Student Research Team C IRC Documents/IRC 2012...Student Research Team C This report is published...

Student Research Team C This report is published for educational purposes only by students competing in the CFA Institute Research Challenge.

Ticker: SK Recommendation: Buy Price: €59.5 Price Target: €79

Highlights

We value SEB at €79 and recommend to BUY the stock because of ... Using a weighted combination of DCF and multiple methodology, we estimate the value of SEB at €79, this target price implies a 32.8% potential versus the current share price. § ... its external growth strategy ... For years, Seb maintains a pertinanente external growth policy.

More and more investments were made his last time, especially in emerging countries. They will develop the growth of Seb through synergies and portfolio diversification. è December 2011 : Seb has again demonstrated its clout by buying an Indian leader in the market for small household appliances

§ ... its successful business model ... Seb is present on all continents through several famous international brand. The company covers all ranges of products to do not neglect any opportunity to sell. Governance is an additional factor of development, its exigency allows good risk management, with innovation as the key driver. è With communication, production and specific disttribution SEB makes this « multi-brand strategy » a major asset.

§ ... its solide growth drivers ... Emerging markets are growing rapidly and allow SEB to develop profits. The share of emerging countries in the TU is becoming stronger. The population of these countries still not equipped with home appliances, a gold mine for SEB. è Without forgetting the revival of moulinex in Europe (after 9 yers of absence in 9 countries)

§ ... its ability to genrate profit.

SEB SA

Date 03/01/2012

[Industry : home appliances]

52 Week Price Range €52.8 - €81.7Average Daily Volume 132,196Beta 1.1Dividend Yield (Estimated) 2.03%Shares Outstanding (in millions) 49.952Market Capitalization (in millions) 2973.6

Institutional Holdings 18%

Book Value per Share 29.15Debt to Total Capital 24%Return on Equity 17.8%

Market Profile

Stock price performance

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Seb Restated CAC 40Source: Bloomberg

CFA Institute Research Challenge Date

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Business Description

Established in 1857, SEB is a consumer product company specialized in small household appliances and home wares. The company has 10% global market share, and its turnover increased by 15% to reach 3.6 billion euros in 2010. The company employs 23,000 people. At the beginning, SEB was specialized in producing cookware, but now, almost 70% of its turnover comes from small household appliances. In this segment, the company appears as a leader. This position has been achieved through two main factors:

§ Innovation : the company invests nearly 2% of its revenues in R&D § External growth : many acquisitions were made and SEB is now present in 150 countries

SEB offers its product’s portfolio under 23 brands comprising 17 local and 6 international. The six international brands of the company are: All-Clad, Moulinex, Krups, Lagostina, Tefal and Rowenta. The local brands of the company are: Mirro, AirBake, WearEver and Regal brands in North America; Calor and SEB brands in France and Belgium; Clock, Arno, Penedo, Rochedo, Panex and Samurai brands in South America; T-fal, Imusa, Umco, in South and North Americas, Japan and South Africa, and Supor in Asia (China). Here are examples of SEB’s products: pressure cookers, steam irons, food processors, frying pans, coffee makers, barbecues, vacuum cleaners among the others. Business segmentation SEB’s products are divided into three categories: cookware, kitchen electrics and domestic care products.

§ The cookware appliances (such as pressure cookers and frying and sauce pans): In this category, Tefal and T-Fal are its most reputed brands.

§ The kitchen electrics category comprises both electric cooking (such as electric deep fryers and electric barbecue grills) and preparation products (juice extractors, blenders, mixers and so on).

§ The domestic care includes linen care (iron and steam generators), personal care (hair dryers, electronic scales and epilators) and home care products (vacuum cleaners, air-conditioners, fans and heaters).

Geographical presence The company classifies its revenues under six geographic segments: France, Other Western European countries, North America, South America, Asia-Pacific, and Central Europe, Russia and other countries. During FY2010, these geographic segments accounted for 19.50%, 21.50%, 11.10%, 9.50%, 20.90% and 17.50%, respectively.

France19,5%

Other Western European countries

21,5%

North America11,1%

South America9,5%

Asia-Pacific20,9%

Central Europe and other countries

17,5%

CFA Institute Research Challenge Date : January 3, 2012

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Industry Overview and Competitive Positioning

After studying the environment where SEB operates, we came to the conclusion that the company’s leadership in small household appliances, combined to its diversified geographical presence and its diversified product portfolio are its major strengths, even as its exposure to mature markets and its overdependence on few customers remains areas of concern. Going forward, surging counterfeit products, strong competitive pressure in particular on entry-level devices, and rising commodities’ prices may impact the company’s performance. However, the increasing demand for first equipment in emerging markets, the emergence of new needs in mature markets and strengthening market position in China are likely to offer growth opportunities to the company.

We also have identified the drivers and obstacles to business growth of SEB. They are as follow:

Global strategy

SEB always aims to maintain its global leadership of small appliances. To achieve this goal, the group conducts offensive strategies based on different areas:

Strengths Weaknesses

• World leader in small household appliances • Diversified geographical presence • Strong brand presence • Diversified product portfolio • Strong operating performance

• A significant portion of sales is realized in mature markets

• Overdependence of few customers

Opportunities Threats

• Increasing demand for first equipment in emerging markets

• The emergence of new needs in mature markets

• Positive smart appliances market outlook • Positive global care appliances outlook • Strengthening market position in china

• Surging counterfeit products • Strong competitive pressure in particular

on products at low prices • Higher sourcing costs due to revaluations

of payroll in emerging markets • Rising commodities prices


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Innovation è In the center of the strategy to differentiate itself from competitors Always at the service of the consumer, innovations help to simplify cooking. The priority for SEB is to stay one step ahead of its rivals. Therefore, continuous innovation is a source of competitive advantage for SEB. Every year SEB ranks among the most innovative companies (Best Innovator, Ipsos Innovation Awards, Hermes Innovation ...). To continue on this path, SEB Alliance was established with a capital of 30 million euros. The goal is to make technological research and invest in innovative companies. The main areas sought are related to health (aging population),the well-being, sustainable development and new technologies.

Communication è Close to the consumer To boost its sales in mature markets and catch the demand of emerging and emerged countries (South America and Asia), SEB has adopted an aggressive marketing strategy, based on advertising (TV campaigns, newspapers, magazines, web) and multiplication of animations in the stores. Social networks : With its 59,000 fans facebook page, seb ranks as one of the most popular French brands on the Internet. Seb talks every day with this fans and offers competitions around its products. A good way to the popularity of its brands. Only Philips have more fans on Facebook but Seb seb has the advantage of having several popular brands of this social network. Source : https://www.facebook.com/SebFrance Industrial tools adapted geographically to the business of SEB To improve its competitiveness, SEB has reorganized its production by geographic area. Thus, units in Europe and North America are specialized in high technological content’s products, while the outsourcing of entry-level devices is concentrated in emerging Asian countries. Europe, historic market of SEB, consists of 12 manufacturing. These factories produce the most innovative products (protection of innovations and technologies). South America with 6 plants from Colombia and Brazil, this production is destined for South America and the United States. Finally, the Asia focused a large part of production to Asian countries and the rest of the world for low-end products with 7 factories. India just complete the industrial and commercial presence of SEB in this growing market. The production is adapted to the local market with extractors soy milk made in China, the ventilators for hot climates, choppers conform totraditional meals…

Governance è Synonymous with performance In internal : While involving employees in the process, the SEB group wants to improve the health and safety. SEB prepares for this internal communication supports, establishes certifications and security checks (logistics and industrial entities certified OHSAS 18001). From a social point of view, SEB supports its employees and builds upon the manager for the spirit of the group (training, brochure, forum).


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Externaly : SEB is also noted for its social actions with 48 projects supportedin 2010, particularly in terms of fight against exclusion (through the Foundation SEB). To preserve the environment, SEB associated himself with different actors on Sustainable Development (State and local authorities, NGOs and associations, companies, rating agencies and individuals). Innovation and rules of conduct also allow SEB to expand its sustainable development policy. From a more commercial point of view, SEB combines its customers and suppliers in its environmental approach. With the objective to obtain the best compromise between efficiency and environmental protection (ISO 14001 certification of suppliers, product warranty) Source : Action plan – sustainable development

External Growth Always seeking new growth drivers, SEB shows interest to the most buoyant markets (Asia and South America), by acquiring or taking stakes in local companies.

1857 1953 1968 1972 1988 1997 1998 2001 2004 2005 2006 2007 2011

Coherent acquisition strategy è 3 criteria for acquisitions of targets: local leader, production quality, brand reputation.

The international development of SEB is built around two axes, mature markets (Western Europe, United States) and emerging markets (Latin America, Eastern Europe, Asia). SEB buys local pioneer and industry leader in their country or market segment (often recognized for quality). This expensive strategy saves time by using the implantation of production sites, sales force and the reputation of the target. Seb also bought especially a sales force and a production tool compatible with local selling prices. Seb now has a good experience in terms of external growth. è The company applies its expertise to its target companies and develops its influence on the world market. Synergies arise from this strategy, we talk about synergy “product” rather than synergy “industrial”. This strategy allows SEB to implement its brand and expand into other segments (professional with AllClad and Lagostina, Premium with Krups, Rowenta or Asia with AsiaFan or Supor). SEB keeps local brands (Supor, Maraja, Arno ...) to implant their internationnal brands (Krups, Rowenta ...). More details of external growth in Exhibit A FOCUS on Zhejiang Supor Co., Ltd è A growth drivers for Seb since 2007 (15% of sales of SEB are made in China) Supor = No. 1 in the segment cookware (cookware) Supor = No. 2 in the small appliances segment (small household appliances)

Over the past 10 years Supor has multiplied its Sales x 12 Operating income x13.8 Net Income x 17.7

§ Supor Key Drivers

Exogenous drivers Endogenous drivers Priority given by the Chinese government for the domestic market (five-year plan 2011-2015) Rapid urbanization (38% urban in 2011, 50% in 2010 and 55% in 2015) Emergence of the middle class (10% in 2005 and 35% in 2010 - 6K salary between € 50 and € k)

Supor consolidate its position in the cookware industry as well as that of small appliances


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§ Sources of synergies SEB/Supor Penetration of the Chinese domestic market Ability to subcontract to Supor some of the goods purchased by SEB in China Development of Supor in South East Asian markets (Indonesia - Philippines)

§ Supor Distribution channels Strong presence in big cities Less present in secondary cities: but it’s deploying its own network called Supor Life Stores and which represents 8% sales E-commerce platforms: Amazon, 360buy or Taobao. China is the second global market e-commercen, ad will be the first in 2 years.

Already strong in both areas, Supor aims new markets:

Cookware Small appliances Supor aims a development in the complementary accessories market (knives, small utensils) because there is no actor who provides a full range of product, and no brand is leader

Supor target the non-cooking small appliances market (vacuum cleaners, fans) based on the experience of SEB with the vacuum Silence Force and Air Force and alors its experience with fans (Arno in Brazil and Asia Fan in Vietnam)

Competition Compared to the competition, Seb has the advantage to have multiple internationnal famous brands (Tefal, Rowenta, Krups, Moulinex, Lagostina and All-Clad). The distribution sales are well balance between different geographical areas, its exposure to emerging markets is a good growth driver. With each of its brands, Seb is a leader in many segments of the home appliances (and more). Mosaic of the main competitors in Exibit I

Investment Summary

We see SEB as an attractive investment not affected by the crisis driven by changing consumer habits. We trust in the acquisition policy of SEB to find new growth. This external growth strategy is already working (CF Supor and Maraja WhiteLine). The effective risk management keeps the financial perfomances of SEB and Organic growth is mainly based on innovation, it enables SEB to stay leader in mature markets We expect growth mainly support by the development of household equipment in emerging countries. Emerging markets are playing an increasingly important of SEB activity. Margins will go up with this trend. SEB will continue its acquisitions, it has the potential to do it. Thus it is likely that SEB will leave the kitchen and moved into our daily lives and look after our health. Figure 1: Seb stock price Source : Reuters


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Valuation Methodology overview The value of the stock was assessed with a Discounted Cash Flow (DCF) model. We performed a comparable company analysis but given the fact that we only have one direct comparable company, we did not keep that methodololy to assess the target price. Discounted cash flow analysis: € 79 per share Our DCF values SEB at € 79 per share. Our main assumptions are described below: Sales: We estimate different growth rates depending on the geographic area. Emerging countries reaches 44% of total sales in 2010 and their shares of total revenue will increase steadily in the coming years thanks to the external growth strategy Seb is implementing, while Europe and other developed countries are experiencing a flat growth. We therefore estimate 4% 2010-13E top-line CAGR in France, 3% in other Western European countries, 2% in North America and significantly higher growth in emerging countries with 6% in Eastern Europe, 10% in South America and 18% in Asia-Pacific. Because we could not simply take a normative growth rate in 2014 or 2015, we extend the projections till 2023 to capture the potential growth in emerging countries in the following years as confirmed by the recent acquisition of the Indian company Maharaja Whiteline. We use a normative growth rate of 2% in 2024. EBIT: We estimate a long-term EBIT margin of 12% compared to 10.6% in 2010. We justify this by the increasing activity in emerging countries where Seb benefits from higher margins as confirmed by the 15.7% operating margin in Asia Pacific in 2010. Capex and Working Capital (WC): Long-term capex is 3% of sales and we estimate a long-term WCR at 15.3 of sales, in line with historical analysis. In order to test the robustness of our valuation, we perform a sensitivity analysis, our DCF Model is detailed in Exhibit B Comparable valuation: We analysed different companies comparable to Seb in terms of activity. We built a limited group of peers in which we keeped De’Longhi, Electrolux, Indesit and Whirpool. We looked at the Chinese company Joyoung, which was in our opinion a relevant peer and could allow us to capture the Chinese market growth potential in our comparable valuation. But the aggregates (EBIT and EBITDA) were not available for that company. We also analysed companies with similar activities to Seb as for exemple Jarden but but we did not keep it in our group of peers because this group is a conglomerate and the business segment comparable to Seb represents less than half of total revenue. We calculated implied equity values based on the average Sales, EBITDA and EBIT multiples of our limited group of peers. Our results (see details in Exhibit C) are significantly lower than our DCF valuation. Our explanation is that most of the peers have lower margins (EBIT margins between 3% and 10% in 2011E compared to 11% for Seb), that leads to lower multiples. In our opinion, De’Longhi is Seb’s closest competitior because it has similar margins. Given our weak results, we did not use this methodology to assess the target price of Seb.

Financial Analysis Balance Sheet & Financing The many acquisitions of SEB to extend around the world carried the Goodwill to 13.7% of the balance sheet. This level has been stable since to last major acquisition, Supor China. Also this level of goodwill is in line with the competition in this sector still in a consolidation phase. SEB is not very in debt, its operational activity broadly covers its debt maturities. The French company used to go into debt in local currency in its acquisitions. Its net debt is 131.1 million euros in 2010, never mind, SEB can afford.


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The strength of the financial structure can also be seen with his Gearing 8.3% in 2010 against 19.9% in 2009, the improvement isconstant.

Other Headings Relevant to Company

“Made in France” è Support in the domestic market in 2012 These products are generally more expensive than others made in China, but the French manufacturing still attracts French and foreign buyers in search of quality (at least perceived quality). Question: Would you be willing to pay more for a product that you know was made in France? 72% yes & 28% no The most innovative products of Seb are made in France (industrial protection) and the French company proudly displays this difference by placing a logo "Made in France" on its products. While European growth decreases (decrease in consumption against the backdrop of economic crisis), of which France is the main market, the protectionist climate will put forward the “Made in France”. In addition, the French presidential elections approaching, candidates take hold of this argument to the campaign by talking about the re-industrialization of France. Whatever the opinion on the question, we believe that Seb will benefit from highlighting of his business model at year end 2011 and in 2012. This topic will therefore be the growth of Seb on the French market. "The socialist Francois Hollande beats the stands in defense of the "industrial patriotism", the centrist Francois Bayrou has made his “re-industrialization obsession” and the President of the National Front Marine Le Pen promised to pass a law called "buy French” with the ambitious goal of creating 500,000 industrial jobs in five years, French President Nicolas Sarkozy, himself in campaign insists "Everyone says buy French, I prefer to produce in France" Seb, the French specialist appliance becomes the third company to pick up the label “France Origin Guarantee" for its products manufactured in the Hexagon. A label certified by Bureau Veritas.

Investment Risks § Recession risk makes the market more difficult

Despite the risk recession, we believe that SEB will show some resistance and adapt well as it did during previous crisis The current economic and financial crisis might affect the revenues of Seb Group with a decrease in Sales. Indeed, according to the OECD report “General Assessment of the Macroeconomic Situation”, published in


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November 2011, there is a risk of recession in the euro area for the middle term, accompanied by a very high unemployment rate. Inflation would remain stable. In the short term the outlook can be much grimmer in the case that the Euro-area sovereign crisis will deteriorate as well as if the concern regarding the robustness of the banking system continues. This has decreased the consumption in many countries and Seb has been already affected by a decrease in Sales in Greece, Spain and Portugal. Exhibit H Investment Risks - Recession risk makes the market more difficult In US, SEB sales increased by 2% in the first semester of 2011, despite fears about a tight fiscal policy. In emerging market economies, growth is expected to stay moderate in the short term, and inflation is projected to ease as pressures on raw materials and real estate has decreased. But globally, the consumption in Emerging Market should remain strong. Exhibit I : Investment Risks - Outlook for 2012 - IMF website

Finally, given all these risks, the company remains confident in the future. In the letter for shareholder from July 2011, Seb claims to have resisted very well to the previous crisis such as between 2005 and 2006 or between 2008 and 2009 and managed to adapt well. § Increase cost of raw materials

The risk linked to raw materials (prices’ volatility) seems to be well hedged by SEB’s hedging policy One of the main risks that SEB is exposed to is the increase in the price (volatility) of raw materials. Indeed, this a steady increase could impact negatively company’s profitability. Seb’s main raw materials purchase can be attributed to 21% for plastics, 16% for aluminum and 5% for steel : plastic price has increased y X%, aluminum’s price has increased by 20% and reached 2554 dollars per tones, copper has increased by 30% to reach 9,420 dollars per tones and nickel increased by 22% to reach 25,792 dollars per tones. Exhibit J : Investment Risks - Increase cost of raw materials In such an inflationist environment, it is important for the company to hedge its risks, while implementing targeted productivity plans and by constantly monitoring the purchase of raw materials. Also, the hedging of raw materials is the key to mitigate the risks. According to the group data, the company hedges around 75% of the raw material needs that it has estimated for the coming year with a rolling 12 months hedge. § Currency risk

SEB must deal with high euro’s value The translation currency risk still present as Seb’s exports are negatively impacted if the Euro would strengthen again other currencies. In fact the Eurozone represents 41% of the sales during the financial year of 2010 and localizes around 45% of the production. This might have a negative impact on Seb competitiveness compared to non –European manufacturers. Also, having a strong US Dollars against the Euro might be negative for Seb margin, as the cost of goods used by the company are primarily in USD. Seb has claimed that a 10% move in the US Dollar against the Euro, might have a 3 million Euro impact on the operating profit. Exhibit K : Investment Risks - Currency risk § Counterfeit Products seems unavoidable

But SEB faces the problem in different ways According to the International Anti Counterfeiting Coalition, counterfeiting costs 600 billion US Dollars a year to global businesses and Seb director of intellectual property, Hubert Kieh, evaluates that counterfeiting harms the company to around 3% of the revenues.


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In response to this threat, Seb has started a lot of measure to fight counterfeiting. First of all, they took legal measure and have are engaged in many lawsuits. For example, on the 31st of May 2011 the Supreme Court of the United States proved Seb’s right and claimed the counterparty to pay Seb an amount of 5.1 million US dollars in regards to the counterfeiting of a deep fryer. Secondly, Seb has created a division of 22 people, whose purpose is to fight counterfeiting. The division is adding every year dozen of new patents to their more of 1,000 already existing patterns. Last but not least, Seb is also fighting counterfeiting at the source. Every year a special team of lawyers and engineers are going to trade fairs such as the one from Canton in order to locate counterfeiting. Seb can claim that they are much less harmed by counterfeits then competitors, and one of the best weapons against counterfeits remains the company constant innovation. § Political risk

A good example of integration in China andIndia

With the globalization of markets, many emerging markets have understood the advantage of opening the market. On the 23rd of November 2011, India's government announced measures to open the retail sector in India. This will be a “game changer” in India for companies like Seb. From one side Seb can now get direct access has the government raised the cap in single-brand retailing from 51 percent to 100 percent on foreign direct investments. Secondly, as noticed by the consulting firm Mazars, organized retail represents just 6 percent of India's $470 billion retail market. With the new policy on the retail market, big international chain like Wal-Mart, Metro or Carrefour would be able to access the market by holding an up to 51% stake in multi-brand retailers and thus opening new structured distribution channel for Seb. Another type of political issues that Seb can face is when governments take the decision to forbid a type of product in the country. This may be due for quality issues such as the case in the Heilongjiang Province in the northeast of China which claimed that 81 products manufactured by Supor use Alloy 202 and thus putting consumers at risk. Distributors stopped to sell Supor products in this region which created a media stir. Seb claims that alloy does not have any health issue and has been approved in Europe and in the US. The company has asked the Authorities in China to review the authorization and it may be just a question of months until the company can sell again its products in this province.


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Exhibit A : External Growth In millions

Company Overview Business model Synergies TEFAL 1968 France Influence : Worldwide

Pioneer of non-stick pan International reputation since the early 70 First French producer A world leader in 120 countries 2000 employees in France on two industrial sites

Nifty products to make cooking simple and enjoyable Adaptation to the needs Innovation Consumer services

Internationalization Using a new technology (non-stick pan)

CALOR 1972 France Influence : Europe

European pioneer of electric smoothing-iron Various heating products, razors and epilators 1600 employees in France

Many innovations and giving a first global reputation Historical know-how in terms of manufacturing

New market (laundry care and personal care)

ROWENTA 1988 France (Germany) Influence : Europe

Diverse range of products for small appliances Full range of vacuum cleaners (following a merger with Cadillac in 1988) ⇒ 300 employees in France

Innovation especially in the laundry care

Specialization in the laundry care

ARNO 1997 Brazil Influence : Mercosur

Historically specialized in electric motors Creator of the first industrial chain in the country: floor polishers, vacuum cleaners, cookers and mixers 4 manufacturing units (3 in Sao Paulo and one in Jordanesia)

Meet the needs of consumers Changing consumer behavior Manufacturing quality (ISO certified factories) Design and Innovation

Brazilian leader of small household appliances

VOLMO 1998 Colombia Influence : Mercosur

A brand recognized Samurai Now owns 60% of the Colombian market

Quality Colombian and venezuelan leader of small household appliances

KRUPS 2001 (With Moulinex) Influence : Worldwide

Founded in 1846 Coffee specialist High end market

Attention to detail and search for technical perfection

Development of high-end market of coffee

MOULINEX 2001 France Influence : Europe

100 million euro turnover in 2000 Company in judicial liquidation in 2001 Excellent brand image Acquired by SEB in 2001 but the brand is banned in 9 countries for 9 years 50% of production in France

Simplicity and innovation Brand identity Prohibited mark in nine countries for 9 years until 1 January 2011 (too dominant position)

ALL CLAD 2004 USA

Metallurgical company has diversified its business in the kitchen Strong reputation in the United States for its quality International brand "In the hands of a craftsman of All-Clad, copper, steel and aluminum become precious metals"

Recognized quality and aesthetics Strong presence in the market for professional chefs Compliance environement

Market development of high-end cookware

LAGOSTINA 2005 Italy Influence : Europe

Specializing in cookware stainless steel high-end First for professionals before to spread to all consumers

Design Making manual gives way to a mechanized process Innovative communication and humorous, in line with trends consumption

Strengthening of SEB on the high end market (artcile culinary stainless steel)

PANEX 2005 Brazil

Leading Brazilian cookware Good reputation in Brazil and Mercosur Production in Sao Paulo

Competitive industrial unit Wide distribution network and efficient Adaptation to local needs

The association with ARNO will become a major player in South America


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WHEREVER MIRRO 2006 USA

A hallmark of aluminum pots the most recognized Mass retail chain

Family and American values (making utensils for the army during the Second World War) Upscale with a modern look

Presence in the U.S. market in addition to All-Clad and T-Fal

Zhejiang SUPOR CO 2006 China Influence : Asia

Number 1 Chinese cookware and small appliances from number 4 5000 employees 6 production sites (with Vietnam, Malaysia and Singapore) Now 7000 employees worldwide 500 own stores 800 products covering 3 product groups (cookware, small household appliances and large kitchen appliances)

Production quality and innovation Wage policy than average Business model: Health, comfort and originality A highly recognized brand in China Difficulty in implementing : Control of the CSRC (Authority of the Chinese stock market) and the Chinese Ministry of Commerce under the Foreign Investment (MOFCOM)

⇒ Extension of the offer for SEB (especialy electric cooking) Historical Seb => Supor 2007: Purchase of 30% of Supor to 117 million euros 2007: partial takeover bid to reach 52.74% of Supor to 327 million euros (instead of 250 announced) 2011: Purchase of additional 20% to 71.3% for 385 million euros Su family will retain 12.5%

IMUSA 2010 Colombia Influence : Mercosur & USA

Colombian Leader cookware and plastic food and household products with 2 / 3 of the market 40% export to USA and Latin America (10 million potential consumers)

Experience of 75 years Innovation Sustainable practices and socially responsible

Increase the presence of seb in South America

ASIA FAN 2011 Vietnam

Numbers 1 in Vietnam with ¼ of the market. Potential market of 90 million people 2 industrial sites 40 stores 700 employees

Quality (15 awards of “the Vietnamese High Quality Goods” since 1996 until now)

Acquisition that allows the deployment of cookware in Vietnam Synergies with Supor

Maharaja Whiteline 2011 Inde

located in the northern and western India With 22% of the home appliance market 21 million euro turnover in 2011 25% growth per year 330 distributors Products available in 26,000 stores 1000 employees

Quality First steps in India for SEB New product lines

Source : Annual report and corporate website


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Exhibit B : DCF Valuation In millions

DCF

2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E Norm.

EBIT after taxes 269 300 336 387 415 444 473 500 526 549 569 586 598 Depreciation 126,3 124,9 125,2 127,0 130,2 134,5 139,9 146,1 152,9 160,2 167,8 175,4 182,7(Capex) (118) (127) (137) (148) (159) (170) (180) (191) (201) (210) (217) (224) (228)(Change in WC) (88) (55) (62) (65) (67) (67) (66) (64) (60) (54) (47) (38) (28)Free Cash-Flows 190 243 262 301 320 342 366 391 418 445 473 499 524 535

Discount rate 10,6% 10,6% 10,6% 10,6% 10,6% 10,6% 10,6% 10,6% 10,6% 10,6% 10,6% 10,6% 10,6% 10,6% Long-term growth 2,0% Year (#) 0,0 1,0 2,0 3,0 4,0 5,0 6,0 7,0 8,0 9,0 10,0 11,0 12,0 Discount factor 1,00 0,90 0,82 0,74 0,67 0,60 0,55 0,49 0,45 0,40 0,36 0,33 0,30

Present value of FCF 190 220 214 223 214 207 200 193 186 180 172 164 156

Terminal Value (TV) 6 202 Present value of TV 1 847

+ ∑ of Present Value of FCF 2 519 + Present Value of TV 1 847 = Enterprise Value 4 366

- Minority Interest (169)

- Net Debt (257)

+ Financial Assets 9

- Provisions (152)

Equity Value 3 797

/ # of Shares 48

= Value per share 79

Long-term growth79 1,0% 1,5% 2,0% 2,5% 3,0%

7,60% 119 125 132 140 151 8,60% 100 104 109 114 121 9,60% 86 89 92 96 100

10,60% 75 77 79 82 85 11,60% 66 67 69 71 73 12,60% 58 60 61 62 64 13,10% 55 56 57 58 60

WA

CC

EBIT margin79 11,0% 11,5% 12,0% 12,5% 13,0%

7,60% 112 122 132 142 152 8,60% 93 101 109 117 125 9,60% 78 85 92 99 106

10,60% 67 73 79 85 91 11,60% 59 64 69 74 79 12,60% 52 56 61 65 70 13,10% 49 53 57 62 66

WA

CC


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Exhibit C : Comparable Valuation In millions

In m€ Sales x EBITDA x EBIT x P/E

2011E 2012E 2011E 2012E 2011E 2012E

SEB - Key financials 3 922,4 4 225,5 557,7 600,3 431,5 475,4

De' Longhi 0,65x 0,61x 4,9x 4,6x 6,3x 5,5x Electrolux 0,37x 0,35x 5,3x 4,5x 9,8x 8,0x Indesit 0,34x 0,34x 3,9x 3,7x 7,2x 6,5x Whirpool 0,32x 0,32x 4,7x 3,7x 10,3x 6,6x

x Average multiple 0,42x 0,41x 4,7x 4,1x 8,4x 6,7x

= Enterprise Value 1 651,0 1 720,1 2 642,2 2 485,6 3 616,6 3 163,1

- Minority interests (169) (169) (169) (169) (169) (169)- Net debt (257) (257) (257) (257) (257) (257)- Provisions 9 9 9 9 9 9 + Financial assets (152) (152) (152) (152) (152) (152)

= Implied Equity Value 1 082,2 1 151,3 2 073,4 1 916,8 3 047,8 2 594,3

# of Shares 48

= Implied Equity value per share 22,5 23,9 43,1 39,8 63,3 53,9


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Exhibit D : Balance Sheet In millions

2006A 2007A 2008A 2009A 2010A

Capital employed (in m€)

Goodwill 118,9 111,1 419,8 386,6 409,1 Intangible assets 275,4 261,1 368,8 372,2 398,7 PP&E 332,5 329,0 381,2 391,4 426,5 Other non-current assets 81,1 384,1 62,1 50,8 52,9 Fixed assets 807,9 1085,3 1231,9 1201,0 1287,2

Raw materials 86,8 84,7 108,3 125,2 167,7 Work in progress 41,8 40,2 40,2 13,1 11,6 Finished products 388,5 403,2 466,1 328,0 456,2 Total Inventories 517,1 528,1 614,6 466,3 635,5 Trade receivables 655,4 636,6 656,4 650,0 749,4 Provisions for doubtful debts (9,0) (9,4) (10,8) (22,9) (15,5)Accounts receivables 646,4 627,2 645,6 627,1 733,9 (Trade payables) (342,7) (333,4) (366,3) (398,0) (494,4)Prepaid expenses 13,1 7,1 8,5 8,9 10,0 Accounts payables (329,6) (326,3) (357,8) (389,1) (484,4)Other working capital (157,8) (189,3) (179,9) (218,7) (254,7)Total working capital 676,1 639,7 722,5 485,6 630,3

Total Capital Employed 1484,0 1725,0 1954,4 1686,6 1917,5

Invested Capital (en m€)

Share capital 51,1 50,9 50,9 50,0 50,0 Reserves and retained earnings 838,7 921,7 1 005,7 1 140,1 1 409,9 Treasury stocks (73,9) (108,6) (150,7) (108,8) (61,7)Shareholders' Equity 815,9 864,0 905,9 1 081,3 1 398,2 Minority Interests 0,0 0,0 131,6 138,8 173,1 Total Equity 815,9 864,0 1037,5 1220,1 1571,3

Short-term borrowings 396,7 729,3 661,5 246,7 170,1 Long-term borrowings 80,2 65,9 213,5 301,1 201,8 (cash and cash equivalents) (54,1) (134,0) (224,6) (307,8) (236,6)Ohter liquid assets (1,6) 6,3 39,2 8,6 (10,5)Net Financial Debt 421,2 667,5 689,6 248,6 124,8

Provisions 187,7 156,4 135,5 162,6 166,5

Other 59,2 37,1 91,8 55,3 54,9

Total Invested capital 1484,0 1725,0 1954,4 1686,6 1917,5


16

Exhibit E : Geographical segment analysis In millions

Income statement (in M€)

2006A 2007A 2008A 2009A 2010A

France 595,0 640,3 668,1 685,3 711,7 Other Western European countries 691,6 717,9 734,6 728,3 786,9 North America 389,7 401,1 393,7 348,9 404,4 South America 246,6 274,4 269,1 261,5 345,7 Asia-Pacific 213,8 210,1 498,8 599,9 764,0 Central Europe and other countries 515,0 625,8 665,9 552,4 639,1 Total Sales 2 651,7 2 869,6 3 230,2 3 176,3 3 651,8

France (26,3) 37,9 62,7 38,9 87,0 Other Western European countries 10,2 23,8 3,5 (0,7) 47,1 North America 30,0 7,7 0,1 (28,6) (26,3)South America 19,9 27,5 24,3 19,9 20,8 Asia-Pacific 54,1 54,4 84,2 127,3 119,8 Central Europe and other countries 65,1 86,0 104,4 91,3 100,6 Total Operating Profit 153,0 237,3 279,2 248,1 349,0

Ratios

Growth

France % of Total Sales 22,4% 22,3% 20,7% 21,6% 19,5% Other Western European countries % of Total Sales 26,1% 25,0% 22,7% 22,9% 21,5% North America % of Total Sales 14,7% 14,0% 12,2% 11,0% 11,1% South America % of Total Sales 9,3% 9,6% 8,3% 8,2% 9,5% Asia-Pacific % of Total Sales 8,1% 7,3% 15,4% 18,9% 20,9% Central Europe and other countries % of Total Sales 19,4% 21,8% 20,6% 17,4% 17,5%

France CAGR since 2006 7,6% 6,0% 4,8% 4,6% Other Western European countries CAGR since 2006 3,8% 3,1% 1,7% 3,3% North America CAGR since 2006 2,9% 0,5% (3,6%) 0,9% South America CAGR since 2006 11,3% 4,5% 2,0% 8,8% Asia-Pacific CAGR since 2006 (1,7%) 52,7% 41,0% 37,5% Central Europe and other countries CAGR since 2006 21,5% 13,7% 2,4% 5,5% Total Sales CAGR since 2006 8,2% 10,4% 6,2% 8,3%

Margins

France % of Sales (4,4%) 5,9% 9,4% 5,7% 12,2% Other Western European countries % of Sales 1,5% 3,3% 0,5% (0,1%) 6,0% North America % of Sales 7,7% 1,9% 0,0% (8,2%) (6,5%)South America % of Sales 8,1% 10,0% 9,0% 7,6% 6,0% Asia-Pacific % of Sales 25,3% 25,9% 16,9% 21,2% 15,7% Central Europe and other countries % of Sales 12,6% 13,7% 15,7% 16,5% 15,7% Total Operating Profit % of Total sales 5,8% 8,3% 8,6% 7,8% 9,6%


17

Exhibit F : Income Statement In millions

Income statement (in M€)

2006A 2007A 2008A 2009A 2010A 2011E 2012E 2013E

France 595,0 640,3 668,1 685,3 711,7 740,2 769,8 800,6 Other Western European countries 691,6 717,9 734,6 728,3 786,9 810,5 834,8 859,9 North America 389,7 401,1 393,7 348,9 404,4 412,5 420,7 429,2 South America 246,6 274,4 269,1 261,5 345,7 380,3 418,3 460,1 Asia-Pacific 213,8 210,1 498,8 599,9 764,0 901,5 1 063,8 1 255,3 Central Europe and other countries 515,0 625,8 665,9 552,4 639,1 677,4 718,1 761,2 Total Sales 2 651,7 2 869,6 3 230,2 3 176,3 3 651,8 3 922,4 4 225,5 4 566,2 Growth 7,7% 8,2% 12,6% (1,7%) 15,0% 7,4% 7,7% 8,1%

Operating expenses (2 318,1) (2 513,8) (2 816,5) (2 730,4) (3 147,3) (3 364,7) (3 625,2) (3 915,8)

EBITDA 333,6 355,8 413,7 445,9 504,5 557,7 600,3 650,3 EBITDA margin 12,6% 12,4% 12,8% 14,0% 13,8% 14,2% 14,2% 14,2%

Depreciation (97,0) (88,0) (110,0) (124,0) (117,0) (126,3) (124,9) (125,2)

EBIT 236,6 267,8 303,7 321,9 387,5 431,5 475,4 525,1 EBIT margin 8,9% 9,3% 9,4% 10,1% 10,6% 11,0% 11,3% 11,5%


18

Exhibit G : Mosaic of competitors In millions

Midea

A leading manufacturer and exporter in China Activity : Covering a comprehensive line of heating and air-conditioning systems, home appliances, lighting, motors, compressors and other industrial components. (also logistics and real estate) Geography : TU 72,4% domestic and 32,6% overseas Business model : Rapid response to market demands, cost-efficient operations and consumer satisfaction. An ingenious, adaptive, and innovative brand. Tools : 180.000 employee in China and all over the world, 15 production bases in China Key numbers : Revenue USD17.0 Billion in 2010, while 5.08 Billion of them are exporting and overseas businesses. R&D : 3% of the Group's sales per annum. Fully integrated with (workstation research, technological institute, design, electronic control…) Governance : A quality policy with some certifications Green and environment friendly

De’Longhi Italian company, a leader in coffee, comfort and selected kitchen and homecare categories Activity : Geography : Proportion of sales in emerging markets and mature market in 2010 sales were split 50/50 è We can expect a predominance of emerging markets in 2011 (including China and South America). Business model : Innovative home appliances combinating style and performance R&D : Over 300 staff working on, (2010 €37.7 million and €33.6 million in 2009) €9.2 million capitalized as intangible assets. Governance : environmentally responsible, member of the European Committee of Domestic Equipment Manufacturers (CECED) and has adopted

Elextrolux Swedish company and global leader in household appliances (and appliances for professional) use in more than 150 markets Activity : 58% kitchen, 18% laundry equipment, 8% floor care Geography : TU in marture market 70%, 24% in emerging market and 6% of professional products Business model : Develop and actively promote increased sales of products with lower environmental impact; R&D : 2% of turn over Electrolux Design Lab (since 2003) an annual global design competition open to undergraduate and graduate industrial design students who are invited to present innovative ideas for household appliances of the future. Competition : Elextrolux is present on the segment of large household appliances, against small appliances for seb,however, both groups are in direct competition on the market of vacuum cleaners in Brazil.

Indesit Itaian company, a leading European manufacturer and marketer of major home appliances Activity : home appliances (washing machines, dryers, dishwashers, refrigerators, freezers, cookers, hoods, ovens and plans cooking) Geography : Mainly Eastern Europe, Western Europe and Russia R&D : A team of 600 researchers of 30% per year increases the number of patents filed, collaborating with an international network of companies industries, research centers and universities. Governance : Quality of care and environmental sustainability (washing machines consume two times less electricity than ten years ago)

Philips A global leader in 3 Activity : Healthcare, lighting and lifestyle portfolio Geography : 1/3 of sales in emerging markets 2/3 in mature markets across 100 countries Tools : 118 production sites R&D : 6,2% TU or 1,57 millions of euros With 7 researsh laboratories 50000 patents rights Governance : EcoVision 5 program to reduce the impact of industrial activities and increase the quality of marketed products

Whirlpool Business model : Help people all over the world find better ways to take care of household tasks. Tools : 66 manufacturing and technology research Geography : 53% North America, 17% Europe Middle East Africa, 25% Latin America and 5% in Asia. R&D : $27 million or 5.5% of turnover Governance : Ranked fifth on Fast Company’s 2010 list of the World’s Most Innovative Companies in the consumer products category Rewarded many times for his sense of Responsibility (Trustworthy, respected, Environmental Protection, green ranking )

Jarden Jarden Corporation, North American brand, is a leading provider of global consumer products Activity : A portfolio of over 100 trusted, quality brands sold Geography : More than 100 countries Governance : Maintain the highest ethical and governance standards and is committed to continually evolving and adopting corporate governance best practices.


19

Exhibit H : Investment Risks In millions

Recession risk makes the market more difficult


20

Exhibit I : Investment Risks In millions

Outlook for 2012 - IMF website


21

Exhibit J : Investment Risks In millions

Increase cost of raw materials

Oil price (NYMEX WTI Crude Oil Active Monthly Contract) – from 02/01/2009 to 19/12/2011

London Metal Exchange – 3 Month rolling forward Aluminum contract – from 02/01/2009 to 16/12/2011


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London Metal Exchange – 3 Month rolling forward Copper contract – from 02/01/2009 to 16/12/2011


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Exhibit K : Investment Risks In millions

Currency risk

Change of different currencies against the Euro for 2011 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.

Student Research Team C IRC Documents/IRC 2012...Student Research Team C This report is published...

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