TEAM H 1

Fromageries Bel

Ticker: FBEL FP (Bloomberg) | Index: CAC All Shares Sector: Consumer Staples | Industry: Food-Dairy Products

As January 9, 2015

Recommendation: BUY

Target Price: EUR 346.00 | Current Price: EUR 300.00

Figure 1: Market snapshot

Source: Reuters

Figure 2: Share price vs CAC Allshares

Source: Reuters

Figure 3: Valuation and scenarios

Source: Team’s estimates

Highlights Fromageries Bel: a “pure player” cheese manufacturer with strong value creation and plenty of value-adding options despite a liquidity issue. We are issuing a BUY recommendation on the company with a one-year EUR 346.00TP which represents a potential upside of 15% from its closing price of EUR 300 on January 9, 2015. The bad FY2014 year could impact the stock price and represent a good entry point.

A pure-player cheese manufacturer with steady margins underpinned by strong brands - Still managed by the family, Bel is the world leader for portion cheese with famous brands such as The Laughing Cow®, Babybel®, Kiri®, Boursin®, Leerdammer® and other local brands. The key competitive advantage of the company is to be a pure-player cheese manufacturer with a powerful marketing ethos. This allows the company to leverage each brand by focusing its investments and innovation programs. In addition, thanks to consumers’ loyalty to Bel’s brands, the company has excellent pricing power which allows it to overcome the volatility in commodity prices. Looking for growth by gaining greater exposure to international markets - Bel’s current strategy is to expand out of Western Europe (49% in 2005, 40% in 2014e) in order to benefit from structural growth opportunities in the emerging markets and especially in Africa & Middle East and Asia. Moreover, this strategy enables Bel to reduce concentration risk in its regional sales portfolio.

A family-owned structure with a liquidity issue - Because of the family-owned structure of the company and the large Lactalis’ stake, the stock has a very low level of free float (4% of total shares) and therefore poor liquidity (9% of the free float traded during 2014). Milk prices and currency momentum - The decrease trend in milks prices due to milk overproduction in Europe with Russian embargo added to the end of quota in Europe and the current weakness of the Euro, will create a favorable FY2015 momentum for Bel with the decrease in milk prices.

An equity story which could be even more appealing - The management’s strong emphasis on cost discipline, coupled with its efforts to deleverage Bel’s balance sheet gives the firm sufficient firepower for M&A with potential value creation for shareholders. In addition, several scenarios can be drawn, all raised by Bel’s capital structure: (1) with its profile (strong brands and family as majority shareholder), Bel represents the perfect target for a friendly tender offer. But (2) we can also imagine a share buyback from Bel to exit the stock market. In both cases, a huge premium could be paid to shareholders. Waiting the story, the investor can take profit on a 2.5% dividend yield, which is quite fair in the current low rate environment.

Figure 4: Key financial ratios

Capital

Mkt cap (EUR m) 2062

EV (EUR m) 2259

52 Wk H (10/09/2014) 314,00

52 Wk L (05/28/2014) 265,00

Free float 4%

Stock's performance

1M 2M 12M

2% -4% 7%

60

80

100

120

140

160

180

200

Fromageries Bel

CAC ALLSHARES (PAX.PA)

346

450

394 398

0

300

Basescenario

Friendlytakeoverscenario

M&Ascenario

Free floatbuybackscenario

Potential upside Current stock price

Y/E 31.12 (EUR m) 2009 2010 2011 2012 2013 2014e 2015e 2016e 2017e

Sales 2221 2418 2527 2649 2720 2790 2927 3058 3177

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

EBITDA 247 286 260 314 318 264 295 323 352

EBIT 149 195 170 211 234 167 193 216 241

Net income 64 116 93 128 126 87 100 113 129

Net debt 357 240 194 65 56 107 125 136 90

Net gearing 41% 24% 19% 6% 5% 9% 9% 10% 6%

Net Debt/EBITDA 1,4 0,8 0,7 0,2 0,2 0,4 0,4 0,4 0,3

Adjusted EPS 12,4 16,9 14,0 18,7 18,3 12,7 14,5 16,4 18,7

DPS 4,85 6,00 5,00 6,25 6,25 4,19 4,78 5,41 6,19

Dividend yield 4,4% 4,3% 3,2% 3,4% 2,5% 1,4% 1,6% 1,8% 2,1%

Gross profit margin 31,7% 31,2% 28,4% 30,9% 30,2% 28,5% 29,2% 29,7% 30,2%

EBITDA margin 11,1% 11,8% 10,3% 11,9% 11,7% 9,5% 10,1% 10,6% 11,1%

EBIT margin 6,7% 8,1% 6,7% 8,0% 8,6% 6,0% 6,6% 7,1% 7,6%

ROIC 9,5% 11,7% 10,2% 12,8% 11,7% 7,8% 8,4% 8,8% 9,5%

EV/Sales 0,5 0,5 0,5 0,5 0,7 0,8 0,8 0,7 0,7

EV/EBITDA 4,9 4,5 5,2 4,4 5,9 8,5 7,7 7,1 6,4

EV/EBIT 8,0 6,6 8,0 6,6 8,0 13,5 11,8 10,6 9,3

PER 8,8 8,3 11,2 9,7 13,7 23,6 20,7 18,3 16,0

TEAM H

TEAM H 2

Figure 5: Five core brands represent

70% of its Sales (FY2014e)

Figure 6: Sales and Gross Margin

Source: Company's data

Figure 8: Sales breakdown by country FY2013 (€2.72bn)

Source: Company's data

Figure 10: Marketing expenses

Source: Company's data

Figure 11: Shareholder structure as of January 9, 2015

Source: Company's data

Business Description

Fromageries Bel is a French family company created by Léon and Jules Bel in 1865 that has risen to third place in the global branded cheese market while at the same time being the world leader for portion cheeses. Bel’s core business is the creation, production and sale of branded cheeses to nearly 400 million consumers annually in over 120 countries via retailers.

A portfolio of strong brands - The portfolio contains five universal core brands which are The Laughing Cow®, Kiri®, Leerdammer®, Boursin® and Mini Babybel® and over 25 local brands, which are often leaders in their respective markets such as Regal Picon® in the Middle East and Maredsous® in Belgium. Bel’s five core brands figure among the most international brands and account for nearly 70% of the group’s sales. Out of these five core brands, four are ranked among the world’s top 12 in terms of sales. The group invented a new way to eat cheese by selling them in portions and in three types: pressed, processed and spreadable. The portion is now the common denominator of all its core brands and accounts for 57% of the group’s FY2013 sales.

Business units - While the core business of producing and selling cheese into the consumer sector still represents 90% of the group’s turnover, Bel has also developed two complementary activities. First, “Bel Foodservice” whose products target food companies (Fleury Michon®, Campbell®) and catering ones and secondly “Bel Industrie” which operates under the world leader brand Nollibel® which sells preparing dairy proteins.

A global presence - The Group operates in 33 countries and manages 28 production sites on five continents. 10 plants represent around 80% of the production while smaller units are dedicated to local markets. This close-to-market organisation provides Bel with deeper insights regarding the fundamental trends in each region, as well as their respective s growth potential. Sales are mainly generated in Western Europe which represents 40% of the group’s sales (figure 8) with a willingness to gain exposure to international markets such as MEA, Asia and Americas.

Figure 7: Bel’s 28 production plants breakdown throughout the world as of H12014

Figure 9: A fragmented supply chain

Bel’s strategy: Three pillar strategy ensures a sound competitive position

New markets - Thanks to the close-to-market organisation (Bel has opened a new subsidiary every year since 2001), Bel is able to adapt its products to local demand in each country where it sells its products. Furthermore, a healthy balance sheet (net debt equals to €174m for FY2013, representing a net gearing of 5% and a net debt/EBITDA ratio of 0.2x) grants Bel the power to continue to invest in further growth (both organic and external), for example by tapping new markets and particularly AME and Asia.

Organic and external growth strategy - Since 2000, Bel has pursued a selective M&A strategy through the acquisition of two strong brands: Leerdammer® in 2002 and Boursin® in 2007. This strategy allows the company to develop its sales without bringing excess supply in mature markets. Organic growth is also used particularly in AME where Bel has a strong leadership.

Marketing & Innovation - Bel is a pioneer in advertising and tries to leverage its distribution channels in emerging market in order to reach new customers. Moreover, the group has a strong competitive advantage for packaging as underlined by the triangular shape of the Laughing Cow® or the use of wax for Babybel®. Innovation is also a core strategy of the company by the constant development of new taste, texture and trends (healthy snacking for instance). Bel’s R&D team represents more than 180 employees (2% of total workforce) in three research and development centres.

Bel’s top management and shareholders : A family group

An historical family influence - The company is currently run by Antoine Fiévet, a great-grandson of Léon Bel, who has been the CEO and Chairman since 2009. A group management committee is based on one Vice-President for each region where Bel operates. They manage the strategy at regional level.

Bel’s family ownership - Through Unibel, the family own 70.89% (as of January 9, 2015). Lactalis Group, the second shareholder and one of Bel’s direct competitors, owns 24.1% (as of January 9, 2015) of the company. This can represent a risk (see investment risks section) due to the stock’s insufficient liquidity

(free float market cap: 4% or € 80m, 9% of the free float exchanged p.a.).

20%

25%

30%

35%

40%

0

500

1,000

1,500

2,000

2,500

3,000

2005 2007 2009 2011 2013Sales Gross Margin

Western Europe

40%

North East Europe22%

America & Asia Pacific15%

Greater Africa10%

Middle East13%

13.0%

15.0%

17.0%

19.0%

0

100

200

300

400

500

2005 2007 2009 2011 2013€Million % of Sales

Unibel and

Family71%

Lactalis24%

Free Float4%

Treasury Shares

1%

Western Europe

12 plants

France

(8)

Portugal

(3)

Spain

(1)

Northern and Eastern Europe

7 plants

Ukraine (1)

Poland (1)

Czech Republic

(1)

The Netherlands

(3)

Slovakia

(1)

Near and Middle East

4 plants

Egypt

(1)

Iran

(1)

Syria

(closed)

Turkey

(1)

Greater Africa

2 plants

Morocco

(1)

Algeria

(1)

Americas & Asia Pacific

3 plants

USA

(2)

Vietnam

(1)

Supply

1.5bn litres of milk collected

3300 suppliers

Production

17bn cheese portions

400k tons of cheese

Distribution

5800 distributors

€2.7bn Sales

TEAM H 3

Figure 12 : A highly competitive sector

Source: Team’s estimate

Figure 13: Cheese market value

Source: euromonitor

Industry Overview and Competitive Positioning

The cheese industry features: a highly competitive sector with low barriers to entry The cheese industry is well adapted for large companies which have the financial ability to invest so as to reach a global presence and to develop or buy strong brands. We think that Bel is able to overcome the intense competitive forces by marketing and innovation. Low barriers to entry are a threat for the company in the long run but Bel benefits from its world-known brands.

Threat of new entrants | Medium - Even if sanitary rules and certifications generate capex, the cheese sector is easy to enter in because small players can externalise the production and focus their expenses on marketing. However, brands are a strong barrier to entry for new companies.

Rivalry | Very High - The cheese market becomes steadily more concentrated where few players dominate the market (Bongrain, Lactalis, Bel, Mondelez, Arla Foods) and where the offer is very large and especially in the mature markets. Indeed, the top 20 cheese producers represent about 45% of world production. This situation leads to an innovation and marketing war between companies in order not to lose market shares.

Substitutes | High - Cheese can be consumed in several ways and at different times. Therefore substitutes are very important, for instance for snacking or other milk products such as Greek yogurt. We estimate that Bel will benefit from the trend for healthy food in the future. Moreover, by promoting their private label products, retailers are substitutes to branded cheeses.

Power of Suppliers | Medium - Milk producers are fragmented in most of the countries. For instance, Bel has more than 3,000 suppliers which highlights the low bargaining power of suppliers. However we think that the current concentration trend between milk cooperatives (in France for instance) will increase the power of suppliers which are also competitors with strong brands.

Power of Clients | Medium - Bel’s clients are mainly large retailers which have a huge bargaining power. Nevertheless, we do think that Bel’s powerful brands are a key advantage and may not suffer from that because Bel’s brands are inevitable for supermarkets. Demand: Different markets imply different strategies Demand for the cheese market is very different from one region to another. Sales in mature markets are mainly driven by innovation and health concerns because of the maturity of such markets. Emerging markets, on the other hand, are markets with strong potential growth where the supply chain is a key competitive advantage.

Mature markets - Brands, packaging innovation, and health concerns drive consumption. Europe, the US and other countries such as Canada, Argentina and Australia are matures with an average cheese consumption per capita close to 17 kg, 15kg and 12kg respectively. The growth for this region is around 1% each year with decreasing consumption in Australia since 2013 with -1.3% yoy. We have to underline the current consumption trends in these regions where processed cheese is declining because consumers are looking for less industrial cheese. Modern grocery retailers represent the main distribution channel. Therefore, in order to increase its market share in such markets, Bel invests mainly in marketing (“Snack a Little Bigger”) by communicating the health benefits of its products.

Emerging markets - Middle class development and expansion of the retail distribution system are the main drivers for these markets. Asia, Brazil, Middle East and North Africa have still a very low annual cheese consumption with for instance 200 grams in China, and around 1kg for Middle East and North Africa. However, even if Asia does not traditionally consume cheese (except Vietnam), emerging markets demonstrate a huge potential for growth with growing population, rising incomes, rapid urbanization, and greater exposure to western consumer products. Bel tries to increase the efficiency of the supply chain in these countries by developing different programs. We think that the company has the resources to increase its market shares in such markets with several M&A options in Asia for instance, but also with organic growth supported by investments mainly in Great Africa and Middle East where the company has a strong leadership. Today the company has around 30% market share in Morocco and Algeria and about 7-8% in the UAE and Egypt.

Figure 14: Differences between mature and growing markets

MATURE GROWING

Drivers Brands, Innovation

Packaging, Health benefits, Provenance

Retail distribution expansion Quality at low price,

Westernization

Annual Growth Less than 3% on average around 5%-10% on average

Processed Cheese

Average consumption

15kg 1kg

Bel's strengh Core brands historical presence Supply chain development, Non-

smelly cheese

Source: Euromonitor, CNIEL

Morocco

€0.4bn

Canada

€2.5bn

China

€0.3bn

USA

€16.6bn

Western Europe

€41.2bn

TEAM H 4

Figure 15 : Bel’s milk suppliers

Source: company’s annual report

Figure 16 : Market share in Europe

Source: Euromonitor

Figure 17 : Bel’s competitors

Source: Team’s estimate

Figure 18 : Bel’s competitors

Source: Team’s estimate

Milk Supply: End of European quotas and Russian embargo create a favourable momentum Bel buys milk mainly in Europe which is the second market in terms of milk produced (144 million tons produced in 2014). France, the Netherlands, Portugal, Ukraine and Slovakia are the countries where the company buys its milk. The end of European milk quotas and the current Russian embargo on European milk are the main trends in the market. The end of European quotas - In order to increase market efficiency, the European Commission decided to stop milk quotas. After having increased milk quotas from 2009 to 2013 by 1% each year (“soft landing” policy), the European Commission will definitely end it by April 2015. Europe will also stop subsidies for exports after an agreement with WTO. Two scenarios exist: First the expected price variation as a whole is likely to be small because European countries produce currently less than their quotas (-4.6% in 2014 and -6% in 2013). In addition, an increase in volatility will be compensated by the creation of financial instruments such as written contracts (“Milk Package” provisions, Article 148) or collective negotiations from producer organisations. Second scenario, the production will rise (between 15 to 50% until 2020 in countries such as Ireland, the Netherlands, Denmark, Germany, France) with an excess of milk which will decrease prices and will create a favourable momentum for Fromageries Bel and other cheese companies.

Russian embargo decision - Russia decided to put in place an embargo of European products (from August 2014) and producers are not able to sell to Russia (cheese exports to Russia represent €1bn). The consequence is obviously an increase in the milk surplus and a decrease in prices. This situation benefits Bel Group because the company has more bargaining power with suppliers. In addition, Bel does not sell cheese to Russia and is not affected by this embargo.

Bel’s milk suppliers - The main countries where Bel collects its milk are France, the Netherlands, Portugal, Ukraine, and Slovakia with a total of more than 3,300 milk suppliers. In France the current milk production is higher than quotas which will create a good momentum for the company. However, the power of cooperatives and contracts between suppliers and transformers reinforces suppliers’ bargain power. In Ukraine, Bel has 70% of its supply coming from big producers (more than 100 cows) but 30% from very small producers (less than 2 cows) which could be affected by the current situation in the country.

Competitive analysis: Big players shape the cheese industry Bel Group operates in a structured market where the offer is very important. However, Bel has a leadership strategy which consists of being the leader in each market where the company operates. The main competitive advantage of the company is to be a pure player and to have a concentrated portfolio which allows the company to focus its investments and development expenses. The competition is tough, particularly in mature markets, but we estimate that the company has the resources and the necessary strategy to overcome this competition. The company has five types of competitors:

Cheese division of Food Companies - This kind of company has a strong distribution network with important financial power. However, we evaluate that the threat is relatively weak because Bel Group has developed very strong brands which are older and more recognized. Mondelez International (Philadelphia®, Sottilette®), Kerry Group (Cheestrings®, Charleville®, LowLow®) are the main competitors in this category. Unilever exited the cheese market after selling its Boursin® brand to Bel Group in 2007.

Industrial dairy companies - This group includes Bel’s main competitors. Industrial dairy companies succeeded in developing strong brands which competes against Bel’s core brands. In order to win market shares, marketing and innovation are the main drivers. Lactalis, the first milk transformer in the world with more than €14bn sales, has developed strong cheese brands such as Président®, Société®, or Bridel®. Other competitors are Saputo with €8.4bn which operates mostly in the Americas with a large portfolio of brands (more than 650), and other smaller players such as Bongrain with €4.4bn of sales in 2013, which has a multitude of branded cheeses such as Milkana®, Aperivrais®, Tartare®, Alouette® or regional players such as Almarai. However, two main differences have to be underlined. These companies are not pure players and the cheese segment represents only 34% of Lactalis’ sales and 61.6% for Bongrain. The second difference is that both companies have a very large branded cheese portfolio. Bel has an advantage because the company can concentrate its marketing and innovation expenses on fewer brands and is a pure player on its market.

Association of cooperatives - Cooperatives have the advantage of owning the whole supply chain which allows them to decrease the risk concerning milk supply. However, such companies also sell milk to transformer industries which can represents a threat because of milk price variation. We can highlight several strong cooperatives in the world. In France, the first one is Sodiaal with powerful brands such as Entremont®, Le Rustique®, Cœur de Lion®, RichesMonts®. In New Zealand, Fonterra has the first place with global cheese brands such as Mainland® or local ones such as Galaxy® and Bega Cheese®. Other cooperatives in the world are DMK, Arla Foods, Friesland Campina, and Dairy Farmers of America. The current trend is an increase of concentration between cooperatives in each country which can reduce Bel Group’s bargain power and represents a risk (see investment risks part).

Private label brands - Over the last decade, retailers have developed their private label brands with prices 34% cheaper on average with 18% market share in Europe. The situation creates 1) pressure on prices with the necessity to reduce portfolio brands to keep only profitable ones (as Fonterra did in 2013 in Australia) and 2) manufacturers begin to supply private labels for retailers and thus become their own competitor. Private-label shares throughout the EU have remained relatively stable as well, at around 18 per cent on average.

Local players - This category is not a threat for Bel because of the lack of financial capacity of these companies. However, in mature markets and overall in Europe, people tend to consume more local cheese which are viewed as less industrial. All the Protected Designation of Origin cheeses enter into this category.

Lactalis8%

Bongrain5%

Bel5%

Private label18%

Arla Foods3%

Other61%

Supermarkets

Hypermarkets

Sodiaal, DMK, Arla

Foods, Friesland

Campina, Dairy

Farmers of America

Private Labels Cooperatives

Lactalis,

Bongrain,

Saputo, Almarai

Dairy companies

PDO cheese

producers

Kerry Group

Mondelez

Local players Food Companies

TEAM H 5

Investment Summary

We are issuing a BUY recommendation on the company with a €346.00TP which represents a potential upside of 15% from its closing price of €300 on January 9, 2015. Our BUY is based on three investment axes which are 1) that the company is able to create value for shareholders, 2) that the stock is an equity story with plenty of value-added options and 3) that the current price is attractive even if we take into account a liquidity discount.

A pure-player company with strong value creation perspective on the medium and long term

A family pure-player with steady margins underpinned by strong brands - Still managed by the family, Bel is the world leader for portion cheese with famous brands such as The Laughing Cow®, Babybel®, Kiri®, Boursin®, Leerdammer® and other local brands. The key competitive advantage of the company is to be a cheese pure-player with a powerful marketing ethos. This allows the company to leverage each brand by focusing its investments and innovation programs. In addition, thanks to consumers’ attachment to Bel’s brands, the company has a good pricing power which allows it to overcome the volatility in commodity prices.

Looking for growth by gaining bigger exposure to international markets - Bel’s current strategy is to expand out of Western Europe (40% in 2014e) in order to benefit from structural growth opportunities in the emerging markets and especially in Africa & Middle East and Asia.

A profitable company with strong balance sheet - Fromageries Bel has a ROIC 5-y average of 11.2% vs a WACC at 5.4%. The company is able not to suffer from extreme milk prices variation with COGS around 70% for the last 8 years. Its Opex stability gives the company good visibility and secures its EBITA margins and generates strong CFO generation (CFO/EBITDA at 79% for the past 8 years). This situation allows Bel to have enough resources to finance its internal capex and to manage its debt. Therefore, the company has all the flexibility to make new acquisitions in 2015 and to strengthen its investment for organic growth.

Milk prices and currency momentum - The milk overproduction in Europe due to the Russian embargo added to the end of quota in Europe and creates a favorable momentum for Bel with the decrease in milk prices.

An equity story with plenty of value-added options M&A option as a catalyst for 2015 - In addition, the management’s strong emphasis on cost

discipline, coupled with its efforts to deleverage Bel’s balance sheet gives the firm sufficient firepower for M&A. With regard to this, Bel can raise up to €900m of debt at any time.

A family-owned structure with liquidity issue - Because of the family-owned structure of the company and the large Lactalis’ stake, the stock shows a very low level of free float (4% of total shares) and a poor liquidity (9% of the free float exchanged over 2014). We do think that this situation will change in the future. The two main scenarios are 1) that the company buys back the free float or 2) that in the long run Lactalis or another large dairy company will prepare a friendly takeover bid. Both situations will achieve a 15%/30% premium for shareholders.

An attractive price despite a liquidity discount

A very attractive price despite a liquidity issue - Our valuation underlines a strong potential with a EUR346 TP (i.e. 15% upside) although we applied a 25% discount on cash-flow generation methods to take into account the stock’s illiquidity.

A disappointing FY2014 could create a good entry point - The group suffered from its exposure to Ukraine, the second market for the Laughing Cow® and other problems such as negative currency effects in H1. FY2014 will be impacted with a possible adverse effect on the stock price which could represent a good entry point.

Figure 19: Fromageries Bel stock prices and important events

50

70

90

110

130

150

170

190

210

230

juil.-05 juil.-06 juil.-07 juil.-08 juil.-09 juil.-10 juil.-11 juil.-12 juil.-13 juil.-14

Acquisition of Boursin

Acquisition of "Tranchettes" in

Spain

Signature of the new shareholder

agreement

Huge decrease in

milk prices in 2008 - 2009

Milk prices skyrocket

2007

Construction of a third plant in the United States

Russia announces full embargo on european produtcs

The former CEO, Gerard Boivin, is

dismissed

TEAM H 6

Figure 20: Valuation synthesis

Source: Team’s estimate

Figure 21: Implied multiples

Source: Reuters, Team’s estimate

Figure 22: WACC computation

Source: Bloomberg, Team’s estimate

Figure 24: Geographical breakdown

Source: Teams estimate

Figure 26: DCF scenarios

Source: Teams estimate

Valuation

Our valuation leads us to a EUR 346 target price which implies a potential upside of 15% - To obtain this target price, we used the equally-weighted average of DCF approach, Adjusted Present Value (APV) approach and multiples-based approach. We did so in order to reduce weaknesses of each model.

Cash-flow methods, DCF and APV, bring a solid view on company’s ability to create value over

time: that makes sense as historically, the company has had stable margins (see Figure 25).

DCF Valuation – EUR 369 TP

Our base scenario: a EUR 369 target price implying 23% upside - We made our forecasts on a 20-year period completed by a terminal value (TV). For our base scenario, we assumed a top line CAGR of 3.4% for 2014e-2023e, a 8.0% EBIT margin on average for 2014e-2033e, a quite stable level of capital expenditures (5.5% of sales on 2014e-2017e then 4.0% on 2018e-2033e) and 5.4% WACC. We based our TV on a 2.0% sales growth rate, an 8.0% EBIT margin and 3.5% of capex ratio. Through this model, we reached a EUR 369 target price after a 25% liquidity discount, implying 23% upside.

A top line based on regional breakdown - The recent instalment of a plant in the US is a key driver for the development of Bel’s market share in Americas: plant’s full ramp-up with better competitive positioning in the region can sustain growth. Concerning Asian countries, as cheese is increasingly common (growing use of cheese for cooking in Japan for example), we can expect a good contribution from the region. We do not think bad H1 results are representative of future development since it was mainly due to temporary factors (negative currency impact and Japanese distribution change). Q3 results confirm this view. Otherwise, emerging zones like Africa and Middle East support strong growth level: we can assume this trend can continue because of marketing expenses dedicated to these regions (can be seen through advertising campaigns in sub-Saharan countries notably) and the important market share owned by the company in many countries (around 40% in North African countries for example). Globally, Europe remains a quite stable zone if we exclude geopolitical events in Ukraine. So, as a mature market, we did not expect a strong perspective although Eastern and Northern countries have relatively better prospects. Beyond these regional trends (summed-up in figure 23), this development supports Bel’s diversification strategy in order to balance regional sales breakdown. Finally, we obtain a 4.0% CAGR on 2014e-2017e and 3.0% on 2018e-2033e.

Figure 23: Sales growth forecasts

A steady EBIT margin reflecting historical ability to manage costs - Historically, over the 2009-2013 period, the company was able to generate an EBIT margin between 6.7% and 8.6%. In the past two years, the EBIT margin was 8.3% on average. As 2014 was a tough year for margins (cost pressure due to high milk price in H1 slightly compensated by marketing expense discipline), we forecasted a 6.0% EBIT margin. For the following years, we assumed a gradual recovery for EBIT margin supported by (1) very good pricing power (that permits the company to transfer a part of potential milk price volatility in sales price), (2) historical cost discipline creating true margin stability, (3) an increasingly diversified sales portfolio (reducing sales volatility that could impact margin) and (4) a quite stable level of competitive intensity.

Figure 25: EBIT margin trend

A new capital expenditure cycle to sustain growth - We assume Bel will have to invest in order to support its development: this capital expenditure cycle began in 2013 with the increase of capex on sales ratio (5.4% vs. 3.0% on average on 2009-2012). We chose to maintain this level in the period 2014e-2016e. After that, we assumed a stable level of 4.0% that allowed us to smooth capex cycles (4.3% on average on 2005-2012). These investments explain our assumptions regarding depreciation of the sales ratio which we fixed at 2.9% (vs. 2.8% on 2005-2013): in absolute terms, this choice increases depreciation expense but it makes sense since PPE will increase. We maintained the operating working capital in days of sales (31 days).

Method TP % upside % weight

DCF 369 23% 33%

APV 374 25% 33%

Multiples 296 -1% 33%

Weighted TP 346 15% BUY

2014e 2015e 2016e 2017e

PER 27,3 23,9 21,1 18,5

EV / Sales 1,08 1,03 0,98 0,95

EV / EBITDA 11,4 10,2 9,3 8,5

EV / EBIT 18,0 15,6 13,9 12,5

Asset Beta 0,55

Debt (D) / Equity (E) 45%

Normative Tax Rate 40%

Equity Beta 0,70

Equity Risk premium 5,5%

Risk-free rate 3,0%

Cost of equity 6,8%

Bfr-tax cost of debt 3,5%

Aft-tax cost of debt 2,1%

WACC 5,4%

0%

20%

40%

60%

80%

100%

Middle East

Africa

Americas, Asia-Pacific

Eastern/Northern Europe

Western Europe

Bear Base Bull

2014e-2017e

Sales CAGR 4,0% 4,0% 4,0%

EBIT margin 6,5% 6,8% 7,5%

2018e-2033e

Sales CAGR 2,5% 3,0% 3,5%

EBIT margin 6,5% 8,3% 9,0%

Perpetuity

Sales growth 1,5% 2,0% 2,5%

EBIT margin 6,5% 8,0% 9,5%

TP 227 369 513

% upside -24% 23% 71%

2014e 2015e 2016e 2017e

Western Europe 6,5% 4,5% 3,5% 2,5% CAGR 2014e-2017e 4,0%

Eastern/Northern Europe -5,0% 3,5% 3,0% 3,0% CAGR 2018e-2033e 3,0%

Americas, Asia-Pacific -4,5% 4,5% 5,5% 5,5% CAGR 2014e-2033e 3,2%

Africa 4,5% 4,5% 4,5% 4,5% Perpetual growth 2,0%

Middle East 10,0% 9,0% 8,0% 7,0%

Group 2,6% 4,9% 4,5% 3,9%

6,9%

4,3%

8,1%

6,7%

8,6%

6,0%

6,6%7,1%

7,6% 8,2% 8,4% 8,4% 8,4% 8,3% 8,1%8,0%

0,0%

2,0%

4,0%

6,0%

8,0%

10,0%

TEAM H 7

Figure 27: APV results

* Share price after 30% discount

due to liquidity issue

Source: Team’s estimate

Figure 28: capital expenditures

A 25% discount on price per share to fix liquidity issue - We applied a discount on our DCF share price to reflect stock’s illiquidity and the share capital “locking”. APV Valuation – EUR 369 TP We based our approach on academic studies led by Aswath Damodaran, NYU Stern School of Business professor: basically, we took the same DCF assumptions excluding WACC because the APV method consists in making a full-equity DCF and then summing PV of tax savings from debt and subtracting PV of expected bankruptcy costs, given several D/E ratios. The precise model description can be found in Exhibit. This approach allows us to bypass the D/E ratio issue we raised in the introduction. Results of our model are presented in figure 27. Multiples – EUR 346 TP We slightly underweighted multiples-based valuation because of the relative weakness of the peer group and the liquidity issue: indeed, Bel’s pure-player position makes it difficult finding accurate comparable companies. We chose to keep 11 companies (See figure 29), even if we were aware of the lack of true representativeness of some of them. We did so in order to smooth multiples and make them usable. Moreover, stock illiquidity reduces the suitability of PE ratio: the trading profile of the stock is quite different from others. Please, see Exhibits for details.

Figure 29: comparable companies

Source: Bloomberg

An equity story with additional options

Fromageries Bel is a long term value creator with a ROIC well above its WACC which benefits from strong

organic growth (see Financial Analysis section). Furthermore, we estimate that the equity story of the

company has also several options which could bring value-added to shareholders. We do think that 1) the

company is ready to make further acquisitions and 2) the low free float level situation cannot remain in the

long run with a potential premium in the case of a buyback.

External growth could create value for shareholders - The financial power of Fromageries and its willingness to extend its sales out of Europe, represent a perfect situation for M&A operations. The management had also underlined the fact that the creation of new brands is expensive and confirmed their openness for external growth. The company can raise up to €900m at any time. As a targeted region, we exclude Africa & Middle East because of the strong leadership position of the company in this region, and North America which is a mature market and where Bel has invested for organic growth (new plant in the US and Canada). Therefore, we estimate that the main regions where M&A plays are possible are Asia (China) and South America (Brazil). The strategy will be to buy local brand in order to leverage it through the distribution network and marketing expenses.

A situation with low free float level which cannot continue indefinitely - The low free float level (4% of total market cap, €80m) represents an important obstacle for shareholders’ influence and wasted costs for Bel (several million a year). We think that this situation cannot go on forever. Two main scenarios are possible: Fromageries Bel buys back the outstanding floating shares: The management policy today is not to

buyback floating shares because they think that money could be invested elsewhere. We think that

D/E ratio Share price* % upside

0% 322 7%

10% 338 13%

20% 354 18%

30% 370 23%

40% 386 29%

50% 401 34%

60% 411 37%

70% 412 37%

80% 396 32%

90% 349 16%

Avg. TP 374 25%

6,0%

5,3%

5,7%5,7%

3,4%

2,5%

2,9%3,0%

5,4%5,5%

4,0%

3,5%

0,0%

2,0%

4,0%

6,0%

8,0%

FBEL FP DCG LN BGA AU BH FP PLT IM 600597 CH EMMN SW 2270 JP SADAFCO AB BDBD US LALAB MM VNM VN

France UK Australia France Italy China Swizterland Singapore Saudi Arabia US Mexico Vietnam

300,00 5,78 3,52 51,50 2,36 2,51 306,42 10,21 26,15 8,70 1,62 4,11

2096 987 524 1311 3282 3045 2082 1305 825 736 3612 3886

2048 792 538 722 4313 3083 1639 693 850 532 4015 4111

4% 100% 74% 32% 16% 44% 36% 68% 48% 48% 21% 57%

4,0% 7,3% 4,7% 7,3% 7,5% 22,6% 13,5% -3,6% 11,1% 24,0% 7,0% 25,2%

11,4% 5,6% 7,2% 5,6% 6,6% 5,7% 8,2% 5,7% 15,0% 10,6% 9,1% 20,0%

7,8% 3,3% 5,1% 3,3% 6,6% 3,6% 3,5% 2,2% 11,6% -6,1% 9,4% 23,8%

EV / Sales 2014e 0,8 0,6 0,7 0,3 0,6 1,1 0,7 0,3 2,2 1,7 1,4 2,8

EV / EBITDA 2014e 8,5 7,9 11,3 5,2 7,3 18,4 8,9 7,0 14,2 12,2 11,7 12,4

EV / EBIT 13,5 11,7 17,3 10,6 9,9 27,1 14,8 18,4 19,3 21,3 14,4 13,6

PER 23,6 12,9 26,2 14,6 19,7 40,4 18,5 18,0 21,5 43,0 22,0 17,6

(a) as of Jan. 9, 2015

(b) Pure player Dairy products Food products

(c) on 2010-2013

Avg EBIT margin (c)

2014

e

Bloomberg Ticker

Quotation country

Share price (EUR) (a)

EV (EUR m) (a)

Market cap.(EUR m) (a)

Free float (%)

Business positionning (b)

Sales CAGR 2011-2013

Avg EBITDA margin (c)

Vietnam Dairy

Prdts

Fromageries

Bel

Dairy Crest

GroupBega Cheese Bongrain Parmalat

Bright Dairy &

Food Co.Emmi AG

Megmilk Snow

Brand Co.

Saudia Dairy &

Foodstuff Co.

Boulder

Brands IncGrupo Lala

TEAM H 8

the possibility of a buyback remains because the costs of being listed could represent significant savings. The average premium for such operations is around 15% for shareholders. Total buyback costs for the company will be around €90-100m representing 18-20% of its cash position. Listed costs are around €4-7million for such company which could save around €100m if they make Bel private (€4-7m save at perpetuity at WACC which was computed at 5.5%).

Lactalis or other dairy companies carry out a friendly takeover bid: Lactalis has always maintained that its 24.1% participation is just a long term investment in a profitable company. We do think that Lactalis in the long run would like to buy Fromageries Bel. A family shareholders’ agreement is currently running but potential acquirer would have only one shareholder to convince. The premium for such event would be around 20/30% shareholders.

Figure 30 : Organic growth

Source: Company data

Figure 31 : COGS in €

Source: Company’s data and Team’s estimate

Figure 32: Breakdown of COGS & opex

Source: Company’s data and Team’s estimate

Financial Analysis

Sales and operating costs: A fast growing company with good cost visibility On the one hand, Fromageries Bel increased its revenue in an organic and acquisitive way with a willingness to diversify geographically its sales. The maturity and intense competition in Western Europe is a catalyst for the company to expand its sales out of Europe and to benefit from emerging markets. On the other hand, despite the high volatility of milk prices in Europe, Bel has proved over the years its ability to keep its gross margins stable. The company also benefits from easily forecastable operating expenses which secure its EBITA margins.

Strong revenue growth track record - Fromagerie Bel’s revenue has grown by 57.3% from €1.7bn in 2005 to 2.7bn in 2013, resulting in a 5.8% CAGR for the period. Organic growth was on average 4.5% for the last five years, 5.3% for FY2013 and 3.8% for 9M 2014 in a market which has grown on average at 4% per year. Moreover, the company overcame the crisis with only -0.4% organic growth in 2009, highlighting the power of its brands and its innovation success. The company also used external growth in order to accelerate its sales and to diversify its offer. The group realised two majors M&A operations: Leerdammer® in 2002 with sales of €190m and Boursin® in 2008 with sales of €110m. The rationale for the deals was to expand Bel’s portfolio towards fresh cheese (Boursin®) and hard cheese (Leerdammer®). A willingness to expand out of Western Europe - In Western Europe, sales were €1.07bn for FY2013 representing a 1.6% growth in a decreasing market. For 9M 2014, the situation remains solid with 5.5% growth thanks to strong commercial efforts. Bel’s current strategy is to strengthen its sales in Northern and Eastern Europe while developing its presence in America, Asia Pacific, and Africa and Middle East. In FY2013, Northern and Eastern Europe sales were €597million, up 7.6% vs FY2012 thanks to Germany and Scandinavian countries. However, 9M 2014 was impacted with sales down 5.9% driven by (1) currency depreciation for H1 and (2) a slowdown of activities in the Ukraine in the course of the mounting geopolitical tensions and the resulting recession. Ukraine represents the first market where Bel operates in Eastern Europe and the second market for The Laughing Cow®. In Americas and Asia Pacific, FY2013 was a flat year at €417million down 0.5% vs FY2012, because of slowing growth particularly in America and Japan and currency depreciation (USD, JPY, CAD and AUD). Sales for 9M 2014 were also down 5.9% due to currency depreciation in H12014. Finally, Africa and Middle East generate steady growth thanks to the market leadership of Bel Group. While the local consumption was affected in 2011 because of the Arab Spring, Bel resisted quite well with a sales decrease vs. FY2011 of only 2%. After that, Fromageries Bel succeeded in increasing its revenues by 12.6% in FY2012 in this region. In 2013, sales were €361million, up 2.4% vs FY2012, while FY2014 should see double-digit sales growth in Middle East.

Volatile COGS but stable operating expenses - Basically, there is a close relation between milk prices and COGS variation with a 1-year lag (see figure 33 below). However, the company is able to deal with this volatility, as evidenced in a COGS/sales ratio fluctuation of less than 5% over the years. The presence of contracts between milk producers and transformers and the ability to negotiate prices (every year in France, 6 months in Portugal) allows Bel to avoid a huge impact on its gross margin despite the high volatility in milk prices. Therefore, the company succeeded in maintaining its COGS at around 70% of sales from 2005. Even in extreme situations, Fromageries Bel is able to master its COGS: whereas milk prices skyrocketed in 2007 (+30%), 2010/2011 (28.4%) and more recently in 2013 and H1 2014 (+18.4%), the company only suffered from a decrease of its gross margin by -1.7% for FY2008, -2.8% for FY2011, and -3.9% for 9M2014. The stability is even more present for operating costs. Sales & Marketing, R&D, and SG&A represent an average of 15.1%, 0.7% and 6.4% of Bel’s sales for the past 8 years. Moreover, Bel is able to reduce its operating costs thanks to its operating leverage and synergies. For FY2013, Bel succeeded in decreasing its operating costs by -0.5% mainly with less marketing expenses as % of its sales (-60 basis point vs 2012).

Figure 33: Milk prices (€/100kg) Figure x: Bel’s COGS (% of sales)

1.90%

8.70%

6.20%

-0.40%

7.30% 7%

3.40%

5.30%

3.80%

-2.00%

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

15171663

1808 1830 18981995

0

500

1000

1500

2000

2500

2009 2010 2011 2012 2013 2014e

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2010 2011 2012 2013 2014e

GOGS Sales/marketing expense R&D expense SG&A

25.00

30.00

35.00

40.00

Jan

-05

Jan

-06

Jan

-07

Jan

-08

Jan

-09

Jan

-10

Jan

-11

Jan

-12

Jan

-13

Jan

-14 66%

67%

68%

69%

70%

71%

72%

73%

2005 2006 2007 2008 2009 2010 2011 2012 2013

1

2

3

4

1

2

3

4

TEAM H 9

Figure 34: EBIT margin by region

Source: Company’s data

Figure 36: OWC in days of sales

Source: Company’s data and Team’s estimate

Figure 37: CFO vs Internal capex

Source: Company’s data and Team’s estimate

Figure 39: Debt & Debt Equivalent

Source: Company’s data and Team’s estimate

EBIT margins and ROIC: different profitability by region but strong ROIC for the group

Non-recurring charges creates volatility at EBIT level - Despite stable operating costs, Fromageries Bel suffers from one-off charges each year affecting mainly FY2009 and FY2012. In 2009, the company registered a €47m charge due mainly to intangible impairments in Eastern Europe (Ukraine, Czech and Turkey) for a sum of €34m and to tangible impairments for €3.9m. The situation decreased FY2009 EBIT margin by 210 basis point at 6.7%. The same situation occurred in 2012 where Bel registered a €26.6m charge due to the closure of its activity in Syria for €13.9m and a decrease of its operating activity in Iran for €7.5m. FY2012 EBIT margin was affected by 100 basis points at 8%. The company is exposed to risky countries which could create non-recurring charges in the future as will be the case for FY2014. For H12014, non-recurring charges represented already €11m corresponding also to the headquarters change and related charges due to double rents for the transition period.

Figure 35: Non-recurring charges impact on EBIT

Western Europe, Africa & Middle East are the most profitable - Even if the average EBIT margin for the company is increasing each year due to the strategy to benefit from emerging markets, the situation has to be qualified. For the last 5 years, average EBIT margin was 8.5% excluding non-recurring charges (7.6% with). For FY2013, Western Europe, Africa & Middle East have EBIT margin of 11.2%, 11% and 9.7% respectively which correspond to a change of -0.1%, +1.5% and +7.2% vs FY2012. These figures underline 1) a margin pressure in Western Europe where the market reached a maturity point with the necessity to increase marketing expenses and 2) a strong recovery after geopolitical events in Africa and Middle East where Bel was close to its operational breakeven point for the past few years. Finally, for Northern and Eastern Europe, the company crossed its EBIT margin inflexion in 2012, which became positive at 2.5% vs -12.6% and -23.1% for FY2011 and FY2010 respectively. However the situation was difficult in FY2013 (-30 basis point) and overall in 2014 with a negative EBIT margin for 9M 2014 at -2.2% mainly due to the situation in Ukraine. 9M 2014 EBIT margin will not be a good year due to currency depreciation in H12014. ROIC still well above WACC - Despite negative elements as mentioned above, Fromageries Bel has shown strong average ROIC for the past 8 years at 10.3%, reaching 11.7% for FY2013. These ratios are well above the WACC (estimated at 5.4%) and allows the company to create value for each point of growth. Therefore the strategy to expand its sales through organic and external growth seems to be a good strategy for shareholders if COGS and operating costs are controlled. ROIC analysis - ROIC for FY2013 was 11.7%, down 1.1% vs FY2012. EBIT margin was up 0.6% thanks to a decrease in operating expenses (-50 basis points vs 2012), but mainly due to lower non-recurring charges (€6m vs €27m). Pre-tax ROIC was up 0.6% at 19.5%, however Bel occurred a higher tax rate in 2013 (40.2% vs 32.6%) which impacted negatively its ROIC. Furthermore, we expect a lower ROIC for FY2014 (at 7.8%) because of high milk prices during the year and bad momentum in Eastern Europe as well as America and Asia Pacific. However, the current decrease in milk prices and the positive currency trend will have a positive effect for FY2015 with estimated COGS margin up 2.5% vs 2014 and a ROIC at 10.7% expected.

Figure 38: ROIC breakdown

Cash generation and Balance Sheet: Strong CFs generate a solid balance sheet

Bel succeeded in decreasing its operating working capital to sales ratio over the last few years which therefore gives the company more flexibility. In addition, the strong CFO track record underlines the ability

11.6%

3.6%

8.5%

14.1%

15.2%

10.1%

8.6%

-1.1%

2.6%

12.0%

7.9%

6.1%

Western Europe

Eastern/Northern Europe

Americas, Asia-Pacific

Africa

Middle East

Group2014 H1

2013 H1

11.3%

2.5%

10.5%

9.6%

2.5%

8.0%

11.2%

2.2%

8.6%

11.0%

9.7%

8.6%

Western Europe

Eastern/Northern Europe

Americas, Asia-Pacific

Africa

Middle East

Group2013

2012

42.8 42.2

50.6

33.2 34.4 33.2 33.930.8 29.7 31.0

20.0

40.0

60.0

80.0

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014e

Inventories Trade receivables

Trade payables OWC in days of sales

0.0

100.0

200.0

300.0

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014e

Cash from operations Internal Capex

49 57

157

729

473

380336

507546 554

0

200

400

600

800

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014e

-12 -13 -7 -14

-47

-16 -14

-27

-6-11

-9% -10%

-5%

-13%

-24%

-8% -8%

-11%

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0%

-50

-40

-30

-20

-10

0

2005 2006 2007 2008 2009 2010 2011 2012 2013 H12014

Other non-operating income/(expenses) EBIT impact

TEAM H 10

Figure 40: Debt ratios

Source: Company’s data and Team’s estimate

Figure 41: Net debt and Net

debt/EBITDA

Source: Company’s data and Team’s estimate

for Bel to finance its investments mostly through internal resources. This situation generates a solid balance sheet with financial capacity for future M&A operations.

Working capital - Bel managed its operating WC over the last 5 years by increasing its Days Payable Outstanding from 60 days in 2009 to 69 days in 2013. This situation highlights the bargaining power with milk suppliers and allows the company to reduce its working capital by €70m (a decrease of WC by 5.6% p.a).

Strong cash generation - Bel has strong Cash flow from operations with an average CFO/EBITDA ratio of 79% for the past 8 years. This situation gives the company all the flexibility 1) to finance capital expenditure with internal financing (figure 37) or 2) to reduce debt (figure 41). The current decrease in CFO is due to a higher tax rate in 2013 (€33m impact, -12%) and a difficult year in 2014 which will impact gross margin and reduce CFO. However, for the last 8 years the company was able to generate sufficient CFO to cover internal capex (except 2007). Cash position was €378m in H12014, representing 18.9% of the current market cap as of January 9, 2015.

Cyclical Debt and financial power of the Group - Strong CFO and good WC management allows the company to reduce its debt in order to strengthen its balance sheet. Indeed, the company does not have a D/E target ratio which varies through the years and following acquisitions. In 2005 net debt was €-6m, reached €483m in 2008 after the acquisition of Boursin® and is estimated at €107m as of 31 December 2014. Fromageries Bel has a debt covenant at 3.5 Debt/EBTIDA whereas its FY2014 estimated level will be 2.1x. Moreover, the company has the ability to issue €900m debt in order to proceed with new M&A operations. In addition, the company tries to diversify its debtholders by issuing institutional bonds and not only from banks.

Figure 42: Risks ranked by impact and probability

Source: Team’s estimate

Figure 43: Weak liquidity

Source: Reuters

Figure 44: Currency volatility

Source: Reuters

Figure 45: Risks mapping

Source: Team’s estimate

Investment Risks

We have evaluated two components of the risks: their impact and their probability (figure 42) However we do think that the first risk of the investment is the high illiquidity of the security which alters the price efficiency.

The illiquidity of the security: R1 - The stock is highly illiquid. The market capitalization of the float is

weak: €89million with 301k shares. In addition, the number of share exchanged in 2013 is only 27k which

means that only 9 % of the float has been exchanged in one year. According to the management, this

situation will remain stable in the future.

Country risk: R2 - Bel sells and produces in risky countries, for instance in the Middle-East and Eastern

European countries. Commercial and production activity can be impacted as was the case in Ukraine in

2014 with a 5.5 % reduction in sales in North and East Europe for the last 9 month. In addition, Ukraine is

the second market for The Laughing Cow®.

Concentration of power around the CEO: R3 - The CEO is also the president of the board, the president

of Unibel and a member of the Appointment and Remuneration committee. We think that this situation

reduces dramatically the power of other shareholders in their ability to oppose against the corporate

strategy.

Retailers competition: R4 - Distributors have developed their brands especially bottom of the range

products that bring down prices (cost domination strategy). At the same time they have upgraded their

products (for instance with delicatessen in Anglo-Saxon countries) and can compete directly with Bel’s

products. In Western Europe private labels represent 20.4% of the market in 2013 (+5% since 2009) and

11.4% in North America. The market shares of private labels tend to increase in mature areas and may

be sharpened by the moribund economic situation in Europe.

Milk price volatility: R5 - The company is affected by milk price volatility mainly in Europe where a future

market doesn’t exist for this commodity. With the end of European quotas, we expect that the volatility will

increase. However, we do think that contracts between suppliers and transformers will reduce this risk.

The larger part of their costs (70 %) represents commodity purchases. Their prices are volatile and they

cannot change the price of their products proportionally (because of the bargaining power of the retailers).

Reputation: R6 - Their brands can be threatened by deterioration of their image, especially in the case

of a food scandal. The milk supply chain is very crucial in this industry and is highly regulated. We do think

that the probability of such risk is very low because Bel masters its supply chain.

Production risk: R7 - They own only 28 sites of production and 80% of the production is carried out in

10 factories. This situation could bring a tricky situation if one plant has to be closed.

Currency risk: R8 - The strategy of Bel is to increase its sales to emerging markets. The company is

therefore exposed to an appreciation of the euro especially. 40% of the sales are generated outside

Europe. Without hedging the sensitivity is significant: a 1% rise of the EUR/USD would decrease the

operating margin by 0.85% in 2013. However their hedging ratio is between 80% and 100% which reduce

this risk, and the current trend in the forex market is favourable to Bel (euro depreciation).

Industrial and Intellectual property: R9 - Their brands can be copied in countries with an incomplete

legal structure via counterfeiting. Moreover the design of their products can be reproduced easily. This

risk affects Bel’s sales mainly in emerging countries. The impact will remain low and at local level.

Price regulation: R10 - In some countries prices of dairy products such as cheese are regulated (for

instance in Middle East) thus the profitability can be reduced especially if commodity prices rise at the

same time.

-6 -23

96

483

357

240194

65 56107

-0.50

0.00

0.50

1.00

1.50

2.00

2.50

3.00

-100.00

0.00

100.00

200.00

300.00

400.00

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600.00

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014e

Net Debt Net Debt / Ebitda

0 K

10 K

20 K

30 K

40 K

50 K

60 K

70 K

2012 2013 2014

90

95

100

105

01/12 06/12 11/12 04/13 09/13 02/14 07/14 12/14

EUR/PLN EUR/GBP EUR/USD

TEAM H 11

Appendix 1 – P&L Statement

P&L - EUR m 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014e 2015e 2016e 2017e

Sales 1 729 1 777 1 965 2 217 2 221 2 418 2 527 2 649 2 720 2 790 2 927 3 058 3 177

GOGS -1 219 -1 227 -1 394 -1 610 -1 517 -1 663 -1 808 -1 830 -1 898 -1995 -2072 -2149 -2218

Gross Margin 511 551 572 607 704 755 719 819 822 795 855 908 960

Sales/marketing expense -267 -288 -302 -346 -340 -366 -359 -389 -384 -405 -425 -444 -461

R&D expense -13 -14 -17 -18 -18 -16 -14 -17 -17 -20 -24 -25 -26

SG&A -107 -114 -117 -135 -151 -162 -161 -176 -182 -186 -196 -204 -212

Other operating income/(expense) 0 0 1 1 1 0 0 0 1 -1 -1 -1 -1

Total operating costs (w/o COGS) -387 -416 -436 -499 -508 -544 -534 -581 -581 -611 -645 -673 -700

- thereof Management costs -311 -309 -326 -361 -371 -393 -408 -443 -457

- thereof Depreciation and Amortization -51 -50 -55 -64 -51 -75 -75 -76 -77 -81 -85 -89 -92

Operating EBITDA 175 185 191 172 247 286 260 314 318 264 295 323 352

Operating EBITA* 124 135 136 108 196 211 185 238 241 184 210 235 260

Other non-operating income/(expenses) -12 -13 -7 -14 -47 -16 -14 -27 -6 -17 -18 -18 -19

- thereof restructuration costs -4 -9 -3 -5 -2 -4 -5 -4 -5

EBIT 113 122 129 95 149 195 170 211 234 167 193 216 241

Financial result 0 -5 -8 -40 -25 -20 -26 -18 -15 -12 -17 -20 -17

- thereof interest expense -3 -5 -7 -45 -25 -19 -22 -17 -20

- thereof interest income 4 2 2 13 4 2 3 2 2

- thereof other financial income/(expense) -2 -2 -2 -8 -3 -3 -8 -3 2

EBT 112 117 121 55 124 175 144 193 219 155 175 197 224

Income tax -34 -32 -22 -6 -37 -57 -47 -63 -88 -62 -70 -79 -90

Earnings before MI & goodwill 78 84 99 49 88 118 97 130 131 93 105 118 134

Minority interests 6 5 4 0 3 1 1 2 6 6 6 6 6

Earnings Group before goodwill 72 79 95 49 85 116 96 128 126 87 100 113 129

Amortization of goodwill 0 0 0 0 -21 0 -3 -1 0 0 0 0 0

Earnings - Group 72 79 95 49 64 116 93 128 126 87 100 113 129

* before amortization of the goodwill

Simplified P&L - EUR m 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014e 2015e 2016e 2017e

Sales 1 729 1 777 1 965 2 217 2 221 2 418 2 527 2 649 2 720 2 790 2 927 3 058 3 177

Cost of Goods Sold -1 219 -1 227 -1 394 -1 610 -1 517 -1 663 -1 808 -1 830 -1 898 -1 995 -2 072 -2 149 -2 218

Gross margin 511 551 572 607 704 755 719 819 822 795 855 908 960

Total operating costs (w/o COGS) -387 -416 -436 -499 -508 -544 -534 -581 -581 -611 -645 -673 -700

Operating EBITDA 124 135 136 108 196 211 185 238 241 184 210 235 260

Depreciation and Amortization -51 -50 -55 -64 -51 -75 -75 -76 -77 -81 -85 -89 -92

Operating EBITA* 124 135 136 108 196 211 185 238 241 184 210 235 260

Other non-operating income/(expenses) -12 -13 -7 -14 -47 -16 -14 -27 -6 -17 -18 -18 -19

EBIT 113 122 129 95 149 195 170 211 234 167 193 216 241

Financial result 0 -5 -8 -40 -25 -20 -26 -18 -15 -12 -17 -20 -17

EBT 112 117 121 55 124 175 144 193 219 155 175 197 224

Income tax -34 -32 -22 -6 -37 -57 -47 -63 -88 -62 -70 -79 -90

Earnings before MI & goodwill 78 84 99 49 88 118 97 130 131 93 105 118 134

Minority interests 6 5 4 0 3 1 1 2 6 6 6 6 6

Earnings Group before goodwill 72 79 95 49 85 116 96 128 126 87 100 113 129

Amortization of goodwill 0 0 0 0 -21 0 -3 -1 0 0 0 0 0

Earnings - Group 72 79 95 49 64 116 93 128 126 87 100 113 129

TEAM H 12

Appendix 2 – Vertical analysis

Appendix 3 – Growth analysis

P&L - EUR m 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014e 2015e 2016e 2017e

Sales

GOGS 70,5% 69,0% 70,9% 72,6% 68,3% 69% 71,6% 69,1% 69,8% 71,5% 70,8% 70,3% 69,8%

Gross Margin 29,5% 31,0% 29,1% 27,4% 31,7% 31,2% 28,4% 30,9% 30,2% 28,5% 29,2% 29,7% 30,2%

Sales/marketing expense 15,4% 16,2% 15,4% 15,6% 15,3% 15,1% 14,2% 14,7% 14,1% 14,5% 14,5% 14,5% 14,5%

R&D expense 0,8% 0,8% 0,9% 0,8% 0,8% 0,6% 0,6% 0,6% 0,6% 0,7% 0,8% 0,8% 0,8%

SG&A 6,2% 6,4% 6,0% 6,1% 6,8% 6,7% 6,4% 6,6% 6,7% 6,7% 6,7% 6,7% 6,7%

Other operating income/(expense) 0,0% 0,0% 0,0% 0,0% 0,0% 0,0% 0,0% 0,0% 0,0% 0,02% 0,02% 0,02% 0,02%

Total operating costs (w/o COGS) 22,4% 23,4% 22,2% 22,5% 22,9% 22,5% 21,1% 21,9% 21,4%

- thereof Management costs 18,0% 17,4% 16,6% 16,3% 16,7% 16,2% 16,1% 16,7% 16,8%

- thereof Depreciation and Amortization 2,9% 2,8% 2,8% 2,9% 2,3% 3,1% 3,0% 2,9% 2,8% 2,9% 2,9% 2,9% 2,9%

Operating EBITDA 10,1% 10,4% 9,7% 7,8% 11,1% 11,8% 10,3% 11,9% 11,7% 9,5% 10,1% 10,6% 11,1%

Operating EBITA* 7,2% 7,6% 6,9% 4,9% 8,8% 8,7% 7,3% 9,0% 8,9% 6,6% 7,2% 7,7% 8,2%

Other non-operating income/(expenses) 0,7% 0,7% 0,3% 0,6% 2,1% 0,7% 0,6% 1,0% 0,2% 0,6% 0,6% 0,6% 0,6%

- thereof restructuration costs

EBIT 6,5% 6,9% 6,6% 4,3% 6,7% 8,1% 6,7% 8,0% 8,6% 6,0% 6,6% 7,1% 7,6%

Financial result 0,0% 0,3% 0,4% 1,8% 1,1% 0,8% 1,0% 0,7% 0,5%

- thereof interest expense -0,2% -0,3% -0,4% -2,0% -1,1% -0,8% -0,9% -0,7% -0,7%

- thereof interest income 0,3% 0,1% 0,1% 0,6% 0,2% 0,1% 0,1% 0,1% 0,1%

- thereof other financial income/(expense) -0,1% -0,1% -0,1% -0,4% -0,2% -0,1% -0,3% -0,1% 0,1%

EBT 6,5% 6,6% 6,2% 2,5% 5,6% 7,2% 5,7% 7,3% 8,1% 5,5% 6,0% 6,4% 7,0%

Income tax -2,0% -1,8% -1,1% -0,3% -1,7% -2,4% -1,9% -2,4% -3,2%

Earnings before MI & goodwill 4,5% 4,8% 5,1% 2,2% 3,9% 4,9% 3,8% 4,9% 4,8%

Minority interests 0,3% 0,3% 0,2% 0,0% 0,1% 0,1% 0,0% 0,1% 0,2%

Earnings Group before goodwill 4,2% 4,5% 4,8% 2,2% 3,8% 4,8% 3,8% 4,8% 4,6%

Amortization of goodwill 0,0% 0,0% 0,0% 0,0% -0,9% 0,0% -0,1% 0,0% 0,0%

Earnings - Group 4,2% 4,5% 4,8% 2,2% 2,9% 4,8% 3,7% 4,8% 4,6% 3,1% 3,4% 3,7% 4,1%

Vertical analysis

Simplified P&L - EUR m 06/05 07/06 08/07 09/08 10/09 11/10 12/11 13/12 14e/13 15e/14 16e/15 17e/16

Sales 2,8% 10,6% 12,8% 0,2% 8,9% 4,5% 4,8% 2,7% 2,6% 4,9% 4,5% 3,9%

Cost of Goods Sold Growth forecast 2,6% 4,9% 4,5% 3,9%

Gross margin 8% 4% 6% 16% 7% -5% 14% 0% -3% 8% 6% 6%

Total operating costs (w/o COGS)

Operating EBITDA 9% 0% -20% 81% 8% -12% 29% 1% -24% 15% 12% 11%

Depreciation and Amortization

Operating EBITA* 9% 0% -20% 81% 8% -12% 29% 1% -24% 15% 12% 11%

Other non-operating income/(expenses)

EBIT 8% 6% -27% 58% 31% -13% 24% 11% -29% 15% 12% 11%

Financial result

EBT 4% 4% -55% 126% 40% -18% 34% 14% -30% 13% 12% 14%

Income tax

Earnings before MI & goodwill

Minority interests

Earnings Group before goodwill

Amortization of goodwill

Earnings - Group 10% 20% -48% 30% 82% -20% 37% -1% -31% 14% 13% 14%

Growth analysis

TEAM H 13

Appendix 4 – P&L analysis

Adjusted net income - EUR m 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014e 2015e 2016e 2017e

Earnings - Group 72 79 95 49 64 116 93 128 126 87 100 113 129

One-off costs write-off 0 0 0 0 0 0 0 0 0 0 0 0 0

Goodwill amortization canceling 0 0 0 0 21 0 3 1 0 0 0 0 0

Adjusted earnings 72 79 95 49 85 116 96 128 126 87 100 113 129

Margins 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014e 2015e 2016e 2017e

Gross margin 29,5% 31,0% 29,1% 27,4% 31,7% 31,2% 28,4% 30,9% 30,2% 28,5% 29,2% 29,7% 30,2%

Operating EBITDA margin 10,1% 10,4% 9,7% 7,8% 11,1% 11,8% 10,3% 11,9% 11,7% 9,5% 10,1% 10,6% 11,1%

EBIT margin 6,5% 6,9% 6,6% 4,3% 6,7% 8,1% 6,7% 8,0% 8,6% 6,0% 6,6% 7,1% 7,6%

EBT margin 6,5% 6,6% 6,2% 2,5% 5,6% 7,2% 5,7% 7,3% 8,1% 5,5% 6,0% 6,4% 7,0%

Net margin - Before MI 4,5% 4,8% 5,1% 2,2% 3,9% 4,9% 3,8% 4,9% 4,8% 3,3% 3,6% 3,9% 4,2%

Net margin - After MI 4,2% 4,5% 4,8% 2,2% 3,8% 4,8% 3,8% 4,8% 4,6% 3,1% 3,4% 3,7% 4,1%

Net margin - Group 4,2% 4,5% 4,8% 2,2% 2,9% 4,8% 3,7% 4,8% 4,6% 3,1% 3,4% 3,7% 4,1%

Cost analysis (% sales) 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014e 2015e 2016e 2017e

COGS 70% 69% 71% 73% 68% 69% 72% 69% 70% 72% 71% 70% 70%

Sales/marketing expense 15% 16% 15% 16% 15% 15% 14% 15% 14% 15% 15% 15% 15%

R&D expense 1% 1% 1% 1% 1% 1% 1% 1% 1% 1% 1% 1% 1%

SG&A 6% 6% 6% 6% 7% 7% 6% 7% 7% 7% 7% 7% 7%

Other operating income/(expense) 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%

Income tax 31% 28% 18% 11% 30% 33% 33% 33% 40% 40% 40% 40% 40%

Sales analysis - EUR m 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014e 2015e 2016e 2017e

New regional breakdown

Western Europe 1337 1400 1494 1057 1073 1143 1194 1236 1267

Eastern/Northen Europe 135 117 103 555 597 567 587 605 623

Americas, Asia-Pacific 340 381 419 417 398 416 439 463

Africa 246 263 261 272 284 297 310 324

Middle East 315 286 357 361 397 433 467 500

Americas - Old breakdown 194

International - Old breakdown 555

TOTAL 2 221 2 418 2 527 2 649 2 720 2 789 2 927 3 057 3 177

Check with stated sales 0 0 0 0 0

Portfolio weights

Western Europe 60% 58% 59% 40% 39% 41% 41% 40% 40%

Eastern/Northen Europe 6% 5% 4% 21% 22% 20% 20% 20% 20%

Americas, Asia-Pacific 0% 14% 15% 16% 15% 14% 14% 14% 15%

Africa 0% 10% 10% 10% 10% 10% 10% 10% 10%

Middle East 0% 13% 11% 13% 13% 14% 15% 15% 16%

Americas - Old split 9% 0% 0% 0% 0% 0% 0% 0% 0%

International - Old split 25% 0% 0% 0% 0% 0% 0% 0% 0%

TOTAL 100% 100% 100% 100% 100% 100% 100% 100% 100%

TEAM H 14

Appendix 5 – Balance Sheet & Operating Working Capital analysis

Appendix 6 – Cash flow generation analysis

B/S - EUR m 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014e 2015e 2016e 2017e

Fixed Assets 682 750 868 1 348 1 282 1 287 1 274 1 279 1 363 1 435 1 511 1 591 1 626

Goodwill 54 57 76 406 383 389 388 385 381 381 381 381 381

Intangible assets 152 173 221 322 311 306 303 296 288 288 288 288 288

PP&E 436 470 514 567 549 540 530 524 588 661 737 817 851

Assets held for sale 39 50 57 52 39 52 53 73 105 105 105 105 105

Current Assets 609 643 777 930 731 831 863 1 168 1 281 1 257 1 277 1 302 1 381

Inventories 163 176 246 219 179 224 244 237 259 267 281 293 305

Trade receivables 343 355 416 412 388 410 436 448 468 481 505 528 548

Loans and advances 7 7 10 7 7 7 10 10 11 8 8 8 9

DTA 4 3 9 6 12 11 11 11 10 10 10 10 10

Income tax assets 8 17 22 40 27 34 18 10 20 20 20 20 20

Financial assets 29 6 14 0 2 4 2 10 23 23 23 23 23

Cash and cash equivalents 54 80 60 246 116 140 141 442 490 447 430 419 465

TOTAL ASSETS 1 291 1 393 1 644 2 278 2 013 2 118 2 137 2 447 2 644 2 692 2 788 2 892 3 006

Total Equity w/o minority interests 734 795 855 818 871 983 1 028 1 139 1 198 1 242 1 313 1 393 1 484

Non-controlling interests 21 29 33 32 31 26 16 11 14 14 14 14 14

Pensions 39 37 38 38 38 41 44 47 73 73 73 73 73

Provisions 21 19 11 13 25 28 24 29 26 26 26 26 26

Interest-bearing debt and debt equivalents 49 57 157 729 473 380 336 507 546 554 554 555 555

DTL 84 95 111 134 141 152 157 174 178 178 178 178 178

Trade payables 310 332 399 436 364 422 455 472 516 512 537 561 583

Income tax liabilities 16 15 18 24 25 38 14 29 55 55 55 55 55

Other financial liabilities 2 0 0 24 11 12 31 1 0 0 0 0 0

Other liabilities 14 15 23 30 34 36 32 39 37 37 37 37 37

TOTAL LIABILITIES 1 291 1 393 1 644 2 278 2 013 2 118 2 137 2 447 2 644 2 692 2 788 2 892 3 006

Check assets/liabilities 0,000 0,000 0,000 0,000 0,000 0,000 0,000 0,000 0,000 0,000 0,000 0,000 0,000

OWC - EUR m 203 206 273 202 209 220 234 223 222 237 249 260 270

… in days of sales 43 42 51 33 34 33 34 31 30 31 31 31 31

… in % sales 12% 12% 14% 9% 9% 9% 9% 8% 8% 8% 8% 8% 8%

(in days of sales)

Inventories 34 36 46 36 29 34 35 33 35 35 35 35 35

Trade receivables 72 73 77 68 64 62 63 62 63 63 63 63 63

Loans and advances 1 1 2 1 1 1 1 1 1 1 1 1 1

Trade payables 66 68 74 72 60 64 66 65 69 67 67 67 67

Cash generation - EUR m 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014e 2015e 2016e 2017e

Net income (group, before goodwill) 72 79 95 49 85 116 96 128 126 87 100 113 129

Depreciation and amortization 41 47 49 68 122 92 79 93 78 81 85 89 92

Others 5 2 3 3 6 5 6 -2 -2 0 0 0 0

= Gross cash-flow 117 129 147 121 212 214 181 219 202 168 184 201 221

∆ OWC -11 -13 -68 77 -4 -4 -20 12 -8 -15 -12 -11 -10

Tax adjustment 5 -1 0 -6 16 12 0 24 16 0 0 0 0

= Cash from operations 111 115 79 191 224 222 161 255 210 153 173 190 211

Internal Capex -105 -94 -112 -126 -75 -61 -74 -80 -147 -153 -161 -168 -127

in % sales 6,0% 5,3% 5,7% 5,7% 3,4% 2,5% 2,9% 3,0% 5,4% 5,5% 5,5% 5,5% 4,0%

= "Free cash-flow" (excl. External capex) 7 21 -33 65 149 160 87 175 64 -1 12 22 84

External Capex 7 -11 -57 -401 -1 -4 0 1 2 0 0 0 0

Total Capex -98 -105 -169 -527 -76 -65 -74 -79 -145 -153 -161 -168 -127

= Cash generation before distribution 13 10 -90 -336 148 156 87 176 65 -1 12 22 84

Capital increase / (share buyback) 0 0 -4 -2 0 0 0 -7 0 0 0 0 0

Dividend distribution -153 -31 -31 -19 -33 -41 -34 -43 -43 -29 -33 -37

= Net Cash Generation 13 -143 -125 -369 129 123 46 134 22 -44 -17 -11 47

TEAM H 15

Appendix 7 – Net debt computation and analysis

Appendix 8 – Return analysis

Appendix 9 – Data per share

Net Debt - EUR m 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014e 2015e 2016e 2017e

End of Year -6 -23 96 483 357 240 194 65 56 107 125 136 90

Average on year -14 37 290 420 299 217 130 60 82 116 130 113

in % total equity attrib. to shareholders -2% 4% 35% 48% 30% 21% 11% 5% 7% 9% 9% 8%

in % NAV -3% 7% 325% 236% 104% 64% 28% 11% 14% 18% 18% 14%

Financial result in % net debt -36% 21,4% 13,6% 5,9% 6,7% 12,1% 14,2% 24,7% 15,0% 15,0% 15,0% 15,0%

3Y average = 17,0%

Return analysis - EUR m 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014e 2015e 2016e 2017e

Equity with retained earnings, w/o MI 734 795 855 818 871 983 1 028 1 139 1 198 1 242 1 313 1 393 1 484

Intangible assets on B/S 206 230 297 729 694 695 691 681 669 669 669 669 669

NAV 527 565 558 89 178 288 337 457 529 573 644 723 815

ROE 9,8% 10,0% 11,1% 6,0% 7,4% 11,8% 9,1% 11,2% 10,5% 7,0% 7,6% 8,1% 8,7%

RoNAV 14% 14% 17% 55% 36% 40% 28% 28% 24% 15% 15% 16% 16%

Invested capital 830 898 1 064 1 144 1 109 1 118 1 120 1 116 1 203 1 291 1 379 1 469 1 514

Fixed asset w/o goodwill 627 693 791 942 900 897 886 893 981 1 054 1 130 1 210 1 244

OWC 203 206 273 202 209 220 234 223 222 237 249 260 270

NOPLAT 78 88 106 84 105 131 115 143 140 100 116 130 145

ROIC 9,4% 9,8% 10,0% 7,4% 9,5% 11,7% 10,2% 12,8% 11,7% 7,8% 8,4% 8,8% 9,5%

Data per share - EUR m / Millions of shares 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014e 2015e 2016e 2017e

Shares outstanding - Beginning of Year 6,87 6,87 6,87 6,87 6,87 6,87 6,87 6,87 6,87 6,87 6,87 6,87

+ OEC* conversion 0,00 0,00

- Shares cancellation 0,00 0,00

Shares outstanding - End of Year 6,87 6,87 6,87 6,87 6,87 6,87 6,87 6,87 6,87 6,87 6,87 6,87 6,87

- Treasury stocks 0,01 0,01 0,03 0,04 0,04 0,04

Shares outstanding w/o treasury stocks 6,86 6,86 6,85 6,83 6,83 6,83 6,87 6,87 6,87 6,87 6,87 6,87 6,87

* "Obligation échangeable ou convertible en actions"

Free cash flow (bfr external capex) / share 1,0 3,0 -4,9 9,4 21,7 23,3 12,7 25,4 9,3 1,8 4,0 5,7 14,5

Released EPS 10,5 11,6 13,9 7,2 9,3 16,9 13,5 18,6 18,3 12,7 14,5 16,4 18,7

Adjusted EPS 10,5 11,6 13,9 7,2 12,4 16,9 14,0 18,7 18,3 12,7 14,5 16,4 18,7

Net dividend (paid in n+1) 22,25 4,50 4,50 2,75 4,85 6,00 5,00 6,25 6,25 4,19 4,78 5,41 6,19

Pay-out / Released net income 213% 39% 32% 38% 52% 35% 37% 34% 34% 33% 33% 33% 33%

Pay-out / Adjusted net income 39% 32% 38% 39% 35% 36% 33% 34% 33% 33% 33% 33%

Book value / share 116 124 119 127 143 150 166 174 181 191 203 216

NAV / share 82 81 13 26 42 49 67 77 83 94 105 119

TEAM H 16

Appendix 10 – Market data

Appendix 11 – Peer group description

Market data - EUR m 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014e 2015e 2016e 2017e

Stock price (EUR) 300,0 as of 09/01/2015

Market capitalization 2062

Floating 4%

Floating market capitalization 91

Average historical stock price 140 153 202 158 109 140 157 182 250 300 300 300 300

+ Market cap 963 1048 1389 1086 750 964 1079 1250 1717 2062 2062 2062 2062

+ Net debt -6 -23 96 483 357 240 194 65 56 107 125 136 90

+ Provisions for pensions 39 37 38 38 38 41 44 47 73 73 73 73 73

+ Other provisions 21 19 11 13 25 28 24 29 26 26 26 26 26

+ Minority interests 21 29 33 32 31 26 16 11 14 14 14 14 14

- Financial investments -29 -6 -14 0 -2 -4 -2 -10 -23 -23 -23 -23 -23

+ Others

Approx. EV 1009 1105 1553 1652 1199 1294 1355 1391 1864 2259 2277 2288 2242

Free cash-flow / Historical stock price 0,7% 2,0% -2,4% 6,0% 19,9% 16,7% 8,1% 14,0% 3,7% 0,6% 1,3% 1,9% 4,8%

FCF / EV 0,7% 1,9% -2,2% 3,9% 12,4% 12,4% 6,5% 12,6% 3,4% 0,5% 1,2% 1,7% 4,4%

PE (Current stock price/Released earnings) 28,7 26,0 21,7 41,9 32,2 17,7 22,1 16,1 16,4 23,6 20,7 18,3 16,0

PE (Historical stock price/Released earnings) 13,4 13,2 14,6 22,1 11,7 8,3 11,6 9,8 13,7 23,6 20,7 18,3 16,0

PE (Historical stock price/Adjusted earnings) 13,4 13,2 14,6 22,1 8,8 8,3 11,2 9,7 13,7 23,6 20,7 18,3 16,0

Dividend yield (historical stock price) 15,9% 2,9% 2,2% 1,7% 4,4% 4,3% 3,2% 3,4% 2,5% 1,4% 1,6% 1,8% 2,1%

Stock price / Book value 19% 19% 24% 19% 13% 14% 15% 16% 21% 24% 23% 22% 20%

Stock price / NAV 27% 27% 36% 177% 61% 49% 47% 40% 47% 52% 47% 41% 37%

EV / Sales 0,58 0,6 0,8 0,7 0,5 0,5 0,5 0,5 0,7 0,8 0,8 0,7 0,7

EV / EBITDA 5,77 6,0 8,1 9,6 4,9 4,5 5,2 4,4 5,9 8,5 7,7 7,1 6,4

EV / EBIT 8,97 9,1 12,0 17,5 8,0 6,6 8,0 6,6 8,0 13,5 11,8 10,6 9,3

Shareholders 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014e 2015e 2016e 2017e

Unibel 65% 65% 67% 67% 67% 67% 67% 67% 67% 67%

Fiévet-Bel family-owned group 4% 4% 4% 4% 4% 3% 3% 3% 3% 3%

Unibel + Fiévet-Bel family-owned group 0% 0% 0% 68% 69% 71% 71% 71% 71% 71% 71% 71% 71%

SOFIL/groupe Lactalis 24% 24% 24% 24% 24% 24% 24% 24% 24% 24%

Free float 7% 6% 4% 4% 4% 4% 4% 4% 4% 4%

Own shares 0% 0% 0% 1% 1% 1% 0% 1% 1% 1% 1% 1% 1%

TOTAL 0% 0% 0% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%

Peer group (Data from FactSet)

Source: FactSet 2014e 2015e 2016e 2014e 2015e 2016e 2014e 2015e 2016e 2014e 2015e 2016e

Dairy Crest Group PLC 0,6 0,6 0,6 7,5 7,4 7,1 11,0 10,5 9,9 12,1 11,2 10,8

Bega Cheese Ltd 0,7 0,7 0,7 11,3 10,0 9,3 17,3 14,8 13,5 26,3 22,3 20,0

Bongrain SA 0,3 0,3 0,3 5,2 4,8 4,3 10,6 9,4 7,5 14,4 10,7 9,2

Parmalat S.P.A 0,6 0,6 0,5 7,3 6,8 6,3 9,9 9,8 8,8 19,7 18,2 17,0

Bright Dairy & Food Co. Ltd. 1,1 0,9 0,8 18,4 14,9 11,4 27,1 18,4 13,0 40,4 28,4 22,5

Emmi AG 0,7 0,7 0,7 8,9 8,2 7,9 14,8 13,4 12,6 18,5 16,5 15,3

Megmilk Snow Brand Co. Ltd. 0,3 0,3 0,3 7,0 6,4 6,0 18,4 16,2 13,8 18,0 15,8 13,2

Saudia Dairy & Foodstuff Co. 2,2 2,0 1,9 14,2 13,3 12,4 19,3 18,0 16,8 21,5 20,0 18,7

Boulder Brands Inc 1,7 1,6 1,4 12,2 11,4 10,4 21,3 19,8 15,8 43,0 38,2 28,6

Grupo Lala SAB De CV 1,4 1,3 1,2 11,7 10,4 9,3 14,4 12,7 11,4 22,0 19,6 17,8

Vietnam Dairy Products JSC 2,8 2,4 2,2 12,4 10,0 9,4 13,6 10,7 10,5 17,6 14,7 13,6

AVERAGE 1,1 1,0 1,0 10,5 9,4 8,5 16,1 14,0 12,2 23,0 19,6 17,0

EV / Sales EV / EBITDA EV / EBIT PER

TEAM H 17

Appendix 12 – Multiples-based valuation

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CAGR 2011-2013 (%) 4% 7% 5% 7% 8% 23% 14% -4% 11% 24% 7% 25% 8%

Avg mkt expense in % of sales 15% na 1% na 1% na 4% na 6% 13% na 5% 4%

Avg SGA expense in % of sales 22% 20% 9% 20% 18% 29% 24% 22% 19% 37% 20% 11% 20%

Avg EBITDA margin 11% 6% 7% 6% 7% 6% 8% 6% 15% 11% 9% 20% 7%

Avg EBIT margin 8% 3% 5% 3% 7% 4% 3% 2% 12% -6% 9% 24% 4%

€ Share price (01/09/2015) 300 5,78 3,52 51,50 2,36 2,51 306,42 10,21 26,15 8,70 1,62 4,11 -

2010

- 2

013

Multiples-based Valuation

Sales Avg EV / Sales EV Equity Value TP

EV / Sales 2014e ……………………………………………. 2 790 1,1 3137 2457 358

EV / Sales 2015e ……………………………………………. 2 927 1,0 3015 2318 337

EV / Sales 2016e ……………………………………………. 3 058 1,0 2905 2196 320

338 Average TP

13% upside

EBITDA Avg EV / EBITDA

EV / EBITDA 2014e …………………………………………. 264 10,5 2786 2106 306

EV / EBITDA 2015e …………………………………………. 295 9,4 2780 2082 303

EV / EBITDA 2016e …………………………………………. 323 8,5 2757 2049 298

303 Average TP

1% upside

EBIT Avg EV / EBIT

EV / EBIT 2014e …………………………………………….. 167 16,1 2693 2014 293

EV / EBIT 2015e …………………………………………….. 193 14,0 2688 1991 290

EV / EBIT 2016e …………………………………………….. 216 12,2 2631 1922 280

287 Average TP

-4% upside

Other elements of EV (excl. Equity value) 2014e 2015e 2016e

- Net Debt -107 -125 -136

+ Financial Assets 23 23 23

- Minority Interests -496 -496 -496

- Provisions & Pensions -99 -99 -99

= Total -680 -697 -708

Earnings Avg peers PER Equity Value TP

PER 2014e …………………………………………………… 87 23,0 2008 292

PER 2015e …………………………………………………… 100 19,6 1951 284

PER 2016e …………………………………………………… 113 17,0 1912 278

285 Average TP

-5% upside

TP Weight

EV / Sales 338 10%

EV / EBITDA 303 25%

EV / EBIT 287 40%

PE 285 25%

296 Weighted avg target price

-1% upside

TEAM H 18

Appendix 13 – DCF Valuation

Conservative perpetuity assumptions - We choose to apply 2.0% perpetuity growth based on rough average of long-term demographic and GDP trends in regions wherein the company operates. We tend to be a little bit more cautious on it because of the terminal value weight in our valuation (approx. 64%). So we prefer to lower estimations given by statistics in order to maintain a prudent valuation. Regarding the perpetuity of EBIT the margin, we consider a level of 8.0% that corresponds to a cautious choice. It reflects the intensity of pricing pressure in the food industry on margins due to an intense competition.

CAGR 2014e-2017e

12/01/2015 4,0%31/12/2015353 0,97 1,97 2,97DCF Valuation 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014e 2015e 2016e 2017e

Sales 1 729 1 777 1 965 2 217 2 221 2 418 2 527 2 649 2 720 2 790 2 927 3 058 3 177

% ∆ 2,8% 10,6% 12,8% 0,2% 8,9% 4,5% 4,8% 2,7% 2,6% 4,9% 4,5% 3,9%

EBIT 113 122 129 95 149 195 170 211 234 167 193 216 241

% Sales 6,5% 6,9% 6,6% 4,3% 6,7% 8,1% 6,7% 8,0% 8,6% 6,0% 6,6% 7,1% 7,6%

NOPLAT 78 88 106 84 105 131 115 143 140 100 116 130 145

Effective tax rate 31% 28% 18% 11% 30% 33% 33% 33% 40% 40% 40% 40% 40%

+ Depreciation 51 50 55 64 51 75 75 76 77 81 85 89 92

% Sales 2,9% 2,8% 2,8% 2,9% 2,3% 3,1% 3,0% 2,9% 2,8% 2,9% 2,9% 2,9% 2,9%

= Gross Cash flow 129 138 161 148 156 206 190 219 217 181 200 219 237

- ∆ OWC -11 -13 -68 77 -4 -4 -20 12 -8 -15 -12 -11 -10

OWC in days of sales 43 42 51 33 34 33 34 31 30 31 31 31 31

- Capital expenditures -98 -105 -169 -527 -76 -65 -74 -79 -145 -153 -161 -168 -127

thereof internal -105 -94 -112 -126 -75 -61 -74 -80 -147 -153 -161 -168 -127

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

thereof external 7 -11 -57 -401 -1 -4 0 1 2 0 0 0 0

= Free Cash Flow 20 20 -76 -302 76 137 96 151 64 12 28 39 99

x Discount factor 1,00 0,95 0,90 0,86

= Discounted FCF 12 26 35 85

NOPLAT 78 88 106 84 105 131 115 143 140 100 116 130 145

Invested capital 830 898 1 064 1 144 1 109 1 118 1 120 1 116 1 203 1 291 1 379 1 469 1 514

ROIC 9,4% 9,8% 10,0% 7,4% 9,5% 11,7% 10,2% 12,8% 11,7% 7,8% 8,4% 8,8% 9,5%

spread ROIC-WACC 2,4% 3,0% 3,5% 4,2%

CAGR 2018e-2033e CAGR 2014e-2023e

12/01/2015 3,0% 3,2%31/12/2015353 3,97 4,97 5,97 6,97 7,97 8,97 9,97 10,97 11,97 12,97 13,97 14,97 15,97 16,97 17,97 18,97 18,97DCF Valuation 2018e 2019e 2020e 2021e 2022e 2023e 2024e 2025e 2026e 2027e 2028e 2029e 2030e 2031e 2032e 2033e TV

Sales 3273 3371 3472 3576 3683 3794 3908 4025 4146 4270 4398 4530 4666 4806 4950 5099 5201

% ∆ 3,0% 3,0% 3,0% 3,0% 3,0% 3,0% 3,0% 3,0% 3,0% 3,0% 3,0% 3,0% 3,0% 3,0% 3,0% 3,0% 2,00%

EBIT 255 269 284 300 309 318 327 337 347 358 369 380 391 398 405 412 416

% Sales 7,8% 8,0% 8,2% 8,4% 8,4% 8,4% 8,4% 8,4% 8,4% 8,4% 8,4% 8,4% 8,4% 8,3% 8,2% 8,1% 8,0%

NOPLAT 153 161 170 180 185 191 196 202 208 215 221 228 235 239 243 247 250

Effective tax rate 40% 40% 40% 40% 40% 40% 40% 40% 40% 40% 40% 40% 40% 40% 40% 40% 40%

+ Depreciation 95 98 101 104 107 110 113 117 120 124 128 131 135 139 144 148 173

% Sales 2,9% 2,9% 2,9% 2,9% 2,9% 2,9% 2,9% 2,9% 2,9% 2,9% 2,9% 2,9% 2,9% 2,9% 2,9% 2,9% 3,3%

= Gross Cash flow 248 259 271 284 292 301 310 319 329 339 349 359 370 378 387 395 423

- ∆ OWC -8 -8 -9 -9 -9 -9 -10 -10 -10 -11 -11 -11 -12 -12 -12 -13 -9

OWC in days of sales 31 31 31 31 31 31 31 31 31 31 31 31 31 31 31 31 31

- Capital expenditures -131 -135 -139 -143 -147 -152 -156 -161 -166 -171 -176 -181 -187 -192 -198 -204 -182

thereof internal -131 -135 -139 -143 -147 -152 -156 -161 -166 -171 -176 -181 -187 -192 -198 -204 -182

% Sales 4,0% 4,0% 4,0% 4,0% 4,0% 4,0% 4,0% 4,0% 4,0% 4,0% 4,0% 4,0% 4,0% 4,0% 4,0% 4,0% 3,5%

thereof external 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

= Free Cash Flow 109 116 124 132 136 140 144 148 153 157 162 167 172 174 176 178 6 880

x Discount factor 0,81 0,77 0,73 0,69 0,66 0,63 0,59 0,56 0,53 0,51 0,48 0,46 0,43 0,41 0,39 0,37 0,37

= Discounted FCF 88 89 90 91 89 87 85 83 82 80 78 76 74 72 69 66 2551

NOPLAT 153 161 170 180 185 191 196 202 208 215 221 228 235 239 243 247 250

Invested capital 1 558 1 604 1 651 1 699 1 748 1 800 1 852 1 906 1 962 2 020 2 079 2 140 2 203 2 268 2 334 2 403 2 421

ROIC 9,8% 10,1% 10,3% 10,6% 10,6% 10,6% 10,6% 10,6% 10,6% 10,6% 10,6% 10,6% 10,6% 10,5% 10,4% 10,3% 10,3%

spread ROIC-WACC 4,4% 4,7% 5,0% 5,2% 5,2% 5,2% 5,2% 5,2% 5,3% 5,3% 5,3% 5,3% 5,3% 5,2% 5,0% 4,9% 4,9%

TEAM H 19

Model risk - The main risk of our DCF model is the Terminal Value (TV) which accounts for 64% of the EV. The TV is influenced by a weak cost of capital as shown in our sensitivity analysis. Indeed the cost of equity is reduced by an equity beta of 0.70. We fundamentally validate this figure based on low risk profile explained by the mix of (1) a strong competitive advantage (2) a well-diversified regional portfolio of sales and (3) a low cyclical industry. On the other hand, stock’s illiquidity contributes to the low correlation with the market sustaining our assumption on equity beta. That is why we add a liquidity discount (25%) in order to mitigate this risk.

DCF Results and Main Assumptions

+ ∑ Discounted FCF 1461 36%

+ Discounted Terminal Value 2551 64%

= Enterprise Value 4012 100%

- Net Debt -56

+ Financial Assets 23

- Minority Interests -496

- Provisions & Pensions -99

= Equity Value 3384

% Lactalis in capital 24%

Number of shares 1,7

Share price 300,0

Lactalis mkt value 496

Share price (€) before liquidity discount 492,4

% upside 64%

Liquidity discount 25%

Share price (€) after liquidity discount 369

% upside 23%

Perpetual growth 2,00%

Asset Beta 0,55

Debt (D) / Equity (E) 45%

Normative Tax Rate 40%

Equity Beta 0,70

Equity Risk premium 5,5%

Risk-free rate 3,0%

Cost of equity 6,8%

Bfr-tax cost of debt 3,5%

Aft-tax cost of debt 2,1%

WACC 5,37%

D / ( D + E ) 31,0%

E / ( D + E ) 69,0%

0,0% 0,5% 1,0% 1,5% 2,0% 2,5% 3,0% 3,5% 4,0%

3,5% 506 568 655 785 1002 1435 2736 - -

4,0% 420 462 518 597 715 912 1306 2488 -

4,5% 353 383 421 473 544 652 831 1189 2264

5,0% 301 322 350 384 431 496 594 757 1083

5,4% 269 386 307 334 369 416 586 594 764

6,0% 224 236 251 269 291 320 359 413 494

6,5% 195 204 215 229 245 266 292 327 376

7,0% 170 178 186 196 209 224 242 266 298

7,5% 149 155 162 170 179 190 204 221 243

8,0% 132 136 141 148 155 163 173 186 201

Perpetual growth

WA

CC

TEAM H 20

APV Valuation 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014e 2015e 2016e 2017e

Sales 1 729 1 777 1 965 2 217 2 221 2 418 2 527 2 649 2 720 2 790 2 927 3 058 3 177

% ∆ 2,8% 10,6% 12,8% 0,2% 8,9% 4,5% 4,8% 2,7% 2,6% 4,9% 4,5% 3,9%

EBIT 113 122 129 95 149 195 170 211 234 167 193 216 241

% Sales 6,5% 6,9% 6,6% 4,3% 6,7% 8,1% 6,7% 8,0% 8,6% 6,0% 6,6% 7,1% 7,6%

NOPLAT 78 88 106 84 105 131 115 143 140 100 116 130 145

Effective tax rate 31% 28% 18% 11% 30% 33% 33% 33% 40% 40% 40% 40% 40%

+ Depreciation 51 50 55 64 51 75 75 76 77 81 85 89 92

% Sales 2,9% 2,8% 2,8% 2,9% 2,3% 3,1% 3,0% 2,9% 2,8% 2,9% 2,9% 2,9% 2,9%

= Gross Cash flow 129 138 161 148 156 206 190 219 217 181 200 219 237

- ∆ OWC -11 -13 -68 77 -4 -4 -20 12 -8 -15 -12 -11 -10

OWC in days of sales 43 42 51 33 34 33 34 31 30 31 31 31 31

- Capital expenditures -98 -105 -169 -527 -76 -65 -74 -79 -145 -153 -161 -168 -127

thereof internal -105 -94 -112 -126 -75 -61 -74 -80 -147 -153 -161 -168 -127

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

thereof external 7 -11 -57 -401 -1 -4 0 1 2 0 0 0 0

= Free Cash Flow 20 20 -76 -302 76 137 96 151 64 12 28 39 99

x Discount factor 1,00 0,95 0,90 0,86

= Discounted FCF 12 26 35 85

APV Valuation 2018e 2019e 2020e 2021e 2022e 2023e 2024e 2025e 2026e 2027e 2028e 2029e 2030e 2031e 2032e 2033e TV

Sales 3273 3371 3472 3576 3683 3794 3908 4025 4146 4270 4398 4530 4666 4806 4950 5099 5201

% ∆ 3,0% 3,0% 3,0% 3,0% 3,0% 3,0% 3,0% 3,0% 3,0% 3,0% 3,0% 3,0% 3,0% 3,0% 3,0% 3,0% 2,00%

EBIT 255 269 284 300 309 318 327 337 347 358 369 380 391 398 405 412 416

% Sales 7,8% 8,0% 8,2% 8,4% 8,4% 8,4% 8,4% 8,4% 8,4% 8,4% 8,4% 8,4% 8,4% 8,3% 8,2% 8,1% 8,0%

NOPLAT 153 161 170 180 185 191 196 202 208 215 221 228 235 239 243 247 250

Effective tax rate 40% 40% 40% 40% 40% 40% 40% 40% 40% 40% 40% 40% 40% 40% 40% 40% 40%

+ Depreciation 95 98 101 104 107 110 113 117 120 124 128 131 135 139 144 148 173

% Sales 2,9% 2,9% 2,9% 2,9% 2,9% 2,9% 2,9% 2,9% 2,9% 2,9% 2,9% 2,9% 2,9% 2,9% 2,9% 2,9% 3,3%

= Gross Cash flow 248 259 271 284 292 301 310 319 329 339 349 359 370 378 387 395 423

- ∆ OWC -8 -8 -9 -9 -9 -9 -10 -10 -10 -11 -11 -11 -12 -12 -12 -13 -9

OWC in days of sales 31 31 31 31 31 31 31 31 31 31 31 31 31 31 31 31 31

- Capital expenditures -131 -135 -139 -143 -147 -152 -156 -161 -166 -171 -176 -181 -187 -192 -198 -204 -182

thereof internal -131 -135 -139 -143 -147 -152 -156 -161 -166 -171 -176 -181 -187 -192 -198 -204 -182

% Sales 4,0% 4,0% 4,0% 4,0% 4,0% 4,0% 4,0% 4,0% 4,0% 4,0% 4,0% 4,0% 4,0% 4,0% 4,0% 4,0% 3,5%

thereof external 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

= Free Cash Flow 109 116 124 132 136 140 144 148 153 157 162 167 172 174 176 178 6 867

x Discount factor 0,81 0,77 0,73 0,69 0,66 0,63 0,59 0,56 0,53 0,51 0,48 0,46 0,43 0,41 0,39 0,37 0,37

= Discounted FCF 88 89 90 91 89 87 85 83 82 80 78 76 74 72 69 66 2543

TEAM H 21

APV Model - Calculations

Current beta 0,55

2013 Effective tax rate 40%

2013 D / E 46%

Unlevered beta 0,43

Equity Risk premium 5,5%

Risk-free rate 3,0%

Cost of equity 5,38%

+ ∑ Discounted FCF 1460

+ Discounted Terminal Value 2543

= Enterprise Value from discounted FCF 4004

Marginal tax rate 40%

Existing Debt 546

PV of Tax Savings from existing debt 218

Probability of bankruptcy 0,13%

PV of Bankruptcy costs (a) x (b) 1201,07

in % of the firm value (a) 30%

EV from discounted FCF (b) 4004

PV of Expected Bankruptcy costs 1,53

Enterprise Value from discounted FCF 4004

- PV of Tax Savings from existing debt -218

+ PV of Expected Bankruptcy costs 1,53

= Unlevered value of the firm 3787

- Net Debt -56

+ Financial Assets 23

- Minority Interests -496

- Provisions & Pensions -99

= Other EV elements -628

APV Model - Calculations

Tax Savings from Debt

Debt ratio Debt Tax rate Tax benefits

0% 0 40% 0

10% 400 40% 160

20% 801 40% 320

30% 1201 40% 480

40% 1601 40% 641

50% 2002 40% 801

60% 2402 40% 961

70% 2803 40% 1121

80% 3203 40% 1281

90% 3603 40% 1441

Expected Bankruptcy Cost

Debt ratio Bond rating Prob. of Default Exp. Bankruptcy Cost

0% IG1-2 0,00% 0

10% IG3-4 0,01% 0

20% IG5-6 0,03% 0

30% IG7-8 0,11% 1

40% IG9-10 0,35% 5

50% HY1-3 1,46% 20

60% HY4-6 6,20% 88

70% DS1-2 16,00% 236

80% DS3-4 36,00% 547

90% DS5 75,00% 1176

TEAM H 22

Appendix 14 – Bloomberg bond rating table (used in APV model)

0% 0 40% 3787 0 0 3787 -628 3158 460 53% 322 7%

10% 400 40% 3787 160 0 3947 -628 3318 483 61% 338 13%

20% 801 40% 3787 320 0 4106 -628 3478 506 69% 354 18%

30% 1201 40% 3787 480 1 4266 -628 3637 529 76% 370 23%

40% 1601 40% 3787 641 5 4423 -628 3794 552 84% 386 29%

50% 2002 40% 3787 801 20 4567 -628 3939 573 91% 401 34%

60% 2402 40% 3787 961 88 4659 -628 4031 587 96% 411 37%

70% 2803 40% 3787 1121 236 4672 -628 4044 588 96% 412 37%

80% 3203 40% 3787 1281 547 4520 -628 3892 566 89% 396 32%

90% 3603 40% 3787 1441 1176 4052 -628 3423 498 66% 349 16%

Avg share price based on APV 374

Upside 25%

Debt

ratio

Fromageries Bel APV results

Upside

Share price

bfr 25%

discount

Share price

aft 25%

discountLevered

Firm Value

Other

EV elements Equity Value Upside

Expected

Bankruptcy Cost

Tax

Benefits

Unlevered

Firm valueTax rateDebt

322338

354370

386401411412

396

349

0

50

100

150

200

250

300

350

400

450

0% 20% 40% 60% 80%

Shar

e p

rice

*

D/E ratio

TEAM H 23

Appendix 15 – M&A option scenario

M&A option

2015e Peer group EV / Sales 1,03

Transaction premium 20%

Transaction EV / Sales 1,24

2002-2009 Average Transaction EV / Sales in Dairy Industry * 1,43

* Source: " Mergers & Acquisitions in the Food Business: How did the 2002 and 2008 economic crises impact corporate valuation? ” by Francis Declerck

Assumed transaction EV / Sales 1,33

Price paid for the target company 333

1,0 2,0 3,0 3,0

2015e 2016e 2017e TV

Company sales before cross-selling potential (a1) = (c) x (a2) 250 259 269 279

% ∆ (a2) 3,0% 3,0% 2,0%

Cross-selling potential (b1) = (a) x (b2) 1 3 4 0

Sales synergies in % of target sales (b2) 0,5% 1,0% 1,5% 0,0%

Net sales (c) = (a1)+(b1) 251 261 273 279

% ∆ 4,0% 4,5% 2,0%

Bel sales 2927 3058 3177 5201

Bel operating costs (w/o COGS) -645 -673 -700

Costs synergies 10 13 17 0

Cost synergies in % of Bel operating costs (w/o COGS) 1,5% 2,0% 2,5% 0,0%

Integration costs -40 -20 0 0 €60M for company integration.

Net cost impact -30 -7 17 0

in % of Bel sales -1,0% -0,2% 0,6% 0,0%

in % of target company net sales -12,1% -2,5% 6,4% 0,0%

Bel EBIT margin 6,6% 7,1% 7,6% 8,0%

Target company EBIT margin 6,2% 6,9% 7,6% 8,0%

EBIT before net cost impact 16 18 21 22

EBIT after net cost impact -15 11 38 22

Normative tax rate 40% 40% 40% 40% Same tax rate as Bel.

NOPLAT -9 7 23 13

+ Depreciation 8 8 8 8

in % of sales 3,0% 3,0% 3,0% 3,0% In order to be consistent with capital expenditures

- ∆ OWC -2 -2 -2 -2 In order to sustain growth development

in % of sales -0,8% -0,8% -0,7% -0,7%

- Capital expenditures -9 -9 -10 -10

in % of sales 3,5% 3,5% 3,5% 3,5% Slightly under Bel assumption (-50bp)

Free Cash-Flow -12 4 20 296

x discount factor 1,0 0,9 0,9 0,9

= Discounted Free Cash-Flow -12 3 17 254

Financing method % weight

Debt 133 40%

Cash 200 60%

D/E ratio 41%

Bel WACC 5,4%

+ ∑ Discounted FCF 8

+ Discounted Terminal Value 254

= Enterprise Value 262

- Net Debt 67

= Equity value 329

Additional premium on price per share 48

% upside on TP 14%

TP including M&A option 394

% upside 31%

TP excluding M&A option 346

% upside 15%

Comments

Assumptions used in Bel DCF for growth rate (a2).

In explicit period: an increasing cross-selling

contribution (Bel ability to leverage the acquisition).

For TV: null contribution (company will be fully

integrated).

No costs synergies for TV as the company will be

fully integrated.

Weaker EBIT margin for target company and a

progressive correcting to group margin

TEAM H 24

Appendix 16: Corporate Governance and Social Responsibility

CSR awareness and policy: A nuanced situation

Even if Bel is a mid-cap, the company released its first CSR report in 2012 which underlines a strong willingness to increase its CSR policy. The family structure of the company creates a concentration of power around the CEO but we estimate that the situation is not risky. In addition, Bel follows a very strict Social Responsibility program, a key element for dairy companies. A well-defined CSR program - Based on 5 pillars (Figure 1), Bel provides training concerning CSR issues and goals for its

top management employees with 24% trained in 2012, 58% in 2013, and 100% targeted in 2015. Internal control processes - The presence of two main internal processes (“Code of Best Business Practices” and

“Sustainable Purchasing Charter”) for its employees and their actions and concerning firm’s relations with suppliers reinforced its CSR policy.

Awards and rankings - Various external rankings underline Bel’s strong CSR quality: ranked 5th in the world by corporateregister.com for its “Openness & Honesty” concerning its first 2012 CSR report, also ranked 5/109 by the Gaïa Index, and ranked as gold status with a score of 65/100 by Ecovadis.

Corporate Governance: A family-owned company which concentrates power around the CEO An independent Board - The group is family-owned but the board is composed of 4 independent members (57%) and 3

members from the family. Attendance rates are very high (97% in 2014), much higher than the national average. But strong influence on other committees - The board works closely with an Audit committee and an Appointments and

Compensation Committee. We have to underline that both committees are under the influence of the Board, and particularly the CEO. The Appointments and Compensation committee, which is responsible for the nomination of the CEO, the selection of directors, the assessment of the Board, and for all top management’s compensation, is directed by Luc Luyten (independent member) but includes Antoine Fiévet as member, the CEO himself. In addition, the Audit committee membership, which monitors issues pertaining to the preparation and control of financial and accounting information is represented by Pascal Viénot who also serves the Board by representing the family holding Unibel.

Social Responsibility: A strong policy through Bel foundation and environment protection actions (idem en haut) Bel foundation - Created in 2008 and dedicated toward children and particularly concerning food and dietary issues through

its “Selection and Project Follow-up Committee” and through the involvement of its employees. The foundation acts in four areas: Combatting child malnutrition, Supporting subsistence farming and market garden programs, Building infrastructures related directly to feeding children and teens, and Educating and raising awareness about the components of a healthy and balanced diet. The main countries and regions where the foundation operates are North Africa, USA, Vietnam, Madagascar, Egypt and France with a high transparency thanks to its annual “Progress report”. Total investments for 2013 represented €230k.

Environmental protection awareness - To decrease its environmental footprint Bel commits to reduce water (WASABEL

program) and energy (ESABEL program) consumption as well as greenhouse gas emissions (Figure 2). The company invested €2.9 million in 2013 with a focus on reduction of energy, waste management, reduction of hazards, and noise abatement.

Commitments - Bel has several commitments which highlight that the company has a willingness to improve its social

responsibility policy: signatory to the United Nations Global Compact since 2003 (renewed in 2013), partnership agreement with WWF France since 2012, certified ISO 14001 for its plants (with a target of 100% in 2015), follower of the Global Reporting Initiatives guidelines, creator of an Ethics Committee and Ethics expert advisors inside the company. In addition, Bel’s CSR 2013 report was evaluated by Deloitte and Grant Thornton as external auditors.

Figure 1: Environment footprint awareness

Figure 2: Environment footprint awareness

Partnerships and society

Nutrition & responsible

products

Responsible communication &

consumption

Committed employer

Environmental footprint

12.59.6

0.0

5.0

10.0

15.0

2008 2013

Water consumption (m3)

-23.5%2.2

1.9

1.6

1.8

2.0

2.2

2008 2013

Energy consumption (MWh)

-12.6%

586520

450

500

550

600

2008 2013

Greenhouse gas (Kg of CO2)

-11.3%

TEAM H 25

Appendix 17: Porter’s five forces analysis

Threat of new entrants 1. Sanitary rules and certifications generate capex 2. Small players can externalise the production 3. Brands are a strong barrier to entry

Rivalry

1. Few players dominate the market 2. The top 20 cheese producers represent about 45% of world production 3. Innovation and marketing war between companies

Substitutes

1. Cheese can be consumed in several ways and at different times (snacking for instance) 2. Greek yogurt strong competition 3. Retailers promote their private label products

Power of Suppliers

1. Milk producers are fragmented 2. Concentration trend between milk cooperatives 3. Milk cooperatives can be suppliers and competitors

Power of Clients

1. Large retailers have a huge power of bargain 2. Powerful brands are a key advantage

TEAM H 26

Appendix 18: Fromageries Bel’s organization

TEAM H 27

TEAM H 28

Disclosures: Ownership and material conflicts of interest:

The author(s), or a member of their household, of this report does not hold a financial interest in the securities of this company.

The author(s), or a member of their household, of this report does not know of the existence of any conflicts of interest that might bias the

content or publication of this report.

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 serve 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.

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 CFA Society of France, CFA Institute or the CFA Research Challenge with regard

to this company’s stock.

CFA Institute Research Challenge