Folli Follie Group

Greece/ General Retailers

Company update

Investment Research

8 June 2011

Recommendation unchanged

Share price: EUR
closing price as of 07/06/2011

11.15 13.80 14.60

Lower valuation on domestic macro woes; Buy rating remains on valuation grounds
Following the release of 1Q 2011 results and the EGM approval of the EUR84.6m share capital increase, we have modified our forecasts and valuation model accordingly. We have factored in a weaker domestic environment and the impact of rising raw material prices (silver, gold) on the gross margin. As a result of the above, we have trimmed our EPS estimates by 2% in FY11 and set our target price at EUR13.80/share (vs. EUR14.60/share previously), which implies a 24% upside potential on current price levels. Excluding the rights issue proceeds and using the current number of shares, our target price is again set at EUR13.80/share. We stick to our ‘Buy’ rating on valuation grounds and the expected benefits from the strategic partnership with Fosun. We reduced our revenue forecasts for FY11 and FY12 (by 1.1% and 1.9% respectively), mainly to reflect the impact of the new austerity measures and the operation of a new discount outlet village in Athens in June 2011 on the performance of the retail business in Greece. We now look for revenues of EUR1,014m for FY11 (+2.4% y-o-y) as the opening of new stores in the luxury segment and increased tourist inflows will more than offset the weakness in wholesale and retail activities this year. For 2012, we see revenues growing by 5.0% y-o-y to EUR1,064m due to the aggressive expansion of the luxury unit in China in cooperation with the new strategic investor and the positive impact of 2012 Olympic Games on Links of London’s sales. On the EBITDA front, we have reduced our FY11 forecasts by 1.8% to EUR213m to reflect lower revenues and elevated pressure on gross margins from increasing raw material prices (specifically gold and silver). The underlying margin is seen at 21% from 19.5% in 2010, as the synergies from the triple merger and some non-recurring costs that burdened FY10 profits, will improve profitability margins in FY11. Finally, net profits are seen standing at EUR112.9m (+35.5% y-o-y) in 2011, but 2.0% below our previous forecast, while we anticipate an 11% increase to EUR125.7m for 2012 (very close to our previous projections). Folli Follie Group announced a weak set of financials for 1Q 2011, which however exceeded our estimates in all lines. Sales came in at EUR219.2m (-4.4% y-o-y), EBITDA stood at EUR43.5m (-19.9% y-o-y) and net income dropped 21.4% y-o-y to EUR22.9m (18.9% above our estimates). Despite the late timing of Easter, quarterly results revealed a deteriorating environment for the retail division in Greece, encouraging signs for the duty-free operation and pressure on the profitability of the luxury business due to rising raw material prices (gold, silver). On May 19th, the management of Folli Follie (FF) signed a MoU with Fosun International Group, an agreement that among other is expected to assist Folli Follie expanding its presence in China. We are positively inclined on this strategic partnership given the prospects of the Chinese market (economic growth, rising living standards) and Fosun’s high financial capacity and access in distribution channels in China. However, we do not expect at this stage any financial benefits seen in 2011 as the two companies have not yet agreed on the scope of their partnership. Recall that on May 26th, shareholders approved the terms of the share capital increase by EUR84.6m through the issue of 6,360,000 new common shares in favour of Fosun, which will hold a 9.5% stake in Folli Follie.
Analyst(s): Dimitris Birbos +30 210 81 73 392

Target price: EUR
vs Target Price: EUR

Daily avg. no. trad. sh. 12 mth Daily avg. trad. vol. 12 mth (m) Price high 12 mth (EUR) Price low 12 mth (EUR) Abs. perf. 1 mth Abs. perf. 3 mth Abs. perf. 12 mth

29,063 0.34 15.25 8.51 -14.0% -25.2% 3.4%

Market capitalisation (EURm) Current N° of shares (m) Free float
Key financials (EUR) Sales (m) EBITDA (m) EBITDA margin EBIT (m) EBIT margin Net Profit (adj.)(m) ROCE Net debt/(cash) (m) Net Debt Equity Net Debt/EBITDA Int. cover(EBITDA/ EV/Sales EV/EBITDA EV/EBITDA (adj.) EV/EBIT P/E (adj.) P/BV OpFCF yield Dividend yield EPS (adj.) BVPS DPS 12/10 990 193 19.5% 172 17.3% 88 10.5% 652 1.2 3.4 5.5 1.3 6.7 6.7 7.5 7.6 1.3 4.5% 0.0% 1.45 8.73 0.00 12/11e 1,014 213 21.0% 191 18.8% 116 11.6% 552 0.8 2.6 5.3 1.2 5.7 5.7 6.3 5.8 1.0 10.1% 0.9% 1.92 11.52 0.10

676 61 49%
12/12e 1,064 229 21.5% 206 19.4% 130 12.2% 473 0.6 2.1 5.9 1.1 4.9 4.9 5.5 5.2 0.8 15.4% 0.9% 2.15 13.51 0.10

vv 16 ds v dv sdy

15 14 13 12 11 10 9 8

May 10

Jun 10

Jul 10

Aug 10

Sep 10

Oct 10

Nov 10

Dec 10

Jan 11

Feb 11

Mar 11

Apr 11

May 11

Jun 11

Source: Factset

Stoxx General Retailers (Rebased)

Shareholders: Koutsolioutsos Dimitris 37%; ATEBank

8%; Fidelity International 6%;
For company description please see summary table footnote

Produced by:

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Distributed by the Members of ESN
(see last page of this report)

In particular. Fosun will support Folli Follie’s efforts to penetrate the fast growing Chinese luxury market in the following ways: 1) Brand awareness: Fosun is engaged in the mass media and advertising industry and can help FF to build its brand name in the country.30 (the total raised capital will amount to EUR 84. while it operates one of the biggest online shops in China. 2) Distribution network: Fosun has an extensive network of jewellery shops while it has established cooperation with Bailian group.5% of Club Med. an agreement that is expected to assist Folli Follie expanding its presence in China.6m). while Fosun can provide access to premium Chinese customers. FF stores can also operate within Club Med resorts. shopping malls and convenience stores. rising living standards) and Fosun’s high financial capacity and access in distribution channels in China. The CEO of Folli Follie stated that the new equity capital will be channelled towards new investments and debt reduction. The two companies will present more details of their partnership in June 2011. Following the completion of the share capital increase. we do not expect at this stage any financial benefits seen in 2011 as the two companies have not yet agreed on the scope of their partnership. The company held an EGM on May 26th which approved the terms of the share capital increase. Fosun will own a 9. in favour of Fosun International. Folli Follie could distribute its products (Folli Follie and Links of London brands) through these points of sale. which operates department stores. However.5% stake in Folli Follie. Folli Follie will issue 6. no insight was provided for the expansionary plans in China or the financial benefits (in sales and earnings terms) for Folli Follie. with the preference right of the old shareholders cancelled.Folli Follie Group Investment Case Chinese investor to facilitate expansion plans in China On May 19th. The strategic cooperation between the two groups will also entail tourism and retail trade in Greece and specifically the attraction of Chinese tourists in the country. one of the largest retail groups in China. This incoming tourist flow will benefit duty free sales (Chinese are regarded as high-spenders tourists) as well as the luxury segment. For this reason. We are positively inclined on this strategic partnership given the prospects of the Chinese market (economic growth. which has also presence in Greece (three tourist resorts). the management of Folli Follie (FF) signed a MoU with Fosun International Group.000 new common nominal shares at EUR 13. Page 2 . while teams from both parties will work on the business plan and ideas on how to benefit from this cooperation. Recall that Fosun acquired 9. among others.360.

In the luxury segment (Folli Follie and Links of London).4% y-o-y. the surprisingly robust performance of the duty free operation and especially the encouraging signs for the performance of the Greek tourism industry in 2011. make us more optimistic for the specific business. we see department stores to record sales of EUR133m in 2011 (-7. We estimate that the revenues from the luxury division (ex-Japan) will grow 10% y-o-y in 2011 due to the greater penetration in China and other Asian markets.0% y-o-y to EUR1. A stronger euro creates some concerns for the revenues of the export-oriented luxury unit. we see luxury sales at EUR535m for 2011.5% below our prior estimates). The continuation of store expansion following the strategic partnership with Fosun and the Olympic Games that will be held in London are expected to fuel turnover growth in 2012 (+7. jumping to EUR577m in 2012.064m due to Folli Follie’s aggressive expansion in China in cooperation with Fosun and the Olympic Games of London that are expected to boost Links of London’s sales (Links will design the jewellery collection of the Games).4% y-o-y as the opening of the new stores in the luxury segment and the increased tourist inflows will more than offset the weakness in wholesale and retail activities. At the recent conference call. the management reiterated its optimism for the performance of the duty free operation on the back of the increased number of visitors and a more favourable mix (more high-spender tourists from Russia. we look for revenues of EUR1.014m in FY11.5% below our previous forecasts) and clothing/footwear division to post a 6. we see revenues from department stores down 4% y-o-y to EUR127. In addition. For these reasons we upward revise our revenue estimates by 0. The travel retail unit pleasantly surprised us in 1Q 2011. will be fully reflected on consumer spending next year.9% respectively). For 2012.7m.8% for 2012 to EUR310m (+9.9% y-o-y). Specifically. Israel and Turkey). mainly to reflect the impact of the new austerity measures on the performance of the retail business in Greece and the opening of a new discount outlet village in Athens in June 2011. while clothing/footwear sales are seen retreating by 6. In particular. we expect a mid-single digit decrease in FY11 revenues on the back of: 1) the new fiscal measures in Greece that are expected to reduce disposable income and deteriorate consumer sentiment further.6m for 2012.Folli Follie Group New set of forecasts We have reduced our revenue forecasts for FY11 and FY12 (by 1.5% y-o-y) and by 2. Page 3 . while the positive effect of the operation of the three new duty-free gas stations in border crossings will be evident from 2Q 2011. we see revenues up 5.1% y-o-y) for that division. We view that 2012 will be another tough year for the retail/wholesale division as the new fiscal measures that will be adopted in the second half of 2011. up 2.9% revenue drop to EUR126m (7. 2) the operation of a new discount outlet at Athens International Airport.5% for 2011 to EUR284m (+10. On the other hand. very close to group’s ‘Factory Outlet’ department that is expected to grasp a material market share amid current economic circumstances and 3) the on-going protests against the government plans that will negatively impact the performance of Folli Follie’s flagship department store ‘Attica’. we lowered our revenue estimates for the luxury operation (Folli Follie. Links of London) to take into account adverse FX rates (stronger euro) and a more conservative stance for the Japanese operation. In particularly. On the whole.1% and 1. In relation to the retail and wholesale division (department stores and clothing/footwear). we look for sales growth of 5.1% yo-y in 2011 as the expansion of the distribution network will more than offset the weakening performance of the Japanese subsidiary. 3.6% y-o-y to EUR117.

6%.4% -71. In relation to operating profits (EBITDA).5% 133.0% -3.8% to EUR229m on a respective margin of 21.5% 0.7 -6.4% -1. We note that our estimates implicitly call for stable FX rates and no gains/losses from FX derivatives.0% 135.5% 7.0 -7. Page 4 . We forecast a slight drop of 40bps in the FY11 gross margin.9 1.3% 2011f 535.4% below our old estimate).0 391.9 2.0%.9% 2013f 587. an improvement which is attributed to organic growth.1%) and administrative expenses (+3.1% 284. Note that the group recorded net profits of EUR0. while we have increased our forecasts on other income (from EUR30m to EUR36m). while we look for a 70bps improvement in 2012 to 50.8 1.7% 118.8 1.1% 2012f 577.8% 321. Recall that Greek entities will pay a 10% special tax on the EBT of the previous year for 2011 and 2012.0% -1.Folli Follie Group Revenue forecasts 2011-2013 EUR m Jewellery . we expect EBITDA to grow by 7.3 3. up 150bps against last year. Finally.8% On the profitability front. which is 1.0% New vs. while we keep intact our assumptions for the net financial results.0% below our previous forecasts) and EUR125.8% a year ago.6% 7.064.5 0.7m previously) due to the deteriorating performance of Attica Stores. as a result of a weak 1Q 2011.7%.3 989.6 -6.3 0.1 10.8 1.5 7.8 6. following their 10% increase in 1Q 2011.6 -4.2% 2. a better mix in travel retail (more visitors from non-EU countries) and the increase of the contribution of the high-margin Chinese market in the luxury segment will mitigate the pressure from increased raw material prices (gold and silver) and a worsening consumer sentiment in Greece.4% New vs.0m relating to the triple merger.0% -3.0 -6.7% 0.013.7 2.8% -13. which means that a stronger euro and unforeseen losses from currency forward products represent a downside risk to our numbers. which is seen at 50.3 7.0%) for 2011.8% -7.086.3m for 2011 (vs. The respective margin is seen at 21% in 2011.0% -77. when Folli Follie suffered losses of EUR14.8% below our previous forecast due to our conservative stance on revenues and gross margins. The company 2010 508.9m for 2011 (2. In 2012.Accessories y-o-y Travel retail y-o-y Department stores y-o-y Clothing.2 -6.4% y-o-y) in 2012.3% 0. Recall also that 2010 opex were augmented by one-off costs of EUR5.0 5. Old 0.0% from 31.Watch . EUR1.6% 7.5% -3.0% 0. we end up with net profits of EUR112.7% -13. Below the EBITDA line.6% -62.0% -76.2 1. cost synergies and nonrecurring expenses recorded in 2010. Old -0.0% 117. the termination of an activity in retail and other expenses associated with marketing events. we look for minorities of EUR1. we have marginally decreased our estimates on the depreciation expenses.1% 127.5% -7.1% -1. Taking all these into account.4% 126. The decrease of the statutory corporate tax rate to 20% in 2011 from 24% last year is driving the effective tax rate at 21. We now see group’s EBITDA at EUR213m in 2011 (+10.6% 129.0 9.m in 2010. Group’s gross profits are now seen at EUR507m (+1.1% y-oy).2% 143.7% y-o-y) in 2011 and EUR525m (+6.8% -7. Old -0.2m from investments in currency derivatives.3% 257.9% 7.0 5.3 -1.6% 2.7m for 2012 (0.9% 310.6 -0.0% -3. the management reiterated its guidance for synergies amounting to EUR15m from the triple merger.5 0.Footwear y-o-y Other y-o-y Eliminations Total Revenues y-o-y Source: IBG. We assume a lowdigit growth rate in selling (+2.1% New vs.

6% 24.8 216.2 -2.8 50.6 -1.8 83.0% 5.7 -1.4 -0.0% 140 bps 2.6% 2011f 1.1 55.9 11.8% 30 bps 0.2% 0.7 17.8 20.0% 2.0 524.0 15.0 190.8% -25.0% 36.0 1.7% 36.8% 112.2 238.0% 2012f 1.7 34.2 164.1 498.7% -40 bps 8.0% 36.4% 8.0% 3.2% 5.4 127.0% 136.6% 11.0 138.5 114.7% 10.7 506.3 112.3% (%) 2.1% 150 bps -7.3 212.7% (%) 2.0% 18 bps -5.4% 67 bps 2013f 1.Folli Follie Group P&L forecasts 2011-2013 EUR m Revenues Cost of sales Gross profits Gross margin (%) Other Income Administrative expenses Selling costs Other Expenses Synergies EBIT EBIT Margin (%) Depreciation EBITDA EBITDA Margin (%) Net Financial Results EBT Income Tax % tax rate One-off tax charge Net income before minorities Minorities EAT after minorities Net margin (%) Source: IBG.9% 3.0 58.087 1.1 29.7 85.1% -8.0% 8.8 506.0% 0.014 1.6% 23.7 12.2 21.2% 7.6 554.1% 0.0 124.4 20.9% -15.7 11.0 60.8 21. Forecast Changes for the period 2011-2013 EUR m Revenues New Revenues Old New vs.086.2 1.3 51.0 206.7 193.106 -1.8% 35.7 137.3% 21.3 125.0% 11.4 147.9% 229.2 6.2 32.0% 3.2 -0.3 8.0% 11.4% 11.8 34.9 532.1% 212.5 297.0% 2.8% 56 bps -3.5 136.2% 1.0 15.8% 15.2% -100.3 19.6 539.6% 11. Old (%) Net Income New Net Income Old New vs.0% 3.5 50.064 1.6 -1.0 57.6% -42.5% -47.0% 0.5% 2.9 319.0 229.0% 16 bps 3. Old (%) Source: IBG 2011f 1.2 1.1% 3.0% 3.2 304.8% 22.6 20.7 326.4% 70 bps 0. clothing/footwear).085 -1.0% 8.0% 125.4% 2013f 1.5% 17.0% 3.9 28.4% 33.025 -1. The company 2010 989.5 18.1% 1.8% 78 bps The following table summarizes our forecast changes in the key P&L items for the period 2011-2013.5% 270 bps 2012f 1.6% 5.8 172.3 21.6 19.0 212.4% 23.6 171.064.3 19.3% 60 bps 3. Old (%) EBITDA New EBITDA Old New vs.7% -39.4% 3.5% 6.7 236.0 15. while the decrease in our estimates regarding operating and net profits for 2011 resulted from a lower gross margin due to increased raw material prices.1 1.2% -28.8% 236.0% -43.6 491.9% (%) 5. The downward revision to our revenue forecasts is attributed to lower revenues from the domestic retail business (department stores.1 6.5% Page 5 .013.1 6.0% 4.7 126.9 115.1% 34.0% 4.8 6.5 50.3 231.

including the cash injection by Fosun (c.0 67. EUR85m) and stick to an estimated market value of EUR20m for minorities. We have factored in a weaker domestic environment and the impact of rising raw material prices (silver.7 190.9 13. since we anticipate fast growth for 2011-2013 and a moderate growth path for 2014-2015. we have developed explicit cash flow estimates for the period from 2011 to 2013.4 0.1 2.064. We set working capital requirements at EUR67.5 22.5% 2.5% 4. Folli Follie Group . Excluding the rights issue proceeds and using the current number of shares.5 20.4 22.5% 1.0 44.0 925 66.6 34.5% 3.9 2014f 2015f 141.0 127.3 2013f 1. EUR14. we reduced our capex assumption to EUR20m from EUR25m. gold) on the gross margin.69 97. we have trimmed our EPS estimates by 2% in FY11 and set our target price at EUR13. * Number of shares after the share capital increase through the issue of 6.6 2.7 10.498 552. In particular.0 206.1 0.5% and a perpetuity growth rate of 1.0 20. we have modified our forecasts and valuation model accordingly.013.2 0.3 32.9 212.5% 10. DCF Valuation Following the signing of a strategic partnership with the Chinese group Fosun International.000 new common shares Page 6 .75 0.80/share. For the calculation of net debt we used our estimates for 2011.7m for 2011 which will be another year of aggressive expansion and gradually reduce it as we assume better receivables collection.93 86.5 29.03.75 0. which will keep working capital needs at relatively high levels.6 0.DCF Valuation EUR m Sales EBIT Less: Income Tax Less: Special tax Plus: Depreciation Plus: Change in Provisions Less: CAPEX Less: (WC) Less: Investment in Associates Free Cash Flow to the Firm FCF Growth rate 2014-2015 (%) WACC Time Distance from 31.75 0.8 4.75 0. For 2014-2015 we calculate FCF by using a 2.7 0.1 10.5% 10. our target price is again set at EUR13.4 3.3 0.0 138.5%.5% growth rate and use a discount rate of 10. Following management guidance.75 0.0 20. predicting rapid expansion in China.0 23.8 10.8 2012f 1. we are using a 3-stage DCF model for the valuation of Folli Follie Group.0 485. We stick to our ‘Buy’ rating on valuation grounds and the expected benefits from the strategic partnership with Fosun.6m share capital increase. As a result of the above.62 90.2 145.5% 0.086.3 20.80/share (vs.76 104.2 Source: IBG.50% 1.2011 Discount Factor PV of FCFF 2011-2015 Sum of PV of FCFF 2011-2015 Terminal Growth Rate (Perpetuity) Terminal Value (Perpetuity) Enterprise Value Less: Net Debt / (Cash) 2011e Less: Minorities (market value) Equity Value No of shares* Target price 2011f 1.8 0. very close to the book value presented in group’s IFRS statements.5 1.0 92.0 43.60/share previously).360.012 1.84 107.Folli Follie Group Valuation Following the release of 1Q 2011 results and the EGM approval of the EUR84.

360. We maintain our ‘Buy’ recommendation on valuation grounds as well as group’s significant growth prospects outside Greece. Folli Follie trades at a 70% discount in terms of 2011e P/E. According to Factset data. Page 7 . retail trade and travel retail. We believe that current valuation looks appealing given group’s growth prospects and especially the signing of a strategic agreement with Fosun International which is expected to facilitate market penetration in China. especially after the strategic partnership with Fosun. Folli Follie trades 6. Sensitivity on DCF valuation We provide below a sensitivity analysis of our valuation results with respect to the discount rate and the perpetuity growth rate. Note that there is no quoted company directly comparable to Folli Follie due to its extensive scope of operations.5% 13.0% 11.20 Peer Group Analysis We present a comparison of Folli Follie’s valuation multiples against a selected sample of international peers that are active in luxury goods.0% 1. DCF valuation sensitivity –– WACC and perpetuity rate (in EUR) Weighted Average Cost of Capital 10.0% 14.60 13. EUR14.80/share.10 16. The concerns vis-à-vis the Japanese operation.90-EUR16.20 price range for Folli Follie Group. Compared to its luxury peers. which implies a 24% upside potential on yesterday’s closing price.80 11. In relation to Pandora which is also engaged in affordable luxury. Note that our new target price takes into account the issue of 6. our target price is again set at EUR13.000 new common shares in favour of Fosun. we identify a 20% discount in terms of P/E 11e. Greece’s negative economic outlook and group’s liquidity levels are the main reasons for the stock’s recent weak performance.80/share (vs.0% Terminal Growth rate Source: IBG 10. a gap that should be attributed to country-specific risks and the concerns on the group’s high leverage.80 14. which indicates a deep discount against its peers.Folli Follie Group Our valuation model yields a target price of EUR13.5x its 2011e net earnings. in our view. At current levels.60/share previously) for Folli Follie Group.20 15. Our sensitivity analysis yields a EUR11.50 1. we believe that investors are overlooking the growth prospects of the luxury units (Folli Follie brand and Links of London). therefore any comparison should be made with caution.90 12.5% 2. Excluding the rights issue proceeds and using the current number of shares.00 13.

3 9.8 7.1 21.9% P/E 12 17.2 13. Marks & Spencer Group PLC Kingfisher PLC Next PLC Foot Locker Inc Home Retail Group PLC Stockmann Oyj Douglas Holding AG Debenhams PLC Gruppo Coin S. Burberry Group PLC Hugo Boss AG Bulgari S.3 15.A.6 8.7 6.461 1.0 4.6 8.5 P/E 11 17. Pandora A/S Weighted Average Retailers Gap Inc.1 10. Swatch Group AG PPR S.0 12.0 6.1 12.8 6.9% 2.3 9.9 17.3 9.722 7.A.7 -60.4 4.3 5.9 P/E 12 18.8 12.4 EV/EBITDA 12 7.3 11.3 12. Hermes International S. Factset database.5 8.7 3.5 17.A.9 13.0 5.2 15.0 9.1 18.0% EV/EBITDA 11 10.9 6.5 P/E 12 10.3 8.0 EV/EBITDA 12 4.8 10. Weighted Average Travel Retail Dufry AG Weight Averages Weighted Average Luxury Weighted Average Retailers Weighted Average Travel Retail Average Folli Follie Premium / (Discount) Mkt Cap 57.445 14.795 2.3 10.0 30.0 6.3 11.5 -61.2 10.407 4.2 5.6 13.2 8.9 10.420 2.0 18.4 4.9 5.6 7.2 7.4 5.1 40.852 11.8 10.4 P/E 11 12.2 35.392 1.2 3.3 16.6 11.6 6.2 19.114 3. Fourlis Holdings S.8 10.2 10.9 18.862 Mkt Cap 7.C.0 EV/EBITDA 11 9.6 5.0 20.6 7.6 P/E 12 13.4 39.5 31.674 2.4 21.4 22.2 17.4 12.4 7.P.A.7 22.9 13.482 19.7 14.900 1.9 10.0 18.810 17.127 19.9 5.015 900 668 242 P/E 11 19.3 21.7 4.5 10. Tod's S.367 4.0 10.4 -28.0 7.0 11.0 14. Data as of 07/06/2011 Page 8 .5 16.2 -31.8 10.p.6 EV/EBITDA 12 10.A.A.300 676 Source: IBG.2 13.A.0 4.968 6.8 4.9 14.478 1.1 9.7 EV/EBITDA 11 4.2 8.2 13.8 5.7 17.6 20.3 EV/EBITDA 11 11.1% EV/EBITDA 12 8.4 10.7 5.5 17.2 P/E 11 21.1 6.603 41.0 6.Folli Follie Group Peer Group Comparison Luxury LVMH Hennes & Mauritz AB Christian Dior S.9 16.A.5 5.6 5.7 12.6 4.1 6.8 11.6 5.9 8. Jumbo S.6 19.1 18.130 6.1 8. Coach Inc.p.4 5.

3m (1.7 38.1% -8. while the revenues from department stores and retail/wholesale trade retreated by 7.7% -11. Per division.7m and EUR30.4% y-o-y. +11.5 54.8 48.1 12.5% -23. IBG) and net income dropped 21. Net debt shaped at EUR655m in 1Q11 vs.9 51.4% y-o-y to EUR22.6% respectively.0 29.4% and 19.8 0.4 3.8 64.6 17. to EUR33.8% in 2010). EBITDA stood at EUR43.8m (-8.6% -4.7 0.1 0.9% y-o-y.6 7.0% in 1Q 2010.Footwear Other Revenues COGS Gross Profit Gross Margin Other Income Administrative Expenses Selling Costs Other Expenses EBIT EBIT Margin Depreciation EBITDA EBITDA Margin Net Financial Results EBT Income Tax Special tax contribution Net Profit before minorities Minorities Net profit after minorities Net margin Source: IBG. which however exceeded our estimates in all lines.4 48.9 0.7% y-o-y.1% 0. +1.3 23.6 29.1 11.2 112.4% 1Q:10 115.8% -7.6 219.0 1.8 65.0 33.2% in FY10).7 0.9m (18.4m respectively). while the importance of Asian business (including Japan) is higher for the group representing 39.3 0. the luxury unit (Folli Follie – Links of London) recorded sales of EUR114.0 23.5 19.4 39.0% 9.0 43.2m (-4.4 1. The company 1Q:11 114.1 26.7 36.5m (-19.5 116.4% -19. IBG).4% -220 bps Page 9 .2% vs.5% above our estimates) on a 48. Sales came in at EUR219.5% -19. 49.7% margin vs. Greek operations accounted to 48% of group revenues (vs.3% 5.6% 128.4 106.5 37.8% -11.8 30.1% -420 bps 8. 51.3% of total sales in the quarter (vs. 2.7% y-o-y -1.2% -21.4% -0.1% y-o-y.7% 10.9% -380 bps -29.2 37. travel retail revenues increased by 1% to EUR39m (positive surprise against our numbers).9% -22. 36.1 12.9% 8.7% -57.2 22.7% -220 bps 10.Accessories Travel retail Department stores Clothing. Key highlights of 1Q11 financial results EUR m Jewellery .1% 6.9 10. we were expecting 2% growth).7 229.4% vs.8 21.7% -44. EUR652m.Folli Follie Group 1Q 2011 results overview Folli Follie Group announced a weak set of financials for 1Q 2011.4 112.9% above our estimates).Watch . Gross profits amounted to EUR106.8 37.8% 2.

6% 23.7% a year ago.5m (-70.6% last year) due to increased raw material costs. Department stores (Attica departments & Factory Outlets) recorded sales of EUR33.5m. the retail and wholesale division delivered revenues of EUR30.Folli Follie Group The luxury unit (Folli Follie and Links of London brands) recorded revenues of EUR114. negatively affected by the deteriorating consumer sentiment in Greece and the early Easter celebration last year.1% 0.0 -1.8m (7.3% from 6. Revenues from the travel retail trade were slightly up (+0.8 -7.9% Other 1. Finally. Links of London recorded sales of EUR20m (+14% y-o-y on our numbers).6% 26.4% 9. The luxury unit contributed 52% of total sales and 61% of group’s EBITDA in 1Q 2011.9% y-o-y to EUR20.6% y-o-y) and EBITDA of EUR1.Watch Accessories Travel Retail 114. The company Jewellery .6% y-o-y). while the respective margin deteriorated by 150bps to 52.6% y-o-y) with the respective margin reaching 34. Operating profitability shaped at EUR13.3% Retail / Wholesale 30.2% last year.4m in 1Q10 to EUR8.6% in the quarterly. Gross profits dropped 1. 13.9% -0.9 20.6 141.2% 34.2% 7.2% Department Stores 33. We highlight the sharp drop in the EBITDA margin in 1Q 2011 (4.9% 31.9% vs.5 -70.4 -21. The positive surprise on the EBITDA is attributed to higher ‘other income’ (from EUR4.24 14.4 39.9% (vs. down 30.6% 12.6 -27.4m (-1.9% 52.5m and therefore the margin improved to 7. According to management. which seems rather resilient given the impact of the late timing of Easter this year and the strikes in the center of Athens. 1Q 11 financial performance per division EUR m Sales y-o-y Gross profits y-o-y Margin Ebitda y-o-y Margin Source: IBG. Gross profits fell 7.8% 63.4% y-o-y).1% 41. Accordingly.5 1.4 -19.0m in 1Q 2011 despite a 4% drop in traffic.5% 1.4 -30. Page 10 .4% last year). EBITDA settled at EUR26. negatively affected by the Easter period.4% -1. On the positive side.1% +0.9% 55.3m in 1Q11).4% to EUR63.5 -7. while the operation of the gas stations will positively affect group’s performance from 2Q11.2% y-o-y.9m on a respective margin of 55. EBITDA was flat at EUR2.2% in 1Q 2011 from 23. we point out the positive surprise from the travel retail business (despite lower traffic) and the satisfactory performance of the luxury segment given the negative environment in Japan and the later celebration of Easter this year.6m.4% On the whole.6% 4.4m (-19.4m (+50.6 -10.2% 50.7% 2. 59.1% y-o-y) in 1Q 2011.8% y-o-y) to EUR39.6 13.

• • • • • Page 11 .5m were achieved in 1Q11. Israel and Turkey). while synergies of c. Revenues showed some improvement in April-May against 1Q 11. Capex will reach EUR20m in 2011. The management did not provide any guidance for 2011. The CEO appeared very optimistic for the performance of travel retail throughout 2011 given the strong performance in April and May and the quality of tourism (high spender tourists from Russia. adding that Folli Follie brand did well in a quite difficult environment. Regarding the performance of the luxury business in April and May. but the environment remains difficult for the retail business. mentioning that it will come back with some estimates with the announcement of 2Q11 results. The company disclosed that it will scale down the Japanese operation to preserve its margins and focus on the Chinese market.Folli Follie Group Conference call highlights The key points of Folli Follie’s conference call are summarized below: • The management highlighted that 1Q11 results are not comparable to those in the respective period of 2010 due to the later Easter celebration this year. The management reiterated its guidance for total synergies of EUR15m in 2011. clothing/footwear) to Easter and the strikes that affected the trading in the center of Athens. The management attributed the weak performance of retail operations (department stores. EUR2. pointing to an EBITDA margin of 30-32% for the year. the management revealed that there is acceleration in revenues (with the exception of Japan) and pressure from increased raw material prices. the first negative signs of the disastrous earthquake in Japan and the pressure in raw material prices in the luxury business.

4 -29.285 544 529 652 14 75 1.168 441 427 633 14 81 1.090 376 261 655 9 50 1.0 236 236 -23.5% 19.432 965 950 381 14 71 1.1 0.3% 18.0% 0.0 178 178 -31.9% Page 12 .8% 12/2009 993 -793 0.)* Net Financial Interest Other Financials Associates Other Non Recurrent Items Earnings Before Tax (EBT) Tax Tax rate Discontinued Operations Minorities Net Profit (reported) Net Profit (adj.0 173 -34.0 0.3% 11.3% -3.5% 19.7% 0.4 -6.7% 19.5% 19.0 0.8 -6.0 52.5 -6.9% 17.432 12/2013e 2.3% -27.1% 3.6% 19.9 0.2 117 -20.Folli Follie Group Folli Follie Group: Summary tables PROFIT & LOSS (EURm) Sales Cost of Sales & Operating Costs Non Recurrent Expenses/Income EBITDA EBITDA (adj.4% 19.2% 56.8 29.0 0. Capital Increase & share buy backs) Change in Net Debt NOPLAT BALANCE SHEET & OTHER ITEMS (EURm) Net Tangible Assets Net Intangible Assets (incl.5 -4.0 191 191 -40.1 104 -20.4% 3.8 0.0 130 -30.0% 21.0 48.0 172 172 -35.8 0.087 -851 0.0 0.9% 4.9 178 178 0.392 12/2012e 5.6% 19.4% 19.0 -22.7 68.3% 17.6 20.4% 10.0% 3.1% 11.3% 8.4 -79 129 12/2008 297 363 21.4 213 213 0.7% 21.0 0.)* growth EBITA (adj.)* Depreciation EBITA EBITA (adj)* Amortisations and Write Downs EBIT EBIT (adj.0 206 206 -39.7 -45.8 -47.0 229 229 -22.3 705 580 1.3 17.0% -3.0 199 199 -21.6 79 165 12/2012e 298 362 40.014 -801 0.) CASH FLOW (EURm) Cash Flow from Operations before change in NWC Change in Net Working Capital Cash Flow from Operations Capex Net Financial Investments Free Cash Flow Dividends Other (incl.5 137 137 12/2013e 160 -43.0% 0.3 100 152 12/2011e 303 360 40.)* growth EBIT (adj)*growth Net Profit growth EPS adj.7 172 172 0.7% 8.8 113 121 12/2009 135 -79.8% 11.0% 7.8 92 170 12/2013e 294 363 40.0 96.8 83 88 12/2010 125 -94.1% 19.1 43.0% 3.0 0.0 -1.1% 0.351 713 698 552 14 71 1.8 -3.0% 21.3% -3.1 -3.0 84.4% 0.2 -11.168 12/2009 5.6% 20.3 703 648 1. growth DPS adj.6 11.0 0.064 -835 0.3% 18.8 -19 130 12/2010 307 358 40.0 191 191 -19.5% 17.2 22.8 206 206 0.0% 5.0 -1.3% 17.5% 21.3 697 735 1.9 -30.6% 19.9 -23.3% 20.0 164 -37.3 -14.8% 18.5% 5.Goodwill) Net Financial Assets & Other Total Fixed Assets Net Working Capital Net Capital Invested Group Shareholders Equity o/w own Shareholders Equity Net Debt Provisions Other Net Liabilities or Assets Net Capital Employed GROWTH & MARGINS Sales growth EBITDA (adj.8% 18.8 -23.4% 19.0 193 193 -21.1 -11.0 -1.0 0.3% 17.2 -3.0 213 213 -36.1% 20.8% 18. growth EBITDA margin EBITDA (adj)* margin EBITA margin EBITA (adj)* margin EBIT margin EBIT (adj)* margin 12/2008 937 -746 0.4% 0.9% 17.6 31.3 113 116 12/2011e 136 -67.0% 21.0 0.4% 20.0 0.3% 18.0 172 172 -43.4% 18.1% 5.3 126 130 12/2012e 148 -44.3 191 191 0.1% -27.3% 12/2011e 1.3% +chg 21.8 691 478 1.0 0.3% 32.1 681 409 1.351 12/2011e 2.5 27.7% 21.2 -18.2% 3.9% 17.8% 0.0 0.1% 17.0% 32.0 125 -39.392 834 818 473 14 71 1.285 12/2010 -0.0 -1.8% 0.4% 12/2013e 1.0 0.9 22.0 147 -32.8% 12/2012e 1.3 22 133 12/2009 303 361 26.4 -3.3 77 77 12/2008 118 -85.0 0.3 700 692 1.4 23.9% 12/2010 990 -796 0.0 0.0% 18.0% 11.1 172 172 0.0 213 213 -22.7 55.0% 19.0 -20.0 -1.5 -9.1 32.0 158 -42.090 12/2008 32.

9 87.5 5.2 60.7 5.9% 2.0 9.6 676 473 -233 706 -20 1.3 7.9% 0.3 133.6% 15.10 12/2012e 1.3 8.4 85.1% 43.3 8. equivalent) Shs.37 1.68 0.1 5.3 6.26 2.3% 58.128 0.3 6.5% 1.7 6.99 7.3 6.26 15.9 4.6% 1.3 89.9 4.4% 9.1 728 94 1.6 1.4 4.8% 67.0 0.207 12/2012e 0.4 4.7 Notes * Where EBITDA (adj.6 852 633 -119 752 -13 1.8 15.7 3.0 12/2009 1.51 0.6 1.9% 0.6 2.9 5.3% 0.73 0.Non Recurrent Expenses/Income **Price (in local currency): Fiscal year end price for Historical Years and Current Price for current and forecasted years ***EPS (adj. Ord.3 0.)/Avg DIL.0% 0.10 12/2011e 1.2 12/2013e 60. Ord.5 7.4 5.1 8.549 12/2009 14.0 9.5 5.1 9.1 60.5 5.2 60.10 12/2013e 1.45 8.3 5.5 107.7% 10.0 9. The group is engaged in travel retail trade through Greece’s duty free operator monopoly Hellenic Duty Free Shops (HDFS) and wholesale and retail trade in Greece.9% 12/2013e 11.8 1.8 0. jewellery.4 1.4 7. (+ Ord.4 4. Folli Follie brand has obtained presence in 24 countries with more than 400 points of sale.)* P/E (adj.6 5.5 7.5% 1.5% 1.3% 4.5 7.4% 0.3% 4. other accessories).) WACC ROCE (adj.6% 5.292 12/2011e 0.) diluted= Net Profit (adj.0 4.2% 35.7 7.1% 12/2008 1.) BVPS DPS VALUATION EV/Sales EV/EBITDA EV/EBITDA (adj.)* EV/EBIT EV/EBIT (adj.0% 63.4% 0.1 12/2009 60.2 60.0 4.9 10.4 4.2% 10.1% 5.15 13.07 2. equivalent) Shs.6 664 652 -134 786 -25 1.9% 12/2011e 11.7% 1.87 1.0% 12/2010 11. Page 13 .2% 12.9 0.86 1.1 12/2011e 60.6 676 552 -194 746 -20 1.06 12/2010 1.) P/BV Total Yield Ratio EV/CE OpFCF yield OpFCF/EV Payout ratio Dividend yield (gross) EV AND MKT CAP (EURm) Price** (EUR) Outstanding number of shares for main stock Total Market Cap Net Debt o/w Cash & Marketable Securities (-) o/w Gross Debt (+) Other EV components Enterprise Value (EV adj.2 5.6 12/2009 1.0% 17.9 4. Marfin Analysis estimates.7 8.8% 1.5 7.6 2.6 1. Following an aggressive expansion strategy in the previous years. while the acquisition of Links of London helped Folli Follie to put its foothold in UK and USA.6% 18.1% 10.0 0. Sector: General Retailers/Specialty retailing Company Description: Folli Follie is a diversified group active in the design.5% 1.52 0.5 7.1% 5.2% 10.9% 65.7% 33.4 8.)* EV/EBITA EV/EBITA (adj.5% 1. 12/2008 13.0 12/2010 60.5% 3.Folli Follie Group Folli Follie Group: Summary tables RATIOS Net Debt/Equity Net Debt/EBITDA Interest cover (EBITDA/Fin.472 1.7 17.1 2.0% 1.9% 48.5% 12.0% 11.1 4.5% 1.6 6.5% 2.5% 10.2 60.4 251.3 6.3 8.2 6.interest) Capex/D&A Capex/Sales NWC/Sales ROE (average) ROCE (adj. (+ Ord.6 676 381 -285 666 -20 1.5 5.6% 10.00 12/2010 1.6 1.) Source: Company.1% 2. production and distribution of affordable luxury brands (watches.037 12/2013e 0.6 800 655 -73. travel retail trade and wholesale and retail trade.2 0.3 6.) or EBITA (adj) or EBIT (adj.9 4.9% 12/2012e 11.2 3.7 6.9 4.)/WACC PER SHARE DATA (EUR)*** Average diluted number of shares EPS (reported) EPS (adj.8% 0.8% 12/2008 1.4 3. EPS (reported) = Net Profit reported/Avg DIL.5% 1.2 12/2012e 60.1% 11.1 12/2008 60.2% 12.)= EBITDA (or EBITA or EBIT) +/.9% 19. Romania and Bulgaria.0 60.9% 2.6 2.8 2.92 11.0% 2.3% 11.4% 10.

A. Accumulate (or Add). Since 4 August 2008. S). Meaning of each recommendation or rating: • Buy: the stock is expected to generate total return of over 20% during the next 12 months time horizon Accumulate: the stock is expected to generate total return of 10% to 20% during the next 12 months time horizon Hold: the stock is expected to generate total return of 0% to 10% during the next 12 months time horizon. the ESN Rec. System) to rate any single stock under coverage. It means that each stock is rated on the basis of a total return. Reduce: the stock is expected to generate total return of 0% to -10% during the next 12 months time horizon Sell: the stock is expected to generate total return under -10% during the next 12 months time horizon Rating Suspended: the rating is suspended due to a capital operation (takeover bid. SPO. The ESN spectrum of recommendations (or ratings) for each stock comprises 5 categories: Buy. the Members of ESN are using an Absolute Recommendation System (before was a Relative Rec. • • Time horizon changed to 12 months (it was 6 months) Recommendations Total Return Range changed as below: TODAY SELL REDUCE HOLD ACCUMULATE BUY -10% BEFORE SELL REDUCE 0% HOLD 10% ACCUMULATE 20% BUY -15% 0% 5% 15% Page 14 . the analysts are allowed to rate the stocks as Rating Suspended (RS) or Not Rated (NR). …) where the issuer of the document (a partner of ESN) or a related party of the issuer is or could be involved or to a change of analyst covering the stock Not Rated: there is no rating for a company being floated (IPO) by the issuer of the document (a partner of ESN) or a related party of the issuer • • • • • • History of ESN Recommendation System Since 18 October 2004. as explained below. Reduce and Sell (in short: B. H. in specific cases and for a limited period of time.Folli Follie Group ESN Recommendation System The ESN Recommendation System is Absolute. R. Hold. measured by the upside potential (including dividends and capital reimbursement) over a 12 month time horizon. System has been amended as follow. Furthermore.

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The analysts mentioned above who prepared this report have the below mentioned financial interests in the companies covered in this report……none…… Important Regulatory Disclosures on Subject Company The information and opinions in this report were prepared by INVESTMENT BANK of GREECE. or research associates principally responsible for the preparation of this research report may depend on various factors such as quality of work. This report is for informative purposes only.99) and by the Hellenic Capital Market Commission. if this is a fundamental research report. Investors should consider this report as only a single factor in making their investment decision. Any such assistance may have included access to sites of the issuers. projections and estimates constitute the judgment of the author as of the date of the report and are given in good faith. members of Investment Bank of Greece research department may have received assistance from the subject company(ies) referred to in this report. employees or other parties associated with the subject company(ies) and the handing by them of historical data regarding the subject company(ies) (financial statements and other financial data).99) and by the Hellenic Capital Market Commission. meetings with management. which is regulated by the Bank of Greece (License No: 52/2/17. or solicit investment banking or other business from. the Analysis Department of Investment Bank of Greece is bound by confidentiality. we do not represent that it is accurate or complete and it should not be relied upon as such.Folli Follie Group Disclosure Appendix The information and opinions in this report were prepared by Investment Bank of Greece. so that Investment Bank of Greece can abide by the provisions regarding confidential information and market abuse. client feedback and overall firm profitability. but are subject to change without notice. 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impacting the financial performance of the retail arm. Bank of Cyprus. readers: This document may be distributed in the United States solely to “major US institutional investors” as defined in Rule 15a-6 under the US Securities Exchange Act of 1934. unless otherwise indicated. the following subject companies mentioned in this report own 5% or more of a class of common equity securities of Investment Bank of Greece (or any of its affiliated companies): Marfin Popular Bank 3.40 11/01/2011 Buy. Each person that receives a copy. As of the date mentioned on the first page of this report. Additional note to our U. Hellenic Postbank. Vivere. All prices and valuation multiples are based on the closing of ATHEX’s last session prior to the issue of this report. Page 16 .Folli Follie Group Regulatory Disclosures on Subject Companies 1. Romania and Bulgaria: Current economic downturn in Greece. 4. OPAP. extraordinary taxes due to the Greece’s urgent fiscal needs). Target Price EUR 14. Target Price EUR 15. ATEbank.40 (Re-initiation of coverage) Risks to our forecasts and valuation • • • • • • • Exposure to emerging markets: The company has presence in developing markets with embedded higher FX fluctuations. Hygeia Group. 3. on Bloomberg’s IBGR and ESNR functions and on Thomson Reuters website. 24/05/2011 Buy. represents and agrees that he/she will not distribute or otherwise make available this document to any other person. Highly competitive environment within the luxury goods markets which command for continuous focus on product innovation. 3. Intralot. GEK TERNA. Attica Hygeia Group Rating History 1. Weak macroeconomic environment in Greece. Hellenic Exchanges.60 18/04/2011 Buy. As of the date mentioned on the first page of this report. Euroline. Additional information is available upon request. Mytilineos. High dependence of the duty free operation on tourist inflows that is out of the management’s controls. Romania and Bulgaria has a negative impact on retail spending. corporate taxation.S. GEK TERNA. Additional disclosures 1. Our research reports are available upon request at www. Target Price EUR 14. Motor Oil.ibg. Within the last 12 months. Inherent business risks in wholesale activities that relate to the discontinuation of distribution agreement. High gearing ratio: The company is quite leveraged which raise concern for its liquidity. Ellaktor. EFG Eurobank. 2. 2. Blue Star Ferries. PPC 4. Interinvest. Coca Cola Hellenic.60 29/03/2011 Buy. Investment Bank of Greece had a contractual relationship or have received compensation for financial advisory services from the following subject companies mentioned in this report: Vivartia. National Bank. while the management uses derivatives for hedging purposes that may generate unforeseen losses. Investment Bank of Greece (or any of its affiliated companies) owns 5% or more of a class of common equity securities in the following companies mentioned in this report: Vivartia. Piraeus Bank. OTE. Volatile tax legislation: Our forecasts and valuation are heavily dependent on any unforeseen changes in the tax legislation (VAT. Hellenic Postbank. 4. Target Price EUR 15. by acceptance thereof. Investment Bank of Greece has provided advisory services to the following companies mention in this report: Hellenic Postbank 5. Investment Bank of Greece acts as a market maker for the following securities of the subject companies mentioned in this report: Alpha Bank. SingularLogic 2. Within the last 12 months.

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