D Student Research Household Appliances - CFA Institute IRC Documents/IRC 2012/Rapport... ·...

D – Student Research This report is published for educational purposes only by

students competing in the CFA Institute Research

Challenge.

Ticker: ● SK.FP / SEBF.PA (Bloomberg / Reuters) Recommendation: ● BUY

Price: ● € 58.12 Price Target: ● € 67.46

Highlights

We retain a BUY recommendation on SEB S.A., with a 12-month target price of €67.46

corresponding to a 16.1% upside from current stock price. SEB is today the world leader in the

Small Household equipment and cookwares. With the current economic distress in Europe and

slow moving markets in North America, SEB‟s revenues are expected to be boosted by emerging

markets in the Asia Pacific region and South America.

A winning strategy through Emerging economies. In 2011, SEB acquired the Colombia-based

manufacturer Imusa and recently broke into the Indian market by acquiring a majority interest in

Maharaja Appliances Ltd, a leading player in the electrical appliances market in India. SEB also

bought an additional 20% stake of Zhejiang Supor in China, where there has been a boost in the

household consumptions mainly due to the rise of the middleclass. In the future, SEB plans to

invest in fast growing markets characterized by an expansion in its product line and a

competitiveness enhancement.

Comforting trends for FY2011E. The FY2011E Sales are expected to rise about 7.7% after taking

into consideration the negative impacts due to slowdown in mature markets. The reported revenue

over the last 5 years has increased by a CAGR of 8.2%. The Group is known to maintain good

margins and has also witnessed an increasing net profit and EPS over the last 5 years.

Key downside risks to our target price. Almost half of SEB's revenues comes from Western

Europe. With the current economic turmoil, these revenues could be negatively impacted. This

could be one of the major threats that could prevent the stock price from reaching out target level.

There is also an intense competition in both mature and emerging countries in the Small Household

appliances market. Thus SEB‟s strategy to expand with new product lines could face a major set

back due to intense pricing in certain segments. Other risks come from an increase in the price of

raw material and exchange rate volatility.

Forecast Summary 2008 2009 2010 2011e 2012e 2013e 2014e

Sales (€m) 3 230,2 3 176,3 3 651,8 3 934,3 4 187,4 4 438,1 4 680,7

EBITDA (€m) 389,4 462,1 466,0 453,1 463,1 490,8 517,7

Net Income (€m) 151,8 146,0 220,4 201,4 201,2 215,8 230,0

Earning per share (€) 3,04 2,92 4,41 4,03 4,03 4,32 4,60

Dividend per share (€) 0,94 1,04 1,17 1,25 1,33 1,41 1,51

Price earning ratio 6,67 13,34 17,62 14,41 14,43 13,45 12,62

Note: actual PER for 2008,2009 & 2010; estimated with share price as of 30/12/2011 for 2011, 2012, 2013, 2014

Market Profile (01.01.2012) 2010 2011e

Market Capitalization (M€) 2,925.1 Book Value per Share 28 25

Shares Outstanding (millions) 49,952 Earnings per Share (€) 4.41 4.03

Fiscal Year Ends Dec 31 Dividend per Share (€) 1.17 1.25

Main shareholders: Current ratio 1.7x 1.8x

- Fédéractive 23.7% Net Debt / Equity 8.3% 41.7%

- Venelle Investissement 20,0% Debt to Total Capital 19.1% 35.7%

- FFP 5,1% ROE (after tax) 17.8% 15.2%

Free Float 43.8%

Indices that include SK.PA

52w Price Range €82.15 / €52.00 CAC Mid 60 ^CAC100

3-Month Avg. Daily Volume (m) 1119.7 Paris IND SBF 120 ^SBF120

Avg. Volume (3-month) 100,477 CAC All Tradable CACT.PA

Beta 0.81 CAC Consumer Good FRCG.NX

Source : Company's statements, Capital IQ, Internal estimates

GROUPE SEB

Date 01.01.2012

Household Appliances

30

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70

90

110

130

150

170

190

210

230

10 €

20 €

30 €

40 €

50 €

60 €

70 €

80 €

90 €SEB

CAC Mid60

Stoxx 600

CFA Institute Research Challenge 01.01.2012

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Business Description Founded in 1857 in Burgundy (France), SEB was specialized in the manufacture of tinplate cookwares,

kitchen utensils and other iron articles. After successfully launching the pressure cooker in 1953, SEB rapidly

took off via an active external strategy, first in France (acquisition of Tefal in 1968, SFEM in 1969, Calor in

1972) and subsequently abroad (Rowenta in 1988, Arno in 1998, Lagostina in 2005, Supor in 2007), in order

to diversify its business and expand internationally. Today, SEB is the third largest European manufacturer of

household appliances and the world leader in Small Household Equipment. The company has about

25,000 employees, 27 production sites and 65 marketing companies worldwide. The Group‟s key strengths

include its brands and product portfolio (24 reputed brand names), its R&D and innovation capacity (more

than 1,000 active patents; 200 new products or models launched every year), its extensive sales network, its

healthy financial situation and a stable investor base (43.7% are group family shareholders). After a slight

slowdown in 2009, SEB outperformed the market in 2010 with a total revenue of €3,651.8M (+15.0% YoY)

and an improvement both in EBITDA and operating margins (the latter from +3.8% in 2009 to +23.2% YoY

in 2010, accounting for 12% of sales). 64% of the additional revenue generated in 2010 is due to the organic

growth (increase of sales volumes and trading activity), the remaining being explained by a currency effect.

Business Structure SEB is today present in all segments of the small domestic appliances industry, as well as in the cookware

segment. This dual position gives it a favourable balanced and wide-ranging profile to assure long-term

perspectives. The “small domestic appliances” segment generates around 71% of SEB‟s sales; the remaining

29% being generated by the cookware activities. The current business segmentation is as follow:

Small domestic appliances segment, including domestic care products and kitchen electrics.

- Home care: vacuum cleaners, fans, heaters and air conditioners.

- Linen and personal care: irons, garment steamers, hairstyling appliances, epilators, baby care items.

- Electrical cooking: deep fryers, table-top ovens, grills rice & steam cookers, toasters, waffle makers.

- Food and beverage preparation: beaters, mixers, blenders, electric kettlers, coffee makers.

Brands are Arno, AsiaVina, Calor, Imusa & Umco, Krups, Moulinex, Rowenta, Samurai, SEB, Supor.

Cookware segment, in which SEB offers all kind of frying pans, saucepans, pressure cookers,

stewpots, kitchen utensils, etc. The brands are AirBake, All-Clad, Clock, Imusa & Umco, Lagostina,

Mirro, Panex, Panedo, Regal, Rochedo, SEB, Supor, Tefal, T-Fal and WearEver.

SEB has an extensive sales network, including more than 63 subsidiaries worldwide that provide direct

access to most of leading markets. About 90% of SEB‟s sales are achieved through conventional channels:

large retailers, specialty retail chains, neighbourhood outlets, department stores, wholesalers / discount

retailers or central purchaising agencies. The remaining 10% are generated through alternative retailing such

as brand banner stores, B2B sales, online retailing, mail order & TV shopping, etc. SEB also developed its

own retail network, particularly in emerging countries, either to generate extra-sales or to penetrate markets

with high-end ranges and test new products before launching them (SEB holds more than 1265 stores,

notably 897 Supor Lifestore in China, 160 Tefal shops in Turkey and 42 in South America).

Geographic Units During the last fifteen years, SEB intensely increased its acquisitions abroad, especially in Asia and South

America (where household consumption increased due to growing middle class). In these regions, growth

rates recorded are 2 to 4 time higher than those in developed countries (respectively +32% and +27.4% YoY

in 2010). SEB is today an international player present in 150 countries; in 2010, 81% of its sales are realized

outside of France; 44% of its revenues come from emerging markets compared to 56% from mature markets.

However, SEB's activities are still quite concentrated in Europe with 41% of its sales being realized on the

continent and 48% of its production sites being based in Western Europe.

In 2010, sales increased in all areas but with different progression levels. In 2011 H1, a slowdown in French

market (-2.2% at constant forex) and in US market in Q3 (-7.1% at constant forex) shows the effects of a

drop in consumption in mature markets, while growth is still high in Asia and South-America. In 2012,

excluding a recession but with a probable decline in Europe and North America, we believe that SEB‟s

growth will continue, driven by emerging countries.

Shareholder Structure SEB‟s capital is held by a majority of French shareholders. The Founder-group family (Family Lescure) is

the main holder with 43% of shares; 23% is held by French individuals and institutional investors; the

remaining is split among foreign investors, the investment company FFP, treasury stocks and employees.

Dividend policy is based on a fair earning principle and long term loyalty. This policy supposes a continuous

growth of dividends when the financial results are up to expectations and constancy when circumstances

make it necessary (see Appendix 16).

SEB’s net sales

Results / sales (as a %)

Seb’s sales network

Source: Company data

Geographic revenue breakdown

Annual Sales by Geographic Zone

Sources: Company data

19%

22%

11%9%21%

17%

0%

20%

40%

60%

80%

100%

France W. Europe N. America

S. America Asia/Pacific C. Europe

In M€ 2009 2010 Growth rates

France 685 712 +3.9% Western Europe 728 787 +8.1% North America 349 404 +15.9% South America 262 346 +32.2% Asia-Pacific 600 764 +27.4% Central Europe 552 639 +15.7% Total 3,176 3,652 +15.0%


3

Development Strategy SEB‟s main ambition is to preserve and reinforce its worldwide leadership in small household appliances. In

order to reach this objective, the Group is pursuing a strategy based on 3 main drivers: a focus on fast

growing regions, offensive product line expansions and competitiveness enhancement. Detailed SEB‟s

strategic drivers are highlighted in Appendix 17.

Industry Overview and Competitive Positioning In a market that is very fragmented, Group SEB secured its position amidst the biggest players by deploying a

multi-region strategy and being present in both the small electric appliances and the cookware sectors.

Market overview and key trends Economic environment. Estimated at €34 billion in 2010, the small household equipment market is set to

increase at a moderate rate in the next years due to the economic depression coming in the world‟s largest

markets. The household equipment rate has almost reached the maturity point in the advanced countries

where demand is driven by replacement purchases and innovation (new concepts, more features, health

benefits, etc.). Growth will be mostly driven by emerging countries where rising living standards,

urbanization and political support will continue to push household equipment sales.

Demographic & Sociocultural changes. World population grew by more 29% between 1990 and 2010 with

the improvement of life expectancy combined with higher birth rates. The home appliance demand is thus

stimulated in many ways: the demographic changes result in a higher demand, urbanization leads to a better

access to retail channels, the development of the real estate market increases equipment demand, etc. In

mature countries, the number of appliances tends to slowly increase despite a low population growth and a

GDP stagnation thanks to increasing family fragmentation and life expectancy. The emergence of new

consumer trends also positively influence the home appliance market: a return to “Home-made” and more

ethnic trends in occidental countries, new “western trends” in Asian or South-American countries, etc.

Technology & Green awareness. The impact of technological progress involves a continuous turnover of new

products or concepts to avoid obsolescence. The rising demand for energy efficient appliances or the

development of “intelligent appliances” are typical examples. Global players are paying attention to

environmental-related topics in order to differentiate their products and anticipate possible new regulations.

Industry environment Threat of New Entrants. In a fairly low-tech industry with no major barrier to entry, the market is very

attractive for new entrants, notably with the strong demand in developing countries (several local players

achieved an international expansion). The global market seems today more open than it was in the past years

and large manufacturers appeared in cheap-labour countries. Ecomies of scale limit the threat of new entrants,

but private label manufacturers often emerged selling products under their own brands.

Bargaining Power of Suppliers. We estimate a supplier bargaining power rather low. Manufacturers like SEB

mostly rely on commodity suppliers, who admittedly have a little control on prices. However switching costs

are pretty low since raw materials (aluminium, nickel, copper, plastic, paper or cardboard) could be provided

by a great many small or medium-size companies. Component or finished product suppliers with a higher

added-value may have more bargaining power.

Bargaining Power of Customers. Retailers are the main customers in this industry. The recent concentration

of major international distribution chains has strongly increased their power. Trends are now to tighten as

much as possible the prices, financial conditions, logistics, services or other requirements from producers.

Along with competitive rivalry, customer power is the factor with the higher impact on manufacturer

profitability. This is why large players like SEB are willing to diversify their retail distribution through

independent resellers or alternative channels.

Threat of Subsitutes. Except for gift or Christmas purchases, there are few substitutes to domestic appliances.

Intensity of Rivalry. The competitive climate has become more severe in both emerging and mature markets.

The market is fragmented with large producers but also hundreds of local niche players. Product

differentiation is fairly low and prices generally remain the most important differenciation factor.

Structure of competition The bipolarization of the market between mature and developing countries underlines the high degree of

fragmentation of the industry. The ten biggest operators represent over 40% of the global market but the

Degree of maturity for the

small household appliances market

Source: Internal estimates

GDP growth (2006-2010)

Source: WorldBank

Strong demand and low barriers

to entry

Numerous small and mid-size

suppliers

Hypermarkets and large retailers have

a greater power

Few substitutes products

Very intense competitive rivalry Source: Internal estimates

Entrants

Medium

Suppliers’ power Low to

Medium

Customers’ power Medium

to High

SubstitutesLow

RivalryHigh


4

industry remains parceled out into numerous of small players in their domestic markets. Therefore, SEB has

many competitors worldwide but few of them have a global scope (please see Appendix 20).

We can classify competitors into five big categories, mainly differenciated by their product range positioning

and their market scope. SEB‟s first rival is certainly Philips because of its worldwide presence and its

extensive offering on all small appliance segments. By virtue of their size, other big SEB‟s rivals would be

DeLonghi, Bosch-Siemens, Jarden, Procter & Gamble and Conair.

Company positioning SEB is one of the few to be fully specialized in the small household appliance market and present in every

segment of that industry. It is positioned more or less in every above category because it has developed

separate and complementary businesses with the aim to respond to a broad demand ranging, from first utility

products to sophisticated solutions:

Entry-level products, generally without brands or sold under retailer brands, produced at very low-

costs with no research process. They represent a limited part of SEB‟s existing offer.

Differenciated mid-range products, robusts and good quality, with advanced high-tech components,

innovative features, etc. They reprensent the biggest portion of SEB‟s offer.

High-end products, levered by brands, with attractive designs and strict criteria of quality, offering a

very high-value service, etc. This segment could be sensitive to economic fluctuations.

The market dynamism remains basically driven by large players and SEB is very well-positionned. The

capacity to develop new products and concepts, open new categories or set up in new territories enable SEB

to win market share, maintain competitiveness and enjoy economies of scale. Amidst its European peers,

SEB demonstrates its operating performance through the best EBIT margin, computed below on a 5-year

basis, and a ROCE around 11.3%. Its total capital turnover is however slightly lower than a couple of peers,

but an average annual growth rate close to 8.7% places SEB among the most dynamic players.

SEB & Peers Revenue Growth (2006-2011E) SEB & peers Positioning (2006-2010)

Source: Capital IQ – Company annual reports – Internal estimates

Investment Summary We initiate coverage of Group SEB with a buy rating and a target price of €67.46. Our decision is motivated

by the Group SEB‟s positive prospects in emerging markets as well as its leading position in mature ones

which will allow, according to our estimates, to keep increasing its sales for FY2011e by 7.7%.

The world leader in small domestic appliances

- Group SEB is associated with a strong know-how in mature markets. In an industry characterized by

low entry barriers, SEB‟s know-how enables the Group to set it apart from cheap competitors. R&D

expenses amount to 1.6% of sales and actively fuel its innovation process: 200 new products or models

are launched every year.

- Geographical and product diversification: the Group SEB successfully manages its portfolio of 24

diversified brands among which 6 have an international exposure. Its presence in 150 countries and its

coverage of the whole range of small domestic equipments allow it to diversify its operational risk.

- A resilient activity in the crisis: Group SEB is operating in a consumer goods sector with moderate

prices (on average €50). As a consequence it is less affected by the economic crisis and its activity

resisted very well during 2009 depressed context.

A gateway to Asian markets

- Emerging markets are expected to take over from European ones: they amounted to 44% of Group‟s

sales in 2010 and are estimated to be the main contributor to its development by next year. High

population growths associated with low levels of equipment rates represent important catalysts in


5

emerging domestic markets. Group SEB said that for FY2011e they should again contribute by a

double-digit growth to consolidated sales.

- A new acquisition in India: SEB recently announced that it has acquired 55% in Maharaja Whiteline,

an Indian company settled in the northern and western part of the country. Maharaja Whiteline

registered revenue of €21m and is expanding at annual rate of 25% while India‟s small electrical

appliance market is growing at 15%. The synergies between Group SEB‟s know-how and the potential

of India‟s domestic market are very promising.

- Increased Equity participation in China: the transaction completed on 13 December 2011 led the

Group to own 71.3% of Chinese company Supor, thus demonstrating the Group‟s ability to effectively

implement its external growth strategy by acquiring and developing strong regional brands and their

distribution network.

Attractive financial prospects

- An increasing level of profitability: After a peak level of EBIT margin (9.6%) reached last year, the

Group is expected to maintain a high profitability for FY2011e (8.6%) despite the depressed economic

context

- Healthy financial position: Group SEB successfully reduced its leverage (considering net debt) from

76.2% in 2007 to 8.3% in 2010 and currently presents a sound financial structure. It allows the company

to finance its future external growth by having recourse to the issuing of new debt.

- After a booming year for its stock price in 2010, the downward correction occurred at the beginning of

2011 leads us to consider that actual level of valuation presents a 16.1% upside potential.

SEB share price chart LTM

Source:Company data, Capital IQ

Valuation Our final Target Price €67.46 is computed as the weighted average of the Target Prices derived from our

DCF (55%), Market comparable multiples (30%), Acquisition data multiples (10%), and the Dividend

Discount Model (5%). We give more importance to our DCF valuation as it is the most appropriate to take

into account future growth prospects and cash flows generation from the different markets. We moreover

believe that Market comparables well transcribe these aspects. We grant less importance to the Acquisition

data multiples as they usually integrate a premium that could noticeably affect our final TP. The Dividend

Discount Model is very sensitive to the dividend infinite annual growth rate elected, that‟s the reason why we

give it the minimum weight. The Target Price elected represents a 16.1% upside potential respectively to the

current one (€58.12 as of 30/12/11).

Discounted Cash Flows valuation (1)

Performing a DCF valuation, we obtain a Target Price of €66.3 with a WACC of 8.8%.

The model is built to reflect SEB‟s prospects in emerging countries as well as the stagnant contribution of

mature markets into the Group‟s development.

Our valuation is based on 3 periods:

Valuation Synthesis Weighting Value

DCF 55% € 66,3

Market multiples 30% € 68,9

Acquisition multiples 10% € 85,7

DDM 5% € 35,1

Target Price (€) 100% 67,46

WACC Assumptions

Targeted D/E 23,4%

Risk-free rate 3,2%

Spread for A2 1,5%

Effective tax rate 28,0%

Cost of Debt after tax 3,4%

Unlevered Beta 0,69

Relevered Beta 0,80

Market premium 8,5%

Cost of Equity 10,1%

Weight of Equity 81,0%

Weight of Debt 19,0%

WACC 8,8%


6

- 2012e-2016e : We expect the annual organic growth of sales to decrease constantly from 6.4% to

4.2% at the end of the period, reflecting the slowdown of mature markets development.

Conforming to our business environment analysis, we assume that the revenue will be mainly

driven by emerging markets (CAGR in Asia/Pacific : 11.6%, in South America : 8.0% vs. 0.2% in

France). We used a normalized EBIT margin of 8.1%.

- 2017e-2021e : We plan annual organic growth rate of sales to vary between 3.5% and 3.8% mostly

fuelled by Asia/ Pacific and South America growths. We think that Asia/Pacific should become the

main market of SEB with more than a third of the Group‟s sales. We increase our normalized EBIT

margin up to 8.7% as a consequence of the probable reduction in labour and restructuring costs.

In our sales forecasts, we predict steady levels of organic growth in each region (see Appendix 10).

- 2022e and beyond : For the terminal maturity growth period, the model consider an annual FCF

perpuity growth rate of 2.0%.

Market comparables (2)

Our selection of listed peers focuses on companies with a significant part of sales made in the small

appliances business. Indeed, the average purchase price of SEB small home appliances is €55, far less than

the ones of competitors specialized in “white goods” (refrigerators, washing machine…). So far as we can,

we also promoted comparables with a high exposition to emerging markets (see Appendix 12). We

distinguish three groups of comparables :

- European comparables : Philips and Delonghi

- US conglomerates : Jarden corporation and Spectrum Brands

- Asian Groups : Joyoung, Zhejiang Aishida Electric Co. and Guangding Elecpro Electric-A

The ratios are calculated using the market data as of 28/12/2011 as follows :

Enterprise value = Martket capitalization + Net debt + Minority interests

We weighted each mean and median groups‟ multiples by the part of sales made in the concerned

geographical area.

Source: Companies annual reports, Bloomberg

Below are the target prices we obtain by applying the different multiples to our estimates for 2011e :

It leads us to the following comments:

- We rejected Median multiples that are too heavily impacted by the high valuation of Asian Groups.

- We consider EV/Sales as a non-relevant multiple to valuate SEB. We apply the same observation to

P/E given that our estimate of profit for 2011e is conservative.

- We think that EV/EBITDA multiple avoids the possible distortion caused by “Other operating

incomes and expenses” (particularly restructuring costs) whereas EV/EBIT would not.

EV/SALES EV/EBITDA EV/EBIT P/EEUROPEAN COMPANIES (53,8%)

Philips 0,6 4,6 7,7 10,2

Delonghi 0,6 5,3 7,0 13,6

Mean / Median 0,6 5,0 7,4 11,9

US CONGLOMERATES (10,2%)

Jarden corporation 0,9 9,6 12,8 25,6

Spectrum Brands 1,2 9,2 13,2 ns

Mean / Median 1,1 9,4 13,0 25,6

ASIAN GROUPS (36,0%)

Joyoung 0,8 5,3 5,6 10,7

Zhejiang Aishida Electric Co. 1,1 16,9 24,2 ns

Guangdong Elecpro Electric-A 1,1 16,1 ns ns

Mean 1,0 12,7 14,9 10,7

Median 1,1 16,1 14,9 10,7

SYNTHESIS OF MULTIPLES

Mean 0,9 9,6 11,8 15,0

Median 0,9 9,2 10,3 12,1

WEIGHTED SYNTHESIS

Mean (weighted by region sales) 0,8 8,2 10,6 12,9

Median (weighted by region sales) 0,8 9,4 10,6 12,9

SEB 1,0 9,2 9,2 14,6

CURRENT RATIOS (based on stock price as of 28/12/2011)

TARGET PRICES (in €)

EV/SALES EV/EBITDA EV/EBIT P/E

Target price (using Mean multiple) 51,4 68,9 59,4 45,5

Target price (using Median multiple) 53,8 80,7 59,4 45,5


7

As a consequence, we consider that the target price derived from the mean EV/EBITDA multiple is the more

consistent to reflect Group SEB‟s stock price valuation. Using market comparables, we obtain a Target Price

of € 68.9.

Comparables using acquisition data (3)

By taking the average of the valuation given by the mean EV/EBITDA and the mean EV/EBIT multiples we

arrive at a Target Price of €85.7. This level corresponds to a premium of 24.4% compared with our previous

valuation using market comparables.

Source: Capital IQ, Companies press releases

Dividend Discount Model (4)

We judge that the steady dividend policy of SEB makes it suitable for the Dividend Discount model. It

consists in valuating the market price of a share thanks to the present value of its expected future dividends.

Our cost of equity is the same as the one calculated for the DCF approach : 10.1%. We expect the future

dividends to grow at the infinite annual rate of 6.5% (CAGR of 6.8% calculated over the period 2005-2009,

readjusted according to our DCF assumptions).

The Target Price derived from the Dividend Discount Model is €35.1.

Risks to Our Price Target

WACC computation

The uncertainty over the government debt crisis brings about important volatility movements in the

European, and more precisely French, Equity market. The risk-free rate as well as the risk premium are

subject to potential variations that would affect the WACC and thus modify our Target Price derived from the

DCF. Nevertheless we think that our assumptions, while reflecting the potential growth from emerging

countries, are conservative.

Supor products

The pending approval of the 81 Supor products containing Alloy 202, that might have an adverse impact on

user‟s health, is a factor of threat for the Chinese company. However the Group SEB declared that there has

not been a negative effect on Supor‟s sales trend.

SEB future acquisitions

The press recently announced that Group SEB intents to start developing its activities in India by acquiring a

local company. The Indian small home appliances market is very fragmented and has a potential size of 900

€m annually. According to the Indian press, the Group SEB would be willing to pay 3 times the sales for the

acquisition. It seems overvalued compared with the past transactions multiples. There is a risk of an overpaid

acquisition, in India or elsewhere, that would be sanctioned by the market.

Financial Analysis FY2010 has been characterized by strong demand in small home appliances driven by emerging markets and

the organic sales growth of mature countries: Group SEB proved its ability to strengthen its leader position on

its different market and reach a peak operating margin of 9.6%. In FY2011e, despite a high level of

comparison and a very volatile environment, we expect the Group to continue to sustain a strong profitability

(EBIT margin 2011e: 8.6%) as well as a growth of sales at current exchange rates of 7.7% for FY2011e.

DATE TARGET BUYER/INVESTORS IMPLICIT DEAL VALUATION EV/SALES EV/EBITDA EV/EBIT P/E

2010 Industrias Metalurgicas Unidas S.A.SEB 106 €m 1,4 8,9 13,3 20,2

2010 Russel Hobbes Spectrum Brands 2 600 $m 1,3 10,9 13,0

2010 Supor SEB 1845 €m 3,1 30,8

2009 Saeco Philips 200 €m 0,6

2007 Supor SEB 580 €m 2,1 22,8 42,6

2006 Mirro WearEver SEB 29 €m 0,5

2006 Avent Philips 460 £m 4,0 18,5

2005 Kenwood appliances PLC De' Longhi 67 $m 0,3 7,1

2005 American Household Jarden Corporation 846 $m 0,5 7,2

2005 Panex SEB 11 €m 0,3

2005 Lagostina SEB 10 €m 0,2

2004 All-Clad Metalcrafters, LLC SEB 204 €m 2,4

2001 Moulinex SA SEB 288 €m 0,2 4,3 ns

Mean 1,3 7,8 17,6 31,4

Median 0,6 8,1 15,9 31,4

Acquisition Multiples

Sensitivity Analysis on our DCF TP

Source: Internal estimates

Supor’s revenues and EBIT evolutions

Source: Company data

DDM Model Assumptions

2010 Ordinary Divididend (€) 1,17

Expected Ordinary Div. Growth 6,5%

Cost of Equity 10,1%

Target Price (€) 35,1

50 €55 €60 €65 €70 €75 €80 €85 €90 €

Risk-free rate

± 0.7%

Market Premium

± 1.5%

Beta ± 0.2

Terminal Growth

± 1%

0

100

200

300

400

500

600

0

1 000

2 000

3 000

4 000

5 000

6 000

Supor's revenues (M CNY) EBIT (M CNY)


8

Operating performance & Earnings

Revenue – Over the past 5 years, reported revenue increased at a CAGR of 8.2% reflecting the Group‟s

capacity to maintain a high organic growth in its dominant markets and the success of its latest acquisitions in

emerging ones. In FY10, reported growth of sales reached the outstanding level of 15.0% partially fostered

by the positive contribution of the foreign currencies appreciation. For the same period, emerging markets

contributed to 44% of sales. For H1-11, thanks to SEB‟s targeting commercial policy revenue growth was up

to 10.6% (including the 32€m contribution of Imusa and at current exchange rate) and amounted to 8.4% (on

a like-for-like basis and at constant exchange rate). However mature economies start showing a slowdown,

consequently we expect for FY11e a lower sales rise of 7.7% taking into account a negative impact of change

effects (estimated at -20€m).

Margins – Sustainable organic growth, tight control over purchase prices, industrial costs and changes in

exchange rates enabled the Group to enhance its EBIT margin from 5.8% in FY06 up to 9.4% in FY10. In

H1-11, EBIT came to €155m accounting for 8.8% of sales (vs 9.1% in H1-10) : it benefited from the positive

amount of „Other income and expenses‟ but was heavily impacted by the inflation of raw materials costs

since the beginning of the year 2011.

Operating Performance – Fixed Asset Turnover was on average 8.5x during the last 5 years. The low level

of 8.1x in 2009 was the consequence of the under-utilized production capacity in FY 2009 compared with the

peak of 9.2x in FY2010.

Net Profit - Net profit Group share was €220m in FY2010, rising 51%. In H1-11, it accounted for €93m (vs

€89m at the end of H1-10) with tax rate of 26.2% in line with last years. Adjusted EPS grew from 2.07 in

2005 up to 4.55 in 2010 corresponding to an increase of almost 2.2x over this period.

Cash Flow

Cash from operating activities

Working capital requirements has been strictly managed even if the exceptional year 2010 brought about a

significant increase in stocks leading the WC up to €875m compared with €695m for FY09. The part of

Working Capital among total sales went from 31% for FY05 down to 24% at the end of FY10.

Cash Flows reached €458m for FY10 corresponding to an increase of 15% as compared with FY09.

Cash used by investing activities

The Group tries to maintain a high level of capex. However the recovery of investment was cautious after the

depressed economic climate of 2009: capex totaled €140m in FY10 (vs €109m in FY09). Among the

investments made, more than 80% is usually dedicated to the purchases of property, plant and equipment

while the remaining part served to buy software or intangibles assets. Over the last 5 years, capex oscillated

from 20% to 60% of amount cash generated by operating activities.

Cash used by financing activities

The Group is used to finance its acquisitions through debt. In May 2011, €300m of 5-year bonds were

successfully issued. They will mature on June 2016 and pay interest at annual rate of 4.5%. This operation

enables the Group to lengthen the average maturity of its debt while diversifying its existed syndicated lines

of credit.

Profitability

ROA – Return on Assets increased from 4.1% in FY06 to 8.6% in FY10. R&D expenses contributes to fuel

the Group‟s profitability : on average R&D costs amount for 1.6% of sales, above the major part of its

competitors

ROE – Between 2009 and 2010, the ROE increased from 14.7% to 17.8%. Please see Appendix 14 for further

details about SEB ROE decomposition analysis.

In 2011, we expect a stable profit atributable to the owners of the parents, ca €201m vs. €220m in 2010.

Balance sheet‟s items are not already determined but we can already forecast a significant decrease in Equity

due to the purchase of 20% more stake in SUPOR (resulting from the application of IFRS 3 and 27 Revised),

leading arithmetically to a better ROE. We also expect a small decrease in operating margin because of the

crisis (including raw materials prices and tougher negotiation with clients), which will be offset by a higher

financial leverage (cf. bond issue); those elements will be significant drivers of the ROE evolution in 2011.

Financial Leverage – The Group successfully managed to reduce its net debt to equity ratio since 2007. Its

gearing went from 76.2% in 2007 down to 8.3% at the end of 2010. After the bond issue in May 2011, the

financial position remained confomfortable with a new gearing ratio amounting to 16.5%. This increase in

gearing is also attributable to the impact of the raise of working capital requirement after the dynamic

FY2010.

Sales Growth

EBIT Margin

Adjusted EPS (€)

Capital Expenditure

Cash Flows (in € millions)

Net Debt / Equity

Sources: Group Seb annual reports

7,4%

5,8%

8,3%8,6%

7,8%

9,6%

2005 2006 2007 2008 2009 2010

2,07

1,78

2,923,18

3,13

4,55

2005 2006 2007 2008 2009 2010

70

90

110

130

150

Capex (m€)

50

150

250

350

450

550

20082009

2010

120

202

458

Cash Used by Investing Activities

Cash Used by Financing Activities

Cash Flow

52,8%

51,7%

76,2%

62,6%

19,9%

8,3%16,5%

2005 2006 2007 2008 2009 2010 S1-11


9

Balance Sheet & Financing Capital structure - Consolidated equity amounts to €1,561 million at the end of H1-2011 with €169m of non-

controlling interests (Supor minority shareholders). Meanwhile financial debt reaches €735m (€257m net of

cash). At the end of 9m-11, net debt was €305m. Long-term financial debt standed at €537m after the issue of

bonds against €198m for short-term borrowings at the end of June 2011.

Liquidity –The Group SEB presents healthy liquidity ratios which prove its ability to reimburse its current

portion of financial debt. The Current ratio and the Quick ratio stood respectively at 1.7x and 0.9x at the end

of FY10.

Solvency – The solvency ratios were at very low level at the end of FY2010 : Total Det amounted to 0.8x

EBITDA while Net Debt was 0.3x EBITDA.

Goodwill – After a decrease by 8% between 2008 and 2009, the level of Goodwill increase once again

between 2009 and 2010 (+6%), to find back its average in the balance sheet‟s structure (13.7% of the assets

and 31.7% of the non-current assets). This significant amount of Goodwill is driven by SEB‟s external

growth policy. That was still the case in 2011, with acquisition of Imusa in Colombia, Asian Fan in Vietnam

and recently Maharaja Whiteline in India (following IFRS 3 and 27 revised, the increase in SUPOR‟s stake

did not generate any goodwill because, as SEB already controlled SUPOR, this transaction was considered as

a simple operations between stakeholders, impacting directly Equity). Two more remarks regarding SEB‟s

Goodwill: - The Group tends to pay quite a lot for its acquisitions;

- SEB is not sheltered from recognizing huge impairment on this Goodwill, particularly with

the crisis. In 2010 SEB had to recognize a relatively limited loss on All-Clad Goodwill

(€14.5m). With an harsh 2011 year in Europe, in the US and in Japan, we expect some new

impairment loss in 2011. The same thing could be applied to Brands, which are also exposed.

Other Headings Relevant to Company

After China and Latin America, SEB continues expansion in India for 2012 SEB actively continues its expansion strategy in Emerging Economies. At the end of 2011, it has acquired

55% in Maharaja Whiteline, a privately held Indian company and leading player in the manufacture of

electrical appliances. Established from 1976 in north-west India, this company holds a wide-ranging product

portfolio and operates in a highly fragmented local market (working with 330 distributors over 26,000 sales

outlets). Although the amount paid by SEB has not been released, latest deals valued Maharaja Whiteline at

3.5x its revenues (approx. €21m in 2010), which means SEB would have paid about €40m for acquiring this

majority stake, a relatively high ratio compared to its peer Philips‟ acquisition of Maya appliances. However,

this deal can be effortlessly financed by the Group and would allow SEB to better break into the Indian

market (which small appliances segment is expanding at an annual rate of 15%) rather than only through

organic developments. This end-of-year event illustrates once more SEB‟s reactivity to anticipate soon

enough growth into emerging regions, as was done with Supor in China and Arno in Brazil.

SEB a socially responsible Group

SEB demonstrates also a strong commitment to developing sustainable business strategies. It puts special

emphasis on product safety, and sustainable development is as well thought and incorporated into each stage

of the product life cycle (sustainable design, eco-production, eco-logistics, etc.). The Group has developed

concrete CSR actions: adhesion to recognized social principles (UN Global Compact, CECED, Code of

Conduct, Diversity Charter), reduction of its environment impact (new products are more than 70%

recyclable, factories are ISO 14001 certified, footprint is reduced, etc.), and involvement in various relief

projects supported by the Group SEB Foundation. The performance of the Group in extra-financial activities

is regularly rewarded, and notably recognized by the Excellence Ethibel label.

Investment Risks We consider the factors below as the main risks that could prevent stock price from reaching our target price.

Eurozone at risk of recession

With 40-45% of revenues derived from markets in western Europe, SEB will be highly sensitive to the

slowdown of European economy. The current crisis has caused strong market turmoils in recent quarters;

consumer confidence indexes are forecasted to decrease and according to the European Commission the

recession is likely to occur in the Eurozone. These previsions will impact on 40% of SEB‟s revenue and may

significantly contract the margins. In our DCF assumptions, we took into account IMF estimates for 2012e as

well as steady conservative rates for SEB‟s margins.

Being added to a stalled recovery in the US, the current trends may also continue volatility in equity markets;

impair export markets leading to slow down also emerging economies; and finally force states to enter a


10

slump phase of the economic cycle. This risk is actually more than probable; but however it is difficult to

foretell to what extent SEB‟s performance will be impacted.

Strategic risks

SEB‟s strategy is pursuing growth through product line expansion, but the rivalry has become more severe in

both mature and emerging countries. The 2009 crisis period amplified competition and intensified price war

on certain segments. It is essential to gain market shares in this highly competitive climate, and SEB try to

achieve it with brand reputation, innovation, marketing support… but also thanks to external growth and cost

reduction. These strategies may lead to significant risks:

SEB‟s willingness to expand its activities abroad often prompted it to pay new acquisitions well over

the potential real value, as is the case with the Maharaja Whiteline acquisition in India. Such events

may be sanctioned by the market.

New acquisitions require the ability to integrate target companies and generate synergies. Although

SEB managed efficiently external growth over the last 40 years, success is never guaranteed.

Cost reductions and restructuring plans can affect the image and the quality of relations between

management and employees.

Operative risks

Commodity risks – SEB is exposed to commodity risks concerning availability and price volatility of raw

materials, expecially for aluminium, nickel, copper, plastic and paper. This could have an impact on trading

efficiency, cash flow and profitability. To face this exposure, the Group anticipates its needs for the coming

year and deploys a partial hedging policy covering about 70% of its estimated purchases. Protecting against

abrupt variations, the hedge instruments may however produce positive or negative results depending on

actual market situation (gain of €1.2M in 2010, but losses of €8.1M and €44.9M in 2009 and 2008).

Industrial risks – As all industrial manufacturers, SEB is exposed to occurrences that could affect or interrupt

operations, or even put in jeopardy employees. Causes can be various: natural catastroph, fire, technical

failure or industrial operations themselves. Most sensitive processes are metal stamping, surface treatments

and component assembly. However the effective risk remains especially on the new industrial plants in

emerging countries (especially in China), where some subsidiary sites do not meet SEB‟s security standards.

Compliance risks – Given that SEB operates in different regulated environments, any changes or tougher

stances in regulations may affect the operating activities. Most rigorous requirements do concern product

quality, eco-organization/recycling and labor practices. SEB‟s CSR policies help to mitigate this risk through

strict internal controls along with social and environmental actions that anticipate tighter regulations.

Problem with certain Supor products – Last October, Chinese authorities claimed that 81 Supor products

were not up to standards. They charged the company with replacing nickel with manganese for cost reduction

reasons, supposedly putting safety at risk. A sery of tests did not reveal any adverse impact on consumers‟

health and Supor assured that its products met national standards. Apparently that issue has not lead to a fall

in Supor‟s sales; however it is hard to predict consumer reaction and the real impact on Supor‟s public image.

Besides, if any additional problems occurs with Supor products or other subsidiary products in the future,

SEB‟s image could be seriously affected, all the more if old issues are brought back into headlines.

Financial risks

Currency risk – SEB‟s business is strongly export-oriented and exchange rate fluctuations can affect its

profitability. By balancing input and output flows in each currency so far as they can, SEB‟s treasurers limit

the direct impact of Forex variations. However the Group‟s dollar position is short while for many other

currencies it is long, so imbalances cannot be fully redressed. Hedging financial products allow to decrease

this risk, but exchange rates can still significantly impact revenues (- €63M in 2009 but + €171M in 2010).

Liquidity risk / Financing – We consider SEB‟s financing and liquidity risk rather low as its business is

based on a short-term cycle. SEB‟s policy leads to maintain a certain level of available cash (€236.6M at

31december 2010) and ensure liquidity through diversified short or medium-term financing contracts

(commercial papers, Schuldshein credits, syndicated loans) as well as the access to unused credit lines with

partner banks. Since 2007, SEB has constantly increased its liquidity current ratio, from 1.0x to 1.7x in 2010.

Scoring – SEB‟s current Z-Score is 3.41; its M-Score is -2.34; and its F-Score is 7 (details in Appendix 22).

Governance risk

A stable shareholder structure is a comforting point for investors. However dual-class shares may concentrate

voting rights into a few hands and can give Founder Group much power. Indeed with the existence of double

voting right shares, some shareholders could sell a number of stocks without loosing their voting power.

Monte Carlo Volatility Analysis

From the risks above-mentioned, we performed a Monte Carlo simulation using volatility estimates with

respect to our assumptions. The end result is a probability distribution on the target price with a standard

deviation of 9.72€ around a 59€ TP mean. Details on the Monte Carlo simulation are found in Appendix 23.


11

Appendix - Table of Contents

1. Historical and Pro Forma Financial Statements

Appendix 1: Income Statement

Appendix 2: Balance Sheet

Appendix 3: Cash Flows Statement

2. Valuation

Appendix 4: DCF Assumptions

Appendix 5: Capital Structure

Appendix 6: Cost of Debt

Appendix 7: Cost of Equity

Appendix 8: Free Cash Flows Forecasts

Appendix 9: DCF Sensitivity Analysis

Appendix 10: P&L Hypothesis

Appendix 11: Currency Effect

Appendix 12: Market Comparables

3. Financial Analysis

Appendix 13: Key Financial Ratios

Appendix 14: ROE Decomposition Analysis

4. Business Description

Appendix 15: SEB‟s Organizational Structure

Appendix 16: Shareholder Structure & Dividend Growth Policy

Appendix 17: SEB‟s Development Strategy

5. Industry Overview and Competitive Positioning

Appendix 18: SWOT Analysis

Appendix 19: Latest Product Launches

Appendix 20: Structure of Competition

Appendix 21: Selected Comparable Peers

6. Investment Risks

Appendix 22: Scoring Analysis

Appendix 23: Monte Carlo Simulation


12

Appendix 1. Income Statement (in € millions) Source: Company data – Internal estimates

2008 2009 2010 2011e 2012e 2013e 2014e

Revenue 3 230,2 3 176,3 3 651,8 3 934,3 4 187,4 4 438,1 4 680,7

Raw materials and Goods (1 423,2) (1 414,1) (1 632,7) (1 723,2) (1 834,1) (1 943,9) (2 050,1)

Labour costs (126,0) (125,4) (126,7) (161,3) (171,7) (182,0) (191,9)

Other expenses (238,6) (113,5) (270,2) (288,8) (307,4) (325,8) (343,6)

COGS (1 787,8) (1 653,0) (2 029,6) (2 173,3) (2 313,1) (2 451,6) (2 585,6)

Gross Profit 1 442,4 1 523,3 1 622,2 1 761,0 1 874,2 1 986,5 2 095,1

Gross margin 44,7% 48,0% 44,4% 44,8% 44,8% 44,8% 44,8%

Research and development costs (49,8) (50,0) (60,0) (62,9) (67,0) (71,0) (74,9)

Advertising expense (119,8) (95,2) (143,0) (141,6) (150,7) (159,8) (168,5)

Distribution and administrative expenses (820,9) (808,7) (864,3) (1 015,1) (1 080,3) (1 145,0) (1 207,6)

R&D and SG&A (990,5) (953,9) (1 067,3) (1 219,6) (1 298,1) (1 375,8) (1 451,0)

Discretionary and non-discretionary profit-sharing (38,2) (33,5) (50,4) (47,2) (50,2) (53,3) (56,2)

Unusual/Infrequent expenses (24,3) (73,8) (38,5) (41,0) (62,8) (66,6) (70,2)

EBITDA 389,4 462,1 466,0 453,1 463,1 490,8 517,7

EBITDA margin 12,1% 14,5% 12,8% 11,5% 11,1% 11,1% 11,1%

D&A (110,0) (214,0) (117,0) (116,4) (123,9) (131,3) (138,5)

EBIT 279,4 248,1 349,0 336,7 339,2 359,5 379,1

EBIT margin 8,6% 7,8% 9,6% 8,6% 8,1% 8,1% 8,1%

Financial Costs (49,9) (27,2) (15,9) (25,0) (25,0) (25,0) (25,0)

EBT 229,5 220,9 333,1 311,7 314,2 334,5 354,1

EBT margin 7,1% 7,0% 9,1% 7,9% 7,5% 7,5% 7,6%

Income Tax expenses (66,5) (58,1) (89,5) (87,3) (88,0) (93,7) (99,2)

Profit for the period 163,0 162,8 243,6 224,4 226,2 240,8 255,0

Minority Interests (11,2) (16,8) (23,2) (23,0) (25,0) (25,0) (25,0)

Profit attributable to owners of the parent 151,8 146,0 220,4 201,4 201,2 215,8 230,0

Profit margin 4,7% 4,6% 6,0% 5,1% 4,8% 4,9% 4,9%


13

Appendix 2. Balance Sheet (in € millions) Source: Company data – Internal estimates

2008 2009 2010 2011e 2012e 2013e 2014e

ASSETS

Goodwill 419,8 386,6 409,1 430,0 427,0 429,0 431,0

Intangible assets 368,9 372,2 398,7 429,0 434,0 437,0 440,0

Property, Plant & Equipment 381,2 391,4 426,5 471,0 476,0 484,0 492,0

Financial and other non-current assets 13,9 12,7 15,2 19,0 17,0 19,0 14,0

Deferred tax assets 48,2 38,1 40,2 50,0 48,0 52,0 51,0

Non-current assets 1 232,0 1 201,0 1 289,7 1 399,0 1 402,0 1 421,0 1 428,0

Inventories 614,6 466,3 635,5 726,0 734,0 746,0 765,0

Trade Receivables & Other Receivables 700,5 675,2 793,3 697,0 770,0 814,0 825,0

Current tax assets 38,8 15,1 26,8 35,0 36,0 35,0 37,0

Cash, Derivatives instruments & Cash Equivalents 236,3 313,0 250,7 187,0 210,0 256,0 282,0

Current assets 1 590,2 1 469,6 1 706,3 1 645,0 1 750,0 1 851,0 1 909,0

Total Assets 2 822 2 671 2 996 3 044 3 152 3 272 3 337

EQUITY & LIABILITIES

Share Capital 50,9 50,0 50,0 50,0 50,0 50,0 50,0

Reserves & retained earnings 1 005,7 1 140,1 1 409,9 1 245,2 1 378,4 1 520,8 1 671,6

Treasury stock (150,7) (108,8) (61,7) (50,0) (44,0) (40,0) (50,0)

Equity attributable to owners of the parent 905,9 1 081,3 1 398,2 1 245,2 1 384,4 1 530,8 1 671,6

Non controlling interests 131,6 138,8 173,1 110,1 110,0 110,0 110,0

Equity 1 037,5 1 220,1 1 571,3 1 355,3 1 494,4 1 640,8 1 781,6

Deffered tax liabilities 91,8 55,3 54,9 65,0 63,0 62,0 64,0

Long-term provisions 102,3 111,3 120,0 129,0 138,0 147,0 156,0

Long-term borrowings 213,5 301,1 201,8 550,0 510,0 495,0 465,0

Other non-current liabilities 39,4 26,4 24,0 26,0 25,0 26,0 28,0

Non-current liabilities 447,0 494,1 400,7 770,0 736,0 730,0 713,0

Trade Payables 366,3 398,0 494,4 425,0 421,0 412,0 388,0

Short-term provisions 77,2 86,9 78,3 73,0 79,0 89,0 80,0

Short-term borrowings 661,5 246,7 170,1 202,0 194,0 185,0 170,0

Current tax liabilities 25,6 18,0 24,6 35,0 31,0 32,0 27,0

Other current liabilities 207,0 206,8 256,6 184,0 197,0 183,0 177,0

Current liabilities 1 337,6 956,4 1 024,0 919,0 922,0 901,0 842,0

Total Equity & Liabilities 2 822 2 671 2 996 3 044 3 152 3 272 3 337

Other items

Net Debt 649,0 243,0 131,0 565,0 494,0 424,0 353,0


14

Appendix 3. Cash Flow Statement (in € millions) Source: Company data – Internal estimates

2008 2009 2010 2011e 2012e 2013e 2014e

PROFIT ATTRIBUTABLE TO OWNERS OF THE PARENT 151,6 146,0 220,4 201,4 201,2 215,8 230,0

Depreciation/amortisation and impairment losses 110,3 123,6 117,6 116,4 123,9 131,3 138,5

Change in provisions (22,5) 17,6 (4,2) 3,7 15,0 19,0 -

Gains and losses on disposals of assets 0,7 0,4 1,8 18,0 - - -

Other 12,0 13,0 (2,0) 1,0 1,0 1,0 1,0

Non-controlling interests 11,2 16,8 23,2 23,0 25,0 25,0 25,0

Current and deferred taxes 66,5 58,1 89,4 87,3 88,0 93,7 99,2

Finance costs, net 37,9 22,6 12,0 25,0 25,0 25,0 25,0

CASH FLOW 367,6 398,3 458,0 475,8 479,1 510,8 518,7

Change in inventories (66,8) 155,9 (138,6) 90,5 8,0 12,0 19,0

Change in trade receivables (24,3) 31,3 (67,4) (96,3) 73,0 44,0 11,0

Change in trade payables 0,6 28,1 82,1 (69,4) (4,0) (9,0) (24,0)

Change in other receivables and payables (0,3) 24,8 35,0 - - - -

Income taxes paid (76,7) (58,3) (100,9) (72,3) (78,0) (86,7) (96,2)

Interest paid and received, net (35,6) (22,5) (12,0) (25,0) (25,0) (25,0) (25,0)

NET CASH FROM OPERATING ACTIVITIES 164,5 557,6 256,1 303,3 453,1 446,2 403,5

Proceeds from disposals of assets 8,6 6,5 20,9 18,0 - - -

Purchases of property, plant and equipment (96,0) (92,2) (120,6) (137,6) (104,1) (113,1) (118,8)

Purchases of software and other intangible assets (20,3) (17,0) (20,2) (53,6) (29,8) (29,3) (30,7)

Purchases of financial assets (2,8) 0,4 0,3 - - - -

Acquisitions of subsidiaries and minority interests 25,6 - - (485,0) (161,0) (139,0) (69,0)

NET CASH USED BY INVESTING ACTIVITIES (84,9) (102,2) (119,6) (658,2) (294,9) (281,3) (218,5)

Change in long-term borrowings 146,7 87,6 (99,3) 348,2 (40,0) (15,0) (30,0)

Change in short-term borrowings (65,2) (419,4) (80,1) 31,9 (8,0) (9,0) (15,0)

Proceeds from issue of share capital, including minority interests 4,9 0,7 - - - - -

Change in treasury stock (43,5) 8,8 33,4 11,7 6,0 4,0 (10,0)

Dividends paid, including to non-controlling shareholders (46,3) (50,2) (55,9) (86,1) (93,0) (98,4) (104,2)

NET CASH USED BY FINANCING ACTIVITIES (3,4) (372,5) (201,9) 305,7 (135,0) (118,4) (159,2)

Effect of changes in foreign exchange rates 14,4 0,3 (5,8)

NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS 90,6 83,2 (71,2) (49,2) 23,2 46,4 25,8

Cash and cash equivalents at beginning of period 134,0 224,6 307,8 236,6 187,0 210,0 256,0

Cash and cash equivalents at end of period 224,6 307,8 236,6 187,0 210,0 256,0 282,0

Change in cash 90,6 83,2 (71,2) (49,6) 23,0 46,0 26,0


15

Appendix 4. DCF Assumptions Source: Internal estimates

Appendix 5. Capital Structure (values in millions) Source: Internal estimates

Source: Companies annual reports

We took the lately published equity book values provided by the annual reports. For the sake of clarity, we do not report Chinese values in

CNY but in EUR. As Group SEB has a European business culture, we believe that it is more consistent to adopt a targeted capital structure

equal to the mean of European comparables (23.4%). This ratio corresponds to a weight of Equity and Debt of respectively 81.0% and

19.0%.

DCF ASSUMPTIONS

weight of equity 81,0% Capital structure

weight of debt 19,0% Actual D/E 47,0%

WACC 8,8% Targeted D/E 23,4%

FCF perpetuity growth rate 2,0% Risk-free rate 3,2%

Spread for A2 1,5%

Enterprise value (€m) 3 924 Cost of debt 4,7%

of which forecast period 43% Effective tax rate 28,0%

of which teminal value 57% Cost of debt after tax 3,4%

Net debt(-) /cash(+) -260 Risk-free rate 3,2%

- Value of minorites (€m) -355 Beta bloomberg (vs CACMid) 0,92

Value of equity (€m) 3 310 Unlevered Beta 0,69

Relevered beta 0,80

Market risk premium 8,5%

Target price (€) 66,3 Cost of equity 10,1%

Comparable Peers D/E ratio Currency Equity book value Total Financial Debt

European Companies

Philips 23,4% EUR 15 092 3 528

Delonghi 23,4% EUR 761 178

Mean / Median 23,4%

US Conglomerates

Jarden corporation 174,7% USD 1 821 3 180

Spectrum Brands 167,1% USD 1 046 1 749

Mean / Median 170,9%

Asiatic Groups

Joyoung 0,0% EUR 344 0

Zhejiang Aishida Electric Co. 12,8% EUR 178 23

Guangdong Elecpro Electric-A 27,6% EUR 36 10

Mean 13,4%

Median 12,8%


16

Appendix 6. Cost of Debt After Tax Source: Internal estimates

The cost of debt is calculated as the sum of the risk-free rate (TEC10OATs: floating rate bonds indexed on constant 10 year maturity

French government bond yields) and the Credit Default Swap spread for A2 type of companies.

We computed the average of TEC10OATs over the last 24 months (3.2%) in order to get a convenient value of Risk-free rate. Below the

variation of Risk-free rate is represented over the last 24 months :

Source: http://www.aft.gouv.fr/article_180.html?id_article=180&id_rubrique=173

We consider an effective tax rate of 28.0% in line with the previous ones over the last 5 years.

The cost of Debt after tax reaches 3.4%.

Appendix 7. Cost of Equity Source: Internal estimates

The cost of equity is derived from the CAPM.

We used a risk free rate of 3.2% corresponding to the actual French long-term government bond yield maturing in 10 years. This risk free

rate is in line with the average (over the last 24 months). We considered a risk premium of 8.5% (average over the last 24 months)

consistent with the present uncertainty of the French equity market. Our relevered beta (0.83) is calculated using the target capital

strucuture (based on the average of European comparables).

Below is represented the variation of Equity risk premium over the last 24 months :

Source: Bloomberg

The cost of Equity reaches 10.1%

3,2%

2,0%

2,5%

3,0%

3,5%

4,0%

4,5%

Risk-free rate Average over the last 24 months

8,5%

6,0%

7,0%

8,0%

9,0%

10,0%

11,0%

12,0%

13,0%

Dec 09 June 10 Dec 10 June 11 Dec 11

Equity risk premium Average (24 months)

http://www.aft.gouv.fr/article_180.html?id_article=180&id_rubrique=173



17

Appendix 8. Free Cash Flows Forecasts (in € millions) Source: Internal estimates

Our Free Cash Flows forecasts are based on the following assumptions:

- Here the EBIT is undestood as the Operating profit. It integrates restructuring costs which we view as recurrent. However we

corrected the Operating profit adding “Impairment losses” (in the line “+/- other operating (non) cash mvts”) as they are non-cash

items. The detailed assumptions made to forecast Operating profit are explained in the Appendix 10: P&L hypothesis.

- The effective tax rate is set at 28.0%. It is computed as the average over the past 5 years.

- Depreciation and amortization represent 3.0% of sales (average over the past 5 years).

- Capital expenditure are stabilized at 3.2% of sales.

- Working Capital amounts to 24.5% of sales (average over the past 3 years). We believe that this assumption takes into account

the strict management of Working Capital requirements recently initiated by Group SEB.

After 2021e, we assume a perpuity growth rate of 2.0%.

Appendix 9. DCF Sensitivity Analysis Source: Internal estimates

2012e 2013e 2014e 2015e 2016e 2017e 2018e 2019e 2020e 2021e Terminal value

Period 1 2 3 4 5 6 7 8 9 10

EBIT 339 359 379 398 414 461 477 495 513 533

Effective tax rate 28,0% 28,0% 28,0% 28,0% 28,0% 28,0% 28,0% 28,0% 28,0% 28,0%

- Taxes -95 -101 -106 -111 -116 -129 -134 -139 -144 -149

+ Depreciation, amortization 124 131 139 145 151 157 162 168 175 181

-Capex expenditure -134 -142 -150 -157 -164 -169 -176 -182 -189 -196

+/- change in working capital -62 -62 -60 -56 -51 -44 -47 -49 -52 -55

+/- other (non) operating cash mvts 21 22 23 25 26 26 27 28 29 31

FCF 193 209 226 243 261 301 311 322 333 344

Discount factor 1,09 1,18 1,29 1,40 1,52 1,66 1,80 1,96 2,13 2,32

Discounted FCF 177 176 175 173 171 182 173 164 156 148

2228

8,1% 8,3% 8,6% 8,8% 9,1% 9,3% 9,6%

1,3% 70,3 67,1 64,2 61,5 58,9 56,5 54,2

1,5% 72,2 68,9 65,8 63,0 60,2 57,7 55,3

1,8% 74,3 70,8 67,5 64,6 61,6 59,0 56,5

2,0% 76,5 72,8 69,3 66,3 63,2 60,4 57,8

2,3% 79,0 75,0 71,3 68,1 64,8 61,9 59,2

2,5% 81,6 77,4 73,5 70,0 66,6 63,5 60,7

2,8% 84,6 80,0 75,8 72,2 68,5 65,3 62,3

DCF SENSITIVITY ANALYSIS - TP in € (Perpetuity Growth Rate ↓ WACC →)


18

Appendix 10. P&L Hypothesis (in € millions) Source: Internal estimates

Revenue

Our sales forecasts are based on the following assumptions:

- For 2011e : we computed our own assumption (I)

- For 2012e : we regressed each geographical organic growth (for a period of 3 years for Asia/Pacific and central Europe and other

countries, and 6 years for the other areas) on real growth (except for France where we considered 0% growth of sales for 2012e).

We then used the different linear regression and the IMF forecasts to estimate the organic growth of sales 2012e. (II)

- For 2013e-2015e: we considered this period as transition path from our 2012e estimates to the steady ones used for the next

period. (III)

- For 2015e to 2020e: we considered steady organic growth of sales (0.5% in France and NorthAmerica, 1.0% in Other western

European countries, 3.0% in Central Europe, Russia and other countries, 5.0% in South America and 7.0% in Asia and Pacific).

(IV)

Source: Internal estimates, IMF estimates

2010 2011e 2012e 2013e 2014e 2015e 2016e 2017e 2018e 2019e 2020e 2021e

Total Sales 3 652 3 934 4 187 4 438 4 681 4 909 5 116 5 296 5 486 5 687 5 899 6 123

7,7% 6,4% 6,0% 5,5% 4,9% 4,2% 3,5% 3,6% 3,7% 3,7% 3,8%

France 712 698 698 698 700 702 705 708 712 715 719 723

Other western European countries 787 834 852 868 883 896 907 916 925 934 944 953

North America 404 400 415 427 438 445 451 453 455 457 460 462

South America 346 386 424 462 499 534 566 595 624 656 688 723

Asia / Pacific 764 898 1 030 1 166 1 302 1 433 1 556 1 665 1 781 1 906 2 039 2 182

Central Europe, Russia and other countries 639 719 769 816 859 898 932 960 989 1 019 1 049 1 081

Division of sales

Total 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%

France 19% 18% 17% 16% 15% 14% 14% 13% 13% 13% 12% 12%

Other western European countries 22% 21% 20% 20% 19% 18% 18% 17% 17% 16% 16% 16%

North America 11% 10% 10% 10% 9% 9% 9% 9% 8% 8% 8% 8%

South America 9% 10% 10% 10% 11% 11% 11% 11% 11% 12% 12% 12%

Asia / Pacific 21% 23% 25% 26% 28% 29% 30% 31% 32% 34% 35% 36%

Central Europe, Russia and other countries 17% 18% 18% 18% 18% 18% 18% 18% 18% 18% 18% 18%

Growth of sales (constant exchange rate)

Total 9,6%

France 3,9% -2,0% 0,0% 0,1% 0,2% 0,3% 0,4% 0,5% 0,5% 0,5% 0,5% 0,5%

Other western European countries 7,5% 6,0% 2,1% 1,9% 1,7% 1,5% 1,2% 1,0% 1,0% 1,0% 1,0% 1,0%

North America 7,5% -1,0% 3,7% 3,1% 2,4% 1,8% 1,1% 0,5% 0,5% 0,5% 0,5% 0,5%

South America 12,4% 11,5% 10,0% 9,0% 8,0% 7,0% 6,0% 5,0% 5,0% 5,0% 5,0% 5,0%

Asia / Pacific (1) 18,9% 17,5% 14,7% 13,2% 11,6% 10,1% 8,5% 7,0% 7,0% 7,0% 7,0% 7,0%

Central Europe, Russia and other countries (2) 9,4% 12,5% 6,9% 6,1% 5,3% 4,6% 3,8% 3,0% 3,0% 3,0% 3,0% 3,0%

Real growth (IMF) IMF estimates Coefficient Intercept

Total 5,1%

France 1,4%

Other western European countries 1,8% 1,1% 0,3584 0,0174

North America 3,3% 2,0% 2,7704 -0,0185

South America 6,6% 4,1% 1,44806 0,0404

Asia / Pacific (1) 9,5% 8,0% 2,6617 -0,0655

Central Europe, Russia and other countries (2) 4,5% 2,7% 1,8621 0,0188

(I) (II) (III) (IV)



19

Below are the results of our linear regression used to forecast sales for 2012e:

y = 0,3584x + 0,0174

-4%

-2%

0%

2%

4%

6%

8%

-5% -4% -3% -2% -1% 0% 1% 2% 3% 4%

Other western European countriesy = 2,7704x - 0,0185

-15%

-10%

-5%

0%

5%

10%

-4% -3% -2% -1% 0% 1% 2% 3% 4%

North America

y = 1,4806x + 0,0404

-5%

0%

5%

10%

15%

20%

25%

30%

35%

-1% 0% 1% 2% 3% 4% 5% 6% 7%

South America y = 2,6617x - 0,0655

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

0% 2% 4% 6% 8% 10%

Asia / Pacific

y = 1,8621x + 0,0188

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

-5% -4% -3% -2% -1% 0% 1% 2% 3% 4% 5%

Central Europe, Russia and other

countries


20

Cost of sales:

- Purchased raw materials and goods: the cost of the main raw materials (metals : aluminium, copper and nickel/plastic materials)

used by SEB increased significantly in H1 2011 compared with last year. However the downward trend of prices during H2-11

and the hedging policy upset the drift and lead us to consider that these costs amount to the normalized* share of 43.8% of sales

for 2011e and after. Below are presented the changes of average prices of the main raw materials:

Source: Thomson Reuters Datastream


- Labor costs: we use the normalized* share of 4.1% of sales.

- Freight costs: they are mainly dependent on the economic context and the Brent prices, two volatile data. We use the normalized*

share of 0.9% of sales.

- Other production costs: we use the normalized* share of 9.4% of sales.

General & Administrative costs:

- R&D: we expect the Group SEB to maintain a high share of sales invested in innovation to continue to provide genuine added-

value products to customers. We use the normalized* share of 1.6% of sales.

- Advertising expense: we use the normalized share of 3.6% of sales.

- Distribution and administrative expenses: we use the normalized* share of 25.8% of sales.

- Discretionary and non-discretionary profit-sharing: we use the normalized* share of 1.2% of sales.

Other operating incomes and expenses:

They are divided into three main parts:

- Restructuring costs: we use the normalized* share of 1.0% of sales.

- Impairment losses: we use the normalized* share of 0.5% of sales.

- Gain and losses on asset disposals and other: for 2011e we estimate that this item accounts for €18m (equal to the value reported

at the end of H1-11). For 2012e and after, we consider a value of zero to traduce their erratic evolution.

Finance costs are considered to be equal to €25m over the period.

Income tax expense: we use an effective tax rate* of 28.0%.

* corresponding to the average over the last 5 years.

Plastic materials Aluminium Nickel Copper

H1-10 / H1-11 21% 20% 20% 32%

H2-10 / H2-11 -1% 2% -9% 4%

2009 / 2010 59% 30% 49% 46%

2010 / 2011 11% 11% 5% 17%

Change of average price (in %)

60

70

80

90

100

110

120

130

Plastic materials Aluminium Nickel Copper


21

Appendix 11. Currency Effect (for the period 2011e) Source: Internal estimates


Legend : + : Local currency appreciation vs euro compared with previous year (computed using average exchange rate over the period)

- : Local currency depreciation vs euro compared with previous year (computed using average exchange rate over the period)

During 2011, most operating currencies have depreciated against euro compared with previous year. If a failing dollar has a favorable effect

on purchases, on the whole we estimate that the depreciation of operating currencies will bring about a negative but moderate effect on

sales for 2011. We forecast that the currency effect for FY2011 will amount to - €25m (in line with the - €17m reported at the end of 9-

month 2011).

2010 2011e 2010 vs 2009 9m-11 vs 9m-10 2011 vs 2010

Currency effect (€m) 171,5 -25,0

Other western European countries

UK + - 3,9% -1,6% -1,3%

Swiss + + 13,6% 13,6% 12,0%

North America

USA + - 5,0% -6,6% -4,9%

Canada + - 16,2% -1,1% -1,0%

Mexico + - 12,2% -1,3% -2,9%

South America

Venezuela - - -46,2% -9,1% -7,2%

Brazil + + 18,5% 1,9% 0,3%

Colombia + - 18,8% -2,4% -2,3%

Argentina - - -0,2% -10,9% -9,8%

Chile + + 15,0% 2,4% 0,4%

Asia / Pacific

China + - 6,0% -2,2% -0,5%

Japan + + 12,1% 3,8% 4,5%

Korea + - 15,6% -0,7% -0,7%

Australia + + 22,5% 8,2% 6,8%

Central Europe, Russia and other countries

Russia + - 9,6% -1,8% -1,5%

Ukraine + - 6,1% -7,0% -5,4%

Turkey + - 8,2% -12,4% -14,1%

Poland + - 8,1% -0,4% -2,7%


22

Appendix 12. Market Comparables (values in millions) Source: Internal estimates

Source: Companies annual reports, Bloomberg

We computed our own composite index based on the market comparables as follows:

- European companies Index (54%): Average of European companies‟ stock prices.

- US Conglomerates Index (10%): Average of US Conglomerates‟ stock prices.

- Asian Groups Index (36%): Average of Asian Groups‟ stock prices.

The correlation between SEB stock price and the composite index reaches 0.8 demonstrating the relevancy of our selected comparable

peers.

Graphically we can see that a correction occurred on SEB stock price after a period of overvaluation in 2010. SEB stock dropped below the

composite index showing that it has an upside potential.

Source: Thomson Reuters Datastream, Internal estimates

Comparable Peers (based on stock price as of 28/12/2011) Currency Enterprise Value Market cap. Net Debt (+) / Cash(-)

European Companies

Philips EUR 15 952 14 731 1 188

Delonghi EUR 1 030 1 018 12

US Conglomerates

Jarden corporation USD 5 465 2 732 2 733

Spectrum Brands USD 3 064 1 404 1 660

Asiatic Groups

Joyoung EUR 479 706 -236

Zhejiang Aishida Electric Co. EUR 251 261 -12

Guangdong Elecpro Electric-A EUR 93 102 -9

Comparable Peers (last annual results published) Currency SALES EBITDA EBIT Net Result

European Companies

Philips EUR 25 419 3 487 2 065 1 446

Delonghi EUR 1 600 193 148 75

US Conglomerates

Jarden corporation USD 6 023 570 427 107

Spectrum Brands USD 2 567 332 231 -190

Asiatic Groups

Joyoung EUR 596 91 86 66

Zhejiang Aishida Electric Co. EUR 227 15 10 7

Guangdong Elecpro Electric-A EUR 86 6 2 1

80,0

90,0

100,0

110,0

120,0

130,0

140,0

150,0

COMPOSITE INDEX SEB


23

Appendix 13. Key Financial Ratios (Historical and Forecasts) Source: Company Data - Internal estimates

Appendix 14. Focus on ROE decomposition Source: Company Data - Internal estimates

ROE is a weighted return to operating activities and financing activities : ROE =

1° Traditionnal DuPont Decomposition

(NB: Net Profit Margin can also be divided into Tax burden, Interest burden and EBIT margin but for the purpose of the analysis we consider this level of decomposition is precise enough)

Key financial Ratios 2008 2009 2010 2011e 2012e 2013e 2014e 2008 2009 2010 2011e 2012e 2013e 2014e

Profitability Liquidity

Return on Assets 6,2% 5,9% 8,6% 7,4% 7,3% 7,5% 7,7% Current ratio 1,2 x 1,5 x 1,7 x 1,8 x 1,9 x 2,1 x 2,3 x

Return on Capital 10,2% 10,4% 15,5% 12,4% 11,6% 11,9% 12,1% Quick ratio 0,7 x 1,0 x 1,0 x 1,0 x 1,1 x 1,2 x 1,3 x

Return on Equity 17,2% 14,7% 17,8% 15,2% 15,3% 14,8% 14,4% Days Sales Outstanding 78,0 79,0 73,4 69,1 63,9 65,1 63,9

Margin Analysis Days Inventory Outstanding 125,5 103,0 114,3 121,9 115,8 111,1 108,0

Gross Margin 44,7% 48,0% 44,4% 44,8% 44,8% 44,8% 44,8% Days Payable Outstanding 74,8 87,9 88,9 71,4 66,4 61,3 54,8

SG&A Margin 14,0% 17,9% 15,2% 13,8% 13,8% 13,8% 13,8% Cash Conversion Cycle 128,7 94,1 98,8 119,7 113,3 114,9 117,1

EBITDA Margin 12,1% 14,5% 12,8% 11,5% 11,1% 11,1% 11,1% Solvency

EBIT Margin 8,6% 7,8% 9,6% 8,6% 8,1% 8,1% 8,1% Total liabilities / Total Assets 63,2% 54,3% 47,6% 55,5% 52,6% 49,8% 46,6%

Net income Margin 4,7% 4,6% 6,0% 5,1% 4,8% 4,9% 4,9% Net Debt / Equity 62,6% 19,9% 8,3% 41,7% 33,1% 25,8% 19,8%

Asset Turnover (LT + ST Debt) / Equity 84,3% 44,9% 23,7% 55,5% 47,1% 41,4% 35,6%

Total Asset Turnover 1,2 x 1,2 x 1,3 x 1,3 x 1,4 x 1,4 x 1,4 x LT Debt / Equity 20,6% 24,7% 12,8% 40,6% 34,1% 30,2% 26,1%

Fixed Asset Turnover 9,1 x 8,2 x 8,9 x 8,8 x 8,8 x 9,2 x 9,6 x EBIT / Interest Expense 5,6 x 9,1 x 22,0 x 13,5 x 13,6 x 14,4 x 15,2 x

Inventory Turnover 5,7 x 5,9 x 6,6 x 5,8 x 5,7 x 6,0 x 6,2 x Total Debt / EBITDA 2,2 x 1,2 x 0,8 x 1,7 x 1,5 x 1,4 x 1,2 x

Receivables Turnover 4,7 x 4,6 x 5,0 x 5,3 x 5,7 x 5,6 x 5,7 x Net Debt / EBITDA 1,6 x 0,5 x 0,3 x 1,2 x 1,1 x 0,9 x 0,7 x

ROE

Return on Assets (ROA) Financial Leverage

Net Profit Margin Asset Turnover

X

X


24

Presented differently we have: ROE =

=

x

=

x

x

The ROA represents the earning power of the firm‟s asset. It is driven by profitability (Net profit margin: is the cost structure of the firm optimized?) and efficiency (Asset turnover: given the

assets, does the firm produce enough revenue?).

The financial leverage indicates to what extent the firm benefits from financial leverage, if the operating margin is higher than financial costs.

2° Advanced DuPont Decomposition

Traditionnal DuPont Decomposition‟s main drawback deals with mixing operating and financing decisions (for example when comparing Net profit and Assets in the ROA). A second

decomposition has been developed, which splits operating efficiency and financing decisions. This second decomposition requires a full restatement of Income Statement and Balance Sheet

so as to clearly identify both components of ROE.

a) Restating Income Statement and Balance Sheet

i) Income Statement

The reformulation aims at obtaining an expression of profit resulting only from Operating items. This is called the NOPAT (Net Operating Profit after Adjusted

Taxes). Tax Shield generating by financial costs must be withdrawn to get the NOPAT and are added after that in order to get the Net Profit.

ii) Balance Sheet

The Balance Sheet must also be restated to show Net operating Assets (difference between Operating Assets - including Operating Working Capital and Long-term

assets - and Operating Liabilities), Net Debt and Shareholders‟ Equity.

Source : « Financial Statement Analysis » Course by D.Lui, McGraw Hill pedagogic website (http://highered.mcgraw-hill.com/sites/007253317x/instructor_view)


25

b) Advanced DuPont decomposition

This decomposition isolates clearly operating performance and financing decisions. The choice of leveraging or deleveraging can be easily assessed through the notion of SPREAD,

which penalize a firm whose Operating margin is lower than Borrowing cost.

With: RNOA = NOPAT/NOA

NBC (net borrowing cost) = NFE (Net Financial Expense) / ND (Net Debt)

SPREAD = RNOA – NBC

Financial Leverage = ND/Shareholders‟Equity

Source : « Financial Statement Analysis » Course by D.Lui, McGraw Hill pedagogic website (http://highered.mcgraw-hill.com/sites/007253317x/instructor_view)

ROE

Return on Net Operating Assets (RNOA) Financial Leverage

NOPAT Margin Net Operating Asset Turnover

SPREAD X +

X


26

SEB 2008 – 2009 Reformulated Balance Sheet SEB 2008 – 2010 Restated P&L

2008 2009 2010

NET OPERATING ASSETS

+ Long term NOA 1 170 1 150 1 234

+ Operating Working Capital 611 374 526

Net Operating Assets 1 781 1 525 1 761

Avg NOA 1 653 1 643

NET DEBT

+ Financial Obligation 1 058 700 551

- Financial Assets 183 257 189

Net Debt 875 443 362

Avg ND 659 403

EQUITY

Equity 906 1 081 1 398

Avg Equity 994 1 240

2008 2009 2010

Sales in France 668 685 712

Sales outside France 2 562 2 491 2 940

Revenue 3 230 3 176 3 652

Purchased raw materials and goods (1 423) (1 414) (1 633)

Labour costs (126) (125) (127)

Freight costs (24) (22) (65)

Other production costs (325) (305) (322)

Cost of sales (1 898) (1 867) (2 147)

Research and development costs (50) (50) (60)

Advertising expense (120) (95) (143)

Distribution and administrative expenses (821) (809) (864)

Other Operating expenses (991) (954) (1 067)

Operating expenses (2 888) (2 821) (3 214)

Operating margin 342 355 438

Discretionary and non-discretionary profit-sharing (38) (34) (50)

Recurring operating profit 304 322 388

Other operating income and expense (24) (74) (39)

Operating profit = EBIT 279 248 349

Finance costs (38) (23) (12)

Other financial income and expense (11) (5) (4)

Share of profits/(losses) of associates (1) - -

Profit before tax 230 221 333

Income tax expense (67) (58) (90)

Profit for the period 163 163 244

Non-controlling interests (11) (17) (23)

Profit attributable to owners of the parent 152 146 220

Statutory Tax rate 34,40% 34,40% 34,40%

Tax shield due to Financial expense 17 9 5

Reported tax (67) (58) (90)

Tax expense on operating profit (84) (67) (95)

NOPAT 196 181 254

NOPAT (excluding Minority Interests) 185 164 231

NFE (Net financial expense after tax) (33) (18) (10)

Profit for the period 163 163 244


27

ROE Computation

Basic DuPont Decomposition

Advanced DuPont Decomposition

The basic DuPont decomposition indicates that SEB reached a better profit margin (6% in 2010 vs. 4.6% in 2009) together with a higher assets turnover (1.29 in 2010 vs. 1.16). Thus

SEB was more profitable and more efficient. The equity multiplier was however lower (2.29 in 2010 vs. 2.76 in 2009) because of strong increase in equity and reduction of debt.

The advanced DuPont decomposition, introducing notion of Return on Net Operating Assets (RNOA), Spread (difference between Net Borrowing Cost and RNOA) and Leverage, helps

to understand distinction between financing and operating decisions. In 2010, SEB improved significantly its RNOA, from 9.9% to 14.1%, along with the company‟s will to always improve

profitability. Thanks to this, its spread was much higher than the previous year (11.5% vs. 7.2%). But, again, because of the deleveraging policy, SEB did not benefit a lot from this and its

leverage decreased significantly (0.32 vs. 0.66).

ROE 2009 2010

Avg Equity (attributable to parents of the owner) 994 1240

Profit (Group Share) 146 220

ROE (excluding Minority Interests) 14,69% 17,78%

Profit margin - Group Share 4,60% 6,04%

Return on assets 1,16 1,29

Leverage 2,76 2,29

NOPAT (excluding Minority Interest) 164 231

RNOA 9,91% 14,05%

Net financial expense (NFE) 18 10

Net Borrowing Cost (NBC) 2,71% 2,59%

SPREAD 7,21% 11,46%

FLEV 0,66 0,32

SPREAD x FLEV 4,78% 3,72%


28

Appendix 15. SEB’s Organizational Structure Source: Company Data

Appendix 16. Shareholder Structure & Dividend Growth Policy Source: Company Data

GROUPE SEB

CORPORATE FUNCTIONS

STRATEGY P. Le Corre

INDUSTRIAL OPERATIONS

S. Laflèche

BUSINESS UNITS B. Neuschwander

FINANCE J-P. Lac

HUMAN RESOURCES

H. Touret

CONTINENTAL STRUCTURES F. Verwaerde

STRATEGIC BUSINESS UNITS

COOKWARE C. Ringuet

KITCHEN ELECTRIC

P. Crevoisier

HOME & PERSONAL CARE

C. Buxtorf

CONTINENTAL STRUCTURES

FRANCE BELGIUM G. Salommez

WESTERN EUROPE

L. Gaudemard

NORTH AMERICA V. Lixfeld

SOUTH AMERICA F. Soarès

EASTERN HEMISPHERE P. Llobregat

CHINA V. Taï

EXECUTIVE COMMITTEE

T. de La Tour d’Artaise

B. Neuschwander

F. Verwaerde

J-P. Lac

S. Laflèche

H. Touret


29

Appendix 17. SEB’s Development Strategy Source: Company Data - Internal Estimates

Strategic drivers

Pursuing GROWTH Maintaining COMPETITIVENESS

International Expansion Value-creating & Differenciation Cost controlling & Greater efficiency

World « pole position » to strengthen

Balancing activities between mature and emerged / emerging countries

Continuing to develop close relationships with distributors and partners worldwide

Offensive Product Plan

Being one length ahead of peers is a priority for SEB

250 new products in 2011

A push communication strategy

(TV, press, web, point-of-sale…)

Cost control in structures

Reduction in structure costs (logistical, IT, administrative, …)

Low price demand and globalisation increased strict cost management and relocations to lower cost countries

Internal and External Growth: 2 means of internationalization

Internal growth: through new marketing subsidiaries or new local production units

External growth: dynamic new markets penetration via acquisitions of local integrated companies (production – retailing)

Building on the strengths and complementarity of brands

Reputed global or local differenciated brands to better adapt offers

Redeployment of the famous Moulinex brand in 2010

Stringent day-to-day management

Reduction in working capital

Supply chain optimization (30% reduction in 4 years)

Improvement in stock rotation

Emerging Fast-Growing Economies targeted

…to find growth relays to mature markets

Asia-Pacific and South America mainly targeted as demand exploded with middle class rise

In 2011: SEB increased by 20% its stakes in Supor (until 71% +400M€) and acquired 65% of Asia Fan, the leader fan manufacturer in Vietnam

After China, SEB announced its willing to enter Indian market by 2012…

Investing efforts in innovation

About 2% of revenues invested in R&D the last 4 years

273 Soleau Envelops* and 110 patents filed in 2010

Capacity to understand well the market and launch innovations at the right time

Creation of SEB Alliance** in 2011

Industrial optimization

Balancing in-house manufacturing (69%) against outsource production (31%)

European and US plants are specialized in high-tech products whereas low-end products are manufactured or outsourced in emerging countries (Asia)

A global and local organisation

Five Continental Divisions to manage marketing companies and develop the Group’s local presence

SEB Approaches new market generally with one or two product families (cookware, irons, etc.) to consolidate a strong base before widen the offer

Adapting offer

Meeting the need for basic equipment and proposing a locally adapted offer to Emerging countries

Reinventing special moments (homemade pleasures, new lifestyles, healthy life…) in Mature countries

Technical Know-how protection & Image preservation

Keeping production units in Europe to not cheapen its image

Protecting technical processes in “safe countries” from counterfeit

* The “Enveloppe Soleau” is an Industrial Property product with the aim of dating and identifying the creation of a new product

** SEB Alliance is a new Investment Fund, founded in 2011 by SEB, in order to anticipate and develop new technologies in domestic appliances, and particularly in Digital and Connected Products areas

SEB’s industrial

and marketing sites

SEB’s investments in R&D

Seb’s Working Capital Requirement Reduction


30

Appendix 18. SWOT Analysis Source:Internal Estimates

Appendix 19. Latest Product Launches Source: Company Data - Internal Estimates

← 2006 - 2007 2008 - 2009 2010 - 2011 →

SEB Actifry fryer (with 1 spoonful of oil)

Nutricook – Pressure cooker new generation

Vitacuisine Gourmand

Seb Acticook

Rowenta Silence force vacuum

Silence force Cyclonic

Silence force Extreme

Eco Intelligent generator

Calor / Tefal Steam generator and self-cleaning irons

Luminance Bathroom scale

T-fal Convection Toaster Oven

Calor Vectissimo Turbo

Supor (China) Homemade Soya milk

Supor Slow cooker

Kettle Supor

South-America brands (Arno, Clock, Samurai…)

Arno Repelente anti-mosquito fan

Samurai Direct Serve

Clock Original Verticontrol

Imusa Fresh Express

STRENGTHS WEAKNESSES ► Strong, differenciated and complementary brands ► Small size compare to many peers

► Products portfolio highly diversified ► Major markets in which SEB is established have reached maturity

► Global presence and constant international development in emerging countries → France and Western Europe

► External growth strategy (integrations of Supor and Imusa the last two years) → North America

► Strong innovation capacity

→ 250 new products in 2011

→ Capacity to launch innovations at the right time (Actifry fryer, self-cleaning iron, etc.)

→ Willing to develop digital products

► Healthy financial situation

OPPORTUNITIES THREATS ► Dynamic demand in emerging countries ► Eurozone recession

► Positive structural factors in emerging countries ► Deterioration in the global economic environment

→ Rapid growth of the population ► Decrease in household consumption in most western countries

→ Higher standards of living (and family equipment rate increase) ► Intensification in competitive pressures, notably from Asian players (price war effect)

► Emergence of new consumer trends in mature countries (healthy concepts, design, etc.) ► Increase in raw material prices and currency fluctuations

► Good responsiveness of consumers to marketing and innovation

(25% of purchases are impulsive)


31

Appendix 20. Structure of Competition Source:Internal Estimates

We can classify SEB‟s competitors into five big categories, mainly differenciated by their product range positioning and their market

scope.

Appendix 21. Selected Comparable Peers Source: Capital IQ, Internal estimates

Middle & High-end product range Low-end product range

Contract

Manufacturers

Generally private

label manufacturers,

with no brands, who

produce appliances or

cookwares at very

lower costs on behalf

of large distribution

chains

Asian players,

usually former

subcontractors

They are now

producing for their own

account and export

their products

worldwide

• Airmate

• Joyoung

• Aishida

• Elecpro

• Midea

• Maspion Electronik

Local

specialist firms

Mostly European

and US firms,

which achieve their

revenues mainly in

their own markets

• Fagor

• Magimix

• Hamilton Beach

Global

specialist firms

Specialists in large

and / or small

household

appliances and

present worldwide

• DeLonghi

• Bosch-Siemens

• Conair

• Electrolux

Global multi-

segment groups

Enjoying large retail

networks, their core

business is often close

to electronic or

consumer goods

manufacturing

• Philips

• Procter & Gamble

• Jarden

• Panasonic

High-end

specialists

High-end specialists

concentrating on one

or two segments

• Dyson

• Vorwerk

• Jura

• Laurastar

• Russel Hobbs

SEB & Comparable Peers* SEB Philips Delonghi

Amalgamated

Appliance Hld. Jarden

Spectrum

Brands Joyoung

Zhejiang

Aishida

Guangdong

Elecpro

ElectricTicker code SK.FP PHIA DL AMA JAH SPB 002242 002443 002260

Country France Netherlands Italy South Africa USA USA China China China

Currency EUR EUR EUR ZAR USD USD CNY CNY CNY

Market Presence - Elec. Appliances 8Y8Y 8888 Y9Y9 99Y9 8Y8Y 89Y9 998Y Y989 Y989

Market Presence - Cookware 888Y 9999 9999 9999 9999 9999 99Y9 Y98Y 9999

Diversification 9999 8888 8999 88Y9 8888 8888 9999 9999 9999Share Price (as of 23/12/11) EUR 57.49 EUR 15.63 EUR 7.06 ZAR 2.15 USD 30.21 USD 27.14 CNY 7.48 CNY 9.60 CNY 5.80

to 52wk High/Low .-30% / 11% .-39% / 30% .-24% / 23% .-2% / 79% .-19% / 18% .-26% / 35% .-57% / 3% .-49% / 5% .-63% / 7%

3 month Avg. Volume (m) 0.11 4.23 0.23 0.21 0.60 0.17 2.83 1.12 1.84

Market Value (m) 2,769 14,693 1,056 448 2,743 1,420 5,692 2,304 905

Shares Outstanding (m) 48.2 940.1 150 209 91 52.3 761 240 156

Free float 56.8% 99.9% 24.7% 80.1% 94.1% 45.2% 25.1% 39.0% 57.2%

Dividend Yield 2.0% 4.8% 2.1% 7.4% 1.1% 0.0% 18.7% 2.1% 0.0%

Diluted EPS 4.57 (0.44) 0.54 0.29 2.58 (1.46) 0.76 0.17 0.12

P/E 12.58x nm 13.10x 7.49x 11.71x nm 9.89x 55.20x 49.55x

Enterprise Value (m) 3,197 15,914 1,112 188 5,486 2,857 3,745 2,221 744

Cash & ST Invst. (m) 475 2,340 166 260 446 142 2,028 302 165

Total Debt (m) 735 3,528 221 0 3,189 1,579 0 195 3

Total Assets (m) 3,201 27,711 1,614 653 7,189 3,622 4,092 2,048 598

Legend: Developed Markets Presence → 99=low est 88=highest

Emerging Markets Presence → 99=low est 88=highest

Degree of diversif ication → 9999=Electrical household appliances / Cookw are is the core segment 8888=Business totally diversif ied

*as of 23/12/2011


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Appendix 22. Scoring Analysis Source: Internal Estimates

Altman Z-Score: Bankruptcy prediction

The Z-Score model, developed by Edward Altman in 1968, is a tool aimed at estimating a company‟s probability of bankruptcy, and is

particularly suited for manufacturing companies. The model uses eight variables (from the financial statements) in a statistically derived

combination, that was originally computed on a sampling of manufacturing firms. If considered alone, these eight factors cannot estimate

the overall strength of a firm, but each of them can be useful in identifying specific strengths or weaknesses that contribute to the general

financial health of the company.

Although there have been many other predictive tools published, the Altman model is the most widely tested and used bankruptcy predictor

and has a reported 72% accuracy in predicting bankruptcies two years in advance. (Z scores, a guide to failure prediction, by Eidleman,

Gregory J.).

We have derived SEB Z-Scores using Altman‟s regression, from 2004 to 2010, in order to better estimate the Group‟s financial health.

The current Z-Score of 3.41 indicates the strong financial health of the company. There‟s no risk of bankruptcy for the next two years. We

can notice that in 2007 and 2008 the Z-Scores was lower, respectively because of a higher level of liabilities in 2007, and a fall in the

average market capitalization in 2008.

Piotroski F-Score: Stock performance estimation

The Piotroski score is designed to quantify the strength of a firm‟s financial position. This fairly simple screen has been created by Joseph

Piotroski, with a wish to easily improve the performance of a value portfolio and throwing out firm‟s weakest stocks. He determined nine

different criteria to be checked for the valuated company, and decided to award each of them by a binary score: 1 if the company passes the

test, 0 otherwise. These individual tests are then added to give the F-Score: stocks with a score of six or above are considered to be strong

enough to be bought. Different studies shows that stocks with a higher F-Score (8 or 9) tend to outperform the market, while those with a

weak F-Score (below 3) should be sold short.

We applied the Piotroski‟s method to SEB, from the financial statements of 2009 and 2010. The score of 7 for SEB shows that the group is

likely to perform, equally or better than the market.

ALTMAN Z-Score Model 2004 2005 2006 2007 2008 2009 2010

Current Assets 1030 1219 1316 1359 1590 1470 1706

Current Liabilities 893 934 1041 1352 1338 956 1024

Retained Earning 526 563 591 608 742 753 747

EBIT 227 233 236 268 304 322 388

Avg. Market Value of Equity 1505 1405 1831 2095 1639 1394 2718

Total Revenue 2289 2463 2652 2870 3230 3176 3652

Total Assets 1781 2068 2124 2444 2822 2671 2996

Total Liabilities 1093 1267 1308 1580 1785 1451 1425

Z-Score 3,04 2,77 3,00 2,68 2,52 2,79 3,41

Analysis of Z-Scores

Above 3,0 Safe

Between 2,5 and 3,0 Probably safe but Caution

Between 1,8 and 2,5 Bankruptcy possible within two years

Below 1,8 Highly likely headed for bankruptcy

1. Is net income positive ? 1

2. Has ROA increased from prior year ? 1

3. Is latest operating cash flow positive ? 1

4. Is latest operating cash flow exceed net income ? 1

5. Is the ratio LT Debt/Total Assets down from prior year ? 1

6. Has the Current Ration increased from prior year ? 1

7. Is the number of shares outstanding no greater than the year-ago figure ? 1

8. Has Gross Margin improved ? 0

9. Has the Asset Turnover increased ? 0

F-Score 7

PIOTROSKI F-Score Model for SEB (based on 2009 and 2010 Results)


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Beneish M-Score: Earnings quality

The M-Score model, developed by Messod Beneish, is in many ways similar to the Z-Score model but is focused on the detection of

earnings manipulation rather than bankruptcy. The mathematical model uses eight indexes, calculated from specific financial ratios

(themselves derived from the company statements), which are injected into the model equation. The output is the M-Score of the company

that gives the degree to which the earnings have been manipulated. Beneish study shows that scores greater than -2.22 would indicate there

is a higher probability of the company manipulating earnings.

Our M-Score calculations are highlighted below. The results lower than -2.22 indicates a very low likelihood of SEB being a manipulator.

The combinations for the M-Score models are as follows:

M-Score (5-variables) = -6.065+ 0.823 DSRI + 0.906 GMI + 0.593 AQI + 0.717 SGI + 0.107 DEPI

M-Score (8-variables) = -4.84 + 0.920 DSRI + 0.528 GMI + 0.404 AQI + 0.892 SGI + 0.115 DEPI - 0.172 SGAI + 4.679 TATA - 0.327 LVGI

2009 2010

Net Sales 3176 3652

CGS 1867 2147

Receivables 675 793

Current Assets 1470 1706

PPE 391 427

Depreciation 124 117

Total Assets 2671 2996

SGA Expenses 904 1007

Net Income 146 221

Cash Flow from Operations 558 256

Current Liabilities 956 1024

Long-term Debt 301 202

DSRI - Days' Sales in Receivables Index 1,022

GMI - Gross Margin Index 1,000

AQI - Asset Quality Index 0,950

SGI - Sales Growth Index 1,150

DEPI - Depreciation Index 1,118

SGAI - Sales, General and Administrative expenses Index 0,969

TATA - Total Accruals to Total Assets -0,012

LVGI - Leverage Index 0,869

M-Scores

M-Score (8-variable model) -2,34

M-Score (5-variable model) -2,81

BENEISH M-Score Model for SEB (based on 2009 and 2010 Results)


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Simulation statistics

Mean 59,003151

Standard error 0,09717449

Median 59,8037271

Standard deviation 9,71744854

Variance 94,4288061

Skewness -0,54047413

Kurtosis 3,84764268

Appendix 23. Monte Carlo Simulation Source: Company risk management reports, Internal Estimates

In order to better estimate the impacts of the identified risks, we performed a Monte Carlo simulation through the lines of our DCF model. Although the P&L forecasts we drew up already

take into account the major macroeconomic facts (organic growths stagnation in mature countries; sustained growths in Asia & South America; European growth recovery from 2014e; etc.),

the model do not consider the probabilities of the economic and/or structural occurences that may impact SEB‟s value. A Monte Carlo analysis can help to foresee to what extent the Target

Price will tend to vary according to the risks previously presented.

From our Risk and SWOT analysis, we identified the main risk factors for SEB. Each of them were modeled by assigning an uncertainty profile along with a proper variance to each DCF

variable impacted by the risk. Upside risks (resp. downside risks) were modeled with lognormal distributions (resp. inverted lognormal), whereas normal distributions were allocated to other

risks. The standard deviations of each profile were computed from the expected magnitude of each specific risk.

The simulation was performed with 10,000 iterations. The average TP (59€) appears slightly lower than our DCF TP (€66.3), and the

standard deviation around this average comes up at about 10€. It can be noticed that the above risk scenario leads to a TP distribution with a

small negative skewness coefficient (-0.54), i.e. the combined risks together may have a more probable downside impact on the TP.

Risk factors DCF Variables Distributions STDEV Comments

Mature countries growth uncertainties

France (2011e-2015e) YoY Growth of Sales (%) Lognormal 10,00% → Upside risk from unexpected economic recovery (with regard to our growth assumptions)

Other Western Eur. Countries (2011e-2015e) YoY Growth of Sales (%) Lognormal 10,00% → Upside risk from unexpected economic recovery (with regard to our growth assumptions)

North America (2011e-2015e) YoY Growth of Sales (%) Normal 15,00% → Structural decline in US sales

France (2016e-2021e) YoY Growth of Sales (%) Normal 25,00% → Uncertain growth rate profiles

Other Western Eur. Countries (2016e-2021e) YoY Growth of Sales (%) Normal 25,00% → Uncertain growth rate profiles

North America (2016e-2021e) YoY Growth of Sales (%) Normal 25,00% → Uncertain growth rate profiles

Emerging countries growth uncertainties

Asia Pacific (2011e-2015e) YoY Growth of Sales (%) Inverted lognormal 5,00% → Downside risk from a slowdown in Asia Pacific (with regard to our growth assumptions)

South America (2011e-2015e) YoY Growth of Sales (%) Inverted lognormal 5,00% → Downside risk from a slowdown in South America (with regard to our growth assumptions)

Central Europe & Russia (2011e-2015e) YoY Growth of Sales (%) Inverted lognormal 10,00% → Downside risk from a slowdown in Eastern Europe (with regard to our growth assumptions)

Asia Pacific (2016e-2021e) YoY Growth of Sales (%) Normal 20,00% → Uncertain growth rate profiles

South America (2016e-2021e) YoY Growth of Sales (%) Normal 20,00% → Uncertain growth rate profiles

Central Europe & Russia (2016e-2021e) YoY Growth of Sales (%) Normal 20,00% → Uncertain growth rate profiles

Intensification in competitive pressure (leading to a margin erosion)

Price war + Competitiveness maintaining Operating margin (€) Inverted lognormal 5,00% → Downside risk of an operating margin erosion (expected around 5%)

Commodity risk

Fluctuations in raw material prices

Purchased raw material

(% of sales) Normal 3,00% → Risk in spite of SEB's hedging strategies

Currency risk

Exchange rates fluctuations EBIT (€) Normal 2,00% → Risk in spite of SEB's hedging strategies


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0

100

200

300

400

500

600

700

800

900

Fre

qu

en

cy

Target Price (€)


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Disclosures:

Ownership and material conflicts of interest:

The author(s), or a member of their household, of this report [holds/does not hold] a financial interest in the securities of this company.

The author(s), or a member of their household, of this report [knows/does not know] of the existence of any conflicts of interest that might bias the content or publication of this report. [The conflict of interest is…]

Receipt of compensation:

Compensation of the author(s) of this report is not based on investment banking revenue.

Position as a officer or director:

The author(s), or a member of their household, does [not] serves as an officer, director or advisory board member of the subject company.

Market making:

The author(s) does [not] act as a market maker in the subject company‟s securities.

Ratings guide:

Banks rate companies as either a BUY, HOLD or SELL. A BUY rating is given when the security is expected to deliver absolute returns of 15% or greater over the next twelve month period, and recommends that

investors take a position above the security‟s weight in the S&P 500, or any other relevant index. A SELL rating is given when the security is expected to deliver negative returns over the next twelve months, while a HOLD rating implies flat returns over the next twelve months.

Disclaimer:

The information set forth herein has been obtained or derived from sources generally available to the public and believed by the author(s) to be reliable, but the author(s) does not make any representation or warranty, express or implied, as to its accuracy or completeness. The information is not intended to be used as the basis of any investment decisions by any person or entity. This information does not constitute

investment advice, nor is it an offer or a solicitation of an offer to buy or sell any security. This report should not be considered to be a recommendation by any individual affiliated with [Society Name], CFA

Institute or the CFA Institute Research Challenge with regard to this company‟s stock.

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