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Luxottica Group SpA

Highlights and Investment Summary Good net sales growth but room for further expansion. Our coverage of Luxottica starts

with a HOLD recommendation: we derived a € 25.08 stock price as weighted average of the

price resulting from DCF and Multiple technique. Luxottica is a global player in premium

fashion, luxury and sports eyewear, with 7,000 optical and sun retail stores in North America,

Asia-Pacific, South Africa and Europe and a strong and well-balanced brand portfolio. After

the recent economic downturn Lux drivers have become the penetration in emerging markets

and the new channels represented by shopping centre, airports and stations.

Competitive positioning. The company has a solid brand portfolio with 12 house brands and

22 license brands. With its vertical integration the company benefits from the rising global

eyewear demand and from its expansion strategy in the Ems. In our view, despite the positive

start of 2012 driven by the actions taken in 2011 and the launch of the Coach and Armani brand

collection, we see unexploited growth potential in both the wholesale and retail division. While

in North America, a key region for the company, both the Retail, driven by Sunglass Hut, and

the Wholesales division recorded excellent results (7.47% sales CAGR for 2012 and 2013), in

Europe we see further unexploited growth opportunities in the Retail division. The absence of

a strong Retail network gives room to Oakley brand penetration in the European market and

other management strategies (e.g. STARS) in order to overcome the future reduction of Euro

Region growth estimated by the World bank. We see also space for investments in Latin

America and in all fast growing markets in which the Group operates, like China, South Africa

and the Middle East.

We expect Luxottica’s net sales CAGR 2010-13 8.7%. This result will be mainly driven by

expansion in Ems, the new license agreement with Armani and Coach and the acquisition of the

Brazilian group Tecnol. As a result of net sales growth expansion strategy, we evaluate an

increasing Operating FCF from 538.78 mln in 2010 to 562.92 mln in 2013.

Valuation. Valuation is derived from both a DCF and Multiples analysis. Our target price of

25.08 is the weighted average of the prices resulting from DCF and Multiple model. DCF

analysis is based on a WACC parameter, which takes into account the decreasing in leverage, a

weighted average risk premium for the percentage of the geographical sales and a terminal

growth of 2%. We estimate a little upside potential of 1.6% from current stock price.

Main risks to our target price. As consequence of unsuccessful management of license

agreements, financial results may suffer from a reduction in sales or an increase in royalties to

designers. The mainly strategic and operative risk come from changes in local and political

conditions in Ems, target of Luxottica expansion strategy; exposure to the cyclicality of

demand and uncertainties regarding new acquisitions. We perform sensitive analysis and a

Montecarlo simulation in order to analyze the uncertainty level of our estimation.

Channel Islands Stock Exchange Student Research This report is published for educational purposes only by

students competing in the CFA Institute Research

Challenge.

Consumer Discretionary

Ticker: ● Bloomberg (Reuters)-LUX IM (LUX.MI) Recommendation: ● Hold

Price: ● € 24.69 Price Target: ● € 25.08 Date 01.25.2012

Forecast Summary 2008 2009 2010 2011E 2012E 2013E

Net Sales (€mnl) 5,201.61 5,094.32 5,798.04 6,222.21 6,805.14 7,453.44

Ebitda (€mnl) 1,014.70 856.53 1,034.22 1,199.01 1,319.42 1,445.12

Net Income (€mnl) 379.72 299.12 402.19 481.62 553.46 620.19

ROE 15.10% 10.93% 12.82% 14.68% 15.43% 15.80%

ROI 4.65% 10.19% 9.78% 9.64% 9.46% 9.35%

ROS 7.30% 5.87% 6.94% 7.74% 8.13% 8.32%

Ratios 2012E 2013E 2014E

P/E 21.2 x 18.9 x 17.7 x

P/B 3.3 x 3.0 x 2.7 x

P/S 1.7 x 1.6 x 1.5 x

EV/S 2.0 x 1.9 x 1.8 x

EV/Ebitda 10.5 x 9.5 x 9.1 x

EV/Ebit 14.1 x 12.9 x 12.2 x

Market Data

Market Cap 11538.91

Shares Outstanding 467.350

52 Week Range 24,69-18,73

Main Shareholders

Leonardo del Vecchio 67.83%

Db Trust Company 7.47%

Giorgio Armani 4.96%

Performance 6M 1Y

Luxottica 11.68% 11.73%

MS World -6.84% -7.47%

MS World Con Dis -5.13% -2.83%

Source: Company financial statements, CISE estimates

Source: Bloomberg, CISE estimates

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CFA Institute Research Challenge 01/25/2012

Business Description Luxottica is a global player in premium fashion, luxury and sports eyewear, with 7,000 optical

and sun retail stores in North America, Asia-Pacific, South Africa and Europe and a strong and

well-balanced brand portfolio.

Luxottica was founded in 1961 in Agordo (Belluno, Italy) by Leonardo Del Vecchio. The

company, initially, produced only eyeglass components for Italian frame manufacturers, but Mr

Del Vecchio soon understood he had to control the entire value chain.

After a long sequence of acquisitions (please see the Appendix 3), today Luxottica is the

world’s largest eyewear firm that designs, produces and sells prescription eyeglasses and

sunglasses through house brands (such as RayBan and Oakley) and licensed brands (for

instance Chanel, Prada, Burberry).

The company business is divided into Retail and Wholesale. In 2010 Retail represented 61% of

net sales (3.2 billions €), while Wholesale was 39% (2.2 billions €). About 60% of sales come

from North America, where Luxottica controls different retail chain stores, 20% from Europe,

13% from Asia Pacific and 7% from rest of the world, mainly South Africa and Latina

America. Nowadays, with the increasing use of Internet for the commerce, Luxottica is

developing a new on line sales channel.

Geographical focus

Europe. The growth sales up by 7% in 9M 2011 and with the STARS program, the company is

trying to enter the market with the retail division (wholesale division is about 40%). In North-

Europe there are companies with big market share and a big number of stores: it’s here where

we can expect a new deal or acquisition in the next years.

North America. The total sales are +7.8% in US$ in 9M 2011. In order to expand its market

share, Luxottica intends to: develop the premium sun, where the medium price for a pair of

sunglasses is <50$, open new LensCrafters stores (about 100), improve the wholesale division

and increase the size of Ray-Ban and Oakley.

Emerging Markets. We see a great potential in Ems in particular in 5 counties: China, Brazil,

India, Turkey and Mexico. The lifestyle changes that lead to vision impairment and

deterioration and the growing ageing of population in Ems increase the necessity of vision

correction’s devices. Luxottica will take advantage form the One Sight foundation that help

people in Ems becoming aware of their vision impairment. Moreover we see penetration

opportunities for Luxottica’s retail sector since retail chains and lab networks in Ems are highly

fragmentized and there are no potential competitors for Luxottica.

Luxottica splits this area in:

o Big emerging (China, India, Brazil, Mexico, Turkey): growth expectation for

the next three years +120% in wholesale division. The company will benefit

from the planned opening of several stores under the Sunglass Hut brand in

26%

74%

Figure 1. Brand portfolio (as a percentage of total unit

sales)

Designer brands House brands

50.20%

49.80%

Figure 2. Brand portfolio (as a percentage of total sales

of frames and lenses)

Designer brands House brands

Source: company data



0

250

500

750

1000

1250

1500

1750

2000

2250

2500

2750

3000

3250

Retail Wholesale

Figure 3. Sales (mln) breakdown (principal

markets)

European North America Asia-Pacific Other

80

85

90

95

100

105

110

115

31/12/10 11/02/11 25/03/11 06/05/11 17/06/11 29/07/11 09/09/11 21/10/11 02/12/11 13/01/12

Luxottica

Morgan Stanley World

Source: Bloomberg

3

CFA Institute Research Challenge

Mexico, Brazil, Turkey and Israel. We expect a double digit growth in 2012

generated by the diffusion of Oakley brand in these regions.

o Mature emerging (Singapore, Hong Kong, Malaysia, Argentina, Chile): these

are expected to grow +30% in the next three years in wholesale division thanks

to strong investments and client segmentation; we can also expect a

development of the retail division which is not present in this areas yet;

o New emerging (Thailand, Vietnam, Indonesia, Colombia, Peru, Ecuador):

growth expectation of 60% for the next three years in wholesale division, by

working with distributors, exploring synergies with Singapore Hub and making

huge investments. Luxottica works only with a retail division and it is entering

the local distributors to develop a direct distribution in the future. The company

will also benefit from the consolidation of Multiopticas International into the

Group and its expansion in Chile, Perù, Ecuador and Colombia.

Company Strategy

Vertical integration. This is the key element of Luxottica strategy, because it allows to maintain

cost control and high quality products and to develop innovation. Luxottica designs, prototypes,

produces and sells through different distribution channels prescriptions, sunglasses and

sportswear.

Quality. Luxottica Group also focuses on high standards of quality obtained through research

and innovation in the materials used in the production process and by minimizing costs thanks

to the vertical integrated structure, one of the main competitive advantages of the Group. This

structure leads up to discover synergies and new operating methods and to anticipate the needs

and desires of consumers.

Acquisitions. Luxottica has acquired multiple companies to strengthen its global position, to

secure economies of scale and to develop different distribution channels as wholesale and

retail. We think that in coming years Luxottica will continue to expand its global presence in

emerging markets and strengthen its brand portfolio through small/medium acquisitions.

Industry Overview and Competitive Positioning Worldwide has been estimated that about 2.42 billion people (www.visioncrc.org) required

distance vision correction in 2010. In addition, there is a dramatic increase in the prevalence of

presbyopia due to the rapid growth in age of the world’s population, with over 1 billion

presbyopic people requiring near vision correction. Besides, according to World Health

Organisation, there are about 571 million people with different type of problems: blindness,

low vision and visual impairment. Finally, global eyewear demand is rising owing to income

growth, especially in emerging markets, and lifestyle changes. For example, there is a growing

awareness of importance to protect eyes not only during the summer but also in winter periods.

These factors are strongly positive for Luxottica, that will be a beneficiary of the structural

growth in eyewear demand given its strong global positioning across the retail and wholesale

business. It will also benefit from the growth in the global luxury market given its top quality

stability of house and licensed brands.

However, Luxottica exposure to emerging markets is still lower than the main competitors

(please see the Appendix 4) but the company is tackling this challenge and has created a

dedicated line for the facial features of Asians and is planning to launch low cost products.

In the emerging markets, the lack of a leader in the lens manufacturing space, of a compact

prescription lab network and of compact retail chains is an opportunity for the European

players to capture their demand potential.

Indeed, in the developed countries we expect high growth opportunities for the eyewear market

due to: aging population (eyesight deterioration) that requires people to buy lenses with high

value added (eg. progressive lenses); changes in lifestyle that deteriorates the sight (eg.

increasing computer use) or necessitate new technologies in sport (eg. polarized lenses) or new

technologies in general (eg. 3D glasses).

In order to assess Luxottica strengths and weaknesses, we have performed a SWOT Analysis.

Opportunities

Acquisition The Group has a good track record in managing acquisition. Luxottica proposes

the purchase of new companies when it’s possible to take advantage of synergies (eg. the

acquisition of Oakley which brought the know-how for the sport sector and the polarization of

lenses) or to enter in new markets (as for the recent acquisition of Tecnol in Brasil).

01/25/2012

North America

Asia-Pacific

China/Hong Kong

Europe

Africa and Middle East

South Africa

Central and South America

Figure 4. Retail distribution


0%

5%

10%

15%

20%

25%

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

2005 2006 2007 2008 2009 2010 2011

Figure 5. Sales (mln) and EBITDA Margin

Sales Ebitda/Sales

Source: Luxottica financial statements

http://www.visioncrc.org/





4


In North Europe there are companies with big market share and a big number of stores so in the

next years a new deal or acquisition can be expected here or in the emerging markets in order to

increase the presence of the firm.

Changing in lifestyle The increase in television and computer use, in formal employment and

female participation in the labor force in the emerging markets are all related to eyesight

worsening and the consequent needs for vision correction.

Increasing fashion content of frames With the licensing of fashion design, Luxottica Group

focuses on a new costumers segment that is people who consider eyeglasses and especially

sunglasses more as an accessory rather than a need.

OneSight It’s an opportunity to enhance Luxottica corporate image; the objective is to improve

the quality of eye care by: creating new partnerships to focus its resources on the areas of

particular need, offering continuous assistance to patients all year round and increasing

awareness of the importance of sight.

New Technology Oakley has invented the Superior High Definition Optics for world-class

athletes, military, law enforcement and active consumers, the innovative new 3D eyewear and

the AIRBRAKE™, the world’s first snow goggle to take advantage of SwitchLock™

Technology.

Web Luxottica is developing Ray Ban as epicenter brand with events and presence on

Facebook (reach 1 million fans in 2010); with the success of sunglass.com e-commerce

platform the Group expects that sales will double in the U.S. for 2011. Oakley.com sales grew

by over 25% in 2010.

Threats

Alternative prescription Luxottica profitability may be affected by a reduction of the sales of

prescription glasses, lenses and accessories if consumers prefer correction alternatives to

prescription eyeglasses, such as corneal implant, laser surgery or contact lenses. However, eye

surgery is not a strong threat for the Group because of the high costs and the fact that people

invest on more expensive sunglasses after the operation.

In contrast with Fielmann and St Sunshine, Luxottica doesn't produce contact lenses but sells

them in its stores; nevertheless, this is not a real problem because who uses contact lenses

usually buys sunglasses to protect the vision. The company has also made an agreement with an

US company to sell the contact lenses online (contact lenses use is increasing by 15% in USA

where the company reaches 60% of sales).

License loss Luxottica has a strong brand portfolio, but changing in consumer preferences or in

fashion could affect the value of fashion license and reduce the likelihood of favorable

renegotiation of license agreement.

Weaknesses

Presence in fragile economies We think this is the main weakness faced by Luxottica. From

2004 to 2010 Emerging Markets growth has been 16,35%, while growth in developing

economies was only 4,94.

Luxury eyewear based Luxottica Group is well positioned in the luxury market, thanks to the

high quality of products and their innovative design. Their lines are suitable for developed

markets like Europe and the United States, but not for new economies such as Brazil, Mexico,

China and India where the per capita level of the families is not very high.

Strengths

Vertical integration This structure covers the entire chain of value to offer a quality in product

and services. Luxottica has managed to build an agile organizational structure, avoiding the

risks and problems typically associated with the bureaucratization of large organizations,

without losing the advantages of a small enterprise.

Dedicated distribution channel For fast service and cost optimization, the company has

divided the distribution in 3 main centers (hubs) in strategic locations serving the major

markets: Sedico in Europe, Atlanta in US and Dongguan in the Asia-Pacific region.

The SAP system provides daily monitoring of global sales performance and inventory levels so

that manufacturing resources can be programmed and warehouse stocks reallocated to meet

local market demand.

Brand portfolio The company has a solid brand portfolio; its brands are known in the world

for quality, design and fashion. Luxottica has 12 house brands (like Ray-Ban, Persol, Oakley,

Vogue...) and 22 license brands (like DKNY, Chanel, Tiffany & C and many others).

01/25/2012

OPPORTUNITIES THREATS

Acquisitions Improvement in eye surgery

Changes in lifestyle Contact lenses

Increasing fashion content of

frames License loss

Population and GDP growth

OneSight

New Techologies

Web

STRENGHTS WEAKNESSES

Vertical integration Luxury eyewear based

Dedicated distribution

channel (SAP)

Presence in fragile

economies

Dinamic brand portfolio

Quality

11 Plants

STARS (sophisticated

distribution)

Table 1. Swot Analysis

5


Quality “Hand made in Italy” is a symbol of quality in the world. The technology and the R&D

are continually being developed to achieve new level of customer satisfaction.

12 plants Luxottica has 6 plants in Italy, 2 in USA, 2 in China, 1 in India and 1 in Brazil to

ensure excellence in quality, technology and product differentiation.

STARS Retail enters in wholesale division: a sophisticated distribution approach which

provides clients with an excellent service; this program has brought brilliant results in 2010

(sales growth +42%).

Valuation We base our evaluation on two techniques: Discounted Cash Flow (DCF) and Multiple

Analysis.

Discounted Cash Flow Analysis

We evaluate Luxottica with an asset side DCF model, obtaining a share value of 25.95.

We model our DCF in 3 stages: we consider a first stage, covering 2012-2013, in which we

base our evaluation on Luxottica guidance for the wholesales and the retail distribution. We

assume a net sales growth of 7.32% in 2011, 9.37% in 2012 and 9.53% in 2013. We base our

evaluation on the sales forecast split by region (Europe, North America, Asia-Pacific and Other

counties comprising the emerging markets) and business area (Retail and Wholesale) given by

the company in the 2011 4Q results presentation. Sales forecast for 2012 reflects the projected

euro 90 million of revenues from the acquisition of Tecnol (Lux acquired 80% of the group

Tecnol capital with the remaining 20% purchased over the next 4 years) and the estimated

strong growth, with annual sales targeted at approximately euro 70 million from Coach license.

Sales forecasts for 2013 take into account the estimated revenues of euro 165 million from

Armani license.

Our estimates are based on the strong calculated correlation between the real GDP growth rate

and Luxottica’s sales growth rate. For a detail analysis between GDP and Luxottica’s sales

please see the Risks section.

The second stage covers 2014-2020 in which we estimate a decreasing net sales growth from

5.34% in 2014 to terminal growth rate of 2% in 2020. We assume a prudential final growth

given by inflation rate.

We performed also a sensitive analysis and a Montecarlo simulation. Please refer to the Risks

section for a detailed analysis.

The main assumptions to our DCF are presented below:

Net sales Europe represents approximately 20% of total sales, North America 60% of total

sales, Asia and Pacific 13% of total sales and other countries account for the remaining 7%.

We split the total net sales growth on the basis of the expected growth rate for the different

geographical area and business divisions. We start our estimation from the planned revenues

growth rate for the 2011 according to the Company Data taking into account the impact of the

new acquisition in Brazil (Tecnol) and the added value coming from the license agreement for

the manufacturing and distribution of sunglasses and prescription glasses under the Armani and

Coach brands. For a detail growth rate description please see the financial analysis.

EBITDA We estimate the value of Ebitda on the basis of the historical value of Ebitda Margin

(median of 19.39% calculated in the period 2006-2011) and the company strategy principally

aimed at expanding the brand portfolio in order to benefit from its distribution network and

from the opportunity to spread the total fixed costs on the greater volume of revenues. Indeed,

the raw materials represent only the 5% of the COGS and therefore a new license gives a great

potential in term of growth rate of sales.

Working capital change to sales We estimate a ratio of 0.5% of sales in accordance to

Luxottica strategy aimed at reducing inventories and improving logistic efficiency through SAP

implementation.

Terminal growth rate is 2% We estimate a terminal growth in line with World Bank GDP

growth rate forecast for the main area in which Luxottica operates. We employ a very

conservative value of 2% (inflation rate assumption): in fact we expect a slowdown in the

mature markets sales growth rate since the company strategy is focused on breaking into new

markets. Furthermore given the historical correlation between Luxottica sales growth rate and

the GDP growth rate we assume a sales growth rate of 2% for Europe and Us area in line with

the World Bank GDP forecasts.

01/25/2012

Correlation

North America 0.6048556

Asia Pacific 0.7477196

Italy 0.5900894

World 0.6427221

Table 2. Correlation between gdp and Luxottica sales

growth rate, years 2005-2010

Source: CISE estimates

6


Tax rate In all the stages we consider a corporate tax rate of 35% in line with company

estimate. We assume that the total tax rate is given by the Italian statutory tax rate, because

Luxottica mainly operates in countries with agreements against double taxation.

Financial leverage Starting from 2000 Luxottica kept the Net Debt to Ebitda ratio in a range

between 1.0x and 3.5x and a Net Debt to Enterprise Value between 10% in 2006 and 25% after

Oakley purchase. We estimate that at the end of 2011 the Net Debt to Ebitda ratio stands at

1,74x and that Net Debt to Enterprise Value at 13,24%. We don’t have any clue about

Luxottica’s future acquisition policy, but we assume that Luxottica will maintain current debt

level in the future. Given our sales forecast and profitability, this assumption implies increasing

Ebitda and Enterprise value, i.e. a decreasing leverage.

WACC It is calculated taking into account the decreasing in leverage:

We start with a Beta of 0.94 based on a regression from 2001 to 2011 (weekly data) on Morgan

Stanley MSCI Index. We use this Index since it captures the well diversified brand portfolio of

Luxottica and its presence in the global market and we adjust this beta every year for changes

in leverage.

Risk-free rate of 2.1% based on a weighted average yield on the long term bonds on the basis

of the percentage of sales in which area the company operates.

We calculate cost of debt in two steps:

• assuming an average debt maturity of 4 years for every year we compute the 4 year

forward free rate and

• on the basis of the average yield to maturity of the senior 5-year notes targeted to

institutional investors, issued on the 3rd of November 2010 and on the 10 years

private placement (20th September 2010) we estimate a current yield spread of 2,5%.

As we did for Beta, we adjust yield spread every year in order to take into account changes in

leverage.

Risk Premium For the equity risk premium we take into account the country risk premium and

we calculate a weighted average risk premium adopting the market risk premium weighted for

the percentage of the geographical sales of Luxottica on the total volume. (Source: Damodaran,

February 2011)

Multiple Analysis

It’s not so immediate to decide which societies could be comparable with Luxottica, because

the company doesn’t seem to fear any threat with its fifty years of experience and excellence in

the eyewear sector. The only society which could be viewed like a major peer is the Italian

Safilo, producer of the famous and stylish brand Carrera. Nevertheless, we decided to compare

Luxottica also with the other listed companies of the eyewear market which can be viewed as

comparables: the other Italian Marcolin, the European Fielmann and Essilor and the Asian

Formosa Optical and St Shine Optical. (For further details, please see the Appendix 4). These

firms are the more capitalized among the quoted ones and they are all followed by analysts.

Looking at the multiples estimates by analysts for the different competitors, we noticed that

they are really changeable, as it can be seen from the table below.

01/25/2012

Trailing

P/TBV

Best P/S

2012

Best

EV/Ebitda

2012

Best EV/S

2012

Best P/E

2012

Essilor 8.436 2.498 11.964 2.614 19.513

Safilo 1.263 0.268 5.120 0.503 14.714

St Shine 6.618 4.374 10.872 4.285 14.290

Marcolin 2.531 0.917 6.100 0.957 10.272

Fielmann 6.480 2.757 12.008 2.585 21.544

Formosa 3.762 2.090 12.043 2.104 15.081

max 8.436 4.374 12.043 4.285 21.544

min 1.263 0.268 5.120 0.503 10.272

2011E 2012E 2013E

Wacc 6.57% 6.54% 6.57%

Pv FCFO 504.32 495.65

Table 8. WACC


Table 9. Consensus multiples

7

For that reason, we considered that the classic way to calculate multiples using an industry

average value wouldn’t have taken into account the unavoidable gaps in operative and financial

leverage and in product range and geographical operation existing among the different

companies. Therefore we chose to calculate the various multiples for Luxottica using a linear

regression (see Appendix 8), then comparing the value coming out from it with the one

estimated on the base of Bloomberg data.

The multiples we estimated are P/TBV, EV/S, P/S and EV/EBITDA and we calculated them

using an average value of the last three months market cap and the mean of the estimates of

years 2012 and 2013 for Sales, Net Income and EBITDA margin in order to work with a more

stable value. We concentrated on these multiples because we wanted to minimize the

estimation error and they are the ones for which the value of the regression R-squared was the

highest, that is to say that the variables better explains the data. As far as the choice of the

multiples is concerned, we decided to look at P/TBV rather than at the more used P/BV

because it is a more prudent value due to the fact that it only includes real assets and doesn’t

consider goodwill. Instead, EV/EBITDA is usually preferred to EV/EBIT in order to avoid the

problems connected to the evaluation of depreciation and amortization.

Looking at Price to Tangible Book Value, Enterprise Value to Sales and Price to Sales,

Luxottica is in line with competitors while with regards to the EV/EBITDA there’s an upside.

Target Price Although the R squared are all close to 1, the variance of the regressions is quite

elevate because of the few data included in the estimation. Because of this, in order to get our

average target price we decided to weight 70% the result calculated with our DCF model and

30% the one coming from the multiple analysis, coming to a final target price of € 25.08.

Financial Analysis The world recovery after the economic setback of 2008-2009 offers growth opportunities:

2011, 50th anniversary of the company, ended positively for Lux with acceleration in both

Retail (+5.7% YoY) and Wholesales (+9.9% YoY) division. On the basis of our assumptions,

2012 is expected to provide excellent growth opportunities (+12.02% YoY in net sales).

We expect a promising outlook for both retail and wholesale for driven by Sap implementation

that will lead to a decrease of 20% of inventory days thanks to the improvement of

productivity, logistics and IT services.

In our valuation we model a net profit CAGR 2009-2013 of 15.53% , result which is mainly

driven by growth in sales and cost control (improvement obtained with Lux new software

SAP).

Luxottica benefits from its leader positioning in the luxury segment, its organizational

structure and strong brand portfolio (best performers Burberry, Chanel, Persol; Prada, Tiffany).

We see potential growth linked to one of the main drivers of Luxottica: the net sales in

NorthAmerica which represent the 60% of the consolidated net sales. Luxottica will benefit

from American recovery after a negative 2010 (we evaluate a 7.32% growth in net sales in

accordance with the company estimates for 2011, 5.7% retail and 9.9% for wholesales); the

recent signing of a 10 years license contract with Armani brand and with Coach brand; the

recent acquisition of Tecnol and the management commitment to expand and enter new

emerging markets (China as “mature emerging market”, but also Latin America and some

Asian countries).

Sales growth drivers

Europe The 9.01% sales CAGR is driven by different factors. First of all, the strong brand

portfolio: the Group expects at least € 165 mln for 2013 thanks to the renewal of the Armani

license after 12 years, the increase in profits for Tory Burch, a label already very strong in

America which is now becoming known in Europe , and the penetration of Oakley in the

European market also with a new line for women. Secondly, through the development of

STARS, Luxottica will be able to reach the final consumer even if European countries have not

a strong retail network.

North America Even if it’s not an emerging market, its potential growth looks as it would be.

Indeed, according to the optometrists association, too many people are still not aware of their

eyesight difficulties and sight defects, so this is a key point for future development and for the

possibility to open many other LensCrafters stores, which could be better managed through

SAP implementation.


Target Price € 25.08

DCF € 25.95

Multiples € 23.04

01/25/2012

Multiples

P/TBV 21.9 x

EV/Sales 1.8 x

P/Sales 1.3 x

EV/EBITDA 10.4 x

Target Price 23.04

Table 10 – Source: CISE estimates

Table 11 – Source: CISE estimates

8

For this reasons, we expect a 7.47% sales CAGR with revenues for 2012 and 2013 equal to

4052.40 mln and 4322.37 mln respectively. In order to calculate the data for 2012 we included

an additional $ 100M due to the new license agreement with Coach, one of the most important

accessories brands in the world.

Asia – Pacific and Other Countries Sales growth rate followed GDP growth rate trend. We

expect an exponentially growth of emerging markets exposure driven by:

development of the new asian-fitting glasses lines,;

the planned 500 LensCrafters stores in 2013 in China and targeting of new wholesales doors.

production plants: one in India, and two in China.

For 2012 we estimate 1.469 bln euro of net sales for both Asia and other countries area and a

CAGR 2009-2013 of 24% for Emerging markets and 4.3% for RoW : in Brazil and Mexico the

Group is improving its presence in retail division thanks to the acquisition of sunglass store

chains (two in Mexico and branded Sunglass Hut). Expected growth rate in Mexico will benefit

from the 2011 moving to SAP from 1st November.

After the negative 2008, Lux registered strong recovery in 2010 due to Tecnol acquisition

(Brazil), High Tech and Stanza acquisition (Mexico) in 2011.

Cash Flows

According to our estimates Lux will generate a cash flow of 537.29 mln euro in 2012. Given

the Ebitda Margin and the estimated sales growth rate, the cash flow will reach 766.4 mln in

2019.

The high expected cash flow and the financial structure of Lux characterized by low debt give

space either to possible new deals or to stock buyback and extraordinary dividends.

Corporate Governance and Social Responsability Social Responsibility Luxottica Group pays particular attention to corporate social

responsibility. In agreement with Labour Union has developed projects designed to improve the

purchasing power of employees.

As consequence of this welfare policy, Luxottica won the Aretê Award 2010 given by

Confindustria and ABI. With the Foundation OneSight Luxottica seeks to improve the quality

of life of people around the world. Since 1988 the Foundation, thanks to voluntary

contributions of many employees of Luxottica, has provided free eye care and glasses to more

than seven million people and has invested millions of dollars in scientific research.

Corporate Governance Luxottica address to the Code of Conduct prepared by the Committee

for Corporate Governance of listed companies promoted by the Italian Stock Exchange.

Luxottica governance is based on a Board of Directors with the task to ensure the company

management and a Supervisory Board responsible for ensuring compliance with regulations.

The Board of Directors is composed of 15 members including 7 independent. Luxottica has set

limits to membership of its directors in other companies. The company's founder, Leonardo Del

Vecchio, is the Chairman of the Board of Directors without operational assignments, although

chairs the Audit Committee.

New Opportunities Luxottica and the web. The web gives opportunities to share the company values and to build

customer loyalty. Facebook, Twitter and Youtube are the new marketing and communication

tools which enable the company to gain visibility and reinforce the brand.

Sap. Luxottica initiated the Sap’s project in December 2008 and cut over to the new system in

the beginning of April 2009. It decided to take Sap because it offers many advantages in terms

of real estate management efficiency. Before the adoption of Sap, Luxottica administered all

900-plus stores in Microsoft Excel spreadsheets. Therefore data consistency and accuracy were

very difficult. Now with Sap, unnecessary costs, wasted time and a loss of income about these

problems have greatly decreased. Sap is applied to all Luxottica’s acquisitions; in 2012 it will

be applied to North America and Mexico.

STARS. Through this system, which provides select clients with a customized service,

Luxottica manages to extend the success of the Retail logic to the Wholesales division

providing expansion opportunities even in the European market.


9

Investment Risks There are several risks which could affect our target price, but we think that Luxottica faces

mainly business and strategic risks because financial risks are strongly mitigated by a

systematic hedging policy and, moreover, the company has a low level of debt.

In order to obtain a quantitative risk assessment of our estimation we have first performed a

sensitivity analysis for Wacc, long term growth rate, EBITDA Margin and change in working

capital. As it can be seen in the following table the impact of this variable is huge.

We then performed a Montecarlo simulation to verify the uncertainty level of our estimation.

We used a volatility value equal to 5.5%, derived from the volatility of the gdp growth rate and

the sales sensitivity to the gdp growth rate.

Financial risks

Exchange rate risk

The company is exposed to the weakening/strengthening of Euro versus other currencies, in

particular USD, AUD and Yuan, due to manufacturing costs incurred in Euro and Chinese

Yuan and revenues mostly received in USD and AUD (transaction risk). Secondarily, there’s a

gap between operating results, reported in Euro, and other budget items such as assets,

liabilities, revenues and costs denominated in various currencies, which leads the company to

face a translation risk. Finally, the foreign currency rate sensitivity could impact on the Group’s

competitive position in a given market. The Group hedges the transaction exchange rate risk for

a percentage between 50 percent and 100 percent according to the policy defined by the

management using derivative instruments such as forward currency contracts, currency swaps

or permitted option structures with third parties. Although the group describes this risk as the

main one, a variation of +/- 10 percent in Euro/USD exchange rate has a material but not so

great impact on the net income.

Moreover, the exchange rate is not a driver for the company value because it rather changes the

profits’ volatility and we take this aspect into account in the Montecarlo simulation on our

DCF. Indeed, the simulation considers the value of the sales expressed in Euro, so the exchange

rate volatility is embedded in the historical volatility.

Interest rate risk This risk is primarily related to long-term debt contracted at both fixed and

floating rates. The company only hedges floating-rate debt positions by using Interest Rate

Swaps agreements in order to maintain a percentage of fixed-rate debts between 25 percent and

75 percent of total debts. Being Luxottica not much indebted, the interest rate risk has a quite

marginal impact.

Strategic risks

Unsuccessful management of license agreements The company benefits from a strong brand

portfolio which consists in favorable licenses with leading luxury goods designers but the

financial results may suffer from a reduction in sales or an increase in advertising costs and

royalties to designers. We expect the leadership positioning, the pursued strategy of continuous

innovation and the company fashion designers will attract new license agreements.



01/25/2012

€ mln

12.128 1,60% 1,80% 2,00% 2,20% 2,40%

6,21% 11.585,3 12.034,6 12.522,9 13.055,7 13.639,3

6,46% 11.403,1 11.844,0 12.323,3 12.846,2 13.419,0

6,71% 11.224,8 11.657,5 12.127,9 12.641,1 13.203,2

6,96% 11.050,1 11.474,8 11.936,5 12.440,2 12.991,9

7,21% 10.879,1 11.296,0 11.749,1 12.243,5 12.785,1

€ mln

12.128 18,39% 18,89% 19,39% 19,89% 20,39%

0,00% 11.883,9 12.428,2 12.971,5 13.513,9 14.055,5

0,25% 11.461,9 12.006,2 12.549,7 13.092,2 13.634,1

0,50% 11.039,8 11.584,3 12.127,9 12.670,6 13.212,6

0,75% 10.617,7 11.162,3 11.706,1 12.248,9 12.791,1

1,00% 10.195,7 10.740,4 11.284,3 11.827,3 12.369,6

Terminal Growth Rate

Wo

rkin

g

Cap

ital

Ch

g/S

ales

Ter

min

al

WA

CC

Ebitda Margin

Table 12. Sensitivity analysis

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

3.50%

13.1

6

14.5

3

15.9

0

17.2

7

18.6

4

20.0

2

21.3

9

22.7

6

24.1

3

25.5

0

26.8

7

28.2

4

29.6

1

30.9

8

32.3

6

33.7

3

35.1

0

36.4

7

37.8

4

39.2

1

Figure 10: Montecarlo simulation

10

The eyewear market and Luxottica’s wide distribution network and strong global presence is

attractive for fashion brands. Luxottica owns a wide brand portfolio which will include Coach

from 2012 and Armani brand from 2013, but Safilo’s competition remains strong.

GDP growth rate and future economic conditions Luxottica’s business is exposed to the

cyclicality of demand. Given the strong positive correlation between real GDP and eyewear

demand, the overall performance will suffer from economic setbacks leading to falling GDP as

in the period of economic recession 2008-2009. Luxottica’s sales register a decrease of 2.06%

in 2009 as the world annual GDP falls to 2.05%.

Unsuccessful product launch If the Group doesn’t predict changes in consumer preferences,

the sales of premium products and profitability will suffer. In particular, Luxottica’s strategy in

EMs is growing through more aggressive growth target and acquisitions policy. Luxottica’s

aim is to create innovative product lines more suited for the EMs consumers developing

special frames suited to the somatic traits of Indian and Asian population (e.g. Ray-Ban

sunglasses promotional line). Luxottica minimize this risk by investing resources in R&D to

develop high quality products for different population segments, by forecasting the new fashion

trends in Luxury and analyzing consumers needs.

Strategic acquisition Acquisitions are the pillars of Luxottica’s growth strategy focused on the

business expansion. The integration of new business may suffer from lack of synergies, costs

savings, innovation and operational efficiencies. Additional uncertainties regard the difficulty

in integrating the newly-acquired business in an efficient manner due to cultural differences in

the organization; the inability to achieve strategic objective and tax or accounting issues.

Emerging Markets: Opportunities and threats

The main risks the company may overcame are linked to changes in local economic and

political conditions, export and import restrictions, problems and significant costs in protection

of intellectual rights investment restriction and local laws.

The threats of vision correction alternatives to prescription eyeglasses Correction

alternatives to prescription eyeglasses, such as contact lenses and optical surgery, are becoming

more and more popular and accessible thanks to new developed cutting the edge technology.

However we don’t see correction alternatives as a strong risk that can affect Luxottica’s

profitability in the short term, because people that uses alternative vision correction usually buy

sunglasses. Moreover people may prefer eyeglasses, a long term medical device, than contact

lenses which must be frequently replaced or eye surgery which implies risks and costs. We also

expect a steady growth of Luxottica’s retail business driven by the concept of brand embodied

in the frames which evolve from an optical devise to a fashion accessory.

Operative risks

Increase in energy, raw materials and components costs Raw materials and energy costs are

linked to market prices but we don’t see a big risk it’s since the materials and components costs

covered only 5% of cogs.

Adverse judgments or determinations in legal proceedings Luxottica in the course of its

business becomes involved in several claims. Adverse judgments or determinations could

increase the costs required to operate the business and impact the business operations.


-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

12.0

2009 2010e 2011f 2012f 2013f

Euro Area United States

East Asia and Pacific Latin America and Caribbean

World

Figure 11. GDP forecast

Source: World Bank

-0.4

-0.2

0

0.2

0.4

0.6

2005 2006 2007 2008 2009 2010

Figure 12. GDP growth rate

Euro area Asia and Pacific

North America Worldwide

Source: World Bank

-10

-5

0

5

10

15

2003 2004 2005 2006 2007 2008 2009 2010

Figure 13. Sales growth rate

Euro area East Asia & Pacific

North America World

Source: Luxottica finacial statements

11

Appendix 1. Luxottica Brand Portfolio

Appendix 2. Main steps in Luxottica history


12


Appendix 3. Luxottica acquisitions

13


Appendix 4. Eyewear sector comparables

Luxottica is a double face company: on one side is a glasses producer and retailer, on the other side is a luxury firm. This implies

that the set of competitors (firm that produce and sell similar product) is different from the set of comparables (firm that face similar

economic conditions).

We think that is more appropriate to restrict our analysis only to competitors, because they produce and sell similar product,

although target different customer, and share similar cost structure.

Essilor Cie Generale d'Optique International Sa is a French company, engages in the design and manufacture of lenses, under the

Varilux, Crizal, Essilor and Definity brands, for all types of visual disorders, including myopia, hypermetropia, presbyopia, and

stigmatism. The company also engages in the manufacture and sale of optical instruments, which are mainly machines used to edge

finished lenses and diagnose visual disorders.

Essilor has a strategy of acquisition, across and along the value chain of glasses, of lens manufacturers, wholesalers and laboratories

across its key markets, moving across and down the eyewear value chain The strengths of Essilor are the attention on prescription

lenses and on product innovation and Essilor has the number one market share in almost all of the markets it operates in.

In 2010, Essilor and Luxottica have made a joint venture for the laboratory Eyebiz in Australia.

Formosa Optical is the world’s largest Chinese optical technology group and the biggest glasses/ contact lenses distributor in

Taiwan.

Formosa principal operative core is customer service, well known as "honest service”, a gift provided by the group that is a concrete

idea of professional optical services accompanied with reasonable prices and quality of products, which has gained belief over

years. This service provides customers with three guarantees which are "quality, technology and satisfaction".

Formosa Optical is gaining various national certificates to strengthen its brand values and aim to join the world market in the future

and become one of world's top three optical companies. This represent a threat for Luxottica expansion strategy, because Formosa

Optical is already a leader eyewear company in China and Taiwan, serving a segmented market and adapting its products to socio-

economic structure changes.

St. Shine was established in 1986 and listed in 2004. Now the company is the leading layer in Taiwan and its own brand

"Ticon" controls 25% of domestic market share.

St. Shine is the fifth largest contact lens maker in the world with 1.5% market share in 2010, and specializes in manufacturing cast-

molding soft contact lens, including disposable and frequent replacement contact lens.

Big players focus on standardized brand products and have strong mass production capability, but they lack the flexibility. On the

contrary, St Shine can provide differentiated products for diverse customers. St. Shine generated nearly 50% of revenue from Asia

and it has a strong position in Japan, which is the second largest single contact lens market.

St. Shine’s products are less expensive and has a wider range of specialty products such as ring color lens, cosmetic lens and toric

lens than peers.

Established in the 1961, Marcolin S.p.A. is a small but dynamic player in the eyewear industry. The company, which

manufacturers more than 6.000.000 fashion sunglasses and optical frames a year, is growing thanks to the expansion into foreign

markets and successful license agreements with fashion brands. Starting from 1990s, Marcolin has licenses to produce frames for

leading international fashion houses, including Dolce & Gabbana, Roberto Cavalli, Montblanc, Tod’s, Tom Ford. In addition

Marcolin produces and markets sunglasses and optical frames under its own house brand and it has several subsidiaries that handle

distribution in Europe, as well as a U.S. subsidiary and branches in Brazil and Hong Kong. The company operates also in the sport

sector through its subsidiary Cébé producing ski goggles and sports eyewear.

Fielmann was established in 1972 and has been listed at the northern German regional HASPAX index since 1994. With its 664

subsidiaries and 48% market share, the company is a leader in the German market (19% market share) and the largest optical chain

in Europe with branches in Austria (15% market share), Switzerland (14% market share), Poland, Luxembourg and the Netherlands.

Fielmann designs, develops and produces lenses and frames, sunglasses and contact lenses, which are distributed via own Fielmann

stores; it also offers hearing aids via a shop-in-shop concept and, in particular, it is known for having signed the first deal with a

public health insurance in 1981. Thus, it is classified as a producer, broker and service provider and it covers the entire chain in the

optical industry. Anyway, the key element among these different activities is the supply of competitively priced lenses, which

represent the 66% of the total sales, giving the customer the opportunity to choose among a wide range of products. The strength

and the goal of the company is to exploit huge economies of scale in order to offer always a fashionable and modern product at a

low price. The principle aim of Fielmann is to operate one branch per 100,000 inhabitants throughout Germany, trying to achieve a

market share of at least 50 per cent in all the regional markets of the German-speaking countries.

Safilo, founded in the 1934 in Italia, has grown to become a world leader in creation, production and distribution of eyeglasses,

sunglasses, sportglasses, ski masks and ski helmets. It manages a portfolio of house brands (Safilo, Carrera, Oxydo, Blue-Bay,

Smith Optics) and licensed brands (Dior, Balenciaga, Gucci and Marc Jacobs). Safilo sells its products in approximately 130

countries and is one of the biggest wholesale eyewear producer and a worldwide leader in the premium eyewear segment in terms

net sales and units sold. It is the company more comparable to Luxottica and the main competitor.

14


Appendix 5. 2000-2010 evolution of number of stores

15

Appendix 6. Sales forecast

Table 3. Retail division

Table 4. Wholesale division

Table 5. Total sales



Year 2010 2011 2012 2013 2014 2015 2016 2017

RETAIL

European Retail 103.59 103.59 103.59 103.59 104.62 105.67 106.72 107.79

Growth Rate 0% 0% 0% 1% 1% 1% 1%

North America Retail 2942.01 3115.59 3299.41 3494.07 3598.89 3670.87 3707.58 3744.66

Growth Rate 5.90% 5.90% 5.90% 3.00% 2.00% 1.00% 1.00%

Asia and Pacific Retail 495.08 519.84 545.83 573.12 596.05 613.93 626.21 638.73

Growth Rate 5.00% 5.00% 5.00% 4.00% 3.00% 2.00% 2.00%

Others Retail 20.96 25.15 30.18 36.21 43.09 49.56 54.51 58.87

Growth Rate 20.00% 20.00% 20.00% 19.00% 15.00% 10.00% 8.00%

Total 3561.63 3764.16 3979.00 4206.99 4342.65 4440.02 4495.02 4550.05

Growth Rate 5.69% 5.71% 5.73% 3.22% 2.24% 1.24% 1.22%

Year 2010 2011 2012 2013 2014 2015 2016 2017

WHOLESALE

European Wholesale 1059.94 1123.54 1179.72 1403.70 1459.85 1503.64 1533.72 1564.39

Growth Rate 6% 5% 5% 4% 3% 2% 2%

North America Wholesale 539.92 620.90 752.99 828.29 902.84 966.04 1033.66 1085.34

Growth Rate 15.00% 10.00% 10.00% 9.00% 7.00% 7.00% 5.00%

Asian and Pacific Wholesale 250.05 257.56 265.28 273.24 278.71 284.28 289.97 292.86

Growth Rate 3.00% 3.00% 3.00% 2.00% 2.00% 2.00% 1.00%

OthersWholesale 386.49 456.06 628.15 741.22 867.22 997.31 1097.04 1173.83

Growth Rate 18.00% 18.00% 18.00% 17.00% 15.00% 10.00% 7.00%

Total 2236.40 2458.30 2826.32 3246.63 3508.62 3751.27 3954.38 4116.43

Growth Rate 9.92% 14.97% 14.87% 8.07% 6.92% 5.41% 4.10%

Year 2010 2011 2012 2013 2014 2015 2016 2017

Europe 1163.53 1227.12 1283.30 1507.29 1564.47 1609.31 1640.44 1672.18

Growth Rate 5% 5% 17% 4% 3% 2% 2%

North America 3481.93 3736.49 4052.40 4322.37 4501.73 4636.91 4741.24 4830.00

Growth Rate 7.31% 8.45% 6.66% 4.15% 3.00% 2.25% 1.87%

Emerging Markets 745.14 777.39 811.11 846.36 874.75 898.21 916.17 931.59

Growth Rate 4.33% 4.34% 4.35% 3.35% 2.68% 2.00% 1.68%

RoW 407.45 481.21 658.33 777.43 910.32 1046.86 1151.55 1232.70

Growth Rate 18.10% 36.81% 18.09% 17.09% 15.00% 10.00% 7.05%

Total 5798.04 6222.21 6805.14 7453.44 7851.27 8191.29 8449.40 8666.48

Growth Rate 7.32% 9.37% 9.53% 5.34% 4.33% 3.15% 2.57%

16


Appendix 7. Discounted Cash Flow

Table 6. DCF

Table 7. WACC

Eur mln 2010 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E TV

Sales 5,798.04 6,222.21 6,805.14 7,453.44 7,851.27 8,191.29 8,449.40 8,666.48 8,872.69 9,066.98 9,248.32

YoY Growth 13.81% 7.32% 9.37% 9.53% 5.34% 4.33% 3.15% 2.57% 2.38% 2.19% 2.00%

Ebitda 1,034.22 1,199.01 1,319.42 1,445.12 1,522.25 1,588.18 1,638.22 1,680.31 1,720.29 1,757.96 1,793.12

D&A 322.06 311.11 340.26 372.67 392.56 409.56 422.47 433.32 443.63 453.35 462.42

Capex -251.04 -308.00 -394.70 -469.57 -482.85 -491.48 -494.29 -493.99 -492.43 -489.62 -485.54

Ebit 712.16 887.90 979.16 1,072.45 1,129.69 1,178.61 1,215.75 1,246.99 1,276.66 1,304.61 1,330.70

Avg Cost of Debt 4.53% 4.50% 4.06% 4.07% 4.29% 4.58% 4.75% 4.86% 4.90% 4.93% 4.97%

Interest 106.99 94.02 84.33 84.53 89.25 95.10 98.78 101.05 101.92 102.51 103.35

Net Income 402.19 481.62 553.46 620.19 660.67 688.56 710.22 728.98 747.62 765.34 781.69

Total Equity 3,148.77 3,294.72 3,599.12 3,940.22 4,303.59 4,682.30 5,072.92 5,473.86 5,885.05 6,305.99 6,735.92

Working Capital Chg 5.24 61.04 34.03 37.27 39.26 40.96 42.25 43.33 44.36 45.33 46.24

FCFF 538.78 519.21 537.29 562.93 604.75 643.23 676.17 706.54 736.66 766.40 795.60

2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E TV

Wacc 6.57% 6.54% 6.57% 6.61% 6.65% 6.68% 6.69% 6.70% 6.70% 6.71%

Pv FCFO 504.32 495.65 499.07 497.15 489.45 479.02 467.89 456.02 10,317.81



17


Appendix 8. Multiples

Figure 6. P/TBV – CISE estimates

Figure 7. EV/Sales – CISE estimates

Essilor

Safilo

St Shine

Marcolin

Fielmann

Formosa

Lux BB

Lux Regr

y = 17.206x - 0.5342

R² = 0.7998

0

5

10

15

20

25

10% 30% 50% 70% 90% 110% 130% 150%

P/T

BV

Rote

Essilor

Safilo

St Shine

Marcolin

Fielmann

Formosa

Lux BB Lux Regr

y = 11.537x - 0.3555

R² = 0.8792

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

0% 5% 10% 15% 20% 25% 30% 35% 40% 45%

EV

/Sa

les

Ebitda Margin

18


Essilor

Safilo

St Shine

Marcolin

Fielmann

Formosa Lux BB

Lux Regr

y = 13.304x + 0.249

R² = 0.8695

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

0% 5% 10% 15% 20% 25% 30% 35%

P/S

Ros

Essilor

Safilo

Marcolin

Fielmann

Formosa

Lux BB

Lux regr

y = 64.328x - 2.0471

R² = 0.747

4

5

6

7

8

9

10

11

12

13

10% 12% 14% 16% 18% 20% 22% 24%

EV

/Eb

itd

a

Ebitda Margin

Figure 8. P/S – CISE estimates

Figure 9. EV/Ebitda – CISE estimates

19


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.

Disclaimer:

The information set forth herein has been obtained or derived from sources generally available to the public and believed by the author(s) to be

reliable, but the author(s) does not make any representation or warranty, express or implied, as to its accuracy or completeness. The information

is not intended to be used as the basis of any investment decisions by any person or entity. This information does not constitute investment

advice, nor is it an offer or a solicitation of an offer to buy or sell any security. This report should not be considered to be a recommendation by

any individual affiliated with [Society Name], CFA Institute or the CFA Institute Research Challenge with regard to this company’s stock.

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