[Team B] Student Research Small Household Equipment Sector IRC Documents/IRC Challenge 2012 - Lille...

[Team B] Student Research This report is published for educational purposes only by

students competing in the CFA Institute Research

Challenge.

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210 SEB stock

SBF 250 Index

SXQP Index

SXXP Index

Fig 1. SEB stock vs. Markets vs. Industry index (Jan-08 = 100)

●Ticker: SK FP ● Recommendation: BUY

● Price: €57.25 ● Price Target: €65.39

EPS Jun Dec Year P/E ratio

2009A 0.59 2.55 3.14 12.41

2010A 1.89 2.76 4.65 12.50

2011E 1.90 2.77 4.67 12.27

2012E 1.91 2.78 4.69 13.94

Highlights

Target Price of €65.39 in January 2013 – BUY Recommendation: SEB 12-month target price

presents an upside potential of 14.22% to the current stock price of €57.25.

A Family Success Story: Since the creation of its “super-cocotte” in 1953, SEB has become the

worldwide leader in the Small Household Equipment (SHE) and is still controlled by the founder

family Lescure which is its specificity as opposed to its main competitors (e.g Philips or

Electrolux).

Birth of a Truly Global Player: 2011 was a prolific year in terms of acquisitions acquisitions to

strengthen SEB’s presence in emerging markets (Vietnam, Colombia, India…) in order to

consolidate its leadership, to diversify macro economic risks and revenue sources. Thus, buying

SEB share is really buying global consumption of small domestic appliances.

A Culture of Innovation: From its first “super-cocotte” to the new silent vacuum cleaner or oil

free fryer, innovation is a virtuous circle and has always been a cornerstone in SEB’s development

strategy.

Thriving activity: Based on its two strategic pillars (innovation and acquisitions), SEB’s sales

have doubled in the past decade to reach €3,652 mln, while the operating margin has almost tripled

to achieve €438 mln (12% of FY2010 sales).

New Attitude Toward the Market: SEB successfully lauched its first bond issue (€300 mln) in

May 2011 to diversify its financing needs.This issue was a real hit for the group and underlined the

market confidence in SEB’s development (the issue was oversubscribed by €600 mln).

GROUPE SEB

Industry :

Small Household

Equipment

Date 01/03/2012

Small Household Equipment Sector

Market Profile

52 Week Price Range €52 - €82.15

Average Daily Volume 73674

Beta 0.75

Dividend Yield(Estimated) 2.04%

Shares Outstanding(mln) 49.95

Market Capitalization (bln) 2.9

Institutional Holdings 17.30%

Insider Holdings 43.68%

Book Value per share 28.93

Debt to Total Capital 19.14%

Return on Equity 14.03%

CFA Institute Research Challenge 01/03/2012

2

17%

20%

17%

10%

11%

25%

France Western Europe

Eastern Europe and Russia North America

South America Asia-Pacific

Fig 3. H1 2011 revenue by region

Fig 2. SEB’s share price and key events in the last two years

Source: Yahoo Finance

Business Description

Business units

SEB is a family success-story created in Burgundy East of France in 1857. The success of the firm has been built

on its « Super-Cocotte » pressure cooker, created in 1953 and a symbol of innovation.The company has become

the world leader in the Small Household Equipment sector thanks to a diversified range of products (almost

200 different kinds of items)and a massive portfolio of well-known brands. The company has about 25,000

employees worldwide and every second, 6 products are sold in over 150 countries. To achieve such a sales record,

SEB relies on a strong business model split into 2 core product segments:

- Small domestic appliances include home care, electrical cooking, home confort, personal care, beverage

preparation, linen care, and amounted to €2,958 mln in 2010: the SHE sector represents some €27.5 bln, of which

Group SEB holds a share of approximately 10%. SEB’s key brands in this sector are Rowenta, Moulinex,

Lagostina and Krups.

- Cookware amounted to approximately €694 mln in 2010 representing 19% of the total revenue. SEB holds

almost 16% of market share in this sector. All-Clad and Tefal, and are the key brands in the sector.

Geographic units

SEB revenues are broken down according to 6 areas that have different growth levels:

In 2011, SEB growth drivers have come from emerging markets:

- Asia-Pacific: Is the biggest market for the firm with 25% of revenues after H1 2011 (+19.9% after H1 2011).

Sales are driven by a strong growth in China (60% of sales in the region i.e. 15% of total sales),

- South America : It was the thinnest part of SEB’s revenues but thanks to Imusa acquisition in Colombia and

thanks to a good dynamics in Brazil, the market remains very strong representing 7% of SEB’s sales worldwide.

- Eastern Europe and Russia : They contributed to 17% of FY 2010 revenues after H1 2011. SEB expects

strong performance on these markets (+10,5% after H1 2011) with the best sales record wordwide in the Ukraine.

Behind these markets, mature countries show weaker than expected performance due to the economic downturn

(especially in Southern Europe) and this trend might go on beginning of 2012:

- France : SEB’s core historical market represented 17% of global sales after H1 2011. SEB has known a

decrease of its revenue (-1.9% H1 2011) due to the economic downturn and a tough competition.

- Western Europe (excluding France) : This area represented 20% of revenues after H1 2011. These countries

have experienced some growth (+6.2% after H1 2011), especially thanks to the re-launch of Moulinex in Northern

countries. However the latter also have to cope with global economic slowdown.

19%

81%

Cookware Small Domestic Appliances

Fig 2. FY2010 revenue by activity


3

44%

21%

35%

Founder Group Foreign Investors Others

Fig 4. Capital structure

0 10 20 30 40

Independent retailers

Mass market

Specialty retailers

Alternative channels

Department stores

Fig 6. A diversified distribution

network

57%

15%

28%

Fig 5. Voting rights breakdown

Founder Group Foreign Investors Others

11%

Fig 8. SEB's market shares in the SHE

market

SEB

17%

Fig 7. SEB's market shares in the cookware

market

SEB

- North America : Accounted for 10 % of revenues after the first semester of 2011. Even if small domestic

appliances remained strong, SEB wants to fight against drab consumption (-1.7% after H1 2011) with product

diversification (the firm is exploring a water treatment system for this area).

Shareholders structure

Since SEB’s listing in 1975, the Lescure family has always kept the control and still holds 43,68% of the capital

and 57.47% of the voting rights. Moreover, 11 of the 15 Board Directors are family members. This powerful

control guarantees a significant stability in the ownership structure and reduces pressure on short-term

profitability, enabling SEB to strengthen its long-term strategy. Free float accounts for 44%, which makes the

share relatively liquid, and less volatile. Indeed, we assume in normal market conditions the bigger float the less

volatile the share price is as there are more shares in circulation therefore it will take more volume to affect the

share price. Founder shareholders split up in 2005 creating two family holdings with different manners to run

capital structure: Federactive (30.74% of the voting rights) was for a capital opening to new investors contrary to

Venelle Investissement (26.73% of the voting rights). Recent bonds issue illustrates the compromise between the

two holdings since €300 mln were collected to finance the group’s development without a family share dilution.

Corporate Governance

Thierry de la Tour d’Artaise is the last family member in top management and was appointed as CEO and

chairman in 2000. His nomination gave a new impetus to the group’s development with the takeover of SEB’s

historical competitor Moulinex and acquisitions gained momentum in emerging markets.

Business strategy

Key factors of SEB’s successful business model are the constant quest for quality assurance, product innovation

and growing worldwide footprint. SEB’s value-creation strategy is therefore based on four main axes which

enable the fostering of internal and external growth while improving the competitiveness.

- Strong brand porfolio: SEB holds 24 brands covering all segments of markets penetrated. The company uses

mostly acquistions (in emerging markets) and partnerships (e.g. Coffee marker manufacturer and supplier

Nespresso, domestic beer machine with Heineken or support from famous chefs such as Jamie Oliver for

example). These partnerships justify higher prices and bigger margins. Revenues from partnerships skyrocketed

from 40 mln in 2004 to 300 mln in 2009.

- Innovation policy: this aspect remains a strong factor of growth with a rapid renewal of the product ranges (less

than 2 years on average). After exploring trends and local features, SEB develops demonstration shifts

(architecture sketches) and realization shifts before promoting its new products. The creation of the soy milk

extractor in China is the perfect example of synergies between Chinese and French R&D offices in order to offer

products adapted to local needs.

Strong cash flow generation: SEB has a continued cost managagement and supply chain optimisation leading to

long term flexibility of itss operating margins. Such as during the 2008 crisis, where because of the strong

management of the companies inventories, SEB coped sufficiently and earned competitiveness thanks to this cash

flow generation strategy.

- Solid distribution network: this is an incontrovertible element in maintaining its positionSEB’s distribution

network is well balanced between gross market and department stores. SEB is developing its own retail network

to offset the lack of retail networks in emerging countries and to fend off the concentration trend of major retailer

altering negotiating power. These 1,267 proprietary stores represent future growth drivers (e.g.Supor Lifestores in

China or Tefal Shops in Turkey). SEB has established a tailor-made distribution channel adapted to market

conditions. The company has gained a deep footprint worldwide with factories settled locally and has also built

strong partnerships with local SHE providers. The company constantly look for adapting its products-line features

to local need.

- International development: last but not least, the company has increased the number of acquisition of strategic

local SHE leaders. Indeed the firm has been the first one to takeover a Chinese listed company (Supor).

Industry Overview and Competitive Positioning

SEB is the only pure player in SHE having an international presence. For this reason it is difficult to clearly

compare SEB to big companies such as Philips or Electrolux also selling big domestic appliances.

Industry overview

SHE supply side: an evolving market structure


4

55% 45%

Fig 11: A well balanced country mix

Mature markets Emerging markets

+5%

increase

+5%

increase

0 500 1,000 1,500

Moulinex (2001)

All-Clad (2004)

Lagostina (2005)

Mirro WearEver …

SUPOR (2007-…

Maharaja …

Fig 9: SEB historical acquisitions

(USD mln)

Fig 10 : SHE and cookware industries overview

Source : Internal estimates

Concentration trend of manufacturers: Absorption of small domestic players by international groups begins in

the 1990s with a momentum since 2000s. SEB’s history perfectly illustrates this phenomenon with a geographical

enlargement of its acquisition policy from Moulinex its historical French competitor to Maharaja Whiteline an

Indian local leader. This concentration trend allows a better bargaining power on suppliers as well as on retailers

and creates production and commercial synergies, but usually negatively impacts reactivity and flexibility of

bigger firms.

Concentration trend of retail chains: This ongoing trend intensified by globalization not only alters bargaining

power of suppliers which tightens margins, but also increases customer default risk due to fewer international

retailers. Hence, Wal-Mart has acquired CARHCO the largest retailer in Central America, while Carrefour

continues to expand its presence in China (200 stores in 2011).

Fiercer competition and promotional environment: Latest 2008 and 2011 crisis have accentuated competition

and price war between manufacturers. Therefore, innovation linked with strong marketing and advertising support

are becoming more and more important to differentiate companies and to maintain market shares especially in

saturated mature markets.

A more and more polarized market: Increasing production in low-cost areas has lead to cheaper goods sold in

vast volumes. To remain profitable, traditional western firms outsource production of these products and focus on

innovative and high-value items that justify higher selling prices and create better margins. Increased competition

at both ends of SHE sector squeezes mid-market range. Hence, De’Longhi reduces its coverage to target mostly

top-end segment with premium models like its new PrimaDonna coffee machine line starting with a price of

€1,200 (app xx).

SHE demand side: mature markets vs emerging markets

Mature market – supply led: Products offer is clearly segmented (entry-level, mid-range and premium goods).

Sales are driven by replacement purchases leading to shorter appliance lifecycles. New concepts, upgrading,

partnerships and after sale services are key factors to keep market shares in a competitive and promotional

environment. New socio-economic trend offer opportunities for manufacturers such as home cooking revival

(boosted by recession), healthier lifestyle (ie Tefal Actifry), “café culture” with at-home espresso coffee machine

and higher number of single-person households.

Emerging markets – demand driven: Are still in an equipment phase (4 products for Chinese families vs 37 in

Europe). However improving purchasing power along with fast-growing urbanisation (ie 50% of Chinese

population in 2010 vs 36% in 2001) that has shaped day-to-day home lifestyle has also contributed to boost SHE

consumption for basic and robust goods. Rapid expanding middle class (+70 mln people each year) seeking status

through products nurtures demand formid-range and niche high-end products. Modernisation of distribution

circuits supports this consumer eagerness but also intensifies competition which is quickly reaching mature

markets’ standards.

Competitive positioning

As the leader in its sector, SEB tries to set up a competitive advantage and a value creation strategy based on two

axes: international growth in emerging countries thanks to acquisitions and innovation in mature markets.

A limitless geographical expansion

Gaining new products, new technologies and new brands are the main purpose of SEB’s aggressive acquisition

policy. The company tries to gain market share and be more present worldwide in new markets. To do so, it

penetrates new markets with cultural adaptation and uses the strength of regional brands (such as Supor in China

or Imusa in South America) instead of setting up its own brand. Moreover, each time SEB penetrates a new

market, it launches two product families (cookware and irons) and consolidates this strong base before

progressively widening its offer and gaining ground.

There are two key emerging and one targeted market in which SEB operates, that are worth drawing some light

on:

China is the group’s second biggest market (est. 13-14% of group sales) thanks to Supor acquired in 2007.

Chinese demand is expected to remain resilient despite economic slowdown thanks to an appreciation of

purchasing power (lower inflation level since H1 2011 linked with a continuous rising trend of incomes - app xx),

growing urbanization (i.e. 50% of the population in 2010) and intensified supportive government policy with the

“home appliances going to countryside ” program launched in. Seb’s main competitor is Midea with 21% of

market shares (37% for SEB).Company’s revenue is well-balanced between cookware and SHE (almost

50%/50%). As we said previously, this management is based on a strong retail network (22,000 retail outlets and

Product development on existing markets

Market development with existing

products

Market penetration with

existing products

(acquistion of famous brands)


5

Source : Research in China, Inform Business Network

DomestFig 12. Domestiic Market of China’s Small

Kitchen Appliance Industry, 2006-2010

(RMB bln, %)

867 department stores. After achieving good penetration of this market, SEB can focus on developing new

product categories and new department stores in order to provide a fresh distribution network to customers, yet

with low costs for the group.

South America : In this area, the group has noted a strong organic growth thanks to good dynamics in Brazil

(first market in this area and third market worldwide after France and China) and a strong demand in Colombia.

Based on regional brands like Arno, Samuraï or Imusa (the latest acquisition of the group in 2011), the strategy of

the firm remains the same with objectives of greater efficiency and lower costs. Imusa, for example, is the

Colombian cookware leader with more than 50% of market share in pots and pans. There are strategic benefits for

SEB with the possibility of sales outside Colombia (USA and Central America), as the Imusa business model is

the same as that for SEB and there is a strategic fit with the local Samurai brand.

India : The group has recently acquired 55% of Maharaja Whiteline, one of the most specialized Indian domestic

appliances companies. The firm sells 60 products in 18 families accounting for $22mln of sales in 2011 with an

average annual growth of 25%. It is the same strategy as for Supor, with a possibility to get some extra shares

from the founder family within a few years. SEB could help Maharaja Whiteline to develop its distribution

network through southern India. On the other hand, SEB could be a serious threat to Philips (who own Maya

Appliances in India), Bajaj and Ken. It represents a great opportunity for SEB to penetrate a market representing

€900 mln and offers really good long-term growth prospects.

Growth from innovation

Mature markets are replacement markets (shortened cycle of use) driven by new consumer trends and hyper

consumption. To react to this trend, SEB capitalizes on innovation to earn market share. SEB develops more than

100 patents a year and sets aside a budget of more than € 130 mln for innovation (€91mln in R&D) in 2011. R&D

plays an important role in the innovation process as there is a positive correlation between SEB’s R&D re-

investment intensity and the company performance measured such as sales growth and share price.

With its large portolio of brands, diversification by means of new products (water treatment for example) is

another SEB’s competitive advantage. Philips, the company’s main competitor in the small domestic appliances

market has recently lost some market share because of a lack of innovation in its household products. Delonghi

has reached number 3 in this market with a good commercial policy but also thanks to upmarket models.

Besides, once more, SEB tries to adapt its strategy to specific local features. As it did in Brasil in 2001, with the

creation of a ventilator with a mosquito repellent system.In order to respond to problems concerning obesitiy,

SEB created the Actifry “one spoonful of oil” fryer allowing healthy cooking

Last but not least, SEB created in 2011 SEB Alliance, an investment fund dedicated to investing in innovative

start-ups. With a capital of €30 mln, SEB Alliance is also a technology watch unit. This fund added to the two

“innovation” awards SEB won in 2011 testify SEB’s unique and dynamic innovative policy. This strategy is

possible thanks to a constant investment policy, strong cash flow generation and continued cost management

developed in the financial analysis.

Investment Summary

We initiate a coverage on SEB with a BUY recommendation because we firmly believe in…

… its defensive profile to cope with global economic downturn

SHE should be less impacted than other cyclical sectorsby the global economic slowdown. Hence,SEB is

expected to benefit from a certain resilience of replacement demand in developed countries thanks to new socio-

economic trends (return to “homemade”, healthy nutrition, environmental awareness...), while consumption is set

to remain buoyant in emerging countries still at the equipment phase. Business and geographic diversifications

also increase SEB’s attractiveness in a gloomy market context.

… its long-term promising growth perspectives

Regarding recent acquisition of Maharaja Whiteline in India ($22 mln of sales in 2011 with average annual

growth of 25%, second most prestigious SHE brand in India) and the increasing of interest in Supor up to 71.3%

of the capital, SEB demonstrates its will to continue its promising expansion in emerging markets.

SEB still remains focussed on its other key driver which is innovation in mature markets. With €130mln invested

in 2011 in innovation and 110 patents filed, the firm keeps creating value thanks to its main brands (Krups, Tefal,

Moulinex, Rowenta) in order to cope with saturated markets and weak growth. Furthermore, since the beginning


6

0

500

1,000

1,500

2,000

2,500

3,000

2011E 2014E 2017E 2020E

Europe Asia-Pacific

North America South America

Fig 13. Revenue projections

0%

20%

40%

60%

80%

100%

FY2010 2016E

South America North America

Asia-Pacific Europe

Fig 14. Revenue breakdown

of 2011, SEB has been allowed to re-launch the Moulinex brand (the competition authorities had not allowed the

use of the name brand since the acquisition in 2002).

… its potential valuation enhancement

SEB is an attractive investment since its current 12 month forward P/E is 12.6x, below its 5-year historical

average of 14x. So the group’s fundamentals and development over the past 5 years are currently underestimated .

The group will continue to benefit from its enhanced marketing and innovation capacity. Furthermore, growth

comes from its high exposure to emerging markets, which currently represent of 45% group’s sales. These

markets show a trend of urbanization.

In the short term, SEB’s stock price should be impacted by investors’ uncertainties regarding the global economic

context(fear of a European recession, weakened US economy and China's slowdown). Therefore,we expect the

stock price to remain under pressure in H1 2012 but to rebound in the second semester as soon as global

economic recovery occurs.

… its excellent cash generation and financial structure

SEB has sufficient capital to withstand a recession or a gloomy economic scenario. Sales have increased by +13%

over the last 3 years and the bottom line was boosted by +50% while keeping operating margins stable. This

privileged situation has enabled the group to use its strong cash generation for financing external growth and to

maintain a solid net financial position.

… even if the group has to cope with some risks.

Persistent economic downturn in mature markets (56% of FY2010 sales) is one of SEB’s main risks. Hence, a

successful expansion into new markets is a necessity for the group in order to preserve its leadership (i.e. India).

Consequently, integration of fresh acquisitions (i.e. Imusa, Maharaja Whiteline, Asia Fan ) is a significant

challenge for the group. Fierce competition and M&A trend in these countries should not decrease due to sector

fragmentation and could undermine margins. Finally, although impact of rising Chinese wages on operating costs

has to be monitored, some short term opportunities exist to achieve better profitability thanks to the present

deflationary trend in metals and forecasts of a weaker EUR.

Valuation

We value SEB stock at a target price of €65.39 by applying four methods based on relative and discounting

valuation techniques. These models take into account forecasts as well as current market conditions.

Discounted cash flow analysis

Our DCF model is built to reflect SEB’s competitive position, strong acquisition opportunities and expectations

about the company’s future potential ability to generate cash flow. DCF analysis is based on a sum-of-the parts

method that evaluates separately the four main geographic businesses of SEB and then aggregates estimates. The

model comprises three stages (see table 1).

We assume that SEB is growing faster than GDP expansion,which subsequently slows down and finally shows a

steady growth in line with GDP. This assumption is mainly based on our expectations about the growth

opportunity of SEB. In the short term, due to the acquisitions in Asia and South America, the company will

continue to grow rapidly, compared to FY2010. In the medium term, growth slows as competition puts pressure

on prices. Moreover, profit margins and sales growth decline because of more competitive markets (fig 13).

Sales: We assume that Asia-Pacific will make up approximately 40% of total sales by 2016 (vs.29% in

FY2010)while Europe’sweighting will decrease to 45% (vs.56% in 2010).Thus we expect sales growth to be

driven mainly by emerging markets.

- In Asia, acquisitions have strengthened SEB’s presence in these markets and increased its market shares. In

particular, the Maharaja Whiteline (annual growth rate of 25%) takeover (55%) in India will have a positive effect

on the long run sales. Furthermore, growth will come from still buoyant demand, new products and the

development of proprietary stores in these markets.

- In Europe and North America, sales are expected to hold up despite the current gloomy economic context

thanks to new trends (nutritional and health aspects, “homemade” revival) and should grow at a rate slightly

higher than the GDP growth rate.

Operating Income:SEB has previously demonstrated its capacity to maintain consistently confortable margins

during global economic crisis in 2008-2009 (9.4% and 10.13%). Therefore,despite the current downturn in the

global economy, operating income is expected to increase,but only by 1.6% in 2012 (vs.20.4% % in

FY2010).Growth will be mainly driven by the volumes. Moreover, product innovations and geographic

Table 1

DCF model

High growth stage 2012-2016

Transition stage 2017-2021

Perpetuity stage thereafter


7

8.50%

9.00%

9.50%

10.00%

10.50%

11.00%

2007 2009 2011E 2013E 2015E

Fig 15. EBIT Margin

diversification would still contribute to maintain SEB’s high operating margins (about 10% from 2011 to 2016).

Return on Capital:Despite the increasing operating margin, ROC will decline to 26.8% in 2011 (vs.31% in

FY2010). This is due to the significant increase in Net Working Capital in FY2010. In spite of a decline in ROC,

SEB still uses its resources efficiently because of constant adjustment in the production base and optimizing

support functions and operations. ROC will probably remain around 26% from 2012 to 2016 and then declines

gradually to the long term sector level of 18.46%.

According to our DCF model, the stock price should be €61.64 currently.By applying the cost of equity (10.37%)

and DPS in 2012 (€1.401), we can forecast a €66.64 target price in January 2013.

Comparable company analysis

There are no directly comparable firms to SEB because they have a different size, capital structureor business

activities. However we tried to define a peer group as similar as possible to SEB (table 2).This set includes

worldwide companies within SEB’s primary industry (SHE). Moreover, we assume that these firms show similar

business cycles and are subject to the same external factors.

We determined the group’s current value by examining and comparing the six valuation metrics EV/projected

EBITDA, EV/projected EBIT, EV/MV, f P/E, MBR and P/projected CF.Then we applied the median of these

relative valuation ratios to corresponding data for SEB. The intrinsic value of €54.58 found was computed by

taking the average of the six valuation metrics and a target price of €58.84, one year from now, was obtained. We

deem the comparable method to be conservative, compared to €66.64 implied by the DCF model.

Comparable transaction analysis

We determine the intrinsic value of SEB from the perspective of minority shareholders.This method estimates

the takeover value of SEB if 100% ownership is acquired. We collected a sample of the past ten years of

completed M&A deals in the Household &Personal Products (HPP) sector where SEB operates. Only full

ownership acquisitions and high-value takeovers were retained to be comparable with SEB’s size. Then we used

four types of relative value multiples (Deal Value/EBITDA, Deal value/EBIT, Deal value/NI, Deal value/Sales) to

produce an estimated takeover price for SEB from which a takeover premium (30%) should be subtracted. This

procedure generated a range of estimated values for SEB with a mean of €67.97.The target price obtained

was€73.62.

Multiple linear regression model

The Multiple linear regression model is based on SBF250 index. We used forward P/E ratio in valuation since

EPS measures the earning power and is the primary determinant of investment value. We also used MBR because

BV is more stable than EPS. fP/E and MBR are regressed against expected growth rate, ROE, market value

(logarithm), beta (systematic risk), dividend distribution dummy and 10 industry dummies. Industry dummy

variables are included to explain industry differences that cannot be explained by the independent variables. The

average stock price implied by this multiple linear regression was €51.10 and the target price would be €55.00

Valuation synthesis

The target price of SEB stock one year from now is €65.39 with an upside potential of 14.22 % to the current

stock price of €57.25 as of 27 December, 2011. The latest acquired majority interest in Maharaja Whiteline and

the increased stake in Supor have strengthened its presence in emerging markets which will continue to grow

rapidly to compensate for the low growth in mature markets. In our judgment, there will be a further upside

potential as long as the acquisition and growth strategies in Asia and South America perform well.

Risk to our price target

- Downside risk: Given the global growth slowdown, the uncertainties of the debt crisis and the fear of recession

in Europe, SEB revenue will be affected in several markets. Moreover, the future acquisitions in Asia and South

America may provide an upside potential, but this will also include an integration risk (see Investment Risks

section)

- Upside potential: the demand for SEB stock will probably increase in times of economic turmoil due to SEB’s

defensive profile. Furthermore, if the recovery is more rapid than expected in Europe and US, SEB will probably

have a further upside potential.

Financial Analysis

SEB’s net financial leverage position follows a cycle along with the company’s long-term strategy. The increase

in gearing matches the phases of external growth and is strategically lowered afterwards (its goes from 0.87 to

Table 3

Table 2 Table 2.

Wacc 9.44%

Cost of Equity

(Fama-French) 10.37%

Weight of equity 86.56%

Cost of debt 4.79%

Weight of debt 13.44%

Table 3.

Peer group

% sales

from

SHE

EBIT

margin

(5Y)

Electrolux

AB 93.34% 4.22%

Whirlpool 51.27% 5.00%

Philips 38.80% 4.50%

De'Longhi 77.42% 7.16%

Midea 89.60% 4.84%

SEB 80.00% 9.68%

Source:Bloomberg

Table 4.

Adjusted R²

fP/E 40%

MBR 72%

Table 5.

Valuation

Summary

Target

Price Weight

DCF 66.64 70%

Peers analysis 58.84 10%

Comparable

transaction

analysis 73.62 10%

Multiple linear

regression 55.00 10%


8

0.34 for the periods 2001-2003 and from 0.81 to 0.09 from 2007 to 2010). Moreover, the company has a firm cash

force generating sufficient liquidity for the company to take advantage of its opportunities.

Earnings

From 2006 onwards, SEB’s revenue increased at a compounded annual growth rate of 6.6%. Sales for FY2009

dropped slightly by -1.66% due to a weakened business environment, but recovered in FY2010 +15% thanks to a

volume (+9.6%) and a currency effect (+5.4%). SEB demonstrated better resilience against the economic

downturn, thanks to its defensive profile: indeed investors have a better visibility on SEB’s share as their appetite

for risky and more volatile stocks such as cyclicals or financials decrease in this economic context.

Europe remains the major source of SEB's revenue as it generated more than 58% of total revenue in 2010 and

therefore demonstrated its resilence against the economic slowdown. In this mature market, the use of SHE is

largely and commonly spread therefore consumers only replace old utensils. Nevertheless, the weight of Asia, a

very fast-growing and potential market rose from 8% in 2006 to 21% in 2010 thus offsetting sales contraction in

Europe and in North America.

Continuing enhancement of margins: SEB’s operating margin has continuously been improving over the years

from year to year - 2.5x over the last decade - reaching a level of 12% of sales in 2010. It constantly outperformed

its peers’ operating margins over the last 5 years (App. XXX). SEB’s business model and strategy are thus

efficient as SEB’s income is improving and directly comes from its core business.

Europe recorded the best operating margin, 11.15% in FY2010, followed by Asia/Pacific with 8.35% and South

America with 6.93%. Margins in North America have been declining since 2006 and became negative over the

last 2 years (-2.27% in FY2010). We must recall that SEB is positioned only on the high-end segment with

premium products (All-Clad, Krups) in this market and faces a fierce competition that has been strongly affected

by the decrease in household demand due to the economic slowdown. However the company intends to

consolidate again its position in this market (Fig.xx).

A part of the advertising expenses is used as an adjustment variable to cope with the increase in the operating

expenses. When other operating costs are high, SEB reduces part of its advertising expenses to keep its margins

under control (Fig. xx).

SEB is sensitive to currency effects. The weakening of the euro against the dollar and other currencies was

favorable for SEB and had a positive impact on comprehensive income: €111.6mln in FY201 compared to

€8.2mln in FY2009.

Cash Flow: A persistent cash making force

SEB counts on a strong cash flow generation: The OCF to Net Income ratio over the last seven years has always

been greater than 1, even in the weakest years for cash flow generation (as was the case in FY 2008 when this

ratio was at 1.08x).

FY 2009 was a record-breaking year in terms of cash generation. Even if sales dropped by -1.66%, the company

managed very well its operating costs by reducing its inventories and by improving the quality of its stocks (sold

out obsolete inventories). This allowed SEB to save €150mln in operating margins and to generate over €557mln

in operating cash flow. This flexibility of SEB in managing costs makes the company more defensive and able to

control its WCR.

SEB is an efficient cash machine: cash generation is not only used for reinvestment (such as acquisition and

R&D) or for dividend payment but also to pay back debt: in FY2009 the company used cash to reduce its short

term borrowing by €419.4mln.

Net cash and cash equivalents are positive. The evolution in cash & cash equivalents was exceptionally

negative for FY 2010 due to increased CAPEX (+30% compared to FY2009) and debt reimbursements carried

out, but the level of cash was maintained: €236.6mln in FY2010(vs.224.6 in FY2008). We expect a slight

decrease in cash for the financial year to come due to recent acquisitions (Suppor and Maharaja) which require

more than €300mln bond issuing to be financed.

CAPEX is kept stable at around 3% of sales. The coverage ratio is globally greater than 2, which gives SEB an

ample FCF margin to fund its LT acquisitions strategy.

SEB’s current strong cash flow structure enables a confident dividend payment: the OCF to CAPEX + Dividends

ratio is always greater than 1. The company maintains a prudent and adapted dividend distribution policy. For

instance, the payout ratio went from 46.6% to 29.7% in 2007 and from 34.4% to 25.4% in 2010, periods when

Net Income was lower. Each year SEB pays a dividend premium (cf. ESG Responsibility analysis) that is not

only a strategy to reward loyal shareholders but also a means to limit volatility in stock prices.

0%

20%

40%

60%

80%

100%

2010 2009 2008 2007 2006

South America North America Asia Pacific Europe

Fig 16.Revenue evolution over 5 years

-20%

-10%

0%

10%

20%

30%

40%

50%

2006 2007 2008 2009 2010

Revenue Advertising exp

Operating margin

-20%

0%

20%

40%

60%

80%

100%

2010 2009 2008 2007 2006


EBIT evoltion over 5 years

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

Europe Asia

Pacific

North

America

South

America

Fig 18. FY2010 Operating margins


9

7.78%

6.21%

5.82%

7.93%

5.09%

17.56%

7.01%

0%

4%

8%

12%

16%

20%

2004 2005 2006 2007 2008 2009 2010

Fig 19.Evolution of OCF/Sales Keeping the WCR under control is a firm commitment for SEB. During FY2010 the WCR went from €695mln to

€875mln (24% of sales). This is mainly explained by an increase in stocks in order to take advantage of relatively

cheap aluminum prices and to anticipate a boost in demand due to the Chinese New Year. SEB stated that WCR

reached the ceiling and will not go higher.

Balance Sheet & Financing

SEB has always kept a good financial solidity that has been adapted to the group’s growth strategy. The debt to

EBITDA ratio of the group has never exceeded the level of 2 and was notably low prior to a period of

acquisitions.

SEB’s net financial position rose to €305 MLN at 30 September 2011 compared to the end of September 2010,

when net debt was €208mln. This change was mainly driven by the investments made by the group and the

acquisition of Imusa and 65% of Asian Fan in Vietnam; it also takes into account the repurchase of shares carried

out during the summer. Following this increase, the gearing passed from 0.09 to 0.165 and the financial leverage

from 0.28 to 0.54 during the first six months of the year.

The group successfully launched its first five-year euro-bonds issue in May 2011 for a total amount of €300mln

that was largely oversubscribed, showing a confident market towards investing in SEB. Thus, its sources of

financing have been optimized and diversified. This issue enabled SEB to take advantage of an interesting

financial position: the low cost of the debt (4.5% coupon rates) compared to a higher cost of equity was employed

in buying potential growth in emerging markets.

Therefore, gearing is expected to rise by the end of 2011 due to the payments of recent acquisitions of Suppor and

Maharaja Whiteline Ind. However this increase is positive for SEB as the group maintains a very comfortable

financial position with no covenants. The ability of SEB to repay its debts is therefore reasonably unquestionable.

SEB counts with €557mln unused but confirmed credit facilities for 2013 which, along with the €600mln

commercial paper (rated A2 by S&P) reveal a capacity to mobilize more than € 1bln to finance external growth in

emerging countries.

Environment, Social and Governance (ESG) Responsibility

SEB takes measures to face ESG inherent issues. Hence, in our opinion and external ESG ratings, the group is

eligible for a Socially Responsible Investment (SRI) fund, which would bear the stock price due to the growing

interest for these matters.

Environment: Although the SHE sector value has been relatively spared of main ESG issues (climate change or

environmental degradation), SEB commits itself via a “Sustainable Development Action Plan” promoting eco-

design, eco-production and eco-logistics. New products have a potential recyclability index above 70% (bottom

line fixed by European directives) and consume less energy (-30% for Rowenta Eco-Intelligence line). 81% of

ordinary industrial waste is recycled thanks to investment in sorting areas.ISO 14001* certification for all sites (vs

78% in 2010) is forecast for 2012.SEB has also signed the UN Global Compact and promotes selection of SA

8000** and ISO 14001 certified suppliers (40% of total suppliers).

Social: As illustrated by Federactive’s limitation of CEO’s salary (app xx), the group feelsconcerned about social

consensus. In case of reorganizations, SEB minimizes impacts of plant closures (i.e. France in 2006: solutions for

96% of employees and a successor for each site). The group is also engaged in human right respect via the

CECED Code of Conduct and in civil society with NGOs partnerships (UNICEF partnership enabled the creation

of a cookware line to help children in Madagascar - €500,000 raised from Sept 2010 to Jun 2011).

Governance:Has to be improved but reflects SEB’s family specificity. Indeed, a family member occupies the

functions of both CEO and chairman while the board independence rate is low (26%) compared to competitors.

Besides that fact, the lack of transparency for CEO remuneration was criticized by Federactive. However,

financial institutions (e.g. L’Agefi - Quality & Transparency 2010 trophy - and the Investor Relation Forum -

2011 2nd prize for Best Investor Relations) have acknowledged SEB’s financial communication. The group also

pays a loyalty premium (10% of the dividend) for shares held two consecutive years to keep its capital structure

stable. This reward improves investors’ appetite for the stock.

0

5,000

10,000

15,000

20,000

25,000

Brazil China

Russia India

Fig 21. GDP per capita

(current USD)

Source : IMF (Sept 2011)

* International rules designed to reduce

pollution and industrial waste.

** Global social accountability

standard for workplace-quality

0%

20%

40%

60%

80%

100%

Fig 20. OCF Split

CAPEX/OCF FCF/OCF

http://en.wikipedia.org/w/index.php?title=Social_accountability&action=edit&redlink=1


10

85

90

95

100

105

Dec-11 Q2 12 Q4 12

EUR/USD EUR/BRL

EUR/CNY EUR/INR

Fig 22. Currency Forecast Curve

(Dec-11 = 100)

Source : Bloomberg, x-rates

Investment Risks

Our risks audit reveals no significant risks that would contradict our BUY recommendation. Nevertheless,

potential market and strategic risks have been identified and need therefore to be followed-up (see appendix for

other legal and operational risks).

Market risks

Economic outlook: European debt crisis and global downturn will affect SEB’s sales, especially premium goods

for Q4 sales since this quarter is usually boosted by Chinese golden week and Christmas feasts (40% of annual

result). However, SHE demand is rather resistant to macro-economic events as shown through the stock evolution

since 2008 (it outperformed SBF 250 by 51.3% - fig 1). Indeed, consumers would rather think twice before

investing in cars or washing machines than they would do when buying pans and toasters. Besides, recent

takeovers in emerging markets has enabled SEB’s diversification and increased its defensive profile. The group’s

exposure to mature markets impacted by austerity measures is offsetting by buoyant growth (fig 21) in developing

countries that are still in equipment phase (as opposed to mature countries which are replacement markets).

Moreover, monetary policy easing implemented in December 2011 in China and Brazil should facilitate domestic

buying power. One also needs to be careful as rising Chinese wages on one hand increases households’ income,

but on the other hand raises SEB’s outsourcing and employees’ costs (€6,546 on average vs €5,551 in FY2009).

Currency volatility:Is a noteworthy consolidation risk. Indeed, non-euro zones account for 60% of FY2010 sales,

and as opposed to competitors SEB is still strongly export-orientated (40% of its production in euro-zone). But

increasing production capacities outside Europe with 2011 acquisitions and the launching of two new Chinese

plants by 2012 will diversify production places. A weaker EUR (fig 22) therefore benefits competitiveness of

European manufacturing despite the adverse effect of a stronger USD on purchases. Yet, SEB’shedging policy

limits this impact to €3 mln on operating margin (€438 in FY2010) for a 1% variation of EUR/USD rate. However

a persistent volatility is likely to disturb SEB’s activity, whichaims at preserving local profitability with unstable

margins.

Commodity prices: SEB is exposed to raw materials volatility (42% of its total costs – fig 23), especially in

plastics and metals (19% of manufacturing purchases for both). Current easing on metals market is an

opportunity since 70% of next year estimated purchases could be fixed in advance with hedging derivatives.

Therefore a 10% decrease in metal prices (vs average prices in 2010) would improve operating margin by €9.2

mln. Otherwise, SEB may practice retail price readjustments to protect its profitability.

Strategic risks

Integrations: SEB has a strong experience in assimilating new entities, which relies on a prudent strategy: It

first enters targeted markets through acquisitions of well-established local companies (ie Maharaja Whiteline in

India and Supor in China) and then favors more local brand instead of communicating with SEB less known

brands. Supor takeover in 2007 remainsSEB’s major challenge because of its size, its significant cultural, safety

and environmental gap. Convergence toward the group’s standards is still not achieved which not only delays

synergy effects on business and margins but implies hidden restructuration costs.

SHE Market & Competitors: SHE sector is highly fragmented and many M&A opportunities exist for both

SEB and its competitors. Thus, its leadership (only 11% of market shares) may be threatened by peers’ takeovers

in countries where the group’s market shares are weak. So SEB fresh penetration in India has to be scrutinized

especially after Philips acquisition of Maya Appliance to consolidate its position in the country.

Reputation: The group’s substantial pricing power relies on its brands’ recognition associated with innovation

and quality. So defects, safety matters and bad press may impact consumer loyalty or confidence and therefore

jeopardize margins. That’s the reason why SEB carefully monitors SUPOR issue to protect its brand’s reliability.

Cannibalization & Commoditization:Cannibalization is a potential side risk that could undermine salesdue to

SEB's massive portfolio (24 brands and 200 new products and models annually). Besides, paper-thin

technological entry barriersfor basic products allowfierce price competitionand lead to commoditization of

these goods. To remain competitive, SEB outsources their productionand boosts R&D effort to launch

differentiating mid-range and premium products.

Catalysts

- Evolution of the sovereignty debt crisis in Europe and global pace of recovery

- Market shares evolution of SEB in India after Maharaja Whiteline takeover.

- 2012 French & American presidential elections (large-scale recovery plan vs hardening of fiscal austerity)

- Implementation of Chinese 12th five-year-plan (2011-2015) which focus on encouraging domestic consumption

(Source : US- China Economic and Security Review Commission)

55% 28%

16%

1%

COGS SG&A Employees Others

Fig 23. Costs Breakdown

Source: SEB FY2010 annual report

90

95

100

105

110

115

Q4 11 Q2 12 2012 2014

Aluminum Copper

Nickel

Fig 24. Metals Forward Curve

(Q4 = 100)

Source : Bloomberg


11

Appendix Table of Contents

1. Basic Financial Data

- Appendix 1: Income statement

- Appendix 2: Balance sheet

- Appendix 3: Statement of cash flow

2. Business Description, Structure and Strategy - Appendix 5: A doubling of the workforce in less than 4 years

- Appendix 6:Weight of Asian workforce

- Appendix 7: Production breakdown

- Appendix 8:Q3 2011 revenue by region

- Appendix 9: SEB’s global footprint

3. Industry Overview & Competitive Positioning

- Appendix 10: Porter’s Five forces

- Appendix 11: Acquisitions

- Appendix 12: S.W.O.T.

- Appendix 13: A well-balanced portfolio between market shares and market growth

- Appendix 14: SEB’s positioning in the coffe maker market

4. Valuation

- Appendix15: World GDP Growth Forecasts

- Appendix16:Revenue & EBIT Breakdown

- Appendix 17: Operation Free Cash Flow Forecasts

- Appendix 18:Weighted Average Capital Cost

- Appendix 19:Comparable company analysis

- Appendix 20:Comparable transaction analysis

- Appendix 21:Multiple linear regression model - Appendix 22: Valuation risk &Weights for each method

- Appendix 23:Sensitivity analysis

5. Financial Analysis

- Appendix24: Change in sales

- Appendix25: Peer group operating margins

- Appendix26: Peer group ROC

- Appendix27: Revenue evolution by location of customers over five years

- Appendix28: EBIT evolution over five years

- Appendix29: Management of advertising expenses to protect margins

- Appendix 30: FY2010 operating margin

- Appendix 31: Evolution of cash flows

- Appendix 32: OCF splits

- Appendix 33: Evolution of OCF-Sales

- Appendix 34: OCF/NI ratio

- Appendix 35: Group current assets breakdown

- Appendix 36: Group non current assets breakdown

- Appendix 37: impact of acquisitions on leverage


12

6. Environment, Social and Governance Responsibility

- Appendix38: Impact of ESG issues on company’s value

- Appendix39:ESG rating for SEB and its competitors

- Appendix40:Increasing trend of SRI Funds

- Appendix 41: SEB’s Human Resources rewards

7. Investment Risks

- Appendix42: A geographical coverage more and more balanced

- Appendix43:Continuous rising trend of Chinese wages

- Appendix 44: EUR/USD sensitivity analysis

- Appendix 45:Internal tensions within the Lescure family

- Appendix 46: CEO’s skills recognition by financial institutions


13

1. Basic Financial Data

- Appendix 1: Income Statement

2006 2007 2008 2009 2010 2011E 2012E 2013E 2014E 2015E 2016E

Reported growth 8.22% 12.57% -1.67% 14.97% 7.92% 4.54% 5.68% 6.22% 6.01% 5.71%

Revenue 2652 2870 3230 3176 3652 3941 4120 4354 4624 4902 5182

- Cost of Revenue 1539 1625 1848 1802 2147 2254 2357 2491 2646 2805 2965

Gross Profit 1112 1244 1382 1374 1505 1686 1763 1863 1979 2098 2218

EBITDA 324 351 394 416 488 535 543 585 633 658 683

EBITDA margin 12.22% 12.23% 12.20% 13.10% 13.36% 13.57% 13.19% 13.43% 13.68% 13.43% 13.18%

EBIT 237 268 304 322 387 410 416 448 485 504 523

EBIT margin 8.92% 9.33% 9.40% 10.13% 10.61% 10.40% 10.11% 10.29% 10.48% 10.29% 10.10%

Net Income 88 143 152 146 220 233 237 255 276 287 298

Profit margin 3.30% 4.98% 4.69% 4.60% 6.04% 5.92% 5.75% 5.85% 5.96% 5.85% 5.74%

1.028 48.61 145.86 47.33 46.48 47.41 49.95 50.50 51.91 53.37 54.86 56.40

Basic EPS 1.80 0.98 3.20 3.14 4.65 4.67 4.69 4.91 5.16 5.23 5.28

Our estimation is based on the following hypothesis:

The cost of revenue is estimated based on the median over the last 5 years

EBITDA, EBIT and Profit margins are estimated in our DCF model

Shares outstanding grow at an average rate of 2.8% (average growth for the last 10 years) except for 2012 where for prudent reasons

we have reduced the amount of outstanding shares

- Appendix 2: Balance Sheet

2006 2007 2008 2009 2010 2011E 2012E 2013E 2014E 2015E 2016E

Cash & Cash Equivalents 53 78 224 228 182 496 459 488 455 490 450

Other 135 126 106 148 155 167 175 185 196 208 220

Accounts Receivable 646 627 646 627 734 792 828 875 929 985 1042

Inventory & Costs to Clients 481 528 615 466 636 715 748 790 839 890 940

Total Current Assets 1316 1359 1590 1470 1706 2171 2209 2338 2420 2573 2652

Goodwill 119 111 420 387 409 433 458 485 513 543 574

Intangible Assets 275 261 369 372 399 409 420 431 442 454 466

Property & Equipment 333 329 381 391 427 465 486 513 545 578 611

Deffered Tax Assets 42 25 48 38 40 38 36 34 32 30 28

Investment in Associates 0 343 0 0 0 0 0 0 0 0 0

Long Term Investments 34 10 11 8 9 9 10 11 13 14 15

Other Non-Current Assets 5 6 3 5 7 9 11 14 18 23 29

Total Non-Current Assets 808 1085 1232 1201 1290 1363 1421 1488 1563 1641 1724

TOTAL ASSETS 2124 2444 2822 2671 2996 3533 3630 3826 3983 4214 4376


To forecast Current Assets, we will keep their part on Total Revenues constant.

Estimated Cash & Cash Equivalents also take into account the bond issue in 2011. We suppose that the amount is amortized equally

over the following five years

Goodwill grows at 5.8% annually

Property & Equipment evolution is estimated in our DCF model


14

2006 2007 2008 2009 2010 2011E 2012E 2013E 2014E 2015E 2016E

Accounts Payable 343 333 366 398 494 534 558 589 626 664 702

Short Term Borrowings 397 729 662 247 170 184 192 203 215 228 241

Other Current Liabilities 301 290 313 312 360 388 406 429 455 483 510

Total Current Liabilities 1041 1352 1341 956 1024 1105 1155 1221 1297 1375 1453

Long Term Borrowings 80 66 214 301 202 502 442 382 322 262 202

Other Long Term Liabilities 187 162 231 193 199 205 211 218 224 231 238

Total Long Term Liabilities 267 228 444 494 401 707 653 600 546 493 440

Share Capital 164 158 159 140 140 140 140 140 140 140 140

Retained Earnings & Other

Eq. 652 706 747 941 1258 1395 1486 1660 1781 1974 2097

Shareholders' Equity 816 864 906 1081 1398 1535 1626 1800 1921 2114 2237

Minority Interests 0 0 132 139 173 187 195 206 219 232 246

Total Equity 816 864 1038 1220 1571 1722 1822 2006 2140 2346 2483

TOTAL LIABILITIES &

EQUITY 2124 2444 2822 2671 2996 3533 3630 3827 3983 4214 4376


Current Liabilities are estimated by the same method as Current Assets

Long Term Debt for 2011 includes the bond issue which is paid back on a linear basis over the following 5 years

Retained Earnings&Other Eq. Change with the estimated revenue and take into consideration paid dividends

- Appendix 3: Statement of Cash Flows

2006 2007 2008 2009 2010 2011E 2012E 2013E 2014E 2015E 2016E

Cash from Operating Activities

Net Income 88 143 152 146 220 233 237 255 276 287 298

Depreciations 89 82 91 94 99 124 41 53 62 63 64

Change in WCR -74 22 -91 240 -89 -54 -33 -44 -51 -52 -52

Interest Paid -25 -33 -36 -23 -12 -30 -26 -23 -19 -16 -12

Taxes Paid -37 -62 -77 -58 -101 -113 -114 -123 -133 -138 -144

Other Incomes and Expenses 114 75 125 158 138 148 158 168 180 192 205

OCF 154 228 165 558 256 308 248 254 269 281 294

Cash from Investing Activities

CAPEX -67 -76 -96 -92 -121 -114 -120 -126 -134 -142 -150

Acquisit. of Subsidiaries -54 -320 26 0 0 -418 0 0 0 0 0

Other Investing Activities -14 -14 -15 -10 1 -18 -18 -20 -21 -22 -23

CFI -135 -410 -85 -102 -111 -550 -138 -146 -155 -164 -173

Cash from Financing Activities

Change LT Borrowings -24 -14 147 88 -99 300 -60 -60 -60 -60 -60

Change ST Borrowings 32 330 -65 -419 -80 13 8 11 13 13 13

Change in treasury stock -9 -40 -44 9 33 34 35 36 37 38 39

Dividends paid -40 -43 -46 -50 -56 -59 -60 -65 -70 -73 -75

CFF -39 234 -3 -373 -202 289 -76 -77 -80 -81 -83

FOREX 24 29 14 0 -6 0 0 0 0 0 0

CHANGE IN CASH & CE 5 80 91 83 -71 47 33 30 33 35 38


15

30%

40%

20%

8%

2%

- Appendix 6: Production

Breakdown

Outsourcing (mostly China)

Euro-zone

Asia

South America

USA

Source: SEB FY2010 annual report


Net Income, Depreciations, Change in working capital and CAPEX are taken from our DCF estimations

Aquisitions of subsidiaries for 2011 take into account acquisitions of Supor for €406mln and Maharaja Whitelines (55% * €21.5mln,

revenue) We suppose that Treasury stock changes at the same rate as Outstanding shares

We assume that the dividend pay-out ratio will be constant

2. Business Description, Structure and Strategy

- Appendix 4: A doubling of the workforce in less than 4 years

Source :SEB annual reports

- Appendix 5: Weight of Asian workforce

Source :SEB FY2010 annual report

0

5,000

10,000

15,000

20,000

25,000

2007 2008 2009 2010 2011E

25%

6%

3%

3% 10%

53%

France

Other Western

European countries

Central Europe,

Russia

North America

South America


16

- Appendix 7: Q3 2011 revenue by region

- Appendix 8: SEB’s global footprint


17

3. Industry Overview & Competitive Positioning - Appendix 9: Porter’s five forces


18

- Appendix 10: Acquisitions

- Appendix 11: SWOT Analysis

- Appendix 9: Q3 2011 revenue by region

- Appendix 10: SEB’s plants around the world


19

- Appendix 12: A well-balanced portfolio between market shares and market growth

Brand’s matrix inspired by the BCG matrix:

This matrix illustrates brand’s market share compared to market growth where they are implanted. We kept the

strongest brands and the lasts acquisitions of the firm. High market growth represents emerging markets when low

market growth are mature markets. As we can see, SEB’s portfolio is well balanced between “star” brands like

Supor, Asia Fan or Samurai (leaders on there markets) and “cash cow” brands like Rowenta, All-Clad, symbol of

quality on satured markets.

Penedo (South America) is the only SEB’s brands having low market shares on a growth market. SEB’s top

management is thinking about letting it go in order to to balance its portfolio.

We wanted to show the dynamism of Moulinex since 2001. Thanks to SEB’s efforts, the brands is going from the

rght side of the matrix to the left earning year after year market shares on mature countries.


20

- Appendix 13: SEB’s positioning in the coffe maker market

Source : De’Longhi September 2011 présentation

SEB covers a larger part of this market compared to competitors by offering both entry-level products (Dolce Gusto) and mid range goods

(Nespresso), whereaspeers are only present on one segment:

- Premium products for De’Longhi

- Basic goods for Philips


21

4. Valuation

- Appendix 15: World GDP Growth Forecasts

Source: FMI&Eurostat&Internal estimates

- Appendix16: Revenue & EBIT Breakdown

Source: Internal estimates

World GDP Growth 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Beyond

EU 1.69% 0.60% 1.50% 2.08% 2.11% 2.13% 1.93% 1.72% 1.51% 1.31% 1.10%

Asia-Pacific 8.22% 7.50% 8.00% 8.50% 8.56% 8.57% 7.74% 6.91% 6.07% 5.24% 4.41%

North America 1.53% 1.40% 1.50% 3.08% 3.43% 3.39% 3.06% 2.74% 2.41% 2.08% 1.75%

South America 4.53% 3.40% 4.07% 4.06% 3.96% 3.92% 3.54% 3.16% 2.78% 2.40% 2.02%

World 3.96% 2.60% 3.20% 4.69% 4.80% 4.86% 4.39% 3.91% 3.44% 2.97% 2.50%

Region Revenue growth 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Beyond

EU 3.57% 0.72% 1.80% 2.40% 2.32% 2.24% 1.93% 1.72% 1.51% 1.31% 1.10%

Asia-Pacific 17.34% 11.25% 12.00% 11.90% 11.12% 10.28% 8.90% 7.25% 6.07% 5.24% 4.41%

North America 3.22% 1.96% 2.10% 4.00% 4.11% 3.73% 3.06% 2.74% 2.41% 2.08% 1.75%

South America 9.56% 6.80% 8.14% 7.31% 6.33% 5.48% 4.42% 3.47% 2.78% 2.40% 2.02%

2.50%

2.50%

EU 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E

Revenues 2,130.15 2,145.49 2,184.11 2,236.42 2,288.33 2339.61 2384.69 2425.70 2462.38 2494.53 2521.92

Revenue growth 3.57% 0.72% 1.80% 2.40% 2.32% 2.24% 1.93% 1.72% 1.51% 1.31% 1.10%

EBIT 222.34 228.04 227.90 229.08 230.11 230.96 224.66 217.43 208.63 199.12 188.95

EBIT Margin 10.44% 10.14% 10.33% 10.52% 10.32% 10.14% 9.64% 9.15% 8.64% 8.11% 7.58%

Asia-Pacific 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E

Revenues 1,227.17 1,365.23 1,529.05 1,711.05 1,901.35 2096.86 2283.43 2448.99 2597.73 2733.89 2854.45

Revenue growth 17.34% 11.25% 12.00% 11.90% 11.12% 10.28% 8.90% 7.25% 6.07% 5.24% 4.41%

EBIT 152.97 173.29 190.53 209.31 228.33 247.19 257.59 265.07 270.53 274.77 277.65

EBIT Margin 12.46% 12.11% 12.33% 12.56% 12.33% 12.10% 11.52% 10.93% 10.32% 9.69% 9.05%

North America 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E

Revenues 295.42 301.21 307.54 319.84 332.99 345.42 356.00 365.74 374.54 382.31 388.99

Revenue growth 3.22% 1.96% 2.10% 4.00% 4.11% 3.73% 3.06% 2.74% 2.41% 2.08% 1.75%

EBIT 8.45 8.78 8.80 8.98 9.18 9.35 9.20 8.99 8.71 8.39 8.03

EBIT Margin 2.86% 2.78% 2.83% 2.88% 2.83% 2.78% 2.64% 2.51% 2.37% 2.22% 2.08%

South America 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E

Revenues 288.17 307.76 332.81 357.14 379.75 400.58 418.29 432.81 444.83 455.48 464.67

Revenue growth 9.56% 6.80% 8.14% 7.31% 6.33% 5.48% 4.42% 3.47% 2.78% 2.40% 2.02%

EBIT 24.80 26.97 28.63 30.16 31.48 32.60 32.52 32.05 31.34 30.51 29.56

EBIT Margin 8.61% 8.36% 8.52% 8.67% 8.51% 8.36% 7.95% 7.55% 7.13% 6.69% 6.25%


22

- Appendix 17: Operation Free Cash Flow Forecasts

Source: Internal estimates

Entreprise Value =market value of common stock+market value of preffered equity+market value of debt+minority interest-cash and

investment

Target price=current price x (1+ e)-DPS(expected)

- Appendix18: Weighted Average Capital Cost

Two methods are used to estimate the cost of equity of SEB:CAPM and Fama-French Model

(1) CAPM:

Ri,t - Rf = ix(Rmkt-Rf)

Market Model: Ri,t = i+ ixRm,t+

We regress stock return of SEB on that of SBF250 index based on the market model.

Daily returns of SEB stock are employed for a period of two years starting from

November 2009 to November 2011.That results in i of 0.83.

Rf :2.59% Weighted Average according to the breakdown of the revenue.

2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E

Revenues 3,940.91 4,119.69 4,353.50 4,624.46 4,902.42 5,182.46 5,442.41 5,673.24 5,879.48 6,066.22 6,230.03

Revenue growth 7.92% 4.54% 5.68% 6.22% 6.01% 5.71% 5.02% 4.24% 3.64% 3.18% 2.70%

EBIT 409.85 416.31 447.99 484.59 504.30 523.35 522.99 517.44 506.27 490.34 470.50

EBIT Margin 10.40% 10.11% 10.29% 10.48% 10.29% 10.10% 9.61% 9.12% 8.61% 8.08% 7.55%

EBIT*(1-τ) 297.30 301.99 324.97 351.52 365.82 379.64 379.37 375.35 367.24 355.69 341.30

2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E

Total Working Capital 736.32 769.72 813.41 864.03 915.96 968.29 1,016.86 1,059.98 1,098.52 1,133.41 1,164.01

WC Change 54.02 33.40 43.69 50.62 51.93 52.32 48.57 43.13 38.53 34.89 30.61

WC/Revenues 18.68% 18.68% 18.68% 18.68% 18.68% 18.68% 18.68% 18.68% 18.68% 18.68% 18.68%

2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E

Gross Fixed Assets 1,361.11 1,422.85 1,503.61 1,597.19 1,693.19 1,789.91 1,879.69 1,959.42 2,030.65 2,095.15 2,151.72

- Accumulated Depreciation 896.32 936.98 990.16 1,051.79 1,115.01 1,178.70 1,237.82 1,290.32 1,337.23 1,379.70 1,416.96

Net Fixed Assets 464.79 485.87 513.45 545.40 578.18 611.21 641.87 669.09 693.42 715.44 734.76

Net Fixed Assets change 38.29 21.08 27.58 31.96 32.78 33.03 30.66 27.22 24.32 22.02 19.32

NFA/Revenues 11.79% 11.79% 11.79% 11.79% 11.79% 11.79% 11.79% 11.79% 11.79% 11.79% 11.79%

2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E

OFCF 205.00 247.50 253.71 268.94 281.11 294.29 300.15 305.00 304.39 298.78 291.37

Period 0 1 2 3 4 5 6 7 8 9 10

Discouted Factor 0.93 0.86 0.79 0.73 0.68 0.63 0.58 0.54 0.50

Present Value of OFCF 226.15 211.82 205.16 195.95 187.44 174.68 162.19 147.90 132.65

Terminal Value 2020

OFCF (2021) 291.37

Terminal Value EV 4197.423436

Discouted Factor 0.50

PV 1,863.54

% of Total EV 53.13%

Shares outstanding 49.95 ke 10.37%

Market Cap 3,079.27 WACC 9.44%

Preferred Equity 0.00 DPS(2012) 1.40

Minority Interest 168.50 LT growth rate 2.50%

Total debt(ST&LT debt) 734.70 LT ROC 18.46%

Cash&Equivalents 475.00 Stock price 61.64

Entreprise Value 3,507.47 Target price 66.64

13.44%

86.56%

D/(E+D) E/(E+D)

Fig xx. Target Capital Structure


23

Source:

* Market Risk Premium : Survey MRP used in 2011 by professors: 6014 answers

** Market Risk Premium: Bloomberg

Cost of debt, effective tax rate, target capital structure: average in Household products sector: Damodaran

Rf: Bloomberg

2)Fama-French Model

The three factor model can be expressed as follows

Ri,t - Rf = ix(Rmkt-Rf) + SMB x (Rsmall - Rbig) + HML x (RHBM – RLBM)

This multifactor model accounts for the higher returns generally associated with small-cap stocks. We employed multiple linear regression

approach by using SMB (small minus big) to address size risk and HML (high minus low) for value risk .The excess returns of SEB are

regressed on market, size and value factors.

The high book to market ratio stocks are termed as value stocks while low book to market stocks are growth stocks.

Weighted average cost of capital of 9.44% incorporates the specific risks of each region and reflects the group’s overall risk. The multiple

linear regression based on Fama-French model gives a positive SMB factor and a negative HML factor which correspond that SEB is a small

cap and growth stock. Therefore, we abandon the cost of equity of 8.73% given by CAPM which underestimates the required rate of return for

small caps.

Regression Statistics

Multiple Coefficient 0.66

R² Coefficient 0.43

Adjusted R² Coefficient 0.43

Standard Error 0.01

Sample 516.00

Variance Analysis Degree of Freedom Sum of squares Mean of squares Statistic F F critical value

Regression 1.00 0.09 0.09 391.43 0.00

Residual 514.00 0.11 0.00

Total 515.00 0.20

Coefficients Standard Error Statistic t ProbabilityLower limit

(confidence interval = 95%)

Upper limit


Constant 0.00 0.00 1.71 0.09 0.00 0.00

Rm(SBF) 0.83 0.04 19.78 0.00 0.75 0.92

* EU Asia-Pacific North America South America

Risk premiun 6.00% 8.70% 5.70% 7.70%

Revenue breakdown 56.32% 28.64% 7.84% 7.20%

Weighted average 6.87%

** EU Asia-Pacific North America South America

Risk premiun 7.38% 9.00% 7.28% 7.70%

Revenue breakdown 56.32% 28.64% 7.84% 7.20%

Weighted average 7.86%

Cost of Equity (CAPM) EU Asia-Pacific North America South America

Market premium 7.37% Risk free rate(Rf) 1.96% 3.47% 1.92% 4.72%

Rf 2.59% Revenue breakdown 56.32% 28.64% 7.84% 7.20%

Ke 8.73% Weighted average 2.59%

Kd 4.79%

Effective tax rate 27.46%

After tax cost of debt 3.47%

D/E 15.53%

WACC 8.02%


24

Source: Thomson Financial

- Appendix19: Comparable company analysis

The six valuation metrics provide a full-scale valuation by incorporating the effect of the earnings power (P/E), balance sheet items (MBR),

different capital structure (EV/EBITDA) and cash flow generating ability (P/CF).





Standard Error 0.01

Sample 516.00


Regression 3.00 0.10 0.03 185.36 0.00

Residual 512.00 0.10 0.00

Total 515.00 0.20



Upper limit


Constant 0.00 0.00 1.37 0.17 0.00 0.00

Rm -Rf 1.00 0.04 23.45 0.00 0.91 1.08

SMB 0.82 0.13 6.56 0.00 0.58 1.07

HML -0.54 0.15 -3.63 0.00 -0.84 -0.25

Cost of Equity(Fama-French)

Market premium 7.37%

Small-cap return premium 3.76%

Value return premium 4.87%

Rf 2.59%

Ke 10.37%

Kd 4.79%

Effective tax rate 27.46%

After tax cost of debt 3.47%

D/E 15.53%

WACC 9.44%


25

Source: Bloomberg

Note:EV/Revenue and Debt/EVare excluded because the different capital structures and size of these companies result in a large difference of

revenue and debt and then will make the two valuation metrics less reliable.

Company EV(2011) EBITDA(2012) EBIT(2012) Revenue(2012) Market Cap(2011) Equity BV(2011 Q2)

AB Electrolux 41071.60 8381.44 4795.06 106638.26 37678.61 19473.00

De'Longhi 1245.69 254.57 210.67 1883.43 1218.42 751.89

Midea 55837.80 8263.50 7420.57 124961.44 45925.60 22354.84

Whirlpool 6235.65 1676.00 917.00 19040.00 4139.94 4499.00

Philips 15654.40 2813.33 1593.00 23138.73 14433.39 13116.00

SEB 3389.34 560.00 421.63 4150.80 1561.50

Company ST debt LT debt Total debt NI(2012) EPS(2012) Shares outstanding CFPS（2012）AB Electrolux 1823.00 10869.00 12692.00 3546.12 12.41 285.85 21.96

De'Longhi 125.56 99.74 225.30 120.29 0.81 148.76 1.00

Midea 16900.23 326.61 17226.84 4886.56 1.42 3450.58 1.93

Whirlpool 378.00 2143.00 2521.00 496.00 6.16 80.52 6.02

Philips 713.00 2703.00 3416.00 1164.56 1.28 908.89 2.04

SEB 198.10 536.60 734.70 236.78 4.69 49.95 8.37

Company EV/EBITDA EV/EBIT EV/Revenue MBR Forward P/E Total debt/EV EV/Market Cap P/CF

AB Electrolux 4.90 8.57 0.39 1.93 10.63 0.31 1.09 6.00

De'Longhi 4.89 5.91 0.66 1.62 10.13 0.18 1.02 8.22

Midea 6.76 7.52 0.45 2.05 9.40 0.31 1.22 6.90

Whirlpool 3.72 6.80 0.33 0.92 8.35 0.40 1.51 8.54

Philips 5.56 9.83 0.68 1.10 12.39 0.22 1.08 7.80

Mean 5.17 7.73 0.50 1.53 10.18 0.28 1.18 7.49

Median 4.90 7.52 0.45 1.62 10.13 0.31 1.09 7.80

Implied EV 2744.17 3172.61 1854.74 2381.40

Implied Mkt Cap 2315.97 2744.41 1426.54 2530.37 2398.47 1953.20 3109.34 3259.62

Implied Price 46.36 54.94 28.56 50.66 48.02 39.10 62.25 65.26

Mean price 54.58

Median price 50.66

SEB

Shares outstanding 49.95

Preferred Equity 0.00

Minority Interest 168.50

Total debt(ST&LT) 734.70

cash&Equivalents 475.00

Stock price 54.58

DPS(2012) 1.40

ke 10.37%

Target price 58.84


26

- Appendix20: Comparable transaction analysis

Source: Thomson Financial

The deal value is adjusted by the takeover premium of 30% which is the average of offer price to target stock price premium one day prior to

announcement of acquisition in Household &Personal products sector from 2001 to 2010.

DateAnnounced Acquiror Name Target Name % of SharesAcq. Value of Transaction($mln)

2009/11/2 The Stanley Works The Black & Decker Corp 100 3469.75

2007/7/12 Energizer Holdings Inc Playtex Products Inc 100 1208.42

2007/4/2 Caxton-Iseman Capital Inc KCP Income Fund 100 698.04

2005/7/17 Whirlpool Corp Maytag Corp 100 2653.71

2003/12/14 Henkel AG & Co KGaA Dial Corp 100 2914.03

2001/12/3 Tyco International Ltd Paragon Trade Brands Inc 100 662.06

2001/4/26 Pool Acquisition Helsinki Oy Sanitec Corp 100 813.63

2000/7/17 Georgia-Pacific Corp Fort James Corp 100 11198.47

Target Name DealValue /EBITDA DealValue /EBIT DealValue /NI DealValue /Sales

The Black & Decker Corp 9.38 14.30 24.38 0.72

Playtex Products Inc 9.19 10.63 31.02 1.74

KCP Income Fund 10.15 21.29 36.04 0.66

Maytag Corp 9.83 26.18 627.65 0.56

Dial Corp 10.77 12.44 23.14 2.26

Paragon Trade Brands Inc 5.29 6.73 13.65 0.95

Sanitec Corp 7.35 12.44 23.17 1.04

Fort James Corp 8.85 14.17 36.25 1.63

Median 9.28 13.31 27.70 0.99

Mean 8.85 14.77 101.91 1.19

Valuation variables SEB Valuation Multiples Median Multiple Estimated Deal Value Deal Value Adjusted Implied Price

EBITDA 486.80 DealValue /EBITDA 9.28 4518.23 3162.76 63.32

EBIT 387.50 DealValue /EBIT 13.31 5156.08 3609.25 72.25

Net Income 220.40 DealValue /Net Income 27.70 6104.86 4273.40 85.55

Sales 3651.80 DealValue /Sales 0.99 3622.59 2535.81 50.76

Mean 67.97

Median 67.79

SEB

Shares outstanding 49.95

Stock price 67.97

DPS(2012) 1.40

Ke 10.37%

Target price 73.62


27

- Appendix21: Multiple linear regression model Two regression equations are produced:

Forward P/E =5.86 +15.94 g-7.23 ROE+2.23 Leverage+1.43 Ln(MV)-2.51 dividend payout dummy -7.32 beta

+

MBR= -0.96+ 1.5 g+10.16 ROE+0.12 Leverage+0.21 Ln(MV)-0.18 dividend payout dummy-0.98 beta +

The overall model is significant at the 5% level as indicated by the F-statistic (11.15 for fP/E, 39.5 for MBR).

There is a negative and significant relationship between fP/E ratio and dividends payout ratio.

The ROE has a negative and significant coefficient (at the 5% level) indicating that higher risk will lead to higher required rate of return which

will in turn depress the stock price and fP/E ratio.

The significantly positive growth coefficient reveals that higher growth rates result in higher stock price and then higher fP/E ratio.

The leverage coefficient is positive but not significant at the 5% level.

The significantly negative beta coefficient indicates that higher risk will lead to lower fP/E multiples.

The proxy for the industry size is the logarithm of MV to avoid bias induced by the large MV of some firms.

The company size coefficient is positive.

The most powerful variable is the expected growth rate for fP/E and ROE for MBR.

According to the adjusted R², the model can explain on average 40% of variation of the dependent variable fP/E and 72% for MBR. This means

the first regression line does not approximate very well the real data points and the model can’t predict accurately the movements of fP/E.

(1) fP/E


28

(2) MBR





Standard Error 3.98

Sample 245.00

Variance Analysis Degree of FreedomSum of squares Mean of squares Statistic F F critical value

Regression 16.00 2829.65 176.85 11.15 0.00

Residual 228.00 3617.59 15.87

Total 244.00 6447.24


(confiance interval = 95%)

Upper limit

(confiance interval = 95%)

Constant 5.86 1.47 3.98 0.00 2.96 8.75

g 15.94 2.22 7.18 0.00 11.57 20.32

ROE -7.23 3.91 -1.85 0.07 -14.93 0.47

Leverage 2.23 2.00 1.11 0.27 -1.71 6.17

Ln(MV) 1.43 0.20 7.29 0.00 1.04 1.82

Div -2.51 0.74 -3.37 0.00 -3.97 -1.04

beta -7.32 1.00 -7.32 0.00 -9.29 -5.35

CONSUMER DISCRETIONARY 1.50 1.20 1.25 0.21 -0.86 3.86

CONSUMER STAPLES 3.34 1.54 2.16 0.03 0.30 6.38

ENERGY 5.36 2.16 2.48 0.01 1.10 9.62

FINANCIALS 1.89 1.36 1.38 0.17 -0.80 4.57

HEALTH CARE 3.38 1.45 2.33 0.02 0.53 6.23

INDUSTRIALS 1.38 1.17 1.18 0.24 -0.93 3.69

INFORMATION TECHNOLOGY 1.37 1.15 1.19 0.23 -0.89 3.62

MATERIALS 0.03 1.41 0.02 0.98 -2.75 2.82

TELECOMMUNICATION SERVICES -0.15 2.30 -0.06 0.95 -4.68 4.39

UTILITIES 2.63 1.90 1.38 0.17 -1.12 6.38

SEB SEB

g 0.05 Stock price(f P/E) 45.87

ROE 0.18 Stock price(MBR) 56.33

Leverage 0.07 Mean 51.10

Ln(MV) 7.98 DPS(2012) 1.40

Dummy Div 1.00 Ke 10.37%

beta 0.83 Target Price 55.00

Predicted P/E 9.78

EPS 2012 4.69

Stock price 45.87


29

Source:Thomson financial

- Apprendix 22 Valuation risk &Weights for each method

(1) DCF

The estimated terminal value represents 53.13% of the estimated enterprise value. This means that the

estimation can be affected dramatically by small changes in assumed growth and estimated WACC.

That’s why we perform a sensitivity analysis on the most critical factors (long-term growth rate and

WACC) to test the robustness of our valuation.

Moreover, the consumption is sensitive to global economic downturns. The large fluctuations of

currency exchange rate, higher raw material costs and greater inflation in SEB’s business regions

could also lead to an estimation bias.

(2) Comparable company analysis





Standard Error 0.49

Sample 245.00


Regression 16.00 153.24 9.58 39.50 0.00

Residual 228.00 55.28 0.24

Total 244.00 208.52



Upper limit


Constant -0.96 0.19 -5.18 0.00 -1.33 -0.60

g 1.50 0.27 5.48 0.00 0.96 2.04

ROE 10.16 0.48 21.03 0.00 9.21 11.11

Leverage 0.12 0.25 0.50 0.61 -0.36 0.61

Ln(MV) 0.21 0.03 8.07 0.00 0.16 0.26

Div -0.18 0.09 -1.91 0.06 -0.36 0.01

beta -0.98 0.14 -7.21 0.00 -1.25 -0.71

CONSUMER DISCRETIONARY 0.29 0.15 1.95 0.05 0.00 0.58

CONSUMER STAPLES 0.49 0.19 2.60 0.01 0.12 0.86

ENERGY 0.49 0.27 1.84 0.07 -0.03 1.01

FINANCIALS 0.22 0.17 1.34 0.18 -0.10 0.55

HEALTH CARE 0.48 0.18 2.73 0.01 0.13 0.83

INDUSTRIALS 0.23 0.14 1.62 0.11 -0.05 0.51

INFORMATION TECHNOLOGY 0.39 0.14 2.79 0.01 0.12 0.67

MATERIALS 0.11 0.17 0.66 0.51 -0.23 0.46

TELECOMMUNICATION SERVICES 0.12 0.28 0.43 0.66 -0.43 0.68

UTILITIES 0.33 0.23 1.42 0.16 -0.13 0.79

SEB

g 0.05

ROE 0.18

Leverage 0.07

Ln(MV) 7.98

Ddiv 1.00

beta 0.83

MBR 1.93

BPS 29.15

Stock Price 56.33

53.13

% 46.87

%

PV(Terminal Value)/EV Discounted OFCF/EV

Fig xx.


30

The approach implicitly assumes that the market's valuation of the comparable companies is accurate.The comparable companies’ margin ratios

(EBITDA, EBIT, and profitability) are significantly lower than that of SEB except for Philips. This is mainly due to SEB’s “Margin

enhancement” strategy which focuses on the innovation and the improvement of quality by pursuing an innovative, brand-differentiation

product.The company have more than 100 patents filed and more than 200 new products/models marketed per year.

(3) Comparable transaction analysis

The approach implicitly assumes that past takeover transactions valued accurately. So the mispricing will affect the estimated value for the

target. Historical data used to estimate a takeover premium may not be timely, and therefore may not reflect current conditions in the M&A

market.

(4) Multiple linear regression model The predictive power of the estimated P/E&MBR regressions is uncertain for a different time period. The method captures valuation

relationship only for the sample of stock (SBF250 index). Regressions are prone to multicollinearity which will make the

interpretation of individual regression coefficients difficult.

Weights

DCF model exhibits a higher level of valuation accuracy than other approaches because it incorporates merger synergies and changing capital

structures into the analysis.We give a low weight to comparable company analysis because SEB has no direct competitor. The low weight of

comparable transaction analysis is due to the difficulties in determining exactly the premium paid.Furthermore, the deal value of the

transactions is greatly influenced by the economic cycles. The given weight reflects the bias of fP/E multiple linear regression due to the low

explanatory power.

- Apprendix23: Sensitivity analysis

• We use two important variables (WACC and LT growth rate) for sensitivity analysis.

• Sensitivity analysis shows that there is a great impact of a change in WACC and LT growth rate on the share price and the EV.

1.50% 2% 2.50% 3.00% 3.50%

8.44% 3,740.08 3,897.28 4,080.95 4,298.39 4,559.84

8.94% 3,491.22 3,621.77 3,772.60 3,948.82 4,157.44

9.44% 3,272.82 3,382.26 3,507.47 3,652.12 3,821.11

9.94% 3,081.42 3,174.07 3,279.18 3,399.43 3,538.35

10.44% 2,910.67 2,989.66 3,078.61 3,179.51 3,294.95

1.50% 2% 2.50% 3.00% 3.50%

8.44% 66.30 69.45 73.13 77.48 82.71

8.94% 61.32 63.93 66.95 70.48 74.66

9.44% 56.95 59.14 61.64 64.54 67.92

9.94% 53.12 54.97 57.07 59.48 62.26

10.44% 49.70 51.28 53.06 55.08 57.39

LT growth rate

WACC

EV Sensitivity Analysis

LT growth rate

WACC

Share Price Sensitivity Analysis


31

6. Financial analysis

- Appendix 8: Change in sales

- Appendix 8: Peer group operating margins

- Appendix 8: Peer group ROC

- Appendix 8: Revenue evolution by location of customer over 5 years

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Mln

€

Sales EBITDA Net Income

0

2

4

6

8

10

12

2006 2007 2008 2009 2010

Peer Group Operating Margins

SEB Electrolux Philips De'Longhi Midea

-10

0

10

20

30

40

50

60

70

2006 2007 2008 2009 2010

Peer Group ROC

SEB Electrolux Philips De'Longhi Midea


32

- Appendix 8: EBIT evolution over 5 years

- Appendix 8: Management of advertising expenses to protect margins

0%

20%

40%

60%

80%

100%

2010 2009 2008 2007 2006


-20%

0%

20%

40%

60%

80%

100%

2010 2009 2008 2007 2006


-20%

-10%

0%

10%

20%

30%

40%

50%

2006 2007 2008 2009 2010

Revenue Advertising exp Operating margin


33

- Appendix 8: FY 2010Operating margins

- Appendix 8: Evolution of cash flows

- Appendix 8: OCF Split

-500

-300

-100

100

300

500

700

2006 2007 2008 2009 2010

OCF CFI CFF

0%

20%

40%

60%

80%

100%

52.53% 48.01% 56.38% 66.46%

41.64%

83.46%

52.91%

47.47% 51.99% 43.62% 33.54%

58.36%

16.54%

47.09%

CAPEX/OCF FCF/OCF

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

Europe Asia Pacific North America South America


34

- Appendix 8: Evolution of OCF/Sales

- Appendix 8: OCF to Net Income ratio

- Appendix 8: Group Current Assets breakdown

1.36 1.50

1.77 1.57

1.08

3.82

1.16

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

2004 2005 2006 2007 2008 2009 2010

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

2004 2005 2006 2007 2008 2009 2010


35

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2006 2007 2008 2009 2010

Inventory & Costs to Clients Accounts Receivable Other Cash & Cash Equivalents


36

- Appendix 8: Group Non Current Assets breakdown

- Appendix 8: Impact of acquisitions on leverage

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2006 2007 2008 2009 2010

Investment in Associates Deffered Tax Assets Property & Equipment

Intangible Assets Goodwill

Moulinex

All -Clad

Lagostina

Panex

Mirro

Wearever

Suppor

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

1.60

1.80

2.00

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 FY2011

H1 Gearing Net Debt / EBITDA


37

7. Environment, Social and Governance Responsibility

- Appendix 8:Impact of ESG issues on company’s value

Source : EIRIS valuing ESG issues 2007 survey

This survey analysed the responses from over 40 mainstream and socially responsible asset managers, pension and church funds around the

world.

The chart illustrates the proportion of value investors consider to be at risk fromESG issues for the 15 economic sectors. Household goods is

one of the leastimpacted sector since investors is considered that it is not strongly exposed to major issues such as climate change or

environmental degradation. However, the main concern identified for this sector is safety and sustainability of their

Products as well as chemicals concerns.

- Appendix 8:ESG rating for SEB and its competitors

Rating Method: Companies are classified on a scale from 0 to 10 for environmental, social and governance fields, with a global recap rating.

We estimated SEB’s performance on our own analysis and also on the basis of Ethifinance report. We found noavailable information to report

De'Longhi and Midea ratings because the 2 firms don’t communicate on ESG issues. Consequently these companies appear at the bottom of our

ranking because of a lack of transparency.

Sources :Ethifinance,, Oekom, Forum Ethibel and internal estimates

Company

2011 Ethibel

Sustainability

Index

Environmental

issues

Social

issues

Governance

issues

Global

rating

Philips Electronics n 5 6 6 5.5

Electrolux AB n 4 6 6 5

SEB n 6 6 3.5 5

Whirlpool Corp 3 4 3 4

De'Longhi - - - -

Midea - - - -


38

Note : Forum Ethibel is an independent advisory body whose goal is to promote socially responsible investment in Europe. Its Ethibel

Sustainability Indexes (Europe and Global) contains shares chosen among top performers in terms of corporate social responsibility and

accredited with the Ethibel Excellence label.

- Appendix 8: Increasing trend of SRI Funds

Source : Reuters SRI & Sustainability Survey 2011

More than 200 asset management firms, from a record 23 countries took part in this survey. The conclusion underlines as a long running trend

the growing appreciation of the importance, relevance and long-term value opportunity of sustainability factors for any equity investment.

Moreover, in 2009 SEB was included in ASN investment portfolio on the basis of criteria linked to the respect of Human Rights and the

environment. ASN is the largest ethical bank in the Netherlands.

- Appendix 8:Human Resources rewards

Shanghai site (China): 2010 Model Company Prize for the harmony of working relationships awarded by the

administration, federation of unions and the association of chief executives of the Minhang district.

Canonsburg site (USA): Employer of the Year 2010 by the Pennsylvania Employment Administration


39

5. Investment risks appendix

We only developed in our investment risks part major potential risks that could impact SEB share. However other

operational and legal risks may impact the group.

Operational risks

Liquidity & Dependency: Customer default risk increased duringgloomy economic context. For instance

Carrefour’s financial health (2nd client) needs to be supervised even if though 74% of net receivables (25% of

total assets) are insured by COFACE. Besides, although SEB’s dependence on its top 10 clients decreases (29%

of total sales vs 33% in FY 2009), its reliance on finished goods suppliers is substantial (20% for its 1st supplier)

but inferior as to competitors since in-house production still accounts for 70% (fig xx).

Shareholders and management stability: Cohesion of the founder family may be weakened after the polemic

regarding CEO’s salary. This incident also underlines a key man risk on Mr De la Tour d’Artaise (57 years old),

the last family member in top management. Under his helm (whose term expires in 2012) he successfully turned

SEB from a French family business to the worldwide leader in SHE. Thus its departure would raise a succession

issue.

Legal risks

Regulation & Intellectual property right: Lack of patent protection in emerging markets may weaken SEB’s

innovation advantage. Indeed counterfeiting leads tolong legal actions (11 years for last deep fryers patent

infringement with HK firm PENTALPHA). SEB’s focus on innovation and eco-friendly products prevent legal

change. Supor conformity issue in Harbin affects only 2% of sales and seems to be under control with an action

plan implemented (re-examination, random inspection).

- Appendix 8: A geographical coveragemore and more balanced

SEB’s sales are well balanced between mature markets and emerging ones.

69% 66% 62% 62% 56%

31% 34% 38% 38% 44%

0%

20%

40%

60%

80%

100%

120%

2006 2007 2008 2009 2010

Mature Markets Emerging Markets

Source: SEB FY 2010 annual report


40

- Appendix xx: Continuous rising trend of Chinese wages

Growth of urban wages in China

Source : Barclays Capital

2010 wages & GDP growth for major manufacturing provinces

Source :Caixin Survey: China's Wage Inflation

The principal factors involved in the recent wage increases are the higher amount of skilled workers entering the workforce, rising demands for

better labor conditions linked with the increased demand for labor.

0

5

10

15

20

25

Jiangsu Guangdong Jilin Hubei Sichuan

Unskilled Labor Skilled Labor GDP


41

- Appendix xx: A doubling of the workforce in less than 4 years

Source :SEB annual reports

- Appendix 9: EUR/USD sensitivity analysis

Source : Bloomberg internal estimates

Methodology :

EBIT Forward 2012 : 436.29 mln

EBIT not realized in EUR (based on estimate of FY 2010 EBIT breakdown) : 53%

Yearly average EUR/USD rate 2010 : 1.3384

We stressed our EBIT forward 2012 according to potential evolutions of EUR/USD rate to evaluate the impact of currency volatility on SEB's

EBIT. Since USD is mostly used for manufacturing purchases, a stronger dollar would negatively impact operating margin.

- Appendix 9: Internal tensions within the Lescure family

2011 general meeting underlined conflict between SEB’s management and its major shareholder. Indeed, Federactive contested its CEO’s

salary level (lack of transparency on stock option and share attribution plans) in order to preserve social consensus within the group. On the

contrary, VenelleInvestissement, the other family holding argued that it would be an incomprehensible sanction against its management to pass

0

5,000

10,000

15,000

20,000

25,000

2007 2008 2009 2010 2011E

-10% -5% 0% 5% 10%

1.205 1.271 1.338 1.405 1.472

-10% 371.85 382.25 392.66 403.06 413.47

Standard 413.16 424.73 436.29 447.85 459.41

10% 454.48 467.20 479.92 492.63 505.35

EUR/USD Sensitivity Analysis

EBIT

(mln)


42

this resolution. Consequently, stocks option and bonus issue haven’t been granted to Mr Dela Tour d'Artaise. This incident reveals tensions

between on one side Federactive and on the other SEB’s management and VenelleInvestissement.

Source :Les Echos 05/18/2011, l’Agefi 05/12/2011

- Appendix 10: CEO’s skills recognition by financial institutions

« Stratégie d’Entreprise » 2010 trophy by OSEO

« Industrialist of the Year » 2011 price by LSA, the French trade magazine devoted to retail trends and mass consumption

Source : OSEO, LSA-Conso

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 10% 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 theCFA

Institute Research Challenge with regard to this company’s stock.

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