CFA Challenge Michael Caro

CFA Institute Research Challenge Hosted by Local Challenge CFA France Team C

Recommendation : SELL

LAGARDERE SCA

Last Price : €25.36 (Date: 8/1/2016) Target Price : €21.00

INDUSTRY : MEDIA Ticker : MMB-FR

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

DCF €23.9

SOTP €18

50%

50%

Lagardère: Muddled Past, Gloomy Future We initiate coverage of Lagardère SCA (MMB) with a SELL recommendation with a target price of €21 suggesting 17% downside potential. Our SELL recommendation is based on three key points: (1) an unattractive risk/reward profile, (2) diversified but mostly low organic growth activities operating in a highly competitive environment and (3) a weak corporate strategy with serious issues on business sustainability.

TARGET PRICE €21.00 SELL -17% potential downside

Market Profile 52-week Price Range (€)

21.02-30.23

Average 3M Daily Volume

294,144

Shares Outstanding (M)

131.1

Market Capitalization (€M)

3,325

Insider Ownership

11.2%

Free Float

74.2%

Beta

1.63

Sources: Factset, Damodaran & team estimates Key Metrics 2014 2015E 2016E

Our 3 keys points are supported by an historically non fundamentaly high valuation multiple (8.6x EV/EBITDA 16e, a 18% premium to the historical average) mainly due to a lower conglomerate discount which we believe is unjustified for the moment. We derived our target price of €21 from a combination of a DCF model and sum-of-the-parts valuations model(including a 25% conglomerate discount) with an equal weighting of both methods. Our Sell recommendation relies on… A lack of a business mix advantage with an unaggressive strategy in a highly consolidating media industry in addition to: •

Strong pressure on cash generation: We believe the risk/reward profile of the group is unattractive due to (1) highly cyclical sales, (2) highly volatile and low net earning margins and (3) low Capex which highlights future growth issues. Moreover, we forecast free cash flow 2015-19e CAGR of just 1% due to pressure on margin and from working capital.

•

Follower attitude with a short-sighted view corporate strategy: (1) management lacks expertise in acquisition valuation, which has led to huge impairment losses in the past, (2) proceeds from divestments have mostly been distributed in the form of exceptional dividends and not reinvested, contrary to peers practice and (3) complete ‘‘home-made’’ corporate management that limits influx of external expertise. Furthermore, we see low shareholders representation and governance risks with a group structure of double voting rights for share registered in the name of same shareholders for more than 4 years.

Sales (€M)

7,170

7,378

7,856

EBITDA Margin

7.6%

7.7%

7.7 %

EPS (€)

0.32

1.56

1.74

Payout(%)

410

83

75

N.Debt/ EBITDA

1.9x

2.5x

2.4x

ROCE

7.1%

7.5%

7.1%

Main risk: We believe any major acquisition announcement could have a temporary positive impact on the share price as well as news flow on assets divestment (Magazine and Distribution). However we believe this risk is limited due to weak organic growth in these activities and their currently low valuation.

EV/EBITDA

8.8x

9.0x

8.6x

200

P/E

79.8x

16.2x

14.5x

180

Lagardère

160

Stoxx 600 Media

Team Sentiment Summary News Flow

High (+)

140

Uncertainties

High (-)

120

Competitive Advantage

Low (-)

100

Growth Potential

Medium

80

Profitability

Low (-)

60

Payout

High (+)

40

Valuation

High (-)

Governance

Low (-)

€25.4

17 % Downside potential €21.0

Source: Factset 1

CFA Institute Research Challenge Business Description

Figure 1: Activities snapshot with % of sales 28% PUBLISHING

L A G A R D E R E

53%

Still in transformation from an Aerospace and Publishing company to a more diversified group, Lagardère SCA was established in 1992 from the merger between Matra Hachette and Lagardère group. Lagardère is listed on Euronext Paris since June, 1987 (ticker: MMB-FR).

TRAVEL RETAIL

13%

Focus on the Media industry.  Lagardère Publishing (28% of group sales), with its unavoidable Hachette division, is clearly a core-business division for Lagardère (largest EBITDA contribution with 41%). A segment in which Lagardère is a worldwide leader among mature and cyclical business.  Lagardère Active (13% of group sales) includes the press business, the audiovisual (radio/TV) and digital activities as well as the advertising sales and is built on iconic brands such as Elle, Paris Match, Europe 1 and Gulli among declining activities with digital transformation.

ACTIVE

5%

SPORTS & ENTERTAINMENT

Source: Company data Figure 2: 2014 Revenues & EBITDA by division (%) Revenues contribution

60% Travel Retail

50% 40%

Publishing 30% 20%

Sports and Entertainment

10%

Active

0% 0%

January 11th 2016

10%

20%

30%

40%

50%

With strong interests in Travel Retail and Sports.  The Travel Retail (TR) segment (53% of group sales) is the largest division by sales and is a truly global player as it employs over 12,800 people and maintains a network of 4,161 stores in 30 countries, 170 airports and 700 stations through 3 activities: Travel Essentials (46% of divisional sales), Duty Free & Luxury (41%) and Food Services (13%). Since its strategic focus is TR, Lagardère initiated a process in 2013 to find investors to buy its distribution business which is currently part of the TR division.  Lagardère Sports and Entertainment (5% of group sales), the smallest division of the Group, is a globally integrated full service sports marketing agency as well as events and venue manager. A significant change of the business mix is on track to further focus on emerging markets. (Appendix 8)

EBITDA contribution

Source: Company data

1945: Creation of Matra, researching and developing planes, transport systems and satellites

Figure 3: Lagardère in 6 dates

1992: Merger of Hachette and Matra, held by Lagardère group

2013: Lagardère sells its EADS and Canal+ stakes

Lagardère’s history in 6 dates

1826: Louis Hachette lays the basis of the Hachette group main activities

A diversified geographical exposure. Restructuring in Western Europe and Invest more in emerging markets. To offset a weak economy in Europe, the Lagardère’s operating activities have been reshaped. On the other hand the group continues to foster its presence in Asia and Eastern Europe with sales outlets openings in the TR segment to capture highly increasing spent per passenger (PAX) and air traffic. (Figure 4)

Source: Company data Figure 5: Evolution of print revenues as % of total sales 67%

61% 49%

2003

2007

Source: Company data

2003: Arnaud Lagardère takes the lead of Lagardère SCA (French partnership limited by shares)

An external growth strategy. For many years, Lagardère has acquired several companies such as SportFive (2006), Doctissimo (2008), Les Editions Albert-René (2008) and more recently Paradies (2015) to adapt to a new environment. Moreover, as part of its business operations, Lagardère manages certain Travel Retail contracts in the form of 50-50 joint ventures with its partners like SNCF or Aéroport de Paris. Non-strategic businesses to divest. Departing with the “old media” businesses like the declining press distribution business and advertising mainly established in Western Europe to focus on core activities like TR. (Appendix 9)

Figure 4: Geographical footprint

72%

1987: the company is listed on Euronext Paris

2010

2013

A reduced dependency on Print businesses Facing weak growth in the publishing and printed press market, Lagardère has reduced its work force in paper-related businesses and will continue its cost-cutting plan in the publishing segment, yet operating in a quite different market environment. (Figure 5) Sustained investment in digital technologies Lagardère Publishing, the company’s cash cow, generating roughly half of total EBIT has seen its model being called into question by structural changes that took place throughout the value chain of the cultural industry. Initially exposed at 2/3 of sales under the Publishing paper market, the group suffered from the rapid digital shift in the industry. After huge and costly efforts, the company reversed the paper market exposure to 1/3 of total sales and continues to develop and adapt digitally its broadcasting and magazines businesses to be well-positioned if market opportunities appear. 2

CFA Institute Research Challenge Figure 6: Share ownership structure Float

5% 8%

Qatar Invest. Authority

13%

74%

Arnaud Lagardère

January 11th 2016

Corporate management Lagardère is a partnership limited by shares. Lagardère’s general management is in charge of the Managing Partners. One Managing Partner and three Co-Managing Partners: Arnaud Lagardère, Pierre Leroy, Dominique D’Hinnin, Thierry Funck-Brentano, engage their responsibility of drawing up the strategy, ensuring the implementation of decisions and controlling the Group. The entire general management has more than 25 years of experience with Lagardère. As a conglomerate, Lagardère’s operating activites are conducted by legally independent companies grouped together in the 4 business divisions, under the Managing Partners’ control, each divisions has its own organization, each of the 4 divisional CEOs have more than 10 years of experience at Lagardère or in the related industries. (Appendix 17) Shareholder structure Via Lagardère Capital & Management (LC&M), Arnaud Lagardère controls 8.2% of the capital and 12.7% of the voting rights of Lagardère SCA. The Qatar Investment Authority holds 12.83% of the share capital. (Appendix 18) The shareholders are highly dispersed, 74% of the shares are floating, but mainly held by institutional investors (Figure 6).

Insiders Source: Company data

Industry Overview and Competitive Positioning Over the last few years, the media industry has been disrupted by the Internet and is struggling to find a new path. To succeed in this new environment, companies need to drive both innovation and efficiency to embrace the changing face of the media industry.

Figure 7: Global media industry category segmentation: % share

Traditional model still dominates but a shift to an online model is the main challenge to tackle The media and entertainment sector is in disruptive moment where existing business models continue to thrive at the same time that new models are emerging. The landscape for media consumer is substantially different to what it was few years ago. (Figure 9) The rapidly growing amount of content available via the Internet and the proliferation of devices such as tablets and smartphones accelerates the translation. The growth reflects the public’s rising demand for content anywhere, anytime and on any device.

Movies & Entertainment 9% Advertising 11% Broadcasting & Cable TV 48% Publishing 32%

Consumers are no longer satisfied to enjoy print, video, or other forms of entertainment passively. With spending turning away from the traditional paid media domains of TV and print towards electronic devices, advertisers dedicate more resources to digital, database marketing, event marketing and place-based media.

Source: Médiamétrie

This changing dynamic poses challenges but also offers opportunities for entertainment content companies: the Internet channel offers the possibility for these companies to connect with and Figure 8: Media sources of revenue: % share market directly to consumers. As the smartphone becomes the central device, consumers are forced to make more complex choices between traditional and new media formats, all of which are available through the handset. Telecommunication services

Different sources of revenue for media companies Major revenue sources in Media are telecommunications services (c45%), traditional publishing including books, newspapers, magazines, and software (c20%) and radio and TV content distribution including broadcasting, cable, and other pay TV subscription services (10%). Additional products and services include movie production and distribution; music publishing, licensing and recording; Internet publishing and Web portals; and data processing. (Figure 8)

Additional products and services Traditional publishing

Radio & TV content 0%

10% 20% 30% 40% 50%

Source: Médiamétrie Figure 9: Media consumption: hours spent per day, world average 3.5 3

The sixth continent Travel Retail has undergone a major shift over the past few years that has turned airports and train stations into shopping destinations. The opportunity to buy goods when travelling is not a new thing but the concept has changed over time: the range of products on offer and the different types of shopping opportunities available at airports have become much more diverse. With sales reaching €88 bn in 2014, the worldwide industry of travel commerce is a market that is dynamic and strategic as it is an important source of revenue for many brands and the primary source of income for many airports (4% growth CAGR 2015-19e).

Key Industry Trends

2.5 2

2012

1.5

2015

1 0.5 0 TV

Online

Radio

Print



A new media experience A transformation of advertising budget is underway as we spent more time on mobiles, tablets and laptops. (Figure 9) This shift requires media companies to increase their focus on innovation. It also creates opportunities to connect with customers through all devices in real time and create campaigns across social media. The division Lagardère Active is grappling with these issue as c40% of revenues of this division stem from advertising.

Source: Médiamétrie 3

CFA Institute Research Challenge

Figure 10: User penetration in the ebooks segment



A wave of consolidation Consolidation is hitting all segments of media, which promise to have a broad impact on the future of the industry and competition. There is clearly an appetite for consolidation of audience share and hence than advertising market in each media segment (TV, radio mainly).



Political and cultural concerns for ebooks The ebook faces an environment in France that is characterized by various factors from politics and culture. France remains the main market (31% of sales) for Lagardère Publishing. With a rate of 8.9%, the user penetration in the ebooks segment is low in France, compared to top countries such as the United States (36.1%) and the United Kingdom (16.5%). In France, the ebook price-fixing law and the reduced from the book VAT rate decided in 2012 have negative effects on this sector. Global distribution platforms like Amazon or Apple have brought the globalization of publishing to a new dimension preventing Lagardère from gaining market share outside of France. (Figure 10)



A system of tender offer for retail operations There are different ways to grow in the TR: acquire new businesses or through concessions which can be won in a tender process launched by airport authorities. Concession agreement is for the design, construction, operation and maintenance of passenger terminal. A contract will be awarded to the highest and most qualified bidder who meets the bid requirements. Airports select the best partner as in-terminal concessions provide an important passenger service. A well-implemented concession program can also provide financial benefits to the airport’s operating budget.



TR not as strong as in the past Decline in Eastern European travel volumes is responsible for a downturn in the European travel retail business. The collapse of the Russian Ruble and the Chinese Government’s crackdown on corruption and extravagant spending have led to a marked reduction in spending of the most important nationalities of travelling shopper. Meanwhile, the weakening currencies of other developing market economies such as Brazil, as well as lacklustre growth in Europe and the Americas, have also put the sector under strain.

Top Countries United States

36.1%

United Kingdom

16.5%

Canada

16.3%

Spain

12.8%

Germany

11.1%

France

8.9%

January 11th 2016

Source: Syndicat National de l’Edition

Competitive landscape Demand is driven by discretionary consumer spending and leisure time. The profitability depends on effective marketing and creative capital. Large companies have advantage because they can reach mass audiences through multiple channels. Small companies can compete effectively by targeting narrow audience segments with niche products. The TR industry is competitive but fragmented. More than 40% of the market share is held by 6 main companies, but each of them develop their activities through different sectors. Actors in Sports & Entertainment tend to offer sport and entertainment altogether (sport competition with concerts) to address wider public, offer longer events at an increasing price. This trend answers the desire of fans to be part of the live experience and of a global entertainment.

Main competitors by business units

Book publishing Travel Retail Radio TV Magazine Audiovisual production Digital Sport rights

Source: Team research

4

CFA Institute Research Challenge Porter’s 5 forces

Figure 11: Porter’s 5 forces Threat of Substitutes (3.5)

Threat of New Entrants (1.5)



Rivalry (4)

  

Bargaining Power of Customers (4)

January 11th 2016

Bargaining Power of Suppliers (2.5)

Source: Team estimates



Rivalry: Players are large, often vertically integrated. These large companies tend to exacerbate rivalry, as they are formidable rivals and able to exploit economies of scale. In TR, companies compete fiercely as the ability to win and renew concessions contract is important. Bargaining power of customers: The very diverse range of services and products on offer to buyers results in a decrease in buyer power. In TR, Lagardère has some airport retailing monopolies which reduces customer power. Bargaining power of suppliers: For media, one factor is that suppliers may be indispensable to players due to a lack of alternative inputs. Threat of substitutes: The largest threat is online piracy. Moreover, substitutes are many due to the broad scope of the industry. Threat of new entrants: Quite low because of the high fixed costs associated with media. A further barrier to entry would be the degree of regulation. In sport, the threat is quite high because of the high ability of small agencies to enter the market and graze market share of large groups.

Lagardère’s competitive advantage relies on:  Strong market presence in the TR Lagardère TR is a global leader in TR with operations in 30 countries on four continents. It has the largest international network of convenience stores and stores dedicated to cultural leisure products. Lagardère TR operates a total of 4,161 stores, including 3,687 in Europe, Middle East and Africa, 270 in Asia-Pacific and 204 in North America. With the Relay and Hubiz stores and local store names such as Newslink, Lagardère currently runs the world’s largest international network of stores located in travel areas. Furthermore, Lagardère TR operates 337 food service outlets in nine countries. This market presence helps Lagardère drive business growth which in turn assists in delivering financial performance. Despite this network, we are still worry that the company strategy largely executed through acquisition may not generate attractive returns. (Appendix 19)

Figure 12: Monte Carlo Analysis 200 180 160 140 120 100 80

 Well-established publishing business The group has well-established publishing business. According to industry estimates, Lagardère Publishing is the world’s third-largest book publisher for the general public and educational markets. Hachette, the group’s flagship brand, publishes books in English, Spanish and French languages and holds leading positions in several of its markets. In addition, the company’s strong publishing business provides access to a large customer base and established distribution channels which can be leveraged to further enhance the growth prospects. But the decline of the market as well as selfpublishing, falling prices, development of Internet retailers are examples that illustrates the risks weighing on the future of this division.

60 40 20 0

Source: Team estimates

Investment Summary We initiate coverage of Lagardère SCA (MMB) with a SELL recommendation and a target price of €21 suggesting 17% downside potential.

Dividend Yield (%)

Figure 13: Dividend and FCF yield in the industry 7.5

Our SELL recommendation is based on three key points: (1) an unattractive risk/reward profile,(2) a diversified but mostly low organic growth activities operating in a highly competitive environment and (3) a weak corporate strategy with serious issues on business sustainability

7.0

Our SELL recommendation relies on…

6.5

 A lack of advantages relative to peers Despite asset cleaning, we think the group lack of advantages relative to leaders on each industries where Lagardère operates. With c80% sale exposure on Europe, the group is too much dependent on low organic growth activities, with industries experiencing challenging shift in consumer habits (Digital, Advertising on Magazine, Publishing) and among high consolidation movement which prouve the real difficulties actors meet to create long term value for shareholders.

6.0 5.5 5.0 4.5 4.0

-50

0

50

100

FCF Yield (%) 11Peers Source: Factset

Lagardère -39

 Not attractive risk/reward profile We believe at current valuation the risk/reward profile of the group is not attractive because business exposure is highly cyclical on sales and low Capex raise question about future growth dynamics. We believe at current valuation multiple the fundamental risk profile of the group requires higher return which are clearly out of access by our view with such valuation level. (Figure 13)  Complete home-made corporate governance raise issue The home made management lacks expertise on setting adequate price for acquisitions, and implies huge impairment losses that reduce net income. We do not see signs ahead that could attest the management decision wisdom. Moreover, Lagardère evolves in very competitive environment where acquisition activity is huge (strong consolidation), the weak corporate governance profile is clearly for us a weakness to compete. 5

CFA Institute Research Challenge

January 11th 2016

Figure 14: Lagardère SOTP (EV/EBITDA and P/E multiple)

Publishing Media Travel Retail Target Price

Weight 51% 18% 31%

EV/EBITDA Implied EV (M€) Price per Share 7.35x 1759 €9.76 6.84x 988 €6.27 9.03x 2030 €7.79 €23.8

P/E 12.8x 14.3x 16.4x

€23.8

€7.8

Implied EPS (€) Price per Share 0.89 €11.4 0.31 €4.5 0.54 €8.9 €24.7

€24.7

€6.3 €9.8

SOTP (EV/EBITDA Multiple ) segment bridge

SOTP (P/E Multiple ) segment bridge

Valuation Figure 15: DCF assumptions Risk-free Rate

0.91%

Beta (unlevered)

1.13

Market Risk Premium

6.4%

Cost of Equity

11.2%

Tax rate

26%

Cost of debt

3%

Cost of debt after-tax

2.2%

Weight of Equity

63%

Weight of Debt

37%

WACC

7.9%

Terminal Growth Rate

2.0%

Sources: Factset, Damodaran & Team estimates

Figure 16: Share of enterprise value 19%

I.

DCF Valuation

A stable perpetual Growth Rate Lagardère’s nominal perpetual growth rate is based on: (1) The global economic growth: stabilization of World GDP growth rate at 3% from 2017 (Source: World Bank) and low inflation forecast, (2) the new strategy set to establish Lagardère in higher-growing, emerging countries and (3) lower growth in EU and North America. We obtained a long-term growth rate of 2%. Sales and EBITDA forecasts We forecast sales separately for each division based on global growth and company strategy. For the TR division we estimate a sales growth of 4.4% 2015-2019 CAGR, and an EBITDA growth of 8.2% in the same period. We estimate the publishing division to experience a sales and EBITDA 1.1% CAGR 2015-2019 growth. The EBITDA should grow by 0.89%. CAGR in the same period. The active division should see its sales decrease by 1.4% 2015-2019 CAGR in line with industry consensus. Finally, we estimate the sport division to see its sales and EBITDA grow by 1.1% CAGR 2015-2019. Defining the WACC To calculate the cost of capital, we used the CAPM. Fama & French model did not show significance for the size and the book-to-market ratios. We calculated Lagardère’s beta as the average of beta in Retail, Media and Publishing & Newspaper. We used France 10-Year OAT as the risk-free rate. Note: For further information, please refer to Appendix 24.

PV of Terminal Value PV of OFCF

81% Source: Team estimates

Lagardère currently trades at 8.6x EV/EBITDA 2016e, which is a 14.5% premium to its 10-year average EV/EBITDA 12-months forward multiples of 7.5x. We believe such a premium is unjustified. We valued Lagardère using an equal blend between a sum-of-the-parts (SOTP) valuation and a DCF model, and derived a target price of €21, which is 17% below the current share price.

DCF Target Price The DCF model captures (1) slowly improving Lagardère’s FCF (2015-2019e CAGR of 1%), (2) its important gearing increasing its risk and cost of equity, (3) the slow growth in each of the activities. Our model points to a target value of €23.9. We ran several sensitivity analysis to analyze the impact of the inputs on the target price. (Appendix 25) We did not used a Dividend Discount Model, despite recurring dividend, because our fundamental analysis demonstrates the non sustainability of such dividend yield relative to peers.

II. Sum-of-the-parts Valuation We applied a discount of 25% to our blend of relative, which is based on historical discount to peers. The blend of relative is made of peers multiples (EV/EBITDA, P/FCF and P/Earnings) and multiple factor regression, which gives us a derived target price of €18.(Appendix 26, Appendix 28) 6

CFA Institute Research Challenge

January 11th 2016

1. Sum-of-the-parts using peers multiples

Figure 17: EPS consensus vs team estimates

Choice of Peers Direct comparable conglomerates are not available. Therefore we selected 3 peer groups based on Lagardère’s divisions: (Appendix 21) EPS Growth 2015E 2016E 2017E 15-17 • Book Publishing, the Lagardère’ historical activity facing low growth and consolidation (Pearson, Wiley, News Corporation, Mondadori, Scholastic and Bertelsmann). Consensus 1.77 1.92 2.00 6.3% • Media, with mostly French companies focusing on TV broadcasting, radio or event management Team 1.56 1.74 1.68 3.8% (Next Radio TV, TF1, RTL Group, GL Events, Highlight Communication, NRJ Group). Estimates • Travel Retail, in which companies deal with food & beverage, travel essentials, duty free and Premium/ -12% -9.4% -16% luxury (Autogrill, Dufry, WH Smith, Elior). EPS VS Consensus

CAGR

Discount

Why We Choose These Three Multiples We treat EV/EBITDA, P/FCF and P/E equally in our valuation as they represent the company value at different stage of the financial statements.

Source: Team estimates Figure 18: Valuation Target Weight price (€)

Valuation method DCF Valuation SOTP Multiple factor regression Average target price

23.9

50%

18

25%

21.2

25%

21

100%

Source: Team estimates

EV/EBITDA Our Sum-Of-The-Parts analysis shows that TR is the only Lagardère activity trading at a discount compare to peers when taking EBITDA as drivers while the two others trade at a premium. We derived a target price before discount of €23.8 from EV/EBITDA valuation. (Appendix 29) P/Earnings The P/E method brings almost the same conclusion except for Media which trades at a discount to peers. We forecast EPS to be multiplied by 4 between 2014 and 2015 mainly thanks to (1) the new bond issue which lowered the group leverage and (2) a decrease in restructuring costs. We derived a target price before discount of €24.70 from P/Earnings valuation. (Appendix 30) P/FCF We derived a target price before discount of €19 from the P/FCF valuation. (Appendix 31) 2.Multiple Factor Regression A broad sample of 240 firms (153 in Retail, 40 in Media and 47 in Publishing & Newspaper) was used to regress forward P/E against 8 variables: leverage, EPS long-term growth rate (g), payout, beta, market capitalization (logarithm), return on equity, liquidity, default spread for cost of debt. We obtained a target price before discount of €28.3. (Appendix 32)

Financial Analysis Figure 19: Sales and EBITDA margin 8,000

8.0%

7,800

7.8%

7,600 7,400

7.6%

7,200

7.4%

7,000 6,800

7.2% 2013

2014

2015e 2016e 2017e

Sales (LHS)

EBITDA Margin (Rhs)

Sources: Company data & Team estimates

Figure 20: EBITDA margin by units 15.5%

Despite the strategic plan announced in 2008 with the aim to boost organic growth, the group succeeded to deliver -2.1% of organic growth, with a divestment and FX impact of -10bps. We may see a brighter trend in 2015e with the increasing exposure to TR for example, as the group recently announced its intention to divest all of its historically lagging Distribution activity (c20% of group sales). We see 2015e and 2016e as exceptional, thanks to good momentum in Sport Events and Publishing, further supported by higher exposure to TR. However, low margin activities with such high volatility, issues with the sustainability of dividends, lower Capex and higher debt give the group an unattractive risk/reward profile. Publishing (28% of group sales): a mature and cyclical story Representing c28% of media sales and c41% of media EBITDA, the publishing business is a cash machine as c90% of the group’s annual DPS is covered by its FCF. (Appendix 13a) We see positive momentum in 2016e as an education reform is expected in France, boosting sales in this highly mature industry by 250bps (3% growth in 2016e, with underlying 0.5%). The impact is a one shot item and will be short in time in our view (over 12 months) is a one shot item. Besides this one-off item, we expect flat underlying growth in this highly mature industry as reflected by historical average annual growth in 2008-14 of 0%). Please refer to the Appendix 12 . for the Industry Snapshot. Margin squeezed like a lemon Despite a good business mix contribution (Publishing is ranked #2 after Sport by EBITDA profitability) (Figure 19) we expect margin pressure on both supply and demand side for three reasons: (1) a dispute with Amazon reflects the important challenge the industry faces with bargaining power of retailers, (2) we define the European market as complicated on a regular basis (e.g. price-fixing law in France) and (3) increasing author royalties that now account for more than 12.5% of the profit distribution among supply chain actors. (Appendix 13b)

13.5% 11.5% 9.5% 7.5% 5.5% 3.5%

2013

2014

2015E

2016E

2017E

Sources: Company data & Team estimates

We do not see any improvement in EBITDA margin due to this challenging situation and a serious lack of exposure to e-books which could enhance margins (Publishing generates on average 40% of its sales in France and only 30% of them are in general literature, the only segment really concerned by digital revolution so far). Our research indicates potential EBITDA margin in digital of c25%. On average, peers generate c20% of sales in digital vs. 10% at Lagardère with c13% EBITDA margin (11% at Lagardère). (Appendix 12) 7

CFA Institute Research Challenge

TR (53% of group sales): Game over for the double digit growth game? Despite long term exposure to the TR business, organic growth at Lagardère did not skyrocket, ranking well behind its peers. (Figure 21) We believe this low growth trend is due to the diversification of activities between the 3 sub segments as pure players such as DFS company (LVMH) pulled out of the game. The group has embarked on a new strategic trajectory, as Distribution is being divested in exchange of a more dynamic growth industry (TR). With the Paradies acquisition in 2015, we expect the group (1) to add €0.6bn TR sales by 2019e with prudent 6% sales CAGR (vs 12% in the business plan pre-acquisition) as North America has mature air traffic with historically high loading factors (85%) and (2) to continue to generate c4.5% organic growth pa. The inclusion of Paradies with the announced 12% EBITDA margin would add c1.8% of EBITDA margin percentage points including 15M€ synergies.

Figure 21: Travel Retail growth, Majors 25% 20% 15% 10% 5% 0%

2012

2013

2014

Source: Companies data Figure 22: ROCE analysis 9%

120

8%

100

7%

80

6%

60

5% 4%

40

ROCE (lhs) Indexed NOPAT (rhs) Indexed Capital Employed (rhs)

Sources: Company data & Team estimates Figure 23: Net earning margin/volatility

AVG Net earning margin

12% 10%

Wiley

8%

RTL Pearson

6% 4% 2% 0%

Lagardère

Dufry Autogril l

0% 2% 4% 6% 8% 10% 12% Std Dev of net earnings

Sources: Company data & Team estimates

6%

4%

2%

0%

Industry

Active

Sport & Entertainment (5% of group sales): Too many promises, pure players lack growth and profitability During the investor day held in May 2014, management described the activity as strong and with growth potential ahead, supported by a PWC analysis which was referred to. Despite the bullish expectations of industry specialists, we do not share the same view as historical organic growth has been lagging in this segment (c5% average in 2008-14), and there are no events that would change the trend. We expect however EBIT margin improvement, as announced by group, thanks to a efficient cost cutting efforts (-0.8% EBIT margin in 2014 to 4.6% 2016e). The depreciation strategy of the group appears to be quite aggressive, as depreciation/sales ratio decreased strongly while sales has been relatively less volatile. Our research on IMG (sport pure player and direct competitor) revealed a low growth industry with pressure on profitability. We do not think this segment to grow more than 5% as announced by the industry experts. Our forecast stands at 1.7% CAGR 2015-19e. The fall of ROCE at group level, volatility of ROE Due to the exceptional dividends and non-recurring items, the tax rate of the firm is quite volatile. Return on capital employed over the 2008-14 period experienced a sharp drop (from 8.7% to 7.5%). NOPAT margin was divided by two due to the unprofitable Sport activity and the severe margin pressure in TR (Figure 22). Currently, the ROCE-WACC spread is slightly negative which proves the mature stage of the Lagardère businesses. JV’S and non-recurring items have a significant impact on the period 2008-14 (positive impact of c60bps and negative impact c110 bps respectively). We forecast further ROE dilution, as the strategy is clearly to decrease exposure to minorities but where the management track record remain very lo. Due to lack of information, we cannot correctly value minorities. (Appendix 38) High volatility and low earning margin… The Risk/Reward profile of the company does not seem attractive. On average between 2008-14, Lagardère’s net earning margin stood at 3.2%with volatility of 7.8%, the group has the lower net earning unit per point of risk among our selection of peers. (Figure 23) This high volatility is due to non-recurring items (Restructuring costs, G&L, amortization of intangible related acquisition, impairments) since 2003 and appear in our view, quite recurring as the group is constantly in reorganization. Huge impairments and losses We analyzed the cumulative bottom line of the P&L and reach the conclusion that the cumulative exceptional dividend per share of (c€22) covered all the impairment and losses which the group has made (cumulative c€21 per share), as a result of expensive acquisitions and weak market conditions. We see the management M&A activities as dangerous and most of time value dilutive, which can transform the core coverage payout ratio far above 1, which we believe is not a key ingredient to build leadership position in highly competitive industries. Dividend payout is not backed by fundamentals… Historically since 2008, the group maintain its €1.30 dividend per share, while the FCF covered only €0.80. Because the asset cleaning arrived at end, we can be sure of non-exceptional dividends ahead. Furthermore, we adjusted the reported earnings to core earnings to come to the conclusion that the group distributes dividend which has been covered by the underlying core earnings, but not from its cash flow as the conversion ratio falls below 1. However, due to the high amount of non-recurring items and of the other investment line in the cash flow statement, we think the dividend is at risk if the historical shareholders value destruction continues.

Figure 24: Capex/sales ratio

Publishing

January 12th 2015

TR

…Below industry average CAPEX could have impact on future sales growth : We used our SOTP peer list to compare Lagardère Capex with major actor by segment. We conclude that Lagardère has, on average between 2008 and 2014, below industry ratio Capex/Sales (Figure 24). We believe the investment effort is a key in a high competitive industry in order to generate sufficient growth and shift to a leader position. (Appendix 42)

Lagardère

Sources: Factset & Companies data 8

CFA Institute Research Challenge Figure 25: Net Debt/EBITDA

January 11th 2016

Above Industry Net Debt/EBITDA: Lagardère has on average between 2008-14, 2.2x net debt/EBITDA vs peer average of 1.90x (all segments are include, based on SOTP list). We expect the ratio for Lagardère to reach 2.6x, as the group increases its debt with the Paradies acquisition (EV of €475m). Based on our forecast, and with the 6% cash/sales requirement (our historical analysis highlights a cash/sales ratio of between 6-7%), we do not expect the group to reduce its net debt/EBITDA below 2x. Furthermore, evolving in highly competitive industries with recent consolidation trends, we think the group should make significant acquisitions to maintain market share. With a high payout ratio, higher Capex requirement from TR (management indicated a figure above €100m pa) and no longer significant assets divestures, we are confident with the further debt issuance assumptions.

2.6X 2.5X 2.4X 2.3X 2.2X 2.1X 2.0X 1.9X 1.8X

Figure 26: Cumulative cash analysis 2008-14

1.7X

Lagardère

Industry Avg

Source: Company data

Source: Company data

Figure 27: Consolidated sales breakdown

Market Risk | Regional paper prices Lagardère Publishing (28% of group sales) and Lagardère Active (13% of group sales) are affected by paper price mainly in European, North American and Asian Market. Although there is not a direct link to a single index, according to company’s statistic, these divisions’ operating profit are subject to have a negative impact up to €15m in case of a long-term 10% long-term rise in paper prices.

Other 23%

GBP 6% CHF 5%

Investment Risks

Market Risk | Credit risks This risk mainly relates to trade receivables. In 2014, the Group was unable to recover certain receivables in the areas of sports rights marketing and the organization of sporting events. Receivables amount to €1280m and represent a DSO of 61 days and weigh 17.1% of group sales.

EUR 58% USD 8%

Market Risk | Exchange rate risks Lagardère’s exposure to foreign exchange rate risks on transactions effects, especially with the strategy to increase its market share in emerging markets. 42% of consolidated sales are generated outside of the Euro zone. (Figure 27) The sensitivity is, however, not very significant: a 1% rise of the EUR/USD would decrease the operating profit in €0.4m in 2014. The current trend in the forex market is favorable to Lagardère (euro depreciation) (Figure 28)

Source: Company data Figure 28: Currency fluctuation 1.6 1.35

Economic Risk | GDP Growth The sales per passengers in airports and train stations depends on economic climate which has an impact on the purchasing power of travelers. As 53% of Group sales are from the Travel Retail division, a decline in GDP growth rate may lead to a decrease in Travel Retail.

1.1 0.85 0.6

CHF/EUR

Source: Factset

GBP/EUR

USD/EUR

Economic Risk | Effects of digital and mobile technologies A large portion of the Group’s revenues derives from businesses that are sensitive to digital and mobile technologies(digital transition). Innovation in digital and mobile technologies may affect customers’ shopping habits, which can have a huge impact on the amount of customers in the Group’s store locations and sales of traditional analogue products such as magazines and printed books. Transformation from TV to Internet may directly or indirectly create more uncertainty in revenues directly or indirectly associated with advertising and broadcasting. Ambiguity in various markets has a negative impact on the profitability for Lagardère. Strategic Risk | Acquisition risk Lagardère faces a poor track record regarding acquisitions and integration. The Group acquired many companies with high valuation multiples, poor performances and high impairment loss. 9

CFA Institute Research Challenge

January 11th 2016

Operational Risk | Terrorism As recent events have shown, media, events and tourism that are open to public are increasing targeted by terrorists. The growth of the Group which is exposed to these events have increased this exposure to the impact of terrorist attacks.

Figure 29: GDP Growth 8.0% 7.0% 6.0%

Operational Risk | Geopolitical events Lagardère has activities in countries sensitive to the risk of credit or liquidity crisis, in 2014, the Group generated 4% of sales in countries rated Ba1 or lower by Moody’s.

5.0% 4.0% 3.0% 2.0% 1.0% 0.0% Bresil

China 2012

US

2013

France

2014

Operational Risk | Major contract Lagardère Sports & Entertainment (5% of group sales) and Lagardère TR (53% of group sales) submitted a bid in a call for tenders. These 2 divisions have large contracts for sports events or franchise in airports that are renewed every 3-10 years. There is, however, no guarantee that these contracts will be renewed and there is a risk of losing contracts or revising pricing up, which would negatively impact business volumes and margins. Governance Risk Lagardère meets the requirement of the AFEP/MEDEF code. However, the General Partner is also the Chairman of the board, as well as largest shareholders and occupies many important positions in the group. We think this situation not only reduces other shareholders’ ability to oppose against the corporate strategy, but also presents potential conflicts of interest between corporate and personal benefit. (Appendix )

Source: World Bank

Regulatory Risk | Special regulations The group is subject to local specific regulations in the countries in which it operates, spread all 4 division, including intellectual property rights, legal copyright registration requirements, rules governing the pricing of books, and VAT rules in publishing activities. Limitations principally applicable to the sale of print media, foodstuffs, tobacco, alcohol and duty-free products and transport operations in TR. Broadcasting service and audiovisual production in Active and Sports & Entertainment. Note: Please refer to Appendix 47 For Risk Matrix.

Corporate Governance and Social Responsibility

Figure 30: Remuneration Compensation (in millions)

2012

2013

2014

Fixed base salary and benefits in kind

6.4

5.9

5.9

Variable salary

3.5

4.04

3.3

Extraordinary compensation

0.026

0

4.4

Attendance fees

0.021

0.019

0

Total

9.947

9.959

13.6

Source: Company data

Figure 31: Share ownership Stakeholders

% of shares

Managing Partner

8.18%

Co-Managing Partners

0.16%

Supervisory Board

0.06%

Source: Company data

Governance In accordance with AFEP/MEDEF code, Lagardère meets the independence requirement of supervisory board, all members are independent (Appendix 48), the establishment of 2 committees and existence of code of conduct ensure the supervision of management and day-to-day activities. The compensation and benefits are publicly released (Figure 30 & 31). However, rights and obligations of shareholders are limited. Double voting rights for share registered in the name of the same shareholder for at least four years reduce the volatility and interests for minority shareholders. Shareholders are represented by the Supervisory board to give consent to the appointment of the Managing Partners by the General Partners, thus they don’t have direct vote right to change a board director unless there are any disagreements between Supervisory board and General Partners. Social Lagardère wants to play a role in improving the living condition and well-being of communities in the countries in which it operates, in particular through educational, cultural and sportive activities and initiatives. ‘‘Jean-Luc Lagardère Foundation’’ and ‘‘Elle Foundation’’ have not only taken action in supporting people with talent in the fields of writing, broadcast, music and digital technology, encouraging the sharing of expertise, but have supported associations to grant access to education for all as well as women and children projection, more than 240 young talented peoples beneficed from the Jean-Luc Lagardère Foundation grants to pursue their major projects since 1991. Furthermore, corporate efforts are taken to advance workforce diversity and social transformation, as well as other measures to focus on the growth of employees and offer guidance for young people. Environment Lagardère shows best practice to improve its environmental performance by trying to use certified and recycled paper, managing waste electrical and electronic equipment, creating an innovative website that allows educators to view all new publications and specimen copied on line to reduce the carbon footprint of distribution relating to this field of publishing.

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January 11th 2016

Appendix – Table of Contents Appendix 1. Income Statement Appendix 2. Margin Contribution by Division Appendix 3. Balance Sheet Appendix 4. Strategic Balance Sheet Appendix 5. Vertical Balance Sheet Appendix 6. Cash Flow Statement Appendix 7. Free Cash Flow Restatement Business Description Appendix 8. Description of activities Appendix 9. Acquisitions & Disposals Appendix 10. GDP Zones and Forecasts Appendix 11. Major Currency Snapshot Appendix 12. Publishing Snapshot Appendix 13. Publishing Industry Profitability Erosion Appendix 14. Major Zone PAX and Forecast with GDP Appendix 15. Europe PAX and Forecast with GDP Appendix 16. Europe PAX and Forecast with Oil Price Appendix 17. Management Structure Appendix 18. Share Ownership Structure Industry Overview Appendix 19. World’s busiest airports (by passenger trafic) Appendix 20. SWOT Analysis Valuation Appendix 21. Peers Summary Appendix 22. GDP growth forecasts Appendix 23. Target capital structure Appendix 24. WACC components Appendix 25. Scenario Analysis Appendix 26. Multiples summary Appendix 27. Team Estimates vs Consensus Appendix 28. Valuation Summary Appendix 29. SOTP Valuation (EV/EBITDA Multiple) Appendix 30. SOTP(P/E Multiple) Appendix 31. FCF per share Valuation Appendix 32. P/Earnings Regression Appendix 33. P/Earnings Regression Bridge by Segment Appendix 34. Forecast of EPS Growth of Peers Appendix 35. Scenario Analysis Financial Analysis Appendix 36. Discount to peers Appendix 37. Extended Dupont Analysis Appendix 38. Jv’s and Recurring Impact on Net Margin Appendix 39. Degree of Operating Leverage Appendix 40. Non Recurring Items, 2008-14 Cumulative Analysis per Share Appendix 41. Profitability and Credit Analysis Snapshot Appendix 42. Synthetic Credit Rating Appendix 43. Capex Analysis Appendix 44. Capex/Sales History with Peers Appendix 45. Debt breakdown and Interest Rate Forecast Appendix 46. Financial Interest Forecast based on Historical Data Investment risk Appendix 47. Risk Matrix Corporate governance & social responsibility Appendix 48. Supervisory Board 11

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January 11th 2016

Appendix 1. Income Statement 2008 2009 2010 2011 2012 2013 2014 2015E 2016E 2017E 2018E 2019E Net Sales Media Publishing Active Travel&Retail Sport Other Sales Group

8215 7892 7966 2159 2273 2165 2111 1725 1826 3501 3388 3579 444 507 396 406 397 373

7657 2038 1441 3724 454 391

Reported Sales Growth

8621 8289 8339 8048 7722 7564 7493 7701 8179 8199 8340 8487 -5.0% -3.9% 0.6% -3.5% -4.1% -2.0% -0.9% 2.8% 6.2% 0.2% 1.7% 1.8%

Opex

-7823 -7619 -7671 -7421 -7163 -7048 -6977 -7159 -7599 -7620 -7749 -7884

EBITDA Media EBITDA from control structure EBITDA Group EBITDA Burden effect from structure EBITDA MARGIN

803 -5 798

667 4 670

662 6 668

-0.6% 9.3%

0.4% 8.1%

0.9% -0.8% -1.9% -6.7% -5.1% -4.9% -4.6% -4.6% -4.5% -4.4% 8.0% 7.8% 7.2% 6.8% 6.9% 7.0% 7.1% 7.1% 7.1% 7.1%

D&A

-221

-276

-240

-308

-256

-214

-223

-204

-188

-197

-200

-206

EBIT Media EBIT Group

587 577

397 394

434 428

331 319

323 304

347 302

330 293

375 338

430 393

419 382

429 392

434 397

Non Recurring Income (expenses) Jv's and Associates

2 246

-55 29

-150 65

-919 111

-181 105

1218 7

-93 9

-12 9

-35 9

-35 9

-35 9

-35 9

Financial income Financial expenses Net Financial Expenses Tax Shield

39 -215 -176 6

14 -96 -82 35

21 -103 -82 21

21 -116 -95 -17

11 -93 -82 23

9 -100 -91 7

12 -85 -73 46

15 -64 -49 13

15 -64 -49 13

15 -64 -49 13

15 -64 -49 13

15 -64 -49 13

PreTax earnings Income tax expense

649 -22

286 -123

627 34 0 129 4.61 0.28

163 27 0 127 1.07 1.21

Tax Rate Net Earnings Minorities Share out EPS Payout Ratio

632 -5 627

7370 7216 7170 7378 7856 7876 8017 8164 2077 2066 2004 2133 2197 2208 2219 2231 1014 996 958 944 940 924 908 893 3809 3745 3814 3827 4272 4320 4427 4546 470 409 394 474 447 424 463 495 352 348 323 323 323 323 323 323

570 -11 559

553 -37 516

544 -28 516

570 -28 542

609 -28 581

607 -28 579

619 -28 591

631 -28 603

CAGR 08-14 15-19 -2.2% -1.2% -12.3% 1.4% -2.0%

2.6% 1.1% -1.4% 4.4% 1.1%

-7.0%

2.7%

261 -584 146 1436 137 286 318 308 317 322 -67 -105 -40 -117 -87 -74 -82 -79 -82 -83 -3.4% -43.0% 25.7% 18.0% 27.5% -8.1% 63.7% 25.7% 25.7% 25.7% 25.7% 25.7% 194 31 0 128 1.27 1.02

-689 18 0 127 -5.56 -0.23

106 1319 50 17 12 8 0 0 0 128 128 131 0.69 10.22 0.32 1.87 0.13 4.10

213 8

236 8

229 8

236 8

240 8

131 1.56 0.83

131 1.74 0.75

131 1.68 0.77

131 1.74 0.75

131 1.77 0.74

-36.0% 3.1%

Appendix 2. Margin Contribution by Division

EBITDA Margin (%) Publishing Active Travel&Retail Sport Weight(%) Publishing Active Travel&Retail Sport

2008

2009

2010

2011

2012

2013

2014

2015E

2016E

2017E

2018E

2019E

9.8 12.3 11.2 5.0 25.9

8.5 14.1 2.9 4.2 29.0

8.3 12.5 6.1 4.5 28.8

8.3 11.8 8.0 4.4 23.3

7.7 11.7 7.8 4.4 16.6

7.7 11.8 7.8 4.4 15.9

7.6 10.9 9.0 4.8 13.7

7.7 10.8 7.5 5.0 16.7

7.7 10.8 7.5 6.0 16.6

7.7 10.7 7.5 6.0 16.4

7.7 10.7 7.5 6.1 16.6

7.7 10.6 7.5 6.1 16.7

33.7 30.0 21.9 14.3

49.0 7.5 21.4 22.0

41.4 17.1 24.3 17.2

38.8 18.4 26.1 16.8

43.2 13.9 29.3 13.7 12

44.7 14.1 29.5 11.8

40.6 15.8 33.6 9.9

41.0 12.4 32.7 13.9

39.3 11.6 36.9 12.1

39.5 11.4 37.6 11.5

38.7 11.0 37.9 12.4

38.0 10.6 38.3 13.1

CFA Institute Research Challenge

January 11th 2016

Appendix 3. Balance Sheet

2008

2009

2010

Cash and Equivalents Short term bank loans and overdrafts Net Cash Short-Terms Investments Account Receivables Inventory Other Current Assets Derivative financial instruments Loans Current Assets

835 (259) 576 117 1,647 551 933 404 40 4,527

764 (245) 519 78 1,468 538 857 12 34 3,750

616 654 648 1,748 528 797 713 723 738 786 (105) (60) (49) (71) (68) (68) (68) (68) (68) (68) 511 594 599 1,677 460 729 645 655 670 718 106 83 55 36 38 38 38 38 38 38 1,189 1,276 1,255 1,239 1,280 1,266 1,343 1,343 1,343 1,343 523 542 581 559 578 555 556 556 557 557 914 900 978 1,005 959 895 951 953 969 986 14 11 5 4 7 7 7 7 7 7 55 52 29 10 10 10 10 10 10 10 3,417 3,518 3,550 4,601 3,400 3,567 3,618 3,631 3,662 3,728

Net Property Plant, and Equipment Goodwill Intangible Assets Deferred Tax Assets Investments in non consolidated companies Loans and receivables Investments in Associates Non-Current Assets Assets held for sale Total Assets

636 2,980 1,340 203 121 81 2,443 7,804 12,331

2011

2012

2013

1,845 1,191 522 82 522 229 336 4,727

1,754 492 533 96 480 245 370 3,970

1,618 541 578 92 438 306 342 3,915

1,613 163 606 3 480 326 317 3,508

1,651 238 642 1 460 249 293 3,534

1,645 806 693 1 433 240 342 4,160

Long-Term Debt Deferred Tax Liabilities Provisions for pensions Non-current provisions for contingencies and losses Other non-current liabilities: Non Current Liabilities Liabilities associated with assets held for sales Total liabilities

2,380 243 94

2,174 223 102

1,953 126 101

1,843 143 101

2,165 290 119

189 252 3,158 7,885

179 395 3,073 7,043

170 219 2,569 399 6,883

162 147 2,396 5,904

Share Capital Reserves Retained Earnings(Deficit) Shareholder's Equity

800 2,962 593 4,355

800 3,021 137 3,958

800 2,923 163 3,886

Minority Interest Total Equity

91 4,446

124 4,082 11,125 11,125

12,331 12,331

2015E 2016E 2017E 2018E 2019E

635 625 712 739 762 840 1,107 1,146 1,178 1,208 1,208 2,810 2,583 1,837 1,799 1,619 1,740 1,740 1,740 1,740 1,740 1,740 1,386 846 746 1,016 885 1,045 1,283 1,283 1,283 1,283 1,283 169 167 184 236 190 199 199 199 199 199 199 90 49 64 47 59 56 56 56 56 56 56 116 63 83 85 64 69 69 69 69 69 69 2,169 2,054 1,771 1,451 152 159 159 159 159 159 159 7,375 6,387 5,397 5,373 3,731 4,108 4,612 4,652 4,684 4,713 4,713 1,097 13 437 11,125 10,901 8,928 9,360 8,332 7,508 8,180 8,270 8,315 8,375 8,441

Accounts Payable Short-Term Debt Other Payable Derivative financial instruments Accrued taxes and employee benefit expense Sundry payables Current provisions for contingencies and losses Current Liabilities

Total Equity and Liabilities Total Assets

2014

1,702 1,713 490 1,033 525 562 1 1 443 443 249 249 273 273 3,683 4,275

1,717 1,033 599 1 443 249 273 4,315

1,718 558 600 1 443 249 273 3,842

1,719 558 611 1 443 249 273 3,854

1,720 558 622 1 443 249 273 3,866

617 245 117

1,030 289 155

1,084 289 155

1,084 289 155

1,559 289 155

1,559 289 155

1,559 289 155

168 93 2,835 6,369

158 108 1,245 5,405

158 112 1,744 5,427

158 112 1,798 6,073

158 112 1,798

158 112 2,273

158 112 2,273

158 112 2,273

6,113

6,115

6,127

6,139

800 2,856 (707) 2,949

800 2,020 89 2,909

800 742 1,307 2,849

800 1,141 41 1,982

800 2,008

800 2,058

800 2,100

800 2,149

800 2,202

132 4,018

75 3,024

82 2,991

78 2,927

99 2,081

99 2,107

99 2,157

99 2,199

99 2,248

99 2,301

10,901 10,901

8,928 8,928

9,360 9,360

8,332 8,332

7,508 7,508

8,180 8,180

8,270 8,270

8,315 8,315

8,375 8,375

8,441 8,441

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CFA Institute Research Challenge

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Appendix 4. Strategic Balance Sheet

2008

2009

2010

2011

2012

2013

2014 2015E 2016E 2017E 2018E 2019E

Current Operating Assets Current Operating Liabilities Net Working Capital Variation NWC/sales

3,131 2,863 2,626 2,718 2,814 2,803 2,817 2,716 2,850 2,853 2,869 2,887 3,118 3,012 2,940 3,025 3,002 3,011 2,919 2,968 3,008 3,010 3,022 3,034 13 -149 -314 -307 -188 -208 -102 -252 -158 -158 -152 -147 134 (162) (164) 7 118 (20) 106 (150) 94 (0) 5 5 0.15% -1.80% -3.76% -3.81% -2.44% -2.75% -1.36% -3.27% -1.93% -1.92% -1.83% -1.74%

Fixed Assets Goodwill Intangible Investment in Joint Venture and Associates Total Non Current Operating Assets

636 2,980 1,340 2,564 4,956

635 2,810 1,386 2,259 4,831

625 712 739 762 840 1,107 1,146 1,178 1,208 1,208 2,583 1,837 1,799 1,619 1,740 1,740 1,740 1,740 1,740 1,740 846 746 1,016 885 1,045 1,283 1,283 1,283 1,283 1,283 2,103 1,835 1,498 211 215 215 215 215 215 215 4,054 3,295 3,554 3,266 3,625 4,129 4,169 4,201 4,230 4,230

Total Capital Employed Total Capital Employed Without GoodWill

4,969 1,989

4,682 1,872

3,740 1,157

Cash and Equivalent Gross Debt Net debt/(cash) Other Financial Assets Other financial Liabilities Net Financial Assets (Liabilities)

835 3,571 2,736 3.43 642 82 560

764 2,666 1,902 2.84 239 96 143

616 654 648 1,748 2,494 2,006 2,403 1,423 1,878 1,352 1,755 (325) 2.81 2.16 3.14 (0.63) 238 229 173 114 92 3 1 1 146 226 172 113

Other Operating Assets Other Operating Liabilities Net Operating Assets (Liabilities)

203 495 (292)

169 618 (449)

Provisions Shareholders funds Minorities Equity capital

619 4,355 91 4,446

651 3,958 124 4,082

613 580 580 617 586 586 586 586 586 586 3,886 2,949 2,909 2,849 1,982 2,008 2,058 2,100 2,149 2,202 132 75 82 78 99 99 99 99 99 99 4,018 3,024 2,991 2,927 2,081 2,107 2,157 2,199 2,248 2,301

Total Assets Total Liabilities

12,331 12,331

11,125 11,125

10,901 10,901

-

-

1,264 744 520

-

2,988 1,151

197 290 (93)

8,928 8,928 -

3,366 1,567

3,058 1,439

3,523 1,783

3,877 4,011 4,043 4,078 4,083 2,137 2,271 2,303 2,338 2,343

528 797 713 723 738 786 1,520 2,117 2,117 2,117 2,117 2,117 992 1,320 1,404 1,394 1,379 1,331 1.92 2.44 2.42 2.41 2.33 2.21 124 124 124 124 124 124 1 1 1 1 1 1 123 123 123 123 123 123

673 190 199 199 199 199 199 199 383 353 401 401 401 401 401 401 290 (163) (202) (202) (202) (202) (202) (202)

9,360 9,360 -

8,332 8,332 -

7,508 7,508 -

8,180 8,180 -

8,270 8,270 -

8,315 8,315 -

8,375 8,375 -

8,441 8,441 -

Current Operating Assets

(=) Account receivables + Inventory + Other Current Assets (excluding loans and derivatives instruments)

Current Operating Liabilities Total Capital Employed Other Financial Assets Other Operating Assets Other Operating Liabilities

(=) Accounts Payable + Accrued Taxes and employee benefit expense + Sundry payable + Other Payable (=) Net working capital + Total non Current operating assets (=) Short and Long term Loans + Derivatives + Short Term Investments (=) Deferred tax assets + Assets held for sales (=) Deferred tax liabilities + Other non Current liabilities + Liabilities held for sales

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CFA Institute Research Challenge

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Appendix 5. Vertical Balance Sheet

2008

2009

2010

2011

2012

2013

2014

2015E 2016E 2017E 2018E 2019E

7% 1% 13% 4% 8% 3% 0% 37%

7% 1% 13% 5% 8% 0% 0% 34%

6% 1% 11% 5% 8% 0% 1% 31%

7% 1% 14% 6% 10% 0% 1% 39%

7% 1% 13% 6% 10% 0% 0% 38%

21% 0% 15% 7% 12% 0% 0% 55%

7% 1% 17% 8% 13% 0% 0% 45%

9% 0% 16% 7% 11% 0% 0% 44%

8% 0% 16% 7% 12% 0% 0% 44%

8% 0% 16% 7% 12% 0% 0% 43%

8% 0% 16% 7% 12% 0% 0% 43%

9% 0% 16% 7% 12% 0% 0% 44%

5% 24% 11% 2% 1% 1% 20% 63% 0% 100%

6% 25% 12% 2% 1% 1% 19% 66% 0% 100%

6% 24% 8% 2% 0% 1% 19% 59% 10% 100%

8% 21% 8% 2% 1% 1% 20% 60% 0% 100%

8% 19% 11% 3% 1% 1% 16% 57% 5% 100%

9% 19% 11% 2% 1% 1% 2% 45% 0% 100%

11% 23% 14% 3% 1% 1% 2% 55% 0% 100%

14% 21% 16% 2% 1% 1% 2% 56% 0% 100%

14% 21% 16% 2% 1% 1% 2% 56% 0% 100%

14% 21% 15% 2% 1% 1% 2% 57% 0% 100%

15% 21% 15% 2% 1% 1% 2% 57% 0% 100%

15% 21% 15% 2% 1% 1% 2% 56% 0% 100%

Accounts Payable Short-Term Debt Other Payable Derivative financial instruments Accrued taxes and employee benefit expense Sundry payables Current provisions for contingencies and losses Current Liabilities

15% 10% 4% 1% 4% 2% 3% 38%

16% 4% 5% 1% 4% 2% 3% 36%

15% 5% 5% 1% 4% 3% 3% 36%

18% 2% 7% 0% 5% 4% 4% 39%

18% 3% 7% 0% 5% 3% 3% 38%

20% 10% 8% 0% 5% 3% 4% 50%

23% 7% 7% 0% 6% 3% 4% 49%

21% 13% 7% 0% 5% 3% 3% 52%

21% 13% 7% 0% 5% 3% 3% 52%

21% 7% 7% 0% 5% 3% 3% 46%

21% 7% 7% 0% 5% 3% 3% 46%

20% 7% 7% 0% 5% 3% 3% 46%

Long-Term Debt Deferred Tax Liabilities Provisions for pensions Non-current provisions for contingencies and losses Other Non Current Liabilities Non Current Liabilities Liabilities associated with assets held for sales Total liabilities

19% 2% 1%

20% 2% 1%

18% 1% 1%

21% 2% 1%

23% 3% 1%

7% 3% 1%

14% 4% 2%

13% 4% 2%

13% 4% 2%

19% 3% 2%

19% 3% 2%

19% 3% 2%

2% 2% 26% 0% 64%

2% 4% 28% 0% 63%

2% 2% 24% 4% 63%

2% 2% 27% 0% 66%

2% 1% 30% 0% 68%

2% 1% 15% 0% 65%

2% 1% 23% 0% 72%

2% 1% 22% 0% 74%

2% 1% 22% 0% 74%

2% 1% 27% 0% 74%

2% 1% 27% 0% 73%

2% 1% 27% 0% 73%

Share Capital Reserves Retained Earnings(Deficit) Shareholder's Equity

6% 24% 5% 35%

7% 27% 1% 36%

7% 27% 1% 36%

9% 32% -8% 33%

9% 22% 1% 31%

10% 9% 16% 34%

11% 15% 1% 26%

10% 0% 0% 24%

10% 0% 0% 25%

10% 0% 0% 25%

10% 0% 0% 25%

9% 0% 0% 26%

Minority Interest Total Equity

1% 36%

1% 37%

1% 37%

1% 34%

1% 32%

1% 35%

1% 28%

1% 26%

1% 26%

1% 26%

1% 27%

1% 27%

100% 100%

100% 100%

100% 100%

100% 100%

100% 100%

100% 100%

100% 100%

100% 100%

100% 100%

100% 100%

100% 100%

100% 100%

Cash and Equivalents Short-Terms Investments Account Receivables Inventory Other Current Assets Derivative financial instruments Loans Current Assets Net Property Plant, and Equipment Goodwill Intangible Assets Deferred Tax Assets Investments in non consolidated companies Loans and receivables Investments in Associates Non-Current Assets Assets held for sale Total Assets

Total Equity and Liabilities Total Assets

15

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Appendix 6. Cash Flow Statement 2008 PreTax Earning

2009

2010

2011

2012

2013

2014

2015E

2016E

2017E

2018E

2019E

825

368

343

(489)

228

1,527

210

335

367

356

366

371

(-) Depreciation and amortisation (+) Other Items (+) Change in Current Assets (-) Change in Current Liabilities (=) Change in Working Capital

(201) (209) 172 38 141

(257) (28) (268) (106) (127)

(238) 58 (236) (72) (81)

(305) 548 92 85 170

(246) 92 95 (23) 21

(214) (1,337) (11) 9 (116)

(223) (39) 14 (92) 49

(204) 12 (101) 49 (150)

(188) 35 134 40 94

(197) 35 3 3 (0)

(200) 35 17 11 5

(206) 35 17 12 5

(+) Dividends from equity accounted companies (+) (Income) loss equity accounted companies

30 (136)

31 26

17 (65)

35 198

48 (61)

17 (7)

(9)

(9)

(9)

(9)

(9)

Gross Cash Flow from Operating Activities Net Financial Income Net Income Tax Net CFO

570 (194) (178) 198

781 (111) (119) 551

672 (67) (74) 531

427 (87) (83) 257

531 (76) (64) 391

570 (86) (149) 335

355 (69) (75) 211

692 (49) (74) 569

487 (49) (82) 356

579 (49) (79) 451

586 (49) (82) 456

598 (49) (83) 466

Capex for Intangible and PP&E Capex for other assets and Investments Proceeds from investing activities (Increase) decrease in short term investments Net CFI

(225) (484) 778 8 77

(240) (63) 700 37 434

(228) (82) 104 (29) (235)

(253) (99) 840 21 509

(264) (384) 85 28 (535)

(296) (41) 3,418 29 3,110

(249) (282) 50 (481)

(233) (475)

(228) -

(708)

(228)

(228) (228)

(229) (229)

(206) (206)

Other Financing Items Dividends paid to owners of parent Dividends paid to minority Net Change in Debt Net CFF

(102) (174) (28) 131 (173)

(1) (171) (31) (852) (1,055)

8 (167) (33) (41) (233)

(24) (167) (28) (551) (770)

(60) (166) (26) 414 162

(18) (1,323) (16) (1,004) (2,361)

(47) (945) (16) 58 (950)

(3) (170) (16) 597 408

(26) (170) (16) (212)

(26) (170) (16) (212)

(26) (170) (16) (212)

(26) (170) (16) (212)

269

(84)

11

14

48

460.0 728.7 9%

728.7 644.8 8%

644.8 655.3 8%

655.3 669.8 8%

669.8 717.7 8%

10 40

Other Effects Change in cash and cash equivalents

2 104

12 (58)

(71) (8)

87 83

(13) 5

(6) 1,078

4 (1,216)

Cash and Equivalents, Beginning of the year Cash and Equivalents, End of Year NET CASH/SALES

472 576 7%

576 518 6%

518 510 6%

510 593 7%

593 598 8%

598 1,676 22%

1,676 460 6%

Appendix 7. Free Cash flow Restatement

2008 Revenue Growth Opex

2009

2010

2011

2012

2013

2014

2015E

2016E

2017E

2018E

2019E

8,621 -5.0% -7823

8,289 -3.9% -7619

8,339 0.6% -7671

8,048 -3.5% -7421

7,722 -4.1% -7163

7,564 -2.0% -7048

7,493 -0.9% -6977

7,701 2.8% -7159

8,179 6.2% -7599

8,199 0.2% -7620

8,340 1.7% -7749

8,487 1.8% -7884

(=) EBITDA (-) D&A (=) EBIT % Margin (-) Tax on Operating Income % Tax Rate (=) NOPAT

798 (221) 577 6.7% (147) 25.5% 430

670 (276) 394 4.8% (100) 25.5% 294

668 (240) 428 5.1% (109) 25.5% 319

627 (308) 319 4.0% (81) 25.5% 238

559 (256) 304 3.9% (77) 25.5% 226

516 (214) 302 4.0% (77) 25.5% 225

516 (223) 293 3.9% (75) 25.5% 218

542 (204) 338 4.4% (86) 25.5% 252

581 (188) 393 4.8% (100) 25.5% 293

579 (197) 382 4.7% (97) 25.5% 285

591 (200) 392 4.7% (100) 25.5% 292

603 (206) 397 4.7% (101) 25.5% 296

(+) Depreciation & Amortisation

(221)

(276)

(240)

(308)

(256)

(214)

(223)

(204)

(188)

(197)

(200)

(206)

(-) Capex for PPE and Intangible (-) Change in NWC

(225) 141

(240) (127)

(228) (81)

(253) 170

(264) 21

(296) (116)

(249) 49

(233) (150)

(228) 94

(228) (0)

(229) 5

(206) 5

412 -10%

123 -70%

(=) Free Cash Flow Growth in FCF

285

457 60%

197 60%

16

259 32%

143 -45%

372 160%

159 -57%

253 59%

257 2%

291 13%

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Appendix 8. Description of activities

LAGARDERE

28% of sales Books and e-Books publishing

13% of sales

53% of sales Travel Essentials, Free & Luxury Foodservice

Press activities and magazine publishing, audiovisual (TV, radio, audiovisual production), digital and advertising sales brokerage

Duty and

Source: Team estimates

17

5% of sales Athlete representation, venue consulting, events production and management, marketing rights

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Appendix 9. Acquisitions & Disposals

Lagardère Publishing Acquisitions 2 4 1 0 1 0 0 4 4 16 22%

2015 2014 2013 2012 2011 2010 2009 2008 2007 TOTAL

Lagardère Travel Retail

Disposals 1 1 1 0 1 1 3 2 6 16 36%

Acquisitions 1 1 3 6 1 0 1 1 0 14 19%

Disposals 2 3 0 0 0 0 0 0 1 6 14%

Lagardère Active Acquisitions 2 2 4 3 0 1 2 4 7 25

Disposals 2 2 2 1 5 3 3 0 1 19

Lagardère Sports and Entertainment Acquisitions Disposals 3 1 2 0 1 0 1 0 1 0 2 0 1 0 4 0 2 2 17 3 24% 7%

35% 43% NB: This table highlights the number of acquisitions and disposals by division for each year. The most dynamic division is Lagardère Active with 35% of group acquisitions and 43% of group disposals 98.2 M€

70 M€ 865 M€

Feb 08

Jun 12

55 M€

Dec 08

Nov 06

May 15

Apr 14

Acquisitions

Lagardère Acquisition & Divesture Timeline Divestures Apr 13

Feb 08

Mar 11

2,283 M€

Oct 13

1,020 M€ 651 M€

Source: Company data

18

485 M€

Aug 15

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Appendix 10. GDP Zones and Forecasts 11.0% 9.0% 7.0% 5.0% 3.0% 1.0% 2013

-1.0%

2014 EURO AREA GDP

2015E USA GDP

2016E ASIA GDP

2017E

Emirates GDP

Source: World Bank

Appendix 11. Major Currency Snapshot 90

4.5

EUR/RUB

80

4.0

70

3.5

EUR/BRL

60 3.0

50 40 01/14

07/14

01/15

2.5 01/14

07/15

EUR/USD

1.4

9.0

07/14

01/15

07/15

EUR/CNY

8.5 8.0

1.3

7.5

1.2

7.0 1.1 1.0 01/14

6.5 07/14

01/15

6.0 01/14

07/15

Source: Factset

19

07/14

01/15

07/15

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Appendix 12. Publishing Snapshot Publisher Holding

Hachette

PRH

LAGARDERE

BERTELSMANN

Harper Collins NEWS CORPORATION

Simon&Schuster CBS CORPORATION

LFY Revenue (M€) LFY Organic Growth Organic Average % 5 Yr Reported Growth Average % 5 Yr

2029 -1.8% -2.6% -1.3%

3324 0.70% 6.06% 13.63%

1257 -3.07% 0.59% 8.91%

586 NA NA -0.31%

LFY EBITDA LFY EBITDA Margin 5 Year Average EBITDA Margin

221 10.9% 11.9%

452 13.6% 13.5%

167 13.3% 10.5%

81 13.8% 12.0%

LFY Geographic Exposure USA UK Europe Other

21.3% 18.2% 37% 24%

55.6% 11.8% 16.1% 17%

44.0% 26.6% 2.0% 27%

89% 2% 2% 7%

Digital exposure

c10%

c20%

c25%

c25%

Source: Company data

Appendix 13a. Publishing FCF dividend coverage

Source : Company

Appendix 13b. Publishing Industry Profitability Erosion

Source : The book publishing industry, 3rd edition

20

8%

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EUROPE PAX EURO AREA GDP

2008 1.2% 6.7%

2009 -5.8% -10.0%

2010 3.0% -1.1%

2011 6.8% 7.8%

2012 1.0% -5.9%

2013 2.2% 4.2%

2014 4.7% 3.1%

2015E 1.7% 1.5%

2016E 1.9% 1.8%

2017E 1.8% 1.6%

CAGR 20082013 1.9% -1.3%

NORTH AMERICA USA GDP

-2.9% 1.7%

-4.0% -2.0%

2.6% 3.8%

2.1% 3.7%

3.4% 4.2%

-1.6% 3.7%

5.3% 3.9%

12% 2.7%

1.4% 2.8%

0.9% 2.4%

1.2% 2.6%

ASIA ASIA GDP

0.1% 26.1%

45.1% 9.6%

21.5% 20.9%

6.8% 22.7%

16.0% 11.5%

5.1% 10.5%

5.9% 7.9%

7.5% 6.7%

7.5% 6.7%

7.4% 6.6%

18.1% 8.5%

Middle East Emirates GDP

9.0% 22.3%

9.2% -19.6%

15.4% 12.8%

8.0% 21.5%

13.2% 7.2%

15.2% 8.1%

9.4% -0.2%

11.0% 2.2%

10.9% 3.7%

10.9% 3.8%

12.2% 6.2%

WorldWide World GDP

-1.2% 9.6%

2.6% -5.2%

5.4% 9.7%

4.8% 10.8%

4.1% 2.1%

3.1% 2.8%

3.0% 2.6%

3.0% 2.8%

3.0% 3.3%

3.0% 3.2%

2.3% 3.9%

Sources : World Bank for GDP data and forecast, Airport Council International for airport data

Appendix 15: Europe PAX and Forecast with GDP

10% 8% 6% 4% 2% 0% -2% -4% -6% -8% -10% -12%

2008

2009

2010

2011

2012

EUROPE PAX

2013

2014

2015E

2016E

2017E

2015

2016

2017

EURO AREA GDP

Sources: World Bank for GDP data and forecast, Airport Council International for airport data

Appendix 16: Europe PAX and Forecast with Oil Price 40% 30% 20% 10% 0% -10%

2008

2009

2010

2011

2012

2013

2014

-20% -30% -40% -50% EUROPE PAX

OIL PRICE

Sources: OPEC for GDP data and forecast, Airport Council International for airport data

21

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Appendix 17. Management Structure A. Partners Lagardère SCA is a French partnership limited by shares, who has two categories of Partners.

Lagardère SCA (MMB)

Limited Partners**

General Partners*

Arjil CommanditéeArco

Arnaud Lagardère

B. Executive Committee Executive Committee

Ramzi Khiroun Spokesman for the Managing Partners

Managing Partners

Arnaud Lagardère

Arnaud Lagardère Chairman General and Managing Partner

Arjil CommanditéeArco

Pierre Leroy Secretary General Co-Managing Partner

Dominique D’Hinnin CFO Co-Managing Partner

Thierry Funck-Brentano Chief HRCSDO Co-Managing Partner

*As a French partnership limited by shares, two General Partners are liable to an unlimited extent for company’s liability. *Limited Partners are represented by a Supervisory Board, and managed by Managing Partners *In Lagardère SCA, General Partners are also Managing Partners Source: Company data

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Appendix 17. Management structure The members of the Executive Committee Director

Position

Held Since

Affiliates/Other positions

Arnaud Lagardère

Managing Partners of Lagardère SCA

Managing Partners since March 2003 Tenure: 29 Years

• • • • • • • • • • • • • • • • • • • •

Pierre Leroy

Co-Managing Partner of Lagardè re SCA Secretary General of the Lagardè re group

Director and CEO of MMB in 1987 Chairman and CEO of Lagardère Sociétés in 1988 Secretary General of Lagardère group in 1993 Tenure: 29 Years

• • • • • • • • • • • • • • • • • • •

Source: Company data

23

Chairman and Chief Executive Officer, Arjil Commandité e-Arco SA Chairman, Lagardè re SAS Chairman, Lagardè re Capital & Management SAS Chairman and Chief Executive Officer and Chairman of the Board of Directors of Lagardè re Media SAS Director, Hachette Livre SA Chairman of the Supervisory Board, Lagardè re Services SAS Chairman of the Supervisory Board, Lagardè re Active SAS Chairman of the Executive Committee, Lagardè re Unlimited SAS Director, Lagardè re Ressources SAS Chairman, Lagardè re Unlimited Inc. Permanent representative, Lagardè re Unlimited Inc. Managing Member, Lagardè re Unlimited LLC Chairman, Sports Investment Company LLC Member of the Board of Directors, World Sport Group Investments Ltd Member of the Board of Directors, World Sport Group Holdings Ltd Chairman, Fondation Jean-Luc Lagardè re Chairman, Lagardè re Paris Racing Ressources sports association (not-for-profit organisation) Chairman, Lagardè re Paris Racing sports association (not-forprofit organisation) Director, Deputy Chairman and Chief Operating Officer, Arjil Commandité e Arco SA Chairman, Lagardè re Ressources SAS Director, Deputy Chairman and Chief Operating Officer, Lagardè re Media SAS Director, Hachette Livre SA Member of the Supervisory Board, Lagardè re Services SAS Member of the Supervisory Board, Lagardè re Active SAS Director, Lagardè re Active Broadcast (a Monaco-based joint-stock corporation) Chairman of the Supervisory Board, Socié té d’Exploitation des Folies Bergè re SAS Liquidator, Financiè re de Pichat & Compagnie SCA Chairman, Lagardè re Participations SAS Chairman, Lagardè re Expression SAS Chairman, Dariade SAS Chairman, Sofrimo SAS Chairman, Holpa SAS Permanent representative of Lagardè re Participations to the Board of Directors, Galice SA Representative, Lagardè re Participations, Chairman, Hé lios SAS Director, Ecrinvest 4 SA Director, Fondation Jean-Luc Lagardè re Chairman and Chief Executive Officer, Lagardè re Paris Racing Ressources SASP Manager, Team Lagardè re SNC Member of the Board of Directors, Lagardè re UK Ltd Director, Lagardè re Capital & Management SAS

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Appendix 17. Management structure The members of the Executive Committee Director

Position

Held Since

Affiliates/Other positions

Dominique d’Hinnin

Co-Managing Partner of Lagardè re SCA CFO, Lagardè re group

CFO since 1998 Tenure: 18 Years

• • • • • • • • • • • •

Thierry Funck-Brentano

Co-Managing Partner of Lagardè re SCA Chief Human Relations, Communications and Sustainable Development Officer, Lagardè re group

Entire career with the Lagardère group Tenure: 23 Years

• • • • • • • • • • • • • • • • • •

Chief Operating Officer, Arjil Commandité e-Arco SA Director and Chief Operating Officer, Lagardè re Media SAS Chairman and Chief Executive Officer, Ecrinvest 4 SA Member of the Supervisory Board, Lagardè re Active SAS Permanent representative of Lagardè re Media SAS to the Board of Directors of Lagardè re Active Broadcast (a Monacobased joint-stock corporation) Member of the Supervisory Board, Lagardè re Services SAS Director, Hachette Livre SA Director, Lagardè re Ressources SAS Member of the Supervisory Board, Matra Manufacturing & Services SAS Director, Marie Claire Album SA Director, Holding E. Prouvost SA Member of the Board of Directors, Lagardè re North America, Inc. Director and Chief Operating Officer, Arjil Commandité e-Arco SA Director and Chief Operating Officer, Lagardè re Media SAS Permanent representative of Lagardè re Media SAS to the Board of Directors, Hachette Livre SA Member of the Supervisory Board, Lagardè re Active SAS Member of the Supervisory Board, Lagardè re Services SAS Chairman and member of the Management Committee, Lagardè re Unlimited SAS Member of the Board of Directors, World Sport Group Holdings Ltd Member of the Board of Directors, World Sport Group Investments Ltd Representative, Lagardè re Unlimited, Chairman, Lagardè re Unlimited Stadium Solutions SAS Director, Lagardè re Active Broadcast (a Monaco-based jointstock corporation) Director, Lagardè re Ressources SAS Member of the Supervisory Board, Socié té d’Exploitation des Folies Bergè re SAS Director, Lagardè re Capital & Management SAS Chairman of the Supervisory Board, Matra Manufacturing & Services SAS Director, Ecrinvest 4 SA Director, Fondation Jean-Luc Lagardè re Director, Secretary General and Treasurer, Lagardè re Paris Racing Ressources sports association (not-for-profit organisation) Secretary General and member of the steering committee, Lagardè re Paris Racing sports association

Source: Company data

Corporate Officers director

position

Held Since

Joined Lagardère Since

Other positions held before replacement

Arnaud Nourry

Chairman, CEO Hachette Livre

23 May 2003

1992

Director, Groupe Alexandre Hatier

Dag Rasmussen

Chairman,CEO Lagardère Travel Retail

2011

1988

COO, president, Lagardère Travel Retail

Denis Olivennes

Chairman,CEO Lagardère Active

7 november 2011

2010

president, Canal+ France CEO, FNAC

Arnaud Lagardère

CEO Lagardère Sports and Entertainment

Gérar Adsuar

Deputy CFO Lagardère SCA

1987

25 January 2011

1989

Source: Company data

24

CFO, Telecommunication satellites business of Astrium

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Appendix 18. Share ownership structure

A. Share Capital

French Institutional Investors

Non-French investors

12.34%

67.75%

Private investors

Lagardère Capital&Management

8.28%

6.79%

Employees & Group Savings plan investment Funds 2.67%

Treasury Shares

2.27%

Lagardère SCA (MMB) B. Voting Rights

French Institutional Investors

Non-French investors

13.03%

63.2%

Private investors

Lagardère Capital&Management

12.73%

8.18%

Employees & Group Savings plan investment Funds 2.86%

Lagardère SCA (MMB)

C. Principal shareholders Shareholders

Share Capital

The rights to Vote

Arnaud Lagardère

8.18%

12.73%

Qatar Investment Authority

12.827%

9.98%

Source: Company data

25

Treasury Shares

0%

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Appendix 19. World’s busiest airports (by passenger trafic)

Lagardère Travel Retail presence

Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

Location Atlanta - Hartsfield-Jackson Beijing London Heathrow Tokyo - Haneda Los Angeles Dubai Chicago - O'Hare Paris - CDG Dallas - Fort Worth Hong Kong Frankfurt Jakarta Soekarno-Hatta Istanbul - Atatürk Amsterdam - Schiphol Canton Baiyun Changi New York - JFK Denver Shanghai - Pudong Kuala Lumpur

Country USA China United Kingdom Japan USA United Arab Emirates USA France USA China Germany Indonesia Turkey Netherlands China Singapore USA USA China Malaysia

Number of passengers 96,178,899 86,130,390 73,408,442 72,826,862 70,665,472 70,475,636 70,015,746 63,808,796 63,523,489 63,148,379 59,566,132 57,005,406 56,767,108 54,978,023 54,780,346 54,091,802 53,635,346 53,472,514 51,651,800 48,932,471

NB: A portfolio of stores in 220 airports across four continents. Among the 20th busiest airports in the world, Lagardère TR is present in 11 airports. Sources: Company data & Airport Council International

26

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Appendix 20. SWOT Analysis

Weaknesses

Strengths

- Still too dependent on mature and low growth activities (Publishing 40% EBIT group part)

- Diversified activities: four businesses related to media - Ability to reorganize itself towards growing activities

- Few synergies between sport and entertainment (10% of EBITDAR media) and other media segments

- Responsive to economic changes (acquisitions) - Important cash return for shareholders from recent divestures (EADS and Canal+)

- Poor corporate governance (Partnership limited by shares) - Disability to well price acquisitions: Le Guide, Sportfive

- Ability to adapt itself to globalization, digitalization trends - Emblematic radio and magazines

SWOT Threats

Opportunities - Growth opportunities in airport retail division thanks to growing air traffic and passenger spends

- Intense competition in all the business activities affecting the group’s market share

- Growth with potential acquisitions (Travel retail & Active)

- High competition with market leaders on the online retail (Google and Amazon)

- Digital revolution: double screen eBook and smartphones will bear margin in Publishing industry

- Global economic slowdown: Lagardère is subject to growth slowdown of advertising in Europe - Industry consolidation reduces Lagardère’s sales power

Source: Team estimates

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Appendix 21. Peers summary

Book Publishing

Media

Travel Retail

Company Name

Market Cap €Bn (12/28/2015)

Total Revenue €M

Total EBITDA Sales per Margin Business Unit €M

BU %Revenue

Net Debt/EBITDA

Pearson

8,597

6,503

17.7%

6,503

100%

2.54x

News Corp

7,335

7,406

11.3%

1,667

23%

-2.12x

John Wiley

2,369

1,553

20.3%

1,553

100%

1.47x

Scholastic

1,203

1,308

6.7%

1,308

100%

-3.46x

Mondadori

263

1,238

6.9%

346

28%

3.97x

Lagardère

3,573

7,110

11.0%

2,004

28%

2.82x

Median

2,369

1,553

11.3%

1,553

1.47x

RTL Group

11,609

6,003

21.0%

6,003

100%

0.88x

News Corp

7,335

7,406

11.3%

5,731

77%

-2.12x

TF1

2,079

2,029

9.6%

2,029

100%

-1.66x

NRJ Group

784

380

15.8%

380

100%

-2.61x

GL Events

372

942

11.2%

942

100%

3.08x

Highlight Communications

265

298

22.4%

298

100%

-0.04x

Mondadori

263

1,238

6.9%

889

72%

3.97x

Lagardère

3,573

7,110

10.4%

1,352

19%

Median

784

1,238

11.3

942

Dufry

5,887

4,973

12.0%

4,973

100%

2.82x -0.04x 4.52x

Elior

3,260

5,581

8.1%

5,581

100%

3.33x

WH Smith

2,737

1,579

14.3%

706

45%

-0.10x

Autogrill

2,231

4,766

8.6%

2,732

57%

2.56x

Lagardère

3,573

7,110

4.8%

3,814

54%

2.82x

Median

2,998

4,869

10.3%

3,852

Source: Factset

28

2.95x

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Appendix 22. GDP growth forecasts

World Economy % World (WBG members) US Euro Area Central & Eastern Europe East Asia & Pacific China

2010 4.3 2.5 2.0 0.2 9.8 10.6

2011 3.2 1.6 1.7 1.6 8.4 9.5

2012 2.5 2.2 -0.7 0.6 7.4 7.8

2013 2.4 1.5 -0.2 2.8 7.1 7.7

2014 2.6 2.4 0.9 2.1 6.8 7.3

2015E 2016E 2017E 2.4 2.9 3.1 2.5 2.7 2.4 1.5 1.7 1.7 2.9 3.3 3.7 6.4 6.3 6.2 6.9 6.7 6.5

Source: World Bank

Appendix 23. Target capital structure

37% Net Debt/(Net Debt+Equity)

63%

Equity/(Net Debt+Equity)

Source: Team estimates

Appendix 24. WACC components

Weighted Average Cost of Capital

Risk-free rate

0.91%

France 10 Years OAT

Based on A. Damodaran's data: average beta of publishing & newspaper, retail and broadcasting sectors Based on A. Damodaran's data: total equity risk premium 6.41% of France Cost of equity 11.4%

Beta

1.63

Market premium Tax rate

25.7%

Based on Lagardère data

Cost of debt

3.00%

Based on Lagardère data

Cost of debt after-tax 2.23% WACC 7.9% Source: Team estimates

NB: Damodaran’s data are dated December 2015 𝐶𝑜𝑠𝑡 𝑜𝑓 𝑒𝑞𝑢𝑖𝑡𝑦 = 𝑅𝐹𝑅 + 𝛽 𝑀𝑎𝑟𝑘𝑒𝑡 𝑃𝑟𝑒𝑚𝑖𝑢𝑚 𝑊𝐴𝐶𝐶 = 𝐶𝑜𝑠𝑡 𝑜𝑓 𝑒𝑞𝑢𝑖𝑡𝑦 ×

𝐸𝑞𝑢𝑖𝑡𝑦 𝑁𝑒𝑡 𝐷𝑒𝑏𝑡 + 𝐶𝑜𝑠𝑡 𝑜𝑓 𝑑𝑒𝑏𝑡 × 1 − 𝑒𝑓𝑓𝑒𝑐𝑡𝑖𝑣𝑒 𝑡𝑎𝑥 𝑟𝑎𝑡𝑒 × 𝐸𝑞𝑢𝑖𝑡𝑦 + 𝑁𝑒𝑡 𝐷𝑒𝑏𝑡 𝐸𝑞𝑢𝑖𝑡𝑦 + 𝑁𝑒𝑡 𝐷𝑒𝑏𝑡 29

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Appendix 25. Scenario Analysis

Revenue

2015E

2016E

2017E

2018E

2019E

7,701

8,179

8,199

8,340

8,487

Growth

2.8%

Opex

-7159

6.2% -7599

0.2% -7620

1.7% -7749

1.8% -7884

(=) EBITDA

542

581

579

591

603

(-) D&A

(204)

(188)

(197)

(200)

(206)

(=) EBIT

338

393

382

392

397

% Margin

4.4%

(-) Tax on Operating Income

(86)

% Tax Rate

25.5%

4.8% (100) 25.5%

4.7% (97)

4.7% (100)

25.5%

4.7% (101)

25.5%

25.5%

(=) NOPAT

252

293

285

292

296

(+) Depreciation & Amortisation

(204)

(188)

(197)

(200)

(206)

(-) Capex for PPE and Intangible

(233)

(228)

(228)

(229)

(206)

(-) Change in NWC

(150)

94

(=) Free Cash Flow Growth in FCF WACC

5

159

253

257

291

160%

-57%

59%

2%

13%

7.93% 2.0%

Terminal Value

5,000

P V of terminal value

3,685

P V of OFCF

FCF 18%

783

Entreprise value 2015

4,468

Net debt 2015

1,404

Minority 2015e + Pension for Obligations 2015e

254

E 2015 = EV - Net debt - Minorities and Pension

2,810

E 2016 = E 2015 *(1+Ke)

3,129

Shares outstanding

131

Target Price

23.9

WACC

5

372

Perpetuity growth rate

WACC

(0)

Terminal Value, 82%

7.5% 7.7% 7.9% 8.1% 8.3%

1.6% 24.3 23.0 21.8 20.6 19.6

Perpetuity Growth 1.8% 2.0% 25.4 26.7 24.1 25.2 22.8 23.9 21.6 22.6 20.5 21.4

2.2% 28.0 26.5 25.0 23.7 22.4

2.4% 29.5 27.8 26.3 24.8 23.5

7.5% 7.7% 7.9% 8.1% 8.3%

1.6% -4.4% -9.5% -14.3% -18.8% -23.0%

Perpetuity Growth 1.8% 2.0% 0.2% 5.1% -5.2% -0.7% -10.3% -6.0% -15.0% -11.1% -19.5% -15.8%

2.2% 10.4% 4.2% -1.5% -6.8% -11.8%

2.4% 16.1% 9.5% 3.4% -2.3% -7.6%

Source: Team estimates

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Business valuation(€M)

EV/EBITDA

Publishing

1759

Media

988

Travel Retail

2030

EV Group 2016

4778

Net Debt

1404

Minorities

254

Conglomerate discount

-25%

Target Price (€)

17.85

NB: EV/EBITDA is computed as EV at the beginning of the fiscal year divided by the forecast EBITDA of the same fiscal year.

P/Earnings Valuation

FY16E

Estimated EPS

1.73

Average P/E segment

14.2x

Conglomerate discount

-25%

Target Price (€)

18.52

NB: We applied a conglomerate discount of 25% to Lagardère target price because we believe the company not to be a specialist in each of them and we don’t see synergies between them.

Multiples valuation

Target price (€)

P/Earnings

18.52

EV/EBITDA

17.85

Average Target Price (€)

18.10

Sources: Team estimates & Factset

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Appendix 27. Team Estimates VS Consensus

SALES

MMB Consensus Team Estimates Position

2015E 7,146 7,378 3.3%

Team Estimates VS Consensus 2016E 7,350 7,856 6.9%

2017E 7,522 7,887 4.9%

EBITDA

MMB Consensus Team Estimates Premium/Discount

2015E 573 569 -0.8%

2016E 640 618 -3.5%

2017E 663 612 -7.8%

EPS

MMB Consensus Team Estimates Premium/Discount

2015E 1.8 1.5 -15.7%

2016E 1.9 1.7 -10.2%

2017E 2.0 1.6 -19.7%

Appendix 28. Valuation Summary

Multiple

TP

Weight

EV/EBITDA

€ 23.8

25%

P/E

€ 24.7

25%

REGRESSION P/E

€ 28.3

25%

P/FCF

€ 19.0

25%

Conglomerate Discount Multiple Valuation

€ 18.00

50%

DCF Valuation

€ 23.90

50%

Target Price

€ 21.00

25%

Source: Team estimates

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Go back Appendix 29. SOTP Valuation (EV/EBITDA Multiple)

EV/EBITDA 2016E 2017E

EBITDA CONSENSUS 2015E 2016E 2017E

CAGR 1517

Publishing

Pearson Wiley News Corporation Mondadori Scholastic Industry Multiple Publishing EBITDAe* Target EV

7.4x 8.8x 4.8x 6.4x 7.3x 7.3x 248 1759

7.2x 7.3x 4.1x 5.4x 6.4x 6.4x 244 1550

869 349 948 78 110

818 390 1004 91 132

843 470 1063 102 145

-1.5% 16.0% 5.9% 14.4% 14.8%

233

248

244

2.5%

6.9x 8.6x 6.4x 5.8x 4.2x 7.9x 6.8x 144 988

5.4x 8.1x 5.4x 5.6x 3.9x 6.4x 5.5x 139 765

191 1346 78 111 70 57

212 1399 91 118 73 73

261 1470 102 116 77 85

16.9% 4.5% 14.4% 2.2% 4.9% 22.1%

150

144

139

-3.77%

6.6x 9.5x 10.8x 8.1x 8.8x 225 2030

5.9x 8.0x 10.4x 7.4x 7.7x 229 1811

377 725 170 508

405 990 177 543

436 1116 183 575

7.54% 24.07% 3.75% 6.39%

186

225

229

10.78%

Active, Sport and Entertainment

TF1 RTL Group Mondadori GL Events HightLight Com NRJ Group Industry Multiple Media EBITDAe* Target EV Travel and Retail

Autogrill Dufry WHSmith Elior Travel Retail Multiple Travel Retail EBITDAe* Target EV Source: Team estimates

EV Group Net Debt 2016e Pension and Minorities 2016e Equity Value Share Out Target Price

4778 1404 254 3120 131 € 23.80

We find a before discount target price of 23.80€ using the EV/EBITDA multiple by division. We used the Factset Consensus for each peer to obtain the industry multiple. We used our team estimates EBITDA to derive the target price.

Sources : Factset, Consensus & Team estimates

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Appendix 30. SOTP (P/E Multiple)

P/E

EPS Estimate

2016E

2015E

2016E

2017E

CAGR 1517

PSON-GB

Pearson

10.7x

0.70

0.64

0.66

-3.3%

JW.A-US

Wiley

12.8x

2.79

3.27

3.80

16.8%

NWSA-US

News Corporation

19.7x

0.57

0.64

0.71

11.6%

MN-IT

Mondadori

9.5x

0.05

0.10

0.12

60.2%

SCHL-US

Scholastic

20.2x

1.33

1.87

1.63

10.7%

Publishing Multiple

12.8x

Weight

50%

TFI-FR

TF1

19.6x

0.46

0.50

0.65

19.0%

RTL-BE

RTL Group

14.8x

4.81

4.98

5.26

4.5%

MN-IT

Mondadori

9.5x

0.05

0.10

0.12

60.2%

GLO-FR

GL Events

10.8x

1.34

1.52

1.48

5.1%

HLG-ETR

HightLight Com

13.8x

0.34

0.40

0.44

14.1%

NRG-FR

NRJ Group

22.8x

0.29

0.41

0.51

33.3%

Media Multiple

14.3x

Weight

19%

AGL-IT

Autogrill

26.3x

0.23

0.31

0.38

28.0%

DUFN-CH

Dufry

12.7x

5.19

8.76

11.20

46.9%

SMWH-GB

WHSmith

16.9x

0.94

1.01

1.09

7.9%

ELIOR-FR

Elior

15.9x

0.99

1.12

1.22

11.4%

Travel Retail Multiple Weight Average PE Segments Lagardère EPS (e) Team Estimates Source: Team estimates

Target Price

16.4x 32% 14.2x 1.74 € 24.7

Sources : Factset Consensus & Team estimates

34

We find a before discount target price of 24.7€ using the P/E multiple by division. We applied the EBIT 2016E weight by division to find the repartition P/E between activities. We used the Factset Consensus for each peer to obtain the industry multiple. We used our team estimates EPS to derive the target price.

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Appendix 31. FCF per share Valuation

P/FCF 2016E 2017E Pearson News Corporation Scholastic TF1 RTL Group GL Events HightLight Com NRJ Group Dufry WHSmith Elior Median Multiple Lagardère FCF Team estimates Share Out FCF/share TP

15.4x 11.2x 19.6x 13.9x 12.3x 15.9x 32.9x 25.4x 9.0x 15.7x 17.7x 15.7x 159 131 1.21 € 19.0

13.0x 9.9x 18.7x 12.4x 11.7x 8.6x 15.4x 19.6x 8.2x 14.7x 13.8x 13.0x 253 131 1.93

FCF per Share CONSENSUS 2015E 2016E 2017E 0.5 1.1 1.7 0.5 4.2 0.1 0.0 0.4 -21.9 1.0 0.9

0.4 1.1 1.9 0.7 6.0 1.0 0.2 0.4 12.3 1.1 1.0

0.5 1.3 2.0 0.8 6.3 1.9 0.4 0.5 13.6 1.2 1.3

CAGR 1517 6.6% 8.1% 7.5% 21.3% 23.1% NS NS 10.9% NS 7.3% 19.1%

Sources : Factset, Consensus and Team estimates

Appendix 32. P/Earnings regression

Group Publishing Travel Retail Media

Weight* EPS 2016e Regression Multiple Target Value 100% € 1.73 16.3x € 28.3 51% € 0.88 15.2x € 13.4 31% € 0.54 17.9x € 9.6 18% € 0.31 16.9x € 5.3

NB: A broad sample of 240 firms (153 in Retail, 40 in Media and 47 in Publishing & Newspaper) was used to regress forward P/E against 8 variables: leverage, EPS long-term growth rate (g), payout, beta, market capitalization (logarithm), return on equity, liquidity, default spread for cost of debt. We then applied the *EBIT 2016e weight of each Lagardère’s activity to get a global group P/E which we multiplied by the forecasted 2016 EPS.

Source: Team estimates

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Appendix 33. P/Earnings Regression Bridge by Segment

€28.3

€5.3 €9.6

€13.4

Appendix 34. Forecast of EPS Growth of Peers

Companies

2016E

2017E

Lagardère

16%

-5%

Pearson

-10%

1%

Wiley

17%

16%

News Corporation

16%

12%

Mondadori

104%

17%

Scholastic

37%

-11%

Companies

2016E

2017E

Lagardère

16%

-5%

TF1

6%

30%

RTL Group

2%

7%

Mondadori

104%

17%

GL Events

15%

-5%

HightLight Com

19%

10%

NRJ Group

43%

27%

Companies

2016E

2017E

Lagardère

16%

-5%

Autogrill

34%

18%

Dufry

73%

24%

WHSmith

8%

7%

Elior

12%

7%

Source: Factset 36

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Appendix 35. Scenario Analysis Bear Case

BASE CASE

Bull Case

€26.20

Average TP €

€19.10

€21.00

Up/Downside

-25%

-17%

3.5%

Recommendation

SELL

SELL

NEUTRAL

DCF TP € EV/EBITDA TP €

€20.45 €17.80

€23.90 €18.00

€30.7 €21.70

CAGR 15-19

-1.00%

1.10%

3.20%

Sales

Underlying organic growth at -1.5%. 50m€ additional sales for the french education reform in 2016.

Publishing

EBITDA CAGR 15-19 EBITDA Margin

Underlying organic growth at 0.5%. 75m€ additional Underlying organic growth at 1.5%. 150m€ additional sales for the french education reform in 2016 sales for the french education reform in 2016

-1.92%

0.89%

3.70%

10Bps pa decrease in EBITDA Margin with defavorable Constant digital part, pressure on margin from author 5 Bps increase in EBITDA Margin with digital business digital mix. Strong pressure on margin from author royalties (-5bps on margin pa) mix. No pressure from author royalties royalties (-10bps on margin pa )

Travel & Retail and Distribution CAGR 15-19 Sales

2.00%

4.40%

Underlying TravelR organic growth at CAGR 3.4% and Underlying organic growth at 2% with deteriorating 10% for Distribution. Contraction for 2016 and 2017 emerging market economies (Russia, Bresil and China ) . with low oil prices and high volatility on emerging FX. Paradies segment sales growth at c4%. Paradies segment sales growth at c6%

5.5% Underlying organic growth at 5%. Paradies Sales growth at c10%

EBITDA CAGR 15-19

3.80%

8.20%

12.40%

EBITDA Margin

Increase in the EBITDA Margin with 6% from Paradies, no synergies.

Increase in the EBITDA Margin with 8% from Paradies, linear syngeries of 16M€ in 2019, and constant underlying segment margin at 5.1%.

Increase in the EBITDA Margin with 12% from Paradies, linear syngeries of 16M€ in 2019, and constant underlying TR margin

Active CAGR 15-19 Sales

-1.40% NA

Underlying organic growth at -4.5% on magazine segment and 1% growth in the audiovisual.

EBITDA CAGR 15-19 EBITDA Margin

NA

-1.40% NA

Constant EBITDA Margin at 7.5%

NA

Sport CAGR 15-19

1.10% NA

High cyclicality in sales growth. Strong years in 2016 and 2017 but low activity thereafter.

EBITDA CAGR 15-19

1.10%

EBITDA Margin

NA

Regression model for the estimates of EBITDA Margin based on historical operating leverage.

Sales

NA

NA

Structure Impairment Loss

45M€ from LeGuide, NewsWeb and BilletReduc

None

None

Restructuring

70M€ Restructuring Costs Pa

35M€ Restructuring costs (constant) pa.

None

Gains/Losses

None

25M€ Gains from Deutsche Bank Sales in 2016

None

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Appendix 36. Discount to peers

Premium/discount to peers : at current stock price the discount is on the bottom of it’s cycle

Industry vs MMB P/E NTM, : Historically, the group always traded at c20% discount to peers 30%

25 BENCHMARK P/E NTM

20

20%

MMB P/E NTM

Premium or Discount

10% 0%

15

-10% Median 20%

-20%

10

-30% -40% 12/10 10/11 08/12 06/13 04/14 02/15 12/15

5 12/10 09/11 06/12 03/13 12/13 09/14 06/15 Sources: Factset & team estimates

Sources: Factset & team estimates

We compared the Lagardere P/E NTM to the benchmark P/E NTM which we obtained by classifying each peers into their sub industries, and weighting each sub industries median P/E NTM with the annual division weight for Lagardere. We could therefore compute a premium or discount based on how expensive Lagardere should trade with its exposures on industries and how much it currently trade in the market. We underline two important point 1/Lagardere experienced above median discount, between October 2012 and August 2014. The team researchs found a downward revision of NTM EPS consensus with a slight increase in price and 2/Currently the stock is trading near its 5 years median up of its cycle, we believe the stock to trade at c25% discount to peers at end 2016.

EPS NTM Consensus

We believe conglomerate discount is justified 30 Autogrill

2.00 25

Next Radio TV

1.80

Scholastic

1.60 1.40 1.20

P/E 2016E

20

Elior

15 Lagardère

1.00

5

0.80

0 0.0%

GL Events

HighLight

Fair value valuation R² = 0.7018

5.0%

10.0%

15.0%

20.0%

CAGR EPS 15-17 Sources: Factset & team estimates

NRJ

TF1

WHSmith RTL

10

NewsCorp

Sources: Factset & team estimates 38

25.0%

30.0%

35.0%

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Appendix 37. Extended Dupont Analysis Tax Burden Ex Associates (x) Interest burden (x) Non Recurring Impact (x) EBIT Margin (=) Net profit margin ex associates Total asset turnover (exassociates) Effect of associates on assets turnover (x) Total asset Turnover (=) ROA (x) Leverage (=) ROE

2008 2009 2010 2011 2012 2013 2014 2015E 2016E 2017E 2018E 2019E 0.74 0.74 0.74 0.74 0.74 0.74 0.74 0.74 0.74 0.74 0.74 0.74 0.70 0.76 0.71 1.16 0.33 0.94 0.64 0.85 0.86 0.86 0.86 0.87 1.00 0.86 0.65 -1.88 0.40 5.03 0.68 0.96 0.91 0.91 0.91 0.91 6.7% 4.8% 5.1% 4.0% 3.9% 4.0% 3.9% 4.4% 4.8% 4.7% 4.7% 4.7% 3.5%

2.3%

1.7%

-6.4%

0.4%

14.0%

1.3%

2.7%

2.8%

2.7%

2.7%

2.7%

1.13

1.07

1.06

0.88

1.02

1.07

0.97

1.03

0.98

0.99

0.98

0.97

0.30 0.27 0.25 0.23 0.19 0.03 0.03 0.03 0.03 0.03 0.03 0.03 1.43 1.34 1.31 1.11 1.21 1.10 1.00 1.06 1.01 1.01 1.00 0.99 3.07% 2.15% 1.66% -7.28% 0.38% 13.07% 1.29% 2.59% 2.85% 2.74% 2.81% 2.83% 2.24 6.9%

2.24 4.8%

2.26 2.41 3.7% -17.5%

2.70 2.85 1.0% 37.3%

3.68 3.97 3.91 3.86 3.80 3.73 4.8% 10.3% 11.2% 10.6% 10.7% 10.6%

(VS) ROE include associates 12.52% 5.56% 5.42% 13.75% 4.64% 37.51% 5.21% 10.70% 11.60% 10.99% 11.07% 10.98% Magnitude Effect from associates 82.2% 15.2% 44.6% -21.5% 348.9% 0.7% 9.5% 4.4% 3.9% 4.1% 3.9% 3.9%

Highlight: We used an extended DuPont Analysis to underline the magnitude effect Associates and JV’S have on ROE. On average between 2008 and 2014 the magnitude impact on ROE stand at 68.5%. Due to this important level, we think a more detailed analysis provide useful information on the underlying core business profitability of Lagardere. Appendix 38. Jv’s and Non Recurring Impact on Net Margin

Revenue EBITDA EBIT NOPAT Normalized net earnings

2008 2009 2010 2011 2012 2013 2014 2015E 2016E 2017E 2018E 2019E 8,621 8,289 8,339 8,048 7,722 7,564 7,493 7,701 8,179 8,199 8,340 8,487 9.3% 8.1% 8.0% 7.8% 7.2% 6.8% 6.9% 7.0% 7.1% 7.1% 7.1% 7.1% 6.7% 4.8% 5.1% 4.0% 3.9% 4.0% 3.9% 4.4% 4.8% 4.7% 4.7% 4.7% 429 293 318 237 226 224 218 251 292 284 291 295 298 232 257 166 165 157 163 215 256 248 255 259

Share of Results Associates JV's Profit Ex Associates

34 246 578

27 29 288

31 65 353

18 111 295

17 105 287

12 7 176

8 9 180

8 9 232

8 9 273

8 9 265

8 9 272

8 9 276

After Tax non Recurring Item Normalized net earnings

1 579

-41 247

-111 242

-683 -387

-134 152

905 1081

-69 111

-9 223

-26 247

-26 239

-26 246

-26 250

Net Earnings Margin Core Net Earnings Margin With JV's Magnitude from JV's To Core Net Earnings Margin Magnitude from Non Recurring

3.46% 2.80% 3.08% 2.07% 2.13% 2.07% 2.18% 2.79% 3.13% 3.02% 3.06% 3.05% 6.70% 3.47% 4.23% 3.67% 3.71% 2.32% 2.41% 3.01% 3.33% 3.23% 3.26% 3.25% 94.0% 24.2% 37.3% 77.5% 74.1% 12.1% 10.4% 7.9% 6.6% 6.9% 6.7% 6.6% 6.7%

3.0%

2.9%

-4.8% 2.0% 14.3% 1.5% 0.3% -14.2% -31.6% 231.1% -46.9% 514.9% -38.3%

2.9%

3.0%

2.9%

2.9%

2.9%

-3.8%

-9.5%

-9.8%

-9.6%

-9.4%

Highlight and Methodology: We used the normalized tax rate of 25.5% (2008-2014 median tax rate) to compute NOPAT and to adjust each line below on the income statement from respective tax impact. We found net earnings margin core and net earnings margin with JV’s. This analysis demonstrate (1) the important contribution from JV’S ( which the group announced to progressively disinvest ) and (2) the value destruction the management decisions occurred from core to net earnings margin. *Net earnings Core : NOPAT – After tax financial expenses *Net earnings with Jv’S : Net earnings core + Jv’s and Associates income *Net earning margin : Net earning Core + Jv’s and Associates + After Tax non Recurring Items 39

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Appendix 39. Degree of Operating Leverage

Lagardere Travel Retail

30%

8%

20%

6% 4%

10%

OPEX Growth

OPEX Growth

Lagardere Sport Entertainment

0% -30%

-20%

-10%

0%

10%

20%

-10% -20%

2% -10.0%

-5.0%

0% 0.0% -2%

5.0%

-4% y = 0.9689x + 6E-05 R² = 0.9908

-6%

y = 1.0796x + 0.0284 R² = 0.9022

-8% Sales Growth

-30% Sales Growth

Lagardere Publishing

Lagardere Active 10%

8%

5%

6% -40.0%

OPEX Growth

OPEX Growth

4% 2%

-10.0%

-5.0%

0% 0.0% -2% -4%

10.0%

5.0%

10.0%

-30.0%

-20.0%

-10.0%

0% 0.0% -5% -10% -15%

y = 0.8871x - 0.0085 R² = 0.9239

-20% -25%

y = 0.7881x + 0.0015 R² = 0.9572

-30%

-6%

Sales Growth

Sales Growth

-35%

Appendix 40. Non Recurring Items, 2008-14 Cumulative Analysis per Share

€ 18.31

40

10.0%

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Appendix 41. Profitability and Credit Analysis Snapshot

EBITDA Margin EBIT Margin ROCE Debt/EBITDA Net Debt/EBITDA

2009

2010

2011

2012

2013

2014

2015E

2016E

2017E

2018E

2019E

8.1% 6.7% 5.9% 4.00 2.84

8.0% 4.8% 6.8% 3.77 2.81

7.8% 5.1% 6.3% 3.17 2.16

7.2% 4.0% 7.5% 4.22 3.14

6.8% 3.9% 6.7% 2.57 -0.63

6.9% 4.0% 7.1% 2.79 1.92

7.0% 3.9% 7.1% 3.72 2.45

7.1% 4.4% 7.5% 3.48 2.45

7.1% 4.8% 7.1% 3.49 2.45

7.1% 4.7% 7.2% 3.42 2.39

7.1% 4.7% 7.2% 3.36 2.26

Exhibit : 2014 released figures for major indicators vs peers and historical Lagardere performance Lagardère historical high*

14%

Lagardère 2014 data

12%

Lagardère historical low*

10%

Peers average**

8%

14x 12x 10x 8x

6%

6x

4%

4x

2%

2x

0%

0x EBITDA Margin

EBIT Margin

ROCE

Net Debt/EBITDA

Debt/EBITDA

Highlights : We analyzed the historical performance of the group relative to its 2014 released number to conclude that most of them are historically low. Relative to peers, we underline the same conclusion that the group underperform industries on EBITDA and EBIT margin and ROCE. *Based on 2008-2014 period analysis **Based on SOTP company list, 2008-2014 period analysis

Appendix 42. Synthetic Credit Rating Grade AAA EBIT Interest coverage 23.8 EBITDA interest coverage 25.5 Total debt/Ebitda 0.4 FFO/total debt 203.3 FOCF/total debt 127.6 ROIC 27.6 Total debt/Capital 12.4 Source : S&P Corporate Rating Criteria 2006

AA 19.5 24.6 0.9 79.9 44.5 27 28.3

EBIT EBITDA/In Total Interest CFO/DEBT terest net Debt/EBITDA Coverage

Pearson BBB A BB BB JohnWiley A AAA BBB BBB NewsCorporation #N/A Not rated AAA Not rated Arnoldo Mondadori CCC CCC CCC CCC Scholastic A AAA AAA AAA Next Radio TV AAA AAA A AA TF1 AAA AAA AAA AAA RTL Group AAA AAA AA AA NRJ Group AAA AAA AAA AAA Autogrill CCC BB B BB Dufry B BB CCC CCC WhSmith AAA AAA AAA AAA Lagardère Not rated CCC Not rated B

A 8 10.2 1.6 48 25 17.5 37.5

BBB 4.7 6.5 2.2 35.9 17.3 13.4 42.5

BB 2.5 3.5 3.5 22.4 8.3 11.3 53.7

B 1.2 1.9 5.3 11.5 2.8 8.7 75.9

ROCE

Total debt/capital

Overall Grade

Rating Equivalent

Not rated B Not rated Not rated Not rated B CCC A Not rated Not rated Not rated AAA Not rated

AA BBB AAA B AAA AA AAA AA AAA B B AAA BB

21 26 14 6 33 33 36 37 35 11 9 42 6

BB BBB B CCC A A AA AA A CCC CCC AAA CCC

Source : Factset andTeam estimates, based on 2014 data only

41

CCC 0.4 0.9 7.9 5 -2.1 3.2 113.5

Equivalence de Note AAA AA A BBB BB B CCC Not rated

7 6 5 4 3 2 1 0

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Appendix 43. Capex Analysis

Lagardere Publishing

Lagardere Travel Retail

4% 16% Wiley News Corp 0%

2% Lagardère Publishing

-2%

4%

6%

8%

Dufry

12%

Pearson

0%

CAGR Sales Growth

CAGR Sales Growth

2%

10%

Scholastic

-4% -6%

8%

Elior Lagardère TR

4% 0% 2% -4%

Mondadori -8%

5%

Capex/Sales

Lagardere Active

Lagardere Sport Entertainment 4%

10%

RTL Group

8%

GL Events

CAGR Sales Growth

CAGR Sales Growth

4% Autogrill

-8%

Capex/Sales

6% 4%

HighLight Communication

2% 0% -2%

3% WH Smith

0%

5%

-4%

10% 15% 20% Lagardère Sport &Enternainment

25%

30%

NRJ Group

0% 0% -4%

2%

TF1

4%

6%

8%

Mondadori

-8% -12%

Lagardère Active

-16%

Capex/Sales

Capex/Sales

Highlight : We used our SOTP peer list to build a Capex/Sales relative analysis. We conclude that Lagardère, on on most of segment, devote less % of sales than its peers which we believe can affect future growth sales potential. Furthermore, our efficient indicator (Sales Cagr/(Capex/Sales) ) indicates often a lower impact on sales from the capex efforts. Capex/Sales

Wiley Pearson News Corp. Scholastic BU Publishing Mondadori

7.6% 2.9% 4.3% 7.6% 2.0% 0.7%

Sales 08-14 CAGR

Publishing 2.1% 0.2% -0.2% -2.0% -1.2% -7.0%

Efficient Indicator

Rank

0.27 0.07 -0.05 -0.27 -0.63 -10.52

#1 #2 #3 #4 #5 #6

0.27 0.05 -1.26 -8.38 -10.52

#1 #2 #3 #4 #5

Capex /Sales

Dufry Elior BU TR WHSmith Autogrill

Active NRJ Group RTL Group TF1 BU Active Mondadori

6.9% 3.4% 2.8% 1.5% 0.7%

1.9% 0.2% -3.5% -12.3% -7.0%

Sales 0814 CAGR

Travel&Retail 4.0% 12.1% 3.5% 5.3% 2.5% 1.4% 2.9% -2.1% 3.4% -4.5%

Efficient Indicator

Rank

2.99 1.51 0.59 -0.73 -1.34

#1 #2 #3 #4 #5

Sport&Entertainment

42

GL Events HightLight BU Sport

8.0% 25.4% 20.4%

7.6% 0.6% -2.0%

0.95 0.02 -0.10

#1 #2 #3

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Appendix 44. Capex/Sales History with Peers

Pearson Wiley News Corporation Mondadori Scholastic Peers Average Capex/Sales Lagardere Publishing Capex/Sales Difference with peers average TF1 RTL Group Mondadori NRJ Group Peers Average Capex/Sales Lagardere Active Capex/Sales Difference with peers average

Sales 08-14 CAGR

2008

2009

2010

2011

2012

2013

2014

AVG

2.5 11.0 3.7 1.0 5.6 3.7 2.1 -44%

2.3 12.0 3.7 0.0 5.4 3.7 1.2 -67%

2.3 6.1 6.0 1.0 6.9 6.0 0.9 -85%

3.0 6.7 4.3 1.1 5.2 4.3 1.4 -67%

3.0 6.2 3.7 0.5 7.2 3.7 2.1 -45%

3.6 5.5 4.4 0.8 19.0 4.4 2.0 -55%

3.7 6.0 4.4 0.3 3.6 3.7 4.0 8%

2.9 7.6 4.3 0.7 7.6 4.2 2.0 -51%

0.2% 2.1% -0.2% -7.0% -2.0%

3.4

4.2

1.9

3.9

2.1

2.5

1.8

2.8

-3.5%

3.1 1.0 6.0 3.3 2.1 -35%

4.1 0.0 8.0 4.1 2.2 -46%

4.1 1.0 8.7 3.0 1.0 -67%

3.5 1.1 6.9 3.7 1.0 -72%

3.2 0.5 5.8 2.7 1.0 -63%

2.8 0.8 6.3 2.6 1.6 -39%

3.2 0.3

0.2% -7.0% 1.9%

1.8 1.4 -23%

3.4 0.7 6.9 3.0 1.5 -49%

3.4 3.6 3.5 3.8 3.5 2.1 -39%

0.0 3.6 3.2 3.7 3.4 2.6 -23%

4.1 6.2 2.8 3.6 3.9 3.3 -14%

4.0 4.8 3.3 3.1 3.7 2.9 -20%

3.4 4.0 2.9 3.5 3.5 2.5 -29%

-4.5% 12.1% -2.1% 5.3%

4.8 21.0 12.9 24.9 93%

11.5 30.8 21.1 23.0 9%

9.4 36.0 22.7 26.7 17%

8.8 17.8 13.3 10.2 -23%

8.0 25.4 16.7 20.4 24%

7.6% 0.6%

Autogrill Dufry WHSmith Elior Peers Average Capex/Sales Lagardere Travel Retail Capex/Sales Difference with peers average

5.7 3.5 2.1

2.7 2.9 2.2

3.5 2.3 -34%

2.7 1.9 -28%

3.7 3.8 3.2 3.4 3.5 1.9 -46%

GL Events HightLight Com Peers Average Capex/Sales Lagardere Sport Capex/Sales Difference with peers average

9.2 23.2 16.2 11.3 -30%

6.4 23.9 15.2 19.9 31%

6.1 25.3 15.7 27.0 72%

Sources : Factset andTeam estimates

43

-1.2%

-12.3%

1.4%

-2.0%

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Appendix 45. Debt Breakdown and Interest Rate Forecast Breakdown of debt

Amount (M€)

Maturity

Coupon Type Interest Rate

YTM

Interest (M€)

% of Debt

Bond Unsecured 31/10/2017

492

Oct-17

Fixed

4.1%

1.5%

20.3

27.5%

Bond Unsecured 9/19/2019

497

Sep-19

Fixed

2.0%

2.0%

9.9

27.7%

Bank loans

103

8%

8.2

5.7%

Other Debt

171

8%

13.7

9.5%

Commercial Paper

527

0.3%

1.6

29.4%

Financial Lease Total Debt

Jun-16

2

0.1%

1,792

Interest Rate

53.7

3.00%

Appendix 46. Financial Interest Forecast based on Historical Data 2008 Interest Income on Loans Marketable Securities Income Gains on derivative Other financial Income Total Financial income Financial Assets in the Balance Sheet Net Interest Received

2009

2010

2011

2012

2013

2014 S1 2014 S1 2015

25

6

8

12

7

2

2

1

1

14

8

13

9

4

3

4

3

1

-

-

-

-

-

2

3

1

1

-

-

-

-

-

2

3

1

1

39

14

21

21

11

9

12

6

4

478

128

181

152

8%

11%

12%

14%

91

51

56

55

67

12%

18%

21%

11%

6%

Avg

12%

Sources : Company Data, in Million€

Highlights : Our analysis focus on the net interest received from the 2008-2014 period and the debt breakdown in 2014. We applied in our forecast 12% as financial interest received ( based on financial assets in balance sheet ) and 3% interest expenses on gross debt and other financial liabilities.

44

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Appendix 47. Risk Matrix

High

Effects of Digital and Mobile Governance Risk Technologies

Major Contract

Median

I m p a c t

Paper Prices

Special Regulations

GDP

Terrorism

Exchange Rate Risk

Acquisition Risk

Credit Risks

Geopolitical Events Low

Probability Low Market Risk

Median Economic Risk

Strategic Risk

Operational Risk

Source: Team’s Estimate

45

High Governance Risk

Regulatory Risk

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Appendix 48. Supervisory Board

Supervisory Board

Laure Rivière-Doumenc Secretary

Xavier de Sarrau Chairman

Audit Committee

Appointements, Remuneration and Governance Committee

Other members

Xavier de Sarrau Chairman of Committee

François David Chairman of Committee

Martine Chêne

Nathalie Andrieux

Georges Chodron de Courcel

Yves Guillemot

François David

Pierre Lescure

Jean-Claude Magendie

Aline SyliaWalbaum

Soumia Belaidi Malinbaum

Javier Monzó n

Patrick Valroff

Hélène Molinari

François Roussely

Susan M.Tolson

Source: Company data

46

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Appendix 48. Supervisory Board

director

position

Held Since

Affiliates/Other positions

Xavier de Sarrau

Chairman of the Board Chairman of the Audit Committee

10 Mars 2010

• • •

Member of the Supervisory Board, JC Decaux Chairman of the Audit Committee and Ethics Committee, JC decaux Director, Oredon Associates(UK)

Nathalie Andrieux

Member of the Board Member of the Audit Committee

3 May 2012

• • • •

Member of the French Digital Council Chair, Mediapost Holding Director, Docapost Member of the Supervisory Board and Member of The Strategic Committee, la Banque Postale

Martine Chê ne

Member of the Board

29 April 2008

Worked in Lagardère more than 25 years(1984 – 2009)

Georges Chodron de Courcel

Member of the Board
Member of the Appointments, Remuneration and Governance Committee

19 May 1998

• • • •

Director, Bouygues SA Director, Nexans SA Director, FFP SA Director, Scor Holding Switzerland AG(Switzerland)

Franç ois David

Member of the Board
Member of the Audit Committee Chairman of the Appointments, Remuneration and Governance Committee

29 April 2008

• • •

Honorary Chairman, Coface group Member of the Board, Order of the Legion of Honour Member of the Supervisory Board, Galatée Films

Yves Guillemot

Member of the Board

6 May 2014

• • • •

President and CEO, Ubisoft Entertainment SA Deputy CEO and Director, Gameloft SE, Guillemot Coporation SA Director,Rémy Cointreau Director, Advanced Mobile Applications Ltd(UK)

Pierre Lescure

Member of the Board
Member of the Appointments, Remuneration and Governance Committee

6 May 2014

• • •

Chairman, AnnaRose productions SAS Director, havas Advertising Member of the Executive Commission, Prisa TV and Digital+(Spain)

Jean-Claude Magendie

Member of the Board

27 April 2010

• • •

President, European College for Conflict resolution First President of the Paris Court of Appeal Chairman, Association médiation entreprises

Soumia Belaidi Malinbaum

Member of the Board
Member of the Appointments, Remuneration and Governance Committee

3 May 2013

• • • • •

Deputy CEO of keyrus Member of the Educational Board, HEC Paris Member of the Board of Director, Université paris Dauphine Director and chair of the Audit Committee, FMM Member of the Board of Directors, Institut du monde arabe (IMA)

Hé lè ne Molinari

Member of the Board
Member of the Appointments, Remuneration and Governance Committee

3 May 2012

• • •

Legal manager of AHM conseil Vice president, Be-Bound COO and member of the Executive Council of MEDEF

Javier Monzó n

Member of the Board

29 April 2008

• •

Chairman, Telefónica(Spain) Member of the Board of Directors, ACS actividades de Construcción y Servicio SA(Spain)

François Roussely

Member of the Board

11 May 2004

• • • •

Honorary senior advisor, French National Audit Office(Cour des Comptes) Deputy Chairman, Crédit Suisse Europe Deputy Chairman, Fondation du Collège de France Honorary chairman, EDF

Aline Sylla-Walbaum

Member of the Board
Member of the Audit Committee

3 May 2013

• • • •

Vice-Chair of the Board of Directors, Orchestre de Paris Member of the Board Directors, Musée d’Orsay Member of the Board Directors, Louvre-Lens museum International Managing Director, Christie

Susan M. Tolson

Member of the Board

10 May 2011

• • •

Director, WorldLine E-Payment Services Member of the Audit, Governance and Remunration Committees Honorary Chair, American Friends of The musée d’Orsay Director, the American Cinémathèque

• • • •

director, Néovacs Member of the Executive Committee, Crédit Agricole SA Chairman and Chief Executive officer, Sofinco Chairman, Crédit lift SAS

Patrick Valroff

Member of the Board
Member of the Audit Committee

27 April 2010

Source: Company data

47

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 Lagardère, CFA Institute or the CFA Institute Research Challenge with regard to this company’s stock.

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