2) 7% value-accretive, if the valuation is bang in line with the sector average. We feel that the listing of AP would be very beneficial for the group as it would: unlock hidden value, since in our opinion the leather goods division is Mariella Burani's most powerful growth driver, with an organic sales growth rate of 18% in 2005 vs. 12% for the apparel division; trigger a further re-rating of MBFG stock. If AP's valuation approaches the luxury goods average, it would lift the combined valuation of both businesses. MBFG: Impact of the Antichi Pellettieri IPO on fair value AP pre-ipo (EUR target price MBFG EV 935 Apparel 07E sector average 439 Implied AP EV 495 Implied 07E EV/EBITDA for AP 9.8 Luxury goods average 11.1 Current MBFG 07E EV/EBITDA 8.1 AP post-ipo (EUR m) 10% discount vs. luxury sector IPO price at: Fully priced vs. luxury sector AP EV Impact on MBFG fair value 9 42 per share MBFG fair value post AP IPO Potential upside vs. current price 22.6% 28.4% 7

8 Premium on 06E P/E, but significant discount on PEG Competitive position: midway between a luxury goods and retail/apparel player MBFG can be considered both a luxury goods and retail/apparel player, therefore we used peer samples from both sectors to perform our comparison. MBFG presents a 9% premium vs. the luxury goods and retail/apparel average, trading at 22.3x on 06E. However, we believe this higher relative valuation is fully justified by MBFG's strong growth prospects, as it is expected to post 28% EPS CAGR in the coming years vs. 14% for the sector. Consequently, the P/E comparison reveals a 4% discount based on 07E multiples, while MBFG's PEG ratio stands at 0.78 ~49% below the sector average. The stock also appears cheaper than the sector average based on an EV/EBITDA comparison, trading at 9.7x based on 06E multiple, implying a 20% discount to peers (~24% on 07E figures). MBFG: Peer comparison (EUR m, %) Rating Mkt. P/E EPS PEG ratio EV/EBITDA Peers Cap. 06E 07E CAGR 06E 07E Bulgari % Burberry % Hugo Boss % LVMH % Richemont % Swatch % Tiffany & Co. NR % Tod's % Luxury goods average % Adidas Salomon % Benetton % Hennes & Mauritz % Inditex % Retail and Apparel average % Luxury/Retail average % MBFG % MBFG vs. Luxury goods 12.4% -1.1% -51.8% -22.9% -27.0% MBFG vs. Retail and apparel 4.3% -6.6% -44.9% -16.1% -18.6% MBFG vs. Luxury/Retail avg. 9.0% -3.8% -49.3% -20.4% -23.9% 8

9 II COMPANY PROFILE AND OUTLOOK (MBFG) produces and distributes apparel, footwear and leather accessories. In 2005, the company reported EUR483m of net sales (+12.3% y- o-y) and EUR19m net profit (+198% y-o-y). Apparel and leather goods are the core businesses Apparel is the company's biggest business (64% of 2005 net sales), followed by leather goods (31%) and fashion industry software (5%), which is provided to the group's subsidiaries and external clients by its "Digital Fashion" unit. Apparel and leather goods are mainly sold through direct distribution channels (its Directly Operated Stores or "DOS", franchised points of sale and direct clients), which account for ~72% of all its fashion revenues. MBFG is controlled by the Burani family with a combined 50.8% stake, followed by L Capital, the private equity fund owned by LVMH, which holds a 6.4% stake and belongs to the strategic advisory committee of the company. L Capital also owns a 10% stake in Antichi Pellettieri, the company's leather goods vehicle. MBFG: Shareholder structure MBFG: A net sales trend (EUR m) Free float 41% Burani Family 53% SMM RMM QMM PMM OMM NMM M QUP QPM PRV OTQ OOO OMMN^ OMMO^ OMMP^ OMMQ^G OMMR^ L Capital Mgmt 6% Source: CONSOB *2004 figure reclassified under IFRS Source: MBFG Business outlook and strategy Broad portfolio of "accessible luxury" brands >90% of sales from proprietary brands MBFG is active in the "accessible luxury" segment, offering medium to high quality products at lower prices than traditional luxury brands, meaning that both the value and awareness of the brands are more limited (compared to global luxury players like Gucci, Prada and Louis Vuitton). Thanks to the acquisition campaign carried out over the last few years, MBFG now holds a wide portfolio of brands in addition to its main business, Mariella Burani, which are directly owned by the company or managed under license agreements with other fashion houses. 9

10 MBFG: Apparel and Leather Goods revenues by brand (2005A) (EUR m, %) Brands 2005A Sales % of division sales Apparel Own brands Mariella Burani, René Lezard, Mila Schon, Ter et Bantine % Leather Goods Own brands Braccialini and Francesco Biasia (accessories), Baldinini and Sebastian (footwear) % Total Apparel and Leather Goods % of total Own brands % Licensed brands % Source: Cross-divisional diversification has not been fully exploited yet, as all of these brands focus primarily on either apparel or leather goods. In addition, these companies tend to hold a leading competitive position in specific reference markets (e.g. René Lezard in Germany, Baldinini in Russia, etc) and are supported by mono-brand retail chains which facilitate both distribution and commercial penetration. Proprietary brands account for >91% of MBFG's total fashion sales (94% at the apparel division, 85% at the leather goods unit). Growing outside Italy Foreign markets account for >70% of revenues MBFG is rapidly diversifying into new markets to broaden its revenue base. The proportion of net sales generated in the domestic market has declined to 29.7% in 2005 from 38.4% in 2003, and we expect this figure to fall to 25% in In addition, the company is increasing its presence in Western Europe and emerging European markets: the combined weight of revenues from European (ex-italy), Eastern European and Russian markets grew from 49.6% in 2003 to 59.1% in We expect this trend to continue, reaching ~64% by MBFG: Revenue breakdown by market (2005A) GDP growth estimates by geographical areas Eastern Europe 7.5% Russia 7.5% North America Rest of Asia 3.0% 4.3% Japan 2.3% Rest of World 1.6% Italy 29.7% (% growth) 2004A 2005E 2006E 2007E Europe Euro-land Non-Euro (West) Non-Euro (East) Japan China Asia excl. Japan and China India World Rest of Europe 44.1% Source: MBFG 10

11 MBFG is exposed to high-growth economies After analyzing the macroeconomic scenarios in the countries in which MBFG operates, we conclude that the Eastern European and Asian markets in particular could help the group to hedge its top line growth over the next few years. GDP trends (which ultimately drive household income growth and consequently, consumer spending) in these countries are expected to exceed both the European and Eurozone average: the Eastern European region (non-eu) should post 4.5% GDP growth over the next two years, i.e. ~70% better than the Euro-land economy, which is set to rise by just ~2.5% on average, while the Asian economy should increase even more, at a ~6% yearly pace. Expansion and consolidation in new markets will be a key growth driver for MBFG, so we ran a sensitivity analysis to assess the potential impact of an economic downturn in Asia and Eastern Europe (including Russia) on the company's fundamentals. In our analysis, we assumed that a major economic slowdown in these countries could reduce the growth rate for net sales by up to 50% compared to our current estimates. MBFG: Fundamental sensitivity vs. Asian and Eastern European markets (EUR m) 05A 2006E 2007E 2008E Low growth in: (50% of exp. sales growth) Current est. Asia Asia and East. Eur. Current est. Asia Asia and East. Eur. Current est. Asia RoE and East. Eur. Net sales Delta vs. current estimates -1.1% -2.8% -2.3% -4.8% -3.7% -7.0% EBITDA Delta vs. current estimates -2.9% -5.2% -4.4% -7.8% -7.2% -11.7% EBIT Delta vs. current estimates -4.7% -7.4% -7.0% -10.9% -9.8% -14.6% Net profit Delta vs. current estimates -7.8% -9.5% -11.9% -14.9% -14.3% -19.6% In the event of a macroeconomic shock in Asia, we estimate that net sales would fall by 1% in 2006E, EBITDA would decline by ~3% and net profit would be 8% lower. If this downturn persisted for three years, we estimate that net sales would decline by 4% in 2008E and net profit would be ~14% lower than our current forecast. If Eastern Europe and Russia also faced a macroeconomic slowdown, our 2006E net sales forecast would drop by ~3%, which would trigger a 10% reduction of our net profit forecasts. Once again, we tested this scenario over a three-year horizon: in this case, we estimate that revenues would decline by ~7% in 2008E, and net profit would fall by ~19%. Multi-brand strategy and market diversification reduce revenue volatility While this simulation is rather extreme, it helps shed light on Mariella Burani's strategy. We drew the following conclusions: Market diversification could help safeguard against regional volatility. Mariella Burani's foreign expansion strategy should help it to sustain stable top line growth, while helping it to offset country-specific difficulties. Multi-local approach. Despite not having a single (and probably more visible) brand, we believe the portfolio approach could work to MBFG's advantage as it has always bought brands that are leaders in their own countries, allowing it to: 1) accelerate market penetration; 2) reduce brand-related operational risks (tied to changing fashion trends or weak seasonal collections); 3) shield against tourism fluctuations, as the client base for most of these brands is mainly domestic. Untapped efficiency could offer further protection in a weak macro environment. Successful integration of the firms acquired over the last few years could lead to further value creation, meaning that MBFG could still raise profitability even in the event of a market shock. 11

12 The road to efficiency Still a lot of scope to improve operating performance The small to mid-size acquisitions made over the last years have enabled MBFG to penetrate new markets and strengthen its competitive position. However, these gains have come at the expense of operational profitability in our view. Our peer comparison indicates that MBFG's operating performance is 35% lower than its luxury and apparel peers at the EBITDA level and 45% below the sector average on an EBIT basis. We believe this is not due solely to its smaller size, but to the untapped synergy potential in its asset portfolio. Now, that it has achieved greater scale, we feel that better integration of its subsidiaries would unlock considerable synergies. For example, MBFG could further: cut raw materials and third party production costs, thanks to greater bargaining power with suppliers and an increasing share of outsourced production to low cost countries; reduce logistics and distribution costs for subsidiaries based in the same geographical areas; exercise its call options to buy out the remaining minority shareholders (most are former owners, who stayed on as managers following the various acquisitions). MBFG peer comparison: EBITDA and EBIT margins (2005A) Luxury goods sector EBITDA margin (%) EBIT margin (%) Bulgari 19.3% 15.5% Burberry 24.0% 20.9% Hugo Boss 15.3% 12.4% LVMH 21.6% 18.1% Richemont 20.8% 18.2% Swatch 21.1% 16.3% Tiffany & Co. 20.2% 16.0% Tod's 22.4% 17.9% Luxury goods average 20.6% 16.9% Retail and Apparel sector EBITDA margin (%) EBIT margin (%) Adidas Salomon 12.6% 11.0% Benetton 13.7% 8.9% Hennes & Mauritz 23.9% 21.5% Inditex 21.7% 16.2% Retail and Apparel average 18.0% 14.4% Luxury/Retail Average 19.3% 15.7% MBFG 12.7% 8.8% MBFG vs. Luxury goods -38.3% -47.9% MBFG vs. Retail and apparel -29.2% -38.6% MBFG vs. Luxury/Retail average -34.0% -43.6% 12

13 We ran a sensitivity analysis to better understand how a rapid profitability improvement might affect MBFG's fundamentals. We simulated three different growth scenarios for the EBITDA and the EBIT margin for the next three years: Base case (current estimates): In this scenario, we assumed the EBITDA margin would rise from 12.7% to 15.6%, in line with company's guidance. We believe this target is achievable, as high-margin leather goods should account for ~40% of sales by 2008 vs. 31% in 2005, thanks to the Coccinelle acquisition and stronger organic growth compared to the apparel business. Our current estimates imply that MBFG's operating performance would still be 37% lower than the luxury/apparel sector average in Best case 1 (moderate improvement in operating profitability): In this scenario, we assumed that the EBITDA margin would rise to 16.7% by 2008 (30% lower than the sector average). Best case 2 (sharp improvement in operating profitability): In this case, we assumed the EBITDA margin would hit the 17.9% mark by 2008 (almost 3pp above our current estimates, but 25% below the European sector average). MBFG: Operating performance sensitivity vs. sector (EUR m, %) 2005A 2006E 2007E 2008E EBITDA margin catch-up vs. sector Current estimates Best case 1 Best case 2 Current estimates Best case 1 Best case 2 Current estimates Best case 1 Best case 2 Net sales EBITDA Margin (%) 12.7% 13.6% 13.9% 14.3% 14.4% 15.2% 16.0% 15.6% 16.7% 17.9% Delta vs. current est. 2.1% 5.0% 5.8% 11.3% 6.8% 14.5% EBIT Margin (%) 8.8% 10.2% 10.9% 11.2% 11.2% 12.1% 12.7% 12.6% 14.1% 15.1% Delta vs. current est. 6.6% 9.5% 8.3% 13.7% 11.6% 19.5% Net profit Delta vs. current est. 8.1% 11.9% 11.8% 17.2% 15.4% 23.9% Better than expected margin improvement would yield a double-digit increase at the net profit level In the best case 1 scenario, we estimate that EBIT would improve by 6% in 2006E (+12% in 2008E) lifting net profit by 8% this year (+15% in 2008). In our more bullish best case 2 scenario, EBIT would rise by ~9% in 2006E (+19% in 2008), while net profit would be ~12% higher than our estimates (+24% in 2008). We feel both of these scenarios are well within reach, as so far MBFG has behaved more like a holding company than a fully integrated group. Accordingly, the potential synergies and scale economies that would come with more efficient integration could warrant a re-rating of the stock in the medium term. 13

14 III ESTIMATES SUMMARY Sales estimates 14% sales CAGR over the next three years We expect net sales to grow by 14.1% on average over the next three years, rising from EUR483m in 2005 to EUR717m in 2008, driven by: Western Europe. We expect to see double-digit growth in Western European markets (12% CAGR), thanks to René Lezard's strong competitive position in Germany and MBFG's extensive retail presence in Austria and Switzerland with its luxury goods chains, Don Gil and Bernie's. Eastern Europe and Russia. We expect these regions to be among the most appealing markets for MBFG in the short to medium term (17% CAGR in Eastern Europe, 18% in Russia), as brisk economic growth in the region should fuel demand for accessible luxury goods. Penetration of Middle and Far East markets. The favorable macroeconomic outlook for the region (Asian GDP is expected to rise by >6% pa in ), planned franchise store openings and the new partnership with Asian retail distributor, Itochu (3% stake in AP) should all support MBFG's performance. We expect Japan to enjoy a 27% 3-year CAGR, while Asia and the rest of world (which is mainly represented by Middle East countries) should grow at a 25% and 51% pace, respectively. MBFG: Apparel and Leather Goods sales by region (EUR m, %) 2004A 2005A 2006E 2007E 2008E CAGR Italy % % Chg. y-o-y 3.3% 26.7% 3.3% 3.5% Rest of Europe % % Chg. y-o-y 12.6% 15.5% 11.8% 9.0% Eastern Europe % % Chg. y-o-y 8.4% 26.4% 13.5% 11.8% Russia % % Chg. y-o-y 19.3% 28.6% 13.3% 12.3% North America % % Chg. y-o-y 7.7% 8.2% 5.0% 4.5% Japan % % Chg. y-o-y 21.9% 32.3% 25.3% 23.0% Rest of Asia % % Chg. y-o-y 33.0% 28.0% 24.9% 22.8% RoW % % Chg. y-o-y 97.9% 55.9% 50.6% 46.0% Royalties and cons % % Chg. y-o-y -8.5% 6.0% 6.0% 6.0% Total sales Apparel & Leather Goods % % Chg. y-o-y 11.1% 21.8% 10.9% 9.9% 14

15 MBFG: Sales by business (EUR m, %) 2004A 2005A 2006E 2007E 2008E CAGR Apparel % % Chg. y-o-y 7.1% 5.8% 8.8% 9.9% Leather Goods % % Chg. y-o-y 20.4% 54.7% 13.9% 10.0% Digital fashion and other revenues % % Chg. y-o-y 38.6% 19.8% 11.9% 11.1% Sales % % Chg. y-o-y 12.3% 21.7% 11.0% 10.0% Leather goods division to be the main growth driver We expect leather goods to be MBFG's fastest growing business (24.7% CAGR) thanks to: 1) the Coccinelle acquisition (~EUR49m revenues in 2005), which will lift this division's weight on sales to ~40% from 31% in 2005; and 2) the leading position of its brands in the fast-growing Eastern European and Asian markets. The apparel business should grow less than the sector average (8.2% CAGR), as it is more heavily exposed to the mature Western European markets. EBITDA and EBIT estimates EBITDA margin to rise from 12.6% to 15.6% by 2008 We expect MBFG to improve its operational performance at the EBITDA level ( CAGR of 22.7%), thanks to: 1 - streamlining of the group's structure. The listing of AP should lead to a minority buy-out of recently-acquired companies via a share swap, which should give MBFG more room to maneuver; 2 - greater bargaining power with suppliers and third party manufacturers at the leather goods division, after the Coccinelle acquisition, which should reduce raw material costs; 3 - more outsourced production outside Italy, which should result in a leaner cost structure. 90% of MBFG's production is already outsourced. As a result, we expect EBIT to rise more than proportionately (29.2% CAGR), as technical investments should be limited to ~EUR9-10m, (i.e. 50% of total capex), leading to only a marginal increase in depreciation. MBFG: EBITDA and EBIT estimates (EUR m, %) 2004A 2005A 2006E 2007E 2008E CAGR Sales % Raw materials (166) (188) (258) (296) (331) Labor (71) (83) (90) (95) (99) Services and other operating costs (148) (151) (159) (167) (175) EBITDA % % Chg. y-o-y 34.3% 31.7% 17.2% 19.6% % Margin 10.5% 12.7% 13.6% 14.4% 15.6% Depreciation and write-downs (16) (19) (20) (21) (21) EBIT % % Chg. y-o-y 44.5% 43.2% 21.2% 24.4% % Margin (%) 6.8% 8.7% 10.2% 11.2% 12.6% 15

16 Net profit estimates 32% net profit CAGR There is a vast difference between the >50% tax rate of 2004 and the ~20% rate applied in This is entirely due to the new accounting standard. Under IFRS, the deferred taxes tied to MBFG's newly-acquired brands are lower, as they are now amortized over a 40-year period. This reduces overall taxation and has no impact on the company's cash position until the intangible asset is sold. The lower tax burden partially offsets the minorities' weight on the bottom line, which has fallen from 18% in 2004 to 14% in Including the Coccinelle acquisition, we estimate that minority interests now account for ~20% of net profit, while the group's share is set to rise at a 32.4% CAGR. MBFG: Net profit estimates (EUR m, %) 2004A 2005A 2006E 2007E 2008E CAGR Sales % EBITDA % EBIT % % Chg. y-o-y 44.5% 43.2% 21.2% 24.4% % Margin 6.8% 8.7% 10.2% 11.2% 12.6% Net financial charges (13) (15) (13) (11) (10) Pre-tax profit % Taxes (8) (6) (15) (20) (27) Tax rate (%) 51.9% 20.5% 31.4% 32.9% 33.7% Net profit pre-minorities Minorities (1) (3) (6) (8) (11) Net profit % % Chg. y-o-y 187.4% 40.4% 28.5% 28.7% Cash flow and net debt estimates Net debt/ebitda ratio to decrease below 2.0x by 2007 In our cash flow model, we cautiously assumed: 1) that the working capital requirement would remain stable at ~22% of sales; 2) EUR18-22m of capex, slightly higher than the company's guidance of EUR15m per year (50% for new shop openings, 50% for maintenance). We included the EUR10m cash-out for the Coccinelle deal, but excluded any additional acquisitions. Finally, we assumed that the DPS pay-out ratio would remain stable at 20%. On this basis, we conclude that MBFG's financial structure should benefit from a sharp de-gearing (from 69% in 2005 to 42% in 2008), while we expect the net debt/ebitda ratio to remain below 2.0x from

17 MBFG: Cash flow and net debt estimates (EUR m, %) 2005A 2006E 2007E 2008E Cash Flow Change in WC (8) (23) (14) (14) Capex (17) (18) (20) (22) Net financial investments (52) (10) 0 0 Dividends (11) (18) (5) (7) Rights issue Net debt (169) (187) (167) (140) Gearing (%) 69% 73% 57% 42% Net debt/ebitda 2.8x 2.3x 1.8x 1.3x Dividend policy Extraordinary dividend should lift yield above 4% If 40% of the EUR49m capital gain on the Antichi Pellettieri (AP) listing is distributed as an extraordinary dividend, shareholders could look forward to an additional EUR0.67 dividend, on top of the announced EUR0.13 (to be paid on 25 May, ex-date 22 May). This means that the total dividend yield could be as high as 4.1% at current prices. As MBFG does not suffer from a stretched capital structure, we ran a sensitivity analysis to test the potential impact of changes to the pay-out policy on the yield (excluding any extraordinary payments). In our current forecasts, we assume a 20% pay-out ratio, which should deliver a ~1% dividend yield in In our best case scenario, we estimate that a 60% distribution would trigger a 2.7% yield in 2007E and 3.4% in 2008E. MBFG: Pay-out policy sensitivity (EUR, %) 2006E 2007E 2008E Pay-out ratio (ordinary) 20% 20% 40% 60% 20% 40% 60% DPS ordinary DPS extraordinary 0.67 Dividend yield at current prices 4.1% 0.9% 1.8% 2.7% 1.1% 2.3% 3.4% 17

18 Mariella Burani CHEUVREUX IFRS FY to 31/12 (Euro m) E 2007E 2008E Profit & Loss Account Sales % Change 41.2% 23.5% 31.0% 19.6% 12.5% 21.5% 11.0% 10.0% Staff costs (30.9) (40.4) (56.4) (70.4) (71.0) (82.8) (90.2) (94.7) (98.5) Other costs (168.0) (201.1) (258.8) (305.2) (313.4) (338.9) (416.9) (463.2) (506.2) EBITDA % Change 80.8% 42.3% 34.2% 22.4% 35.9% 30.1% 17.2% 19.6% Depreciation (8.2) (10.3) (17.6) (20.7) (16.2) (18.7) (19.9) (20.9) (21.5) EBITA % Change 144.5% 51.5% 17.1% 25.6% 47.0% 40.7% 21.2% 24.4% Goodwill amortisation before OP (3.1) (2.2) Goodwill amortisation [impairment test] Non recurring operational items EBIT Net financial items (5.3) (6.3) (8.6) (11.8) (13.0) (14.8) (13.0) (11.0) (10.0) Non recurring financial items Other exceptional items (3.1) Tax (4.7) (5.0) (7.9) (5.6) (8.4) (5.6) (14.8) (20.3) (27.2) Goodwill amortisation Discontinuing activities Goodwill amortisation Net profit [loss] before minorities Dividend to preferred shares Minorities (1.7) (2.3) (6.6) (2.9) (1.4) (3.2) (6.5) (8.3) (10.7) Net attributable profit [loss] Restatement [impairment test] Adj. for exceptional items Net attrib. profit [loss], restated (*) % Change 116.4% 56.0% 34.8% -39.2% 198.6% 35.1% 28.5% 28.7% Cash Flow Statement Cash flow % Change 63.5% 39.8% 37.5% -8.7% 58.0% 33.9% 16.5% 17.2% Change in WCR 4.3 (24.2) (5.1) (5.1) (9.1) (8.0) (22.9) (14.2) (14.3) Capex (9.5) (26.8) (43.9) (29.2) (29.2) (16.9) (17.6) (19.5) (21.5) o/w Growth capex (14.6) (14.6) (14.6) (8.5) (8.8) (9.8) (10.8) Net cash flow 11.9 (27.2) (16.3) (4.4) (14.3) Financial investments (25.0) (9.5) (52.0) (10.0) Net buyback of treasury shares Disposals Dividend paid (0.8) (1.5) (10.6) (18.2) (5.2) (6.6) Capital increase Other cash flow (2.5) Dec. [inc.] in net debt (16.4) (32.2) (16.3) (4.4) (14.3) (27.3) (18.0) Balance Sheet Shareholders' equity [group share] Minority interests Pension provisions Other provisions Net debt [cash] Gearing [%] Capital invested Goodwill Intangible assets Tangible assets Financial assets Associates Working capital requirement WCR as a % of sales Capital employed * before goodwill for historical data 18

19 Mariella Burani CHEUVREUX IFRS FY to 31/12 (Euro) E 2007E 2008E Per Share Data (at 3/4/2006) EPS before goodwill % Change 116.0% 56.0% 34.9% -39.2% 188.2% 30.9% 28.5% 28.6% EPS, reported % Change 45.5% 119.0% 68.0% -39.2% 188.2% 30.9% 28.5% 28.6% Goodwill per share Dividend per share Cash flow per share % Change 63.7% 39.7% 37.5% -8.7% 52.8% 29.6% 16.5% 17.2% Book value per share No. of shares, adjusted Av. number of shares, adjusted Treasury stock, adjusted Share Price [Adjusted] Latest price High Low Average price Market capitalisation Enterprise value Valuation P/E P/E before goodwill P/CF Attrib. FCF yield [%] 4.1 NS NS NS NS P/BV Enterprise value / Op CE Yield [%] EV/EBITDA, restated EV/EBITA, restated EV/Sales EV/Debt-adjusted cash flow Financial Ratios Interest cover Net debt/cash flow EBITDA margin [%] EBITA margin [%] Net margin [%] Capital turn [Sales/ Op. CE] Gearing [%] Payout ratio [%] Return [%] Pre-tax RoCE RoCE after tax ROE [%] Return on equity, restated

20 Important Disclosures Applicable disclosure clauses Company Closing Price Rating Disclosures Mariella Burani EUR No Rating None A - One or more companies in the Crédit Agricole S.A. group owned more than 1% of the total issued share capital of the Company as of the end of the second most recent month preceding the publication date of this report. B - One or more companies in the Crédit Agricole S.A. group owned more than 5% of the total issued share capital of the Company as of the end of the second most recent month preceding the publication date of this report. C - The Company owned more than 5% of the total issued share capital of Crédit Agricole SA as of the end of the second most recent month preceding the publication date of this report. D - One or more companies in the Crédit Agricole S.A. group held, as of the end of the second most recent trading day, a net sales position higher than 1% of the total issued share capital of the Company. E - The trading portfolio of one or more companies in the Crédit Agricole S.A. group contained shares of the Company as of the end of the second most recent trading day. F - Crédit Agricole Cheuvreux and/or a company in the Crédit Agricole S.A. group is a market maker or a liquidity provider for the financial instruments of the Company. G - Calyon and/or a company in the Crédit Agricole S.A. group has been involved within the last three years in a publicly disclosed offer of or on financial instruments of the Company. H - Calyon and/or a company in the Crédit Agricole S.A. group has concluded or is party to a non confidential agreement relating to the provision of investment banking services (except publicly disclosed offers mentioned under G) to the Company during the past 12 months or that has given rise during the same period to the payment of compensation or to the promise to get a compensation paid. I - This research has been communicated to the Company and following this communication, its conclusions have been amended before its dissemination. J - A director or a board member of the Crédit Agricole S.A. group is an officer, director, or board member of the Company. Specific disclosure clauses None. Cheuvreux's rating and target price system Ratings are built for a 6 to 12 month time horizon. 1/ Selected List Expected to outperform the market and is in our country selected list 2/ Outperform Expected to outperform the market 3/ Underperform Expected to perform at best in line with the market 4/ Sell No Rating or Suspended Target price methodology Expected to underperform the market substantially The investment rating and target price have been suspended. Such suspension is pursuant to Cheuvreux's policy in circumstances when Cheuvreux's parent company, Calyon, is acting in an advisory capacity in a merger or strategic transaction involving this company or when Calyon or Crédit Agricole has a beneficial interest in this company and in certain other circumstances. Cheuvreux's target prices are derived from one or more of the following methodologies : DCF, SOP, peer comparison and EVA. 20

21 Breakdown by rating category (as at 30/09/2005) Number of companies in each category /Selected List 2/Outperform 3/Underperform 4/Sell Number of companies in each rating having received Calyon investment banking services within the last 12 months Share price trend and dates of changes in rating and/or target price NO GRAPHIC AVAILABLE Dates of changes in target price and/or rating N Date Rating Target price 1 15/02/2002 3/Underperform 2 16/05/2002 EUR /06/2002 EUR /12/2002 EUR /04/2003 EUR /03/2006 Local regulatory authorities Country Cheuvreux legal entity Regulatory authority France Crédit Agricole Cheuvreux SA Autorité des Marchés Financiers (AMF) Germany Crédit Agricole Cheuvreux Niederlassung Bundesanstalt für Finanzdienstleistungsaufsicht (Bafin) Frankfurt Branch Italy Crédit Agricole Cheuvreux Italia SIM SpA Commissione Nazionale per le Societa e la Borsa (Consob) The Netherlands Crédit Agricole Cheuvreux - Amsterdam Branch Autoriteit Financiële Markten (AFM) Spain Crédit Agricole Cheuvreux Espana SV SA Comisión Nacional del Mercado de Valores (CNMV) Sweden Crédit Agricole Cheuvreux Nordic AB Finansinspektionen Switzerland Crédit Agricole Cheuvreux - Zurich Branch Swiss Federal Banking Commission (SFBC) United Kingdom Crédit Agricole Cheuvreux International Ltd Financial Services Authority (FSA) 21