Fromagerie Bel Analyse

CFA Institute Research Challenge Hosted by Local Challenge CFA France Université Lille 2/SKEMA

[Université  Lille  2/SKEMA]  Student  Research   This  report  is  published  for  educational  purposes  only  by   students  competing  in  the  CFA  Institute  Research  Challenge.  

Market  ProYile     52-­‐week     Price  Range   Average  3M     Daily  Volume  

€265-­‐314   228.4  

Shares  Outstanding  (m)  

6.82  

Market  Capitalization  (€m)  

2  062  

Free  Float  

4.4%  

Unibel  Holding  

67.4%  

Beta  

0.41    

Sources:  Factset,  Team  estimates  

Financials  

2012  

2013   2014E   2015E  

EPS  (€)  

18.7  

18.5  

13.9  

21.4  

6.25  

7.91  

DPS  (€)  

6.25  

6.25  

Sales  (€m)  

2  649  

2  720   2  828   3  000  

EBIT  (€m)  

238  

240  

169  

247  

Net  proSit  (€m)   129  

126  

94  

146  

7.0%  

9.7%  

0.2  

-­‐0.1  

ROCE  

11.4%   9.3%  

Net  debt/ EBITDA  (x)  

0.2  

0.1  

Sources:  Factset,  Team  estimates   Valuation   metrics  

2012  

EV/EBIT  (x)  

5.5  

7.8  

11.7  

8.0  

EV/Sales  (x)  

0.5  

0.7  

0.8  

0.7  

2013   2014E   2015E  

Sources:  Factset,  Team  estimates  

Valuation  

DCF  

Transac  

Mult  

Estimated  Prices  

€373  

€442  

€432  

Weights  

60%  

20%  

20%  

Target  Price  (€)  

€399  

Source:  Team  estimates  

Alexandre  RAVERDY   [email protected]   +33(0)6.19.25.79.26     Manon  RICHARD   [email protected]   +33(0)6.16.95.32.54     Ran  XU   [email protected]   +33(0)6.98.13.06.40     Konan  KOUASSI   [email protected]   +33(0)6.66.69.25.96     Maxime  PARRA   [email protected]   +33(0)6.47.61.90.40  

BEL  

 

Consumer  Staples  

Date:  12th  January  2015                              Ticker:  FBEL Exchange:  E.N  Paris                              Price:  €300

                       Recommendation:  BUY                          Target  Price  :  €399  (+33%)  

 

One  Portion  of  Bel,  One  Giant  Return  for  Shareholders       We   issue   a   BUY   recommendation   with   a   target   price   of   €399   based   on   a   weighted   average   of   DCF,   transaction   and   relative   valuations.   Our   TP   implies   an   upside   potential  of  33%.     §  An  EfYicient  Business  Model   Bel   capitalizes   on   a   simple   and   efSicient   business   model:   a   family   business,   pure   player   in   premium   branded   cheese   production   and   products   with   a   strong   identity,   backed   by   an   expertise   in   miniaturization.     §  Well-­‐Positioned  For  Further  Growth   We  believe  Bel  is  well-­‐positioned  for  further  growth  (we  expect  12%  EPS  CAGR  2013-­‐18E),  driven  by   (1)   international   expansion   led   by   the   5   core   brands;   (2)   market   share   gains   over   the   period   2014E-­‐18E;   and   (3)   an   enviable   strategic   positioning,   well   exposed   to   the   growth   trend   of   on-­‐the-­‐go   and   healthy   consuming,   while   enjoying   premium   pricing   power   (reSlected   in   premium   operating   margins).   Besides,   to   seize   potential   external   growth   opportunities,   management   has   fostered   a   strong   Sinancial  discipline.  As  a  result,  Bel’s  leverage  is  low  (net  debt/EBITDA  close  to  zero),  with  acquisition   Sirepower  estimated  at  more  than  €1bn  in  2015E  assuming  leverage  of  3x  EBITDA.       §  A  Defensive  Stock  To  Own  During  Tough  Times   Despite   the   stock’s   growth   potential,   we   believe   the   defensive   nature   of   the   industry   is   a   key   asset:   Bel’s  activity  can  provide  investors  with  an  attractive  counter-­‐cycle  investment.  Besides,  the  group  has   a  constant  dividend  policy,  which  makes  it  attractive  for  investors  looking  for  constant  dividends:  the   dividend  growth  of  21%  CAGR  for  2013-­‐2018E  implies  a  dividend  yield  of  3%  on  average.       §  Despite  An  Attractive  Risk-­‐Reward  ProYile,  We  Flag  Some  Risks   Bel   trades   at   a   discount   to   its   peers   that   exceeds   25%,   even   adjusted   for   liquidity,   providing   strong   support  to  our  BUY  recommendation.  We  believe  the  discount  is  unjustiSied,  as  reSlected  in  our  target   price  which  points  to  33%  upside  potential.  The  main  concerns  we  have  on  the  stock  are  (1)  its  weak   liquidity;   (2)   the   top-­‐line   and   margin   exposure   to   forex   and   volatile   commodity   prices;   and   (3)   its   exposure  to  Europe  (60%  of  sales),  albeit  decreasing.     Catalysts   (1)   A   QE   announcement   by   the   ECB   given   inSlation   data   in   the   Eurozone   and   the   ongoing   decline   in   oil   prices;   (2)   an   acquisition   announcement,   provided   Bel   does   not   pay   too   much;   (3)   the   creation   of   a   futures   market   for   dairy   raw   materials   by   Euronext;   (4)   worldwide   consumption   trends   toward   healthy   eating   (which   includes   cheese);   and   (5)   increased   share   liquidity   through,   for   example,   the   disposal/placing  of  Lactalis’  24%  stake.  

  Bel  Stock  Price  (100  at  31st  Dec  2010)   %  

TP:  €399  

250  

200  

150  

100  

50  

0  

Dec-­‐10  

Dec-­‐11  

STOXX  600  -­‐  Food  &  Beverage  

Dec-­‐12   UNIBEL    

Dec-­‐13  

Dec-­‐14   Fromageries  Bel   Source:  Factset  

CFA  Institute  Research  Challenge   Figure  1:  Bel  sales  estimates  and  forecasts  

12th  January  2015  

Investment  Summary      

We   based   our   target   price   on   a   weighted   average   of   three   valuation   models   (DCF,   Transaction   method   and   Relative   valuation).   Despite   its   weak   liquidity   –   taken   into   account   in   each   method   –   we   issue   a   BUY   recommendation   on   Bel   with   a   target   price   of   €399   (33%   upside)   relying   on   its   international   expansion  (attractive  for  investors  given  the  signiSicant  growth  potential),  its  competitive  advantage  in   miniaturization  and  its  acquisition  Sirepower.  From  a  valuation  standpoint,  Bel  is  currently  trading  at   an  undeserved  28%  discount  to  its  peers  on  2015E  EV/EBIT  and  a  25%  discount  to  2015E  EV/Sales,   both  adjusted  for  liquidity,  providing  strong  support  to  our  BUY  recommendation.    

CAGR  2013-­‐18E   Europe  

2.7%  

NME  &  Africa  

9.9%  

Americas  -­‐  APAC  

10.7%  

World  

5.9%  

 

Source:  Team  estimates   Figure  2:  Bel  market  share  estimates  and   forecasts   12.0%   9.8%  

10.0%   8.0%   6.0%   3.1%  

4.0%  

3.7%   1.3%  

2.0%   0.0%   World  

Europe  

NME  &   Africa  

2013  

2018E  

Americas  -­‐   APAC  

Source:  Team  estimates   Figure  3:  Net  debt  /  cash  evolution     400   350   300   250   200   150   100   50   0   -­‐50   -­‐100   -­‐150   -­‐200  

€m  

Sources:  Bel,  Team  estimates  

International  Expansion  (Figures  1&2)   In  2013,  Bel  sales  accounted  for  c.2.8%  of  world  cheese  market  size  (approximately  €98bn),  of  which   62%   came   from   Europe.   The   trends   in   the   food   industry   provide   attractive   opportunities   for   Bel.   With   the   new   Brookings   production   site   in   the   US   and   further   internationalization,   we   forecast   a   market   share  of  3.1%  by  2018E,  which  implies  a  CAGR  2013-­‐18E  sales  of  6%.     Manufacturing  Know-­‐How  in  Miniaturization   Cheese   portion   format   is   one   of   Bel   strong   designs,   and   miniaturization   stems   from   unique   manufacturing  know-­‐how.  This  is  well-­‐adapted  to  on-­‐the-­‐go  consumption  trend  that  is  driving  demand   worldwide.     A  Sound  Financial  Structure   §  Strong   free   cash   Slow   generation   and   conservative   capital   allocation   has   led   to   a   strong   balance   sheet.   This   should   also   allow   Bel   to   (1)   continue   to   strongly   invest   in   marketing   (around   21%   between  2014E-­‐18E)  and  R&D  (1%);  and  (2)  increase  its  payout  ratio  from  34%  in  2013  to  50%  in   2018E.     §  Since   2009,   Bel’s   Net   Debt/EBITDA   has   decreased,   reaching   0.07x   in   2013.   Due   to   the   internal   operating   improvements,   the   ratio’s   downward   trend   should   continue   and   allow   Bel   to   show   a   net   cash   position   from   2015E   (Figure   3),   which   provides   acquisition   headroom.   Interestingly,   management   has   shown   a   selection   skill   and   a   strong   integration   capacity   with   past   acquisitions   (16  local  and  international  brands  including  Leerdammer  and  Boursin).         Possible  Investment  Risks     Potential  investors  must  be  aware  of  two  main  risks:  corporate  governance  and  market  risks.     §  Corporate   governance   risk   is   due   to   the   family-­‐controlled   structure.   Some   conSlicts   of   interest   might  appear  as  the  positions  of  CEO  and  Chairman  are  Silled  by  the  same  person  (member  of  the   family  shareholder).     §  Illiquidity   may   also   have   a   possible   adverse   impact   on   investors’   returns.   This   market   risk   is   characterized   by   (1)   a   very   low   free   Sloat   (4.4%)   and   (2)   an   historical   average   bid-­‐ask   spread   of   3%.  An  investor  with  a  long-­‐term  investment  horizon  may  be  less  affected  by  this  risk.     In   addition,   Bel   is   subject   to   foreign   exchange   rate   Sluctuations   as   a   result   of   its   international   operations   and   presence.   Other   risks   (political,   strategic,   etc.)   are   explained   in   the   Investment   Risk   section.    

Figure  4:  Bel  stock  price  &  key  events   300  

5th  November  2007     Acquisition  of     Boursin  

250  

2nd  July  2012     Announcement  of  a  new   production  site  in  the  US    

200  

7th  February  2013     Acquisition  of     Tranchettes  

150  

100  

50  

18th  June  2012     Appointement  of  Francis  Le  Cam  as   Deputy  General  Manager  

1st  June  2006     Acquisition  of     Gervais  Brand  

0   2006  

  Sources:  FactSet,  Bel  

2007  

 

14th  May  2009     Appointment  of  Antoine  Fievet  as     CEO  &  Chairman   2008  

 

2009  

 

2010  

 

2011  

  2  

2012

 

2013

2014

 

 

CFA  Institute  Research  Challenge   Figure  5:  Breakdown  of  activities  

Business  Description  

12th  January  2015  

  Bel  is  the  3rd  largest  branded  cheese  manufacturer  worldwide.  Operations  started  in  1865  for  this   French  family-­‐held  group  when  Jules  Bel  created  a  cheese  ripening  and  trading  business.  After  he  died,   (Core  market)   Léon   Bel,   his   son,   took   over   the   business   and   set   out   for   an   industrial   adventure   by   creating   Fromageries   Bel   in   1922,   which   produced   the   well-­‐known   Laughing   Cow   brand.   The   company   then   B   Catering     grew   Sirst   through   the   construction   of   modern   plants   both   domestically   and   internationally,   and   E   (Bel  Foodservices)   secondly  by  broadening  its  range  of  products.  In  particular,  it  launched  the  Sirst  fat-­‐free  cheese  in  the   L   early  1930s,  leading  the  way  in  healthy  products.     Industry   Since  then,  the  company  has  developed  throughout  the  world.  Today,  the  company  is  active  in  5   (Bel  Industries)   continents  with  28  production  plants  and  30  subsidiaries  (Appendix  9).  Its  portfolio  comprises  5  core   brands  (The  Laughing  Cow,  Mini  Babybel,  Leerdammer,  Kiri,  Boursin)  and  25  local  brands.  In  2013,  the   NB:  Bel  does  not  provide  the  %  of  each  activity   company  employed  10,830  people.   Source:  Bel       Its   easy-­‐to-­‐carry   and   easy-­‐to-­‐keep   cheeses   also   make   Bel   a   leading   company   in   on-­‐the-­‐go   consumption   with   three   segments   (3   “S“):   Spread   (soft   spreadable   cheese   and   product   containing   Figure  6:  Bel  production  3  “S”   cheese),  Snacks,  and  Slices  (hard  cheese)  (Figure  6).  To  achieve  its  goals,  Bel  manufactures  three  types   of  cheese,  distributed  in  120  countries:  Processed  cheese  for  which  the  group  is  a  leader  thanks  to  The              15%         Laughing  Cow  (Bel’s  oldest  brand),  Pressed  cheese  (e.g.  Mini  Babybel  and  Leerdammer)  and  Fresh  &   Spreadable  cheese  (e.g.  Kiri,  Boursin).       25%   60%   Current  strategy  of  the  company  can  be  described  with  the  following  3  pillars:       §  Industrial  Expertise  and  Innovation  Leadership  (Appendix  10).   With   two   R&D   centers   in   Europe   and   R&D   expenses   (1%   of   sales)   two   times   higher   than   its   closest   peers,   industrial   expertise   and   innovation   are   the   cornerstone   of   Bel   and   ensure   it   keeps   a   strong   Spread   Snacks   Slices   competitive   advantage.   Since   the   industry   is   mature,   the   group   is   changing   its   product   mix   (e.g.   co-­‐ Source:  Bel   branding).  This  is  why  it  aims  at  broadening  the  range  of  its  brands  as  well  as  renewing  its  recipes  (a   dedicated   team   is   in   charge   of   understanding   the   consumers’   needs).   Besides,   the   company   aims   at   conquering   Asia   by   developing   new   Slavors   while   respecting   their   culture   and   habits.   Its   industrial   Figure  7:  Sales  breakdown  by  region  (€m)   expertise   will   enable   the   group   to   increase   its   footprint   in   countries   like   Vietnam,   Japan,   China   and   South  Korea.     3  000       §  Internationalization  And  Strengthening  of  The  5  Core  Brands   In   2013,   the   core   brands   accounted   for   70%   of   total   sales   (vs.   32%   in   2008),   4   of   them   among   the   2  000   world’s   12   leading   cheese   brands   (Appendix   11).   The   group   aims   at   increasing   its   sales   by   building   new  production  plants  in  high  potential  regions.  For  instance,  the  new  plant  in  Brookings  (USA)  will   produce   10   thousand   tons   of   cheese   each   year   to   meet   the   growing   demand   for   Mini   Babybel.   The   group  thus  plans  to  reach  $1bn  of  sales  in  N.  America  by  2025  (x3  in  10  years).     1  000       §  Acquisition-­‐Led  Growth  Focus  On  Premium  Branded  Cheeses   Acquisition-­‐led   growth   gradually   complements   innovation-­‐led   growth.   Indeed,   since   1985,   the   company   has   already   acquired   16   brands   (Figure   8   &   Appendix   12)   and   puts   a   particular   emphasis   on    0   2010   2011   2012   2013   the  quality  of  the  brands  it  acquires.     The  Laughing  Cow     Mini  Babybel   Boursin  (€400m)     Americas  -­‐  APAC   Africa  -­‐  Middle  East   Europe    Figure  8.  Core  brands     (1921)   (1977)   (2008)   development     Source:  Bel     Brand  Creation     Acquisition   Figure  9:  Shareholder  structure     Kiri     Leerdammer  (€190m)     Sources:  Bel,  FactSet   0.7%   (1966)   (2002)     4.4%     Bel’s  Management,  A  Well-­‐Functioned  Network  of  Experts  Fitting  The  Group’  Strategy     Antoine  Fiévet,  representing  the  5th  generation  of  the  shareholding  family,  became  CEO  and  Chairman   24.1%   of   the   group   in   2009.   In   the   executive   committee,   the   other   three   deputy   general   managers   all   have   extensive   experience:   Bruno   Schoch   (Finance,   Legal   and   IT)   has   a   strong   knowledge   in   M&A   67.4%   transactions   perfectly   Sitting   the   group   strategy;   Francis   le   Cam   (Operations)   has   substantial   3.5%   background   in   International   Management;   and   Hubert   Mayet   is   an   expert   in   manufacturing   and   technology  (Appendix  13).     Unibel   Fiévet/Bel  Family   Shareholder  Structure   SoSil  SA  (Lactalis  Group)   Other  public   Though   Bel   has   been   listed   on   the   Paris   Stock   Exchange   since   1946,   it   remains   controlled   by   the   Treasury  Stock   founding  family.  It  is  the  major  shareholder  today  with  71%  of  the  shares  (of  which  67.4%  is  held  by   Unibel,  its  listed  family  holding  company).  Lactalis,  one  of  Bel’s  competitors,  holds  24%  of  the  shares   Source:  Bel   (Figure   9).   Free   Sloat   is   therefore   very   low   (4.4%)   but   the   stable   shareholder   structure   allows   an   effective   long-­‐term   strategy.   Free   Sloat   could   increase   should   Lactalis   dispose   of   its   shares:   it   would   boost   liquidity   and   attract   interest   from   institutional   and   retail   shareholders   in   the   stock.   A   move   toward  more  visibility  is  witnessed  by  the  availability  of  the  annual  report  in  English  since  2013.     3  

Consumers  

CFA  Institute  Research  Challenge  

Industry  Overview  and  Competitive  Positioning  

Figure  10:  Cheese  versus  GDP  growth   6%   5%   4%   3%   2%   1%   -­‐1%   2007   2008   2009   2010   2011   2012   2013  2014E   -­‐2%   -­‐3%   World  GDP  growth   Cheese  production  growth  

Sources:  World  Bank,  OECD   Figure  11:  Market  size  and  per  capita   cheese  consumption   30   €bn  

30  

kg  

25  

25  

20  

20  

15  

15  

10  

10  

5  

5  

0  

0  

Retail  Value  Sales  2014  (lhs)   Per  Capita  Total  Consumption  (rhs)  

Sources:    Euromonitor,  IDF   Figure  12:  Share  of  spending  by  the  Global   Middle  Class  (2009  to  2030  forecasts)   100%   80%   60%   40%   20%   0%   2009  

2020  

  The  cheese  industry  offers  attractive  market  dynamics  while  offering  good  resilience  to  economic   cycles.   Product   innovation,   new   social   trends   and   increased   penetration   in   rapidly   growing   regions  such  as  Latin  America,  the  Middle  East  and  Africa  are  the  main  drivers  of  growth.       A  Defensive  Industry  BeneYitting  From  A  Positive  Macro  Backdrop   The   cheese   industry   is   characterized   by   its   defensive   nature:   it   provides   upside   potential   during   expansions   and   protection   during   downturns.   For   instance,   over   the   period   2008-­‐2009,   while   global   GDP   growth   fell   by   2.9%,   cheese   production   growth   remained   positive   and   went   from   0.8%   in   2008   to   0.3%  in  2009  (Figure  10).  As  for  Bel,  its  output  increased  by  0.2%  in  2009.         Cheese   consumption   varies   signiYicantly   from   one   region   to   another   (Figure   11).   The   global   cheese  market  is  valued  at  around  €100bn,  dominated  by  Europe  followed  by  North  America  and  Latin   America.   However,   the   global   cheese   market   is   expected   to   grow   strongly   going   forward,   spurred   by   emerging   countries,   especially   in   Asia-­‐PaciSic   (China,   Indonesia,   Vietnam).   The   global   cheese   output   reached  19m  tons  last  year  (+19%  2005-­‐13)  and  global  demand  is  likely  to  continue  to  be  strong.         Europe:  Steady  As  It  Goes     The   EU-­‐28   accounted   for   48%   of   global   output   in   2013.   With   approximately   48%   of   the   EU   output   derived  from  Germany  (27%)  and  France  (21%),  those  countries  are  the  two  largest  cheese  producers   in   Europe   (Appendix   14).   In   Western   Europe,   cheese   market   is   very   mature,   with   annual   per   capita   consumption   of   €85.   We   thus   expect   a   limited   but   steady   value-­‐led   growth   (0.5%   growth   pa,   as   reSlected  in  our  estimates).         Americas:  A  Growing  Appetite     In   2013,   a   quarter   of   global   total   volume   growth   in   cheese   came   from   just   Brazil   and   the   US.   American   consumers   eat   an   average   15.4kg   (Appendix   15),   and   sales   of   cheese   are   expected   to   increase   as   additional   cheese   varieties   are   continuously   introduced   in   the   market.   Brazil,   with   per   capita   consumption  of  just  6kg,  is  a  very  interesting  market:  further  penetration  should  generate  substantial   new  sales  as  cheese  becomes  a  more  important  food  item  in  the  Brazilian  diet.       Emerging  Markets:  The  New  Eldorado     Emerging  markets  offer  higher  growth  potential  as  consumption  levels  are  still  low  while  the  potential   consumer  base  is  large.  The  two  main  growth  drivers  of  consumption  are  (1)  rising  disposable  incomes   and   (2)   urban   population   growth.   Asia-­‐PaciYic   has   the   highest   potential   as   cheese   is   still   a   very   nascent   market.   This   goes   hand-­‐in-­‐hand   with   demographic   change   and   growth   of   middle   classes   (whose   global   spending   share   should   represent   59%   in   2030E   from   23%   in   2009   (Figure   12),   and   reSlects  a  more  general  trend  of  rising  demand.  In  China  for  instance,  where  Bel  has  been  active  since   2007,   per   capita   consumption   is   still   low   (40g)   due   to   the   sheer   size   of   its   population.   The   bright   outlook  is  reSlected  by  an  expected  CAGR  consumption  of  12%  for  the  period  2014E-­‐18E  according  to   Euromonitor.   In   Near   Middle   East   (NME)   and   Africa,   while   there   is   a   high-­‐growth   potential,   the   region  is  constrained  by  an  underdeveloped  environment:  the  lack  of  a  developed  retail  environment   with  a  limited  cold  chain  infrastructure  in  place  as  an  important  factor  holding  back  cheese  sales.        

Key  Industry  Trends  

2030  

APAC  

Africa  -­‐  Middle  East  

Americas  

Europe  

  § 

Source:  World  Bank   Figure  13:  Nutrition  Mapping  (per  100g)   900  

Calcium  (mg)  

700   600  

    § 

Leerdammer  

800  

The  Laughing   Cow     Mini  Babybel  

500  

Cœur  de  Lion  

NRV*   Kiri  

    § 

400   300   200  

Philadelphia  

100  

Boursin  

Ptit  Louis   Tartare  

0   15  

20  

*Nutrient  Reference  Value  

25  

30   Fat  (g)  

Bel  

12th  January  2015  

35  

40  

    § 

Competitors  

Sources:  Team  research  

Product  Innovation   With   penetration   of   cheese   nearing   saturation   in   developed   regions   such   as   Western   Europe   or   North   America,   value   creation   is   key.   Different   usages   of   cheese   thus   offer   opportunities,   e.g.   cheese   being   promoted   as   a   cooking   product   in   addition   to   its   conventional   use.   In   emerging   countries,  the  product  mix  will  change  from  the  traditional  types  of  cheese  to  new  cheeses  that  suit   the  demand  (e.g.  sweet  cheese  for  Asia).   On-­‐The-­‐Go  Consumption  Is  Likely  To  Strengthen   Cheese   is   gradually   positioned   as   an   on-­‐the-­‐go   snack   both   for   children   and   adults.   This   goes   together  with  the  trend  of  new  cheese  eating  occasions,  where  frequency  of  use  is  increasing  (e.g.   breakfast  +  snacking  or  snacking  +  dinner).   Rising  Interest  in  Healthier  Products   Given  mounting  obesity  concerns,  people  tend  to  move  to  reduced  or  fat-­‐free  products    –  low  fat   and  salt  but  high  calcium  and  vitamin  D  -­‐  following  the  inclination  towards  a  healthier  lifestyle.  Bel   has  been  a  pioneer  in  healthy  products  and  keeps  its  advantage  over  its  peers  (Figure  13).   French  Cheese  Going  Mainstream   As   one   of   the   largest   cheese   exporters   worldwide,   France   has   an   outstanding   reputation   in   cheese.   French   cheese   might   thus   be   sold   as   a   premium   product,   just   like   wine   in   some   countries.   In   addition,   in   many   countries,   there   tends   to   be   growing   awareness   of   Western   cuisine,   including   French  cuisine.    

  4  

CFA  Institute  Research  Challenge  

A  Fragmented  Industry   The  global  branded  cheese  production  is  divided  in  four  main  types  of  cheese  manufacturers  (Figure   14):       §  Major  diversiYied  competitors  (e.g.  Kraft,  Mondelez)  which  hold  competitive  advantages  through   better   economies   of   scale   and   beneSit   from   a   lower   vulnerability   to   the   cheese   market   thanks   to   product  diversiSication  and    strong  bargaining  power  towards  customers  and  suppliers.     §  Dairy   specialized   family-­‐held   businesses   (e.g.   Bongrain,   Lactalis,   Bel)   with   a   portfolio   of   core   brands;   §  Small  regional  competitors  (e.g.  Arla  Food,  Dairy  Crest)  that  control  different  stages  of  the  supply   chain  and  beneSit  from  a  strong  presence,  identity  and  substantial  knowledge  of  their  market;   §  Retail  labels  (e.g.  ReSlets  de  France  for  Carrefour,  Tesco  brand),  which  are  cheaper  and  belong  to   retailers.  They  are  the  only  direct  substitutes  to  branded  cheese.         Regulation:  What  Will  Be  The  Impact  of  The  Quota  Abolition  in  Europe?   The   EU   introduced   a   national   quota   regime   for   milk   production   in   1984   to   limit   excess   supply   and   maintain   farmer   proSitability.   This   regime   will   come   to   an   end   in   April   2015   as   the   EU   moves   the   dairy   sector   towards   a   more   market-­‐orientated   future,   but   one   that   protects   producer   interests.   We   therefore  expect  (1)  an  overall  increase  in  production  coupled  with  declining  prices  which  would  be   favorable   to   Bel,   albeit   a   modest   impact   due   to   the   “soft   landing”   provided   by   the   EU;   and   (2)   no   reduction   in   current   price   volatility   after   the   end   of   quotas.   For   further   information,   please   refer   to   Appendices  16  &  17.      

Figure  14:  Company  ranking*    

1   Lactalis   2   Kraft   3   Fromageries  Bel   4   Bongrain   5   Arla  Food   6   Mondelez   *in  terms  of  branded  cheese  sales     Source:  Bel   Figure  15:  Porter’s  5  Forces  

Porter’s  5  Forces  

Rivalry  (4.5)   5  

Threat  of  New     Entrants  (1)  

Bargaining     Power  of     Customers  (4)  

4  

3  

2  

1  

0  

Threat  of     Substitutes  (3)  

12th  January  2015  

Bargaining     Power  of    Suppliers  (1.5)  

Source:  Team  estimates  

NB:   Since   Bel   derives   100%   of   its   revenue   from   industrial   cheese,   we   will   exclusively   focus   on   it   (Figure  15).       §  Rivalry:  as  more  than  20%  of  the  market  is  held  by  six  companies  competing  Siercely,  we  consider   the  branded  cheese  market  as  rather  fragmented.   §  Bargaining   power   of   customers:   in   most   countries,   the   main   customers   are   the   retailers   or   supermarket   chains,   which   are   likely   to   offer   alternatives,   such   as   retail   labels.   They   thus   have   signiSicant  bargaining  power.     §  Bargaining  power  of  suppliers:  suppliers  have  a  low  bargaining  power  since  most  inputs  (milk,   butter,  cream,  cheddar)  are  commodities.   §  Threat  of  substitutes:  the  direct  substitutes  to  industrial  cheese  are  craft  cheeses.  There  are  also   indirect  substitutes,  such  as  yogurts.     §  Threat   of   new   entrants:   barriers   to   entry   are   high   because   of   (1)   substantial   capital   requirements;   and   (2)   the   strength   of   the   existing   brands.   Those   features   could   deter   potential   competitors  from  challenging  the  incumbents.      

Bel’s  competitive  advantage  relies  on  (Appendix  18):   Figure  16:  Sales  and  margins  trends   €m   4  000  

12%  

3  500  

10%  

3  000   8%  

2  500  

6%  

2  000   1  500  

4%  

1  000   2%  

 500  

0%  

 0  

Sales  (rhs)   Net  proSit  margin  

Sources:  Bel,  Team  estimates  

EBIT  margin  

    §  A  Long-­‐Standing  Expertise  In  Portion  Format  Meeting  Industry  Trends   Cheese  becomes  more  and  more  commoditized.  Yet  Bel  offers  differentiated  products  that  are  small-­‐ sized  and  easy  to  carry  thanks  to  its  expertise  in  miniaturization  technology,  backed  by  a  strong  R&D   (at  1%  of  sales,  2x  higher  than  its  closest  peers).  This  historic  know-­‐how  is  in  line  with  the  new  social   trends  (on-­‐the-­‐go  consumption,  healthy  diet,  etc.).       §  A  Pure  Player  Status   Bel  is  one  of  the  few  companies  whose  business  is  100%  focused  on  cheese.  As  such,  Bel  can  achieve   better   economies   of   scale   on   operating   costs   than   its   closest   peers:   Bel’s   focused   strategy   and   concentrated   core   brand   portfolio   management   allows   leverage   on   R&D   investment,   product   innovation  expenses  and  other  marketing  and  promotional  expenses.      

Financial  Analysis    

Growing  Sales   Bel   has   delivered   revenue   growth   every   year   over   the   past   5   years,   even   in   2009   in   the   recession   though  partly  thanks  to  the  acquisition  of  Boursin.  In  2013,  sales  grew  by  2.7%  (+5.3%  on  a  like-­‐for-­‐ like  basis,  i.e.  excluding  the  impact  of  forex  Sluctuations,  Figure  17).  Besides,  Bel's  revenues  are  more   and  more  geographically  diversiSied,  in  line  with  the  internationalization  strategy  of  the  core  brands.     We   analyzed   and   estimated   Bel   sales   based   on   the   cheese   market   size   (per   capita   consumption   and   population  size)  and  the  expected  market  share  of  Bel  (Appendix  19).     §  In   Europe,   the   Sive   core   brands   allowed   Bel   to   expend   its   market   share   (estimated   at   3.3%   in   2013)  and  sustain  its  growth,  particularly  in  Eastern  Europe  with  an  effective  marketing  strategy.   We  forecast  a  2014E-­‐18E  CAGR  of  2.8%,  reSlecting  continued  market  share  gains  in  Eastern  Europe   and  a  more  limited  value-­‐led  growth  in  Western  Europe.       5        

CFA  Institute  Research  Challenge  

Figure  17:  Sales  growth  bridge   10%   1.60%  

9%   8%  

7.30%  

7%   6%   5%   4%   3%   2%   1%   0%  

Figure  18:  YoY  EBIT  margin  by  region   12%   10%   8%   6%   4%   2%   0%   Western   Europe  

2010  

Source:  Bel  

Americas   Near  and   Greater   APAC   Middle  East   Africa  

2011  

2012  

2013  

12th  January  2015  

§ 

In  the  Americas,  Mini  Babybel  (+23%  in  the  US  last  year)  and  the  Laughing  Cow  drove  revenue   growth.  In  Asia-­‐PaciYic  (APAC),  the  solid  revenue  growth  driven  by  Mini  Babybel  and  Belcube  has   been  offset  by  quality  issues  at  Kiri  in  Japan.  The  expected  2014E-­‐18E  CAGR  of  13.3%  for  the  whole   region  reSlects  both  the  high  growth  potential  of  Mini  Babybel  in  the  US  with  the  new  production   plant  in  Brookings  and  the  huge  growth  potential  in  APAC.  

§ 

In   Middle   East   and   Africa,   forex   Sluctuations   and   political   uncertainties   hit   revenues,   despite   a   favorable   macro   environment   and   a   strong   growth   driven   by   Kiri   and   The   Laughing   Cow.   The   2014E-­‐18E  CAGR  of  9.9%  will  be  led  by  the  development  of  modern  distribution  channels.  

              8.90%         7.00%   (2.50%)     5.30%   (2.60%)     4.80%   1.40%   4.50%       3.40%     2.70%                         Source:  Bel     Uneven  Margins  To  Stabilize     Bel   achieves   better   EBIT   margins   (9%   in   2013   and   an   historical   average   of   8.5%)   compared   to   its   closest  peers  (7.4%  on  average).  It  is  a  pure  player  in  the  premium  cheese  industry  which  allows  the   company   to   achieve   superior   economies   of   scale   (with   premium   pricing).   However,   the   major   diversiSied   Sirms   achieve   even   better   economies   of   scales   than   Bel   due   to   their   size   (and   the   implied   bargaining  power)  and  the  broadness  of  their  brand  portfolio.     Though  Bel  has  a  strong  internal  control  to  reduce  costs,  three  external  factors  regularly  hit  operating   and  net  proSit  margins:  (1)  raw  materials  prices  volatility,  (2)  one-­‐offs  linked  to  political  instabilities   mainly  in  Near  and  Middle  East  and  (3)  the  currency  exchange  rate  (Appendix  21).       More   precisely,   an   analysis   of   EBIT   margins   by   region   (Figure   18)   leads   to   the   following   conclusion:   stability  in  Western  Europe  has  been  offset  by  risks  in  the  Near  and  Middle  East.  Between  2010  and   2013,  EBIT  margin  in  Western  Europe  averaged  10%  (ranging  from  8.1%  to  11.2%)  while  that  of  Near   and  Middle  East  averaged  7.3%  (ranging  from  2.8%  to  9.8%).  Moreover,  the  peak  of  commodity  prices   reached  in  2011  impacted  all  regions  except  Americas  -­‐  APAC  thanks  to  the  US  entities’  hedging  policy.   The  exchange  rate  largely  explains  the  decrease  in  EBIT  margin  in  2013  in  Americas  –  APAC  (due  to  the   fading  off  of  the  hedging  effect).  In  Greater  Africa,  the  operating  margin  is  stable  and  reached  11%  in   2013.     In  the  short-­‐run,  given  the  high  volatility  of  raw  materials  and  the  unfavorable  forex,  we  estimate  an   operating  margin  of  6%  in  2014E.  However,  in  the  midterm,  we  expect  EBIT  margin  to  recover  from   2015E   to   reach   9.9%   in   2018E,   thanks   to   operating   leverage   (volume   growth)   and   favorable   input   pricing  effects  from  (1)  the  end  of  quotas  in  Europe  in  2015;  (2)  the  increase  of  milk  output  worldwide;   and  (3)  the  introduction  of  European  dairy  futures  for  skimmed  milk  powder,  butter,  etc.  by  Euronext   in  early  2015.       Concerns   about   the   exit   of   Greece   from   the   Eurozone   following   the   coming   legislative   elections,   the   slowdown   in   inSlation   mainly   in   Europe   due   to   the   ongoing   decline   in   oil   prices   (versus   superior   growth  and  imported  inSlation  in  the  US  leading  to  an  interest  rate  differential)  and  the  likely  response   from   the   ECB   (QE   announcement)   are   the   cause   of   the   substantial   depreciation   of   the   euro   against   the   dollar  (from  1.39  EUR/USD  in  March  2014  to  1.18  at  January  2015).  We  believe  this  situation  should  be   favorable  on  Bel’s  margins.   6  

CFA  Institute  Research  Challenge   Figure  19:  ROCE  decomposition   Capital     Turnover  

NOPAT  Margin  

ROCE  11%  2012   ROCE  7%  2014E   ROCE  11%  2016E  

Source:  Team  estimates   Figure  20:  Debt  maturity  proSile   €m  

600   500   400   300   200   100   0  

Cash   2014  2015  2016  2017  2018  2019  2020  2023   on   hand   Loans  &  Borrowings   Bonds     Schuldschein    

Source:  Bel   Figure  21:  Evolution  of  cash  Slows    400    300    200    100    0  

12th  January  2015  

ROCE  vs.  WACC   A  comparison  between  the  WACC  and  the  ROCE  shows  the  company  employs  its  capital  effectively   and   generates   shareholder   value.   Our   estimated   WACC   is   5.5%   and   is   based   on   no   debt   capital   structure.       Over  the  period  2009-­‐2018E,  ROCE  is  always  higher  than  the  company’s  cost  of  capital.  The  ROCE  of   7%  in  2014E  is  justiSied  by  the  lower  NOPAT  margin  due  to  high  raw  material  costs  and  an  unfavorable   forex  (Figure  19).     Returns  To  Reach  Low  Teens       The  decrease  in  ROE  between  2013  and  2014E  (from  11%  to  7%)  reSlects  the  expected  decrease  in  net   income,  which  is  not  compensated  by  leverage  (constant  between  2013  and  2014E).  With  the  growth   trends  in  ROA,  thanks  to  a  rising  net  proSit  margin,  the  ROE  should  move  towards  the  low  teens.  The   recovery  should  start  at  the  end  of  2014E  and  ROE  is  expected  to  be  13.5%  in  2018E  (Appendix  22).     Strong  Credit  Metrics     Bel’s  Sinancial  leverage  expressed  as  Net  Debt/EBITDA  is  very  low  and  has  been  declining  for  5  years,   driven   both   by   operating   improvement   and   a   huge   amount   of   cash   (€510m   in   2013)   with   the   issuance   of  two  bonds  in  2012  and  “Schuldschein”  loans  in  2013.  The  ratio  has  dropped  from  1.3x  in  2009  to   reach  0.07x  in  2013.  From  2015E,  Bel  should  have  a  net  cash  position  of  €23m,  implying  a  Net  Debt/ EBITDA  ratio  of  -­‐0.07x,  which  reaches  -­‐0.4x  in  2018E.  Therefore  (1)  Bel  can  easily  comply  with  its  debt   covenants  (Net  Debt/EBITDA  ≤  3.5x);  and  (2)  it  leaves  signiSicant  room  for  external  growth  (leverage   of  3x  Net  Debt/EBITDA  should  provide  an  M&A  treasury  chest  of  close  to  €1bn  on  top  of  the  company’s   existing  cash  position,  which  should  reach  €509m  in  2018E)  without  resorting  to  a  capital  increase.         Cash  on  the  balance  sheet  (€510m)  is  more  than  sufSicient  to  cover  short-­‐term  debt  (€106m)  as  well  as   debt  maturing  in  2018  and  2019  (Figure  20).     Cash  Flows     Operating  cash  Slows  have  always  been  close  to  €200m  pa,  except  in  2011  due  to  weak  earnings  and  an   increase  in  NWC.  We  expect  the  OCF  to  reach  a  trough  in  2014E  due  to  the  weak  operating  proSit,  but  it   should  recover  from  2015E  (Figure  21).   Investing  cash  Slows  increased  year-­‐on-­‐year  to  reach  €146m  in  2013.  We  expect  this  trend  to  continue,   linked  to  strong  capital  expenditures.  Capital  expenditures  reached  a  peak  in  2013  at  €149m  due  to  the   construction   of   the   Brookings   production   site   (€113m).   Since   Bel   does   not   plan   to   build   any   new   factory,  we  expect  growth  CapEx  to  go  back  slowly  toward  a  lower  normalized  level  while  maintenance   CapEx   should   be   slightly   higher   compared   to   2012.   From   2016,   Bel   should   have   achieved   its   investment  plan,  hence  a  steady  CapEx/Sales  ratio  of  4%.      

Valuation  

(  100)   (  200)  

 

(  300)   (  400)  

Net  Operating  Cash  Flow   Net  Investing  Cash  Flow   Net  Financing  Cash  Flow  

Source:  Bel   Figure  22:  Sales  forecasts   4  000  

10%  

Bel   currently   trades   at   8.8x   EV/EBIT   2015E,   which   is   a   9.5%   discount   to   its   historical   average.   The   stock  also  trades  on  a  28%  discount  to  its  peers,  despite  showing  stronger  EBIT  CAGR  2013-­‐15E  (8.2%   vs.  5.6%  for  its  closest  peers).     We  valued  Bel  using  a  blend  of  DCF  (60%),  relative  (20%)  and  transaction  (20%)  valuation.  We  took   liquidity  into  account  in  each  method  by  applying  a  discount  of  11%  based  on  Damodaran’  synthetic   bid-­‐ask  spread  method  (Appendix  23).     We   derived   a   target   price   of  €399,   which   points   to   33%   upside  potential,   in   full   support   of   our   BUY   recommendation.     By   incorporating   the   company’   strategy   over   a   longer   period   and   giving   an   intrinsic   value,   the   DCF   method  appears  quite  appropriate  for  Bel,  we  thus  gave  it  a  60%  weighting.  The  transaction  method   was   given   a   weight   of   20%   because   it   represents   the   M&A   trend   in   the   Food   &   Beverages   (F&B)   industry.   Finally,   we   used   relative   valuation   with   a   blend   of   peers   multiples   and   a   multiple   factor   regression.  We  decided  to  give  a  weight  of  20%  to  this  method  since  this  reSlects  the  market’s  current   value  assessment  of  sector  peer’s  and,  hence,  of  Bel  itself.      

I.  Discounted  Cash  Flows   2  000  

5%  

 0  

0%   2014E   2015E   2016E   2017E   2018E  

Americas  -­‐  APAC   Africa  -­‐  Middle  East   Europe   Sales  growth  

Source:  Team  estimates  

The   DCF   model   captures   the   long-­‐term   potential   of   gaining   market   share   in   the   smaller,   but   faster   growing  emerging  markets,  which  embodies  Bel’  strategy.  The  DCF  analysis  gave  us  a  target  value  of   €373   (+24%)   assuming   a   WACC   of   5.5%   (derived   entirely   from   the   cost   of   equity,   which   itself   is   impacted  by  the  stock’s  low  beta  of  0.4)  and  a  liquidity  discount  of  11%.      

A  6%  Sales  Growth  Driven  By  Americas  –  APAC   Bel’  strategy  of  further  expansion  of  its  core  brands  and  an  appropriate  product  mix  should  allow  the   group  to  capture  more  market  share  in  APAC.  In  the  US,  the  new  production  plant  will  allow  Bel  to  gain   more  market  share  thanks  to  growing  and  sustainable  demand.  We  therefore  expect  a  2013-­‐18E  CAGR   of  11%  for  the  region  (to  19%  of  group  sales  in  2018E).    

   

7  

CFA  Institute  Research  Challenge   Figure  23:  WACC  assumptions   Rf  

0.8%  

Beta  

0.41  

Market  risk  Premium  (RMRF)  

5.9%  

SMB  Premium  

3.4%  

HML  Premium  

-­‐1.1%  

Cost  of  equity  

5.5%  

Equity  as  a  %  of  target  capital  structure  

100%  

WACC  

5.5%  

Sources:  FactSet,  Damodaran,  Team   estimates   Figure  24:  Sensitivity  analysis   WACC   4%  

5.5%  

7%  

Liquidity   6%   Discount   11%  

465  

393  

341  

440  

373  

323  

16%  

415  

352  

305  

Source:  Team  estimates   Figure  25:  EV/Sales  15E  vs.  EBIT  margin  15E   3.0   R²  =  0.81098  

2.5  

EV/Sales  15E  

MDLZ   KRFT  

2.0   GL9  

1.5  

DMND  

LNCE   1.0   0.5  

PLT  

BH   0.0   0%  

5%  

BN  

SAP   THS  

FBEL  

10%  

15%  

EBIT  Margin  15E  

Sources:  FactSet,  Team  estimates   Figure  26:  Regression  inputs  (2015E)   Intercept  

1.0  

Leverage  

0.1  

EPS  growth  rate  

0.2  

Payout  

0.4  

Beta  

0.4  

ln(Market  Cap)  

21.7  

ROE  

0.1  

Amihud  

0.0007  

S50  

1  

fP/E  

18  

Sources:  Thomson  Reuters,  Team   estimates  

20%  

12th  January  2015  

Western  Europe:  The  Largest  Region   Though   it   is   a   mature   market,   Western   Europe   should   remain   the   core   market   for   Bel   with   the   highest   per  capita  consumption  (€86  per  capita  in  2013).  We  estimate  a  2013-­‐18E  CAGR  of  3%  sales  growth   in  Europe  (including  Western,  Northern  and  Eastern),  which  should  represent  approximately  53%  of   Bel  sales  in  2018E.     Africa  &  Middle  East:  High  Potential  Future  Engine  But  Underdeveloped  Environment   We   expect   growth   in   Africa   and   Middle   East   to   reach   a   CAGR   2013-­‐18E   of   10%,   driven   by   the   development  of  modern  distribution  channels  (especially  in  Egypt  and  Iran),  strong  population  growth   (2%  CAGR  to  2018E)  and  an  increase  in  per  capita  consumption  of  cheese  (from  €5  in  2013  to  €7  per   capita   in   2018E).   Except   for   some   countries   in   Asia,   cheese   is   already   part   of   the   daily   diet,   but   the   growth  rate  should  strengthen  as  refrigeration  becomes  more  widespread.           DeYining  the  WACC   We  calculated  the  cost  of  equity  based  on  the   Fama-­‐French  multifactor  model  (FFM)  using  European   data  since  2000.  In  fact,  since  Bel  is  a  small-­‐cap,  the  FFM  appears  more  appropriate  than  the  CAPM.  The   beta  of  0.4  was  derived  using  Dimson-­‐Scholes  methodologies  to  take  into  account  infrequent  trading.   The  current  France’s  10-­‐Year  OAT  was  used  as  the  risk-­‐free  rate  (0.8%  at  9th  January  2015).  Current   yield,   reaching   high-­‐time   lows,   drives   our   WACC   to   very   low   levels.   This   is   why   we   ran   sensitivity   analyses   as   well   as   Monte   Carlo   simulation   to   study   the   impact   of   several   inputs   on   the   target   price,   of   which  liquidity  (Figure  24).  Please  see  Appendices  23  to  29  for  further  information.  

  II.  Transaction-­‐based  Valuation    

We   analyzed   M&A   deals   (Appendices   30   to   32)   executed   over   the   last   two   years   (except   for   Boursin   which   took   place   in   2007-­‐08)   within   the   Food   &   Beverages   sector   (we   did   not   identify   any   relevant   transaction   in   the   Cheese   sector).   Only   full   ownership   acquisitions   were   retained,   and   we   deemed   relevant   to   include   Bel’s   acquisition   of   Boursin   as   it   perfectly   Sits   the   business   proSile   (international   brands)  and  reSlects  transactions  in  the  cheese  sector.  We  used  the  Adj.  Deal  Value/Sales  multiple  to   compute  the  estimated  price  from  which  we  subtracted  a  takeover  premium  of  29%  (average  premium   since  2011).  We  obtained  a  target  value  of  €442  (pointing  to  47%  upside).  

  III.  Relative  Valuation    

1.  Peers  Multiples   We  derived  a  target  price  of  €450  (50%  upside)  using  EV/Sales  and  EV/EBIT  multiples,  both  based  on   12-­‐month  forward  means  and  adjusted  for  liquidity  (Appendix  33).     Why  We  Chose  These  Two  Multiples   We   favored   using   EV/Sales   and   EV/EBIT   over   other   multiples   because   the   relationship   is   more   signiSicant  and  seems  more  useful  in  predicting  future  performance  (Figures  24  &  25).  We  treat  both   multiples  equally  in  our  valuation  as  there  is  no  evidence  of  predominance  of  one  over  the  other.     Choice  of  Peers   §  Closest  peers,  with  a  core  business  as  similar  as  possible  to  Bel’s  (Bongrain,  Parmalat,  Glanbia).   §  High-­‐growth  small  caps  in  the  F&B  sector,  to  reSlect  Bel’s  growth  model  (Saputo,  Diamond  Foods,   Synder’s-­‐Lance,  TreeHouse  Foods).   §  Large   diversiYied   groups,   as   they   are   similar   in   terms   of   international   strategy   with   their   core   brands  (Kraft  Foods,  Danone,  Mondelez  Int.).     Given  the  varying  features  of  the  three  peer  groups,  we  applied  a  different  liquidity  discount  as  well  as   a   different   weight   to   compute   liquidity-­‐adjusted   weighted   average   multiples   (details   provided   in   Appendix  33).       2.  Multiple  Factor  Regression   A  broad  sample  of  200  Sirms  was  used  to  regress  forward  P/E  against  7  variables:  leverage  (LT  Debt/ Total  Assets),  EPS  long-­‐term  growth  rate  (g),  payout,  beta,  market  capitalization  (logarithm),  return  on   equity,  illiquidity  ratio  (based  on  Amihud’s  research).    The  5  last  variables  are  dummies  corresponding   to  sub-­‐sectors.  (Figure  26  &  Appendix  34).       LTDebt   fP / E = α 0 + α1 ( ) + α 2g + α3payout + α 4 beta + α 5 ln(marketcap) + α 6 ROE + α 7 Amihud   TotalAssets     With  an  expected  EPS  2015E  of  €21.4,  we  derived  a  target  value  of  €415  (38%  upside).     Combining   both   target   prices   with   a   50-­‐50   weighting,   we   obtained   a   target   value   of   €432   (44%   upside)  for  relative  valuation.  

  8  

CFA  Institute  Research  Challenge  

12th  January  2015  

Investment  Risks    

(Appendix  35)  

Figure  27:  3-­‐month  bid-­‐ask  spread  

 

10%   8%  

LT  Average:  3%  

6%   4%   2%   0%  

Oct.  14  

Nov.  14  

Dec.  14  

Source:  FactSet   Figure  28:  Raw  materials  prices   5  000  

$/t  

4  000   3  000   2  000   1  000   0  

Butter   Skim  milk  in  pouder   Whole  milk  in  pouder  

Source:  OECD   Figure  29:  Eurozone  HICP  (%  y/y)    5.0    4.0    3.0    2.0  

Source:  Eurostat  

Dec-­‐14  

Dec-­‐13  

Dec-­‐12  

Dec-­‐11  

Dec-­‐10  

Dec-­‐09  

Dec-­‐08  

Dec-­‐07  

-­‐  1.0  

Dec-­‐06  

 0.0  

Dec-­‐05  

 1.0  

Governance  Risk  |  Family-­‐Held  Business   The   Bel/Fievet   family   directly   and   indirectly   owns   70.9%   of   the   shares.   Besides,   Antoine   Fievet   is   Chairman   and   CEO   and   thus   has   the   decisive   power   both   at   the   board   level   and   at   the   management   level.  In  such  a  structure,  conSlicts  of  interest  between  the  family  and  other  shareholders  might  arise.   This  could  compromise  the  interest  of  minority  shareholders.     Governance  Risk  |  Lactalis     Lactalis  (Besnier  family)  was  a  Unibel  shareholder  until  2005.  In  2005,  the  Bel/Fievet  family  chose  to   reshape   the   group   shareholder   structure   with   a   complex   share   repurchasing   transaction.   Lactalis   withdrew  its  28.5%  stake  in  Unibel  but  remained  a  shareholder  of  Fromageries  Bel  (24%).       Market  Risk  |  Liquidity     Bel  is  a  small-­‐cap.  Free  Sloat  is  very  low  (4.4%)  and  its  shares  are  characterized  by  an  unusually  wide   bid-­‐ask   spread   (3%   on   average   over   the   last   10   years).   Such   a   proSile   is   likely   to   keep   institutional   investors   away   from   buying   the   shares   (Figure   27).   Clearly,   raising   free-­‐Sloat   by,   for   example,   selling   Lactalis’   stake   to   the   market,   would   have   a   positive   impact   on   liquidity   and,   potentially,   valuation   (narrowing  of  the  liquidity  discount).     Market  Risk  |  Fluctuation  of  Raw  Materials  Prices   Volatility   in   raw   materials   prices   (milk,   powder,   butter   and   cream)   can   be   driven   by   supply   and   demand   Sluctuations,   but   also   by   weather   conditions.   Currently,   there   is   a   rise   in   dairy   raw   material   costs,  which  is  driven  by  a  robust  demand  in  emerging  countries  (China  particularly).  Future  prices  are   not  expected  to  reach  2007-­‐08  peaks  as  well  as  those  of  2011  and  2013  (Figure  28).  On  the  contrary,   the   abolition   of   dairy   quotas   in   Europe   in   2015   should   drive   milk   production   upward   and   put   downward   pressure   on   prices.   Despite   this,   we   expect   no   signiSicant   reduction   in   current   price   volatility  especially  due  to  a  reduction  of  price  intervention  in  the  EU.       Market  Risk  |  Forex  Headwinds     As  the  consolidated  Sinancial  statements  are  presented  in  euro,  Bel  is  exposed  to  translation  effect  from   forex   Sluctuations.   This   concerns   more   than   40   %   of   Bel   total   sales.   Bel   is   also   exposed   to   transactional   exchange  rate  risks,  mainly  due  to  commercial  commitments  carried  out  in  currencies  other  than  the   euro   by   its   subsidiaries.   Even   if   Bel   aims   at   hedging   the   annual   budgetary   currency   risk   through   derivatives,   it   currently   remains   exposed   to   currency   volatility.   Besides,   investments   abroad,   such   as   the  Brookings  production  plant,  should  act  as  a  natural  FX  hedge.     Economic  Risk  |  World  GDP  Growth  Slowdown   While  European  growth  forecasts  remain  weak,  deSlation  haunts  Bel’s  core  market  (62%  of  2013  sales)   and   may   trigger   a   vicious   circle   driving   household   consumption   down.   The   FED   progressive   withdrawal  also  sows  the  seeds  of  doubt  on  dollar-­‐addicted  emerging  markets.     Economic  Risk  |  DeYlation  Risk   Euro   area   inSlation   has   been   falling   steadily   for   three   years,   and   slipped   into   negative   territory   in   December   (-­‐0.2%   y/y)   for   the   Sirst   time   since   2009   (Figure   29).   If   the   situation   lasts,   there   may   be   «   demand-­‐deSicient   deSlation   »,   also   known   as   «   bad   deSlation   »   in   the   Eurozone   because   consumers   may   delay   the   purchase   of   goods   and   services   in   the   expectation   that   prices   will   fall.   However,   this   situation  might  lead  to  the  intervention  of  the  ECB  (QE  announcement),  offsetting  this  risk.       Political  Risk  |  Threats  of  Geopolitical  Events   Bel’s  activities  are  subject  to  geopolitical  events  such  as  an  embargo  and  political  crisis.  Depending  on   the  market  importance  for  Bel,  those  may  hit  Bel’s  operating  margin.  In  some  cases  like  in  Middle  East,   Bel  has  been  forced  to  reconsider  its  distribution  channel.         Strategic  Risk  |  Lack  of  Aggressiveness   Bel’  strategy  is  to  innovate  through  prudent  acquisition  of  new  brands.  The  lack  of  aggressiveness  is   reinforced  by  a  family  member  as  CEO  and  may  deter  potential  investors  from  buying  the  shares.       Operating  Risk  |    Unplanned  Breakdown  of  Production  Site   Due   to   the   group   strategy,   some   of   the   products   are   manufactured   in   a   limited   number   of   sites   or   even   in  a  single  site.  If  an  important  site  is  totally  or  partially  damaged,  it  may  have  a  signiSicant  impact  on   the   manufactured   products.   Though   the   group   has   set   up   prevention   plans   and   business   continuity   plans,  the  group’s  operating  proSit  could  be  signiSicantly  affected.      

 

9  

CFA  Institute  Research  Challenge  

12th  January  2015  

Operating  Risk  |  Contamination  Risk   As  a  food  manufacturing  company,  food  safety  is  always  a  key  concern.  The  risk  exists  at  every  stage  of   the   production   cycle:   upstream   risks   (chemical   and   physical)   may   inSluence   raw   materials   and   input   packaging;   downstream   risks   (bacteriological)   for   cheese.   Any   claimed   or   proven   contamination   of   Bel   products  may  harm  its  reputation,  business  activity  and  results.          

Responsible  Corporate  Citizen  

  In  2013,  Bel  issued  publicly  its  CSR  report  for  the  Sirst  time.  It  shows  high  performance  results  in  using   the  Ecovadis  Rating  tools.  Bel  is  rated  with  65/100  in  2013  which  has  achieved  the  Gold  Status  (Figure   30  and  Appendix  36).   Suppliers       Environmental     70/100   Bel   has   been   striving   to   improve   its   environmental   performance.   As   a   partner   of   WWF,   Bel   has   developed   and   complied   with   many   internal   and   external   reference   standards   (for   both   their   production   sites   and   their   suppliers)   aimed   at   reducing   water   and   energy   production,   reducing   the   waste   disposal   and   limiting   greenhouse   gas   emissions.   As   a   result,   Bel   has   reduced   its   water   consumption  by  11%  with  a  sales  growth  of  23%  from  2008-­‐13.     Social   Subcontractors   As   a   signatory   to   the   United   Nations   Global   Compact   since   2003,   Bel   has   always   focused   on   respecting     human   rights.   Since   its   establishment   in   2008,   “Bel   Foundation”   has   not   only   taken   action   in   the   interest   of   children,   their   well-­‐being,   but   has   also   supported   associations   and   other   philanthropic   projects.  Furthermore,  training  programs  are  taken  to  develop  the  skills  and  promote  internal  mobility,   43/100   as  well  as  other  measures  to  improve  the  working  conditions.     Governance   Bel   keeps   an   ongoing   governance   dialogue   within   the   family,   in   pursuit   of   the   most   efSicient   balance   between   family   and   business   forces.   In   accordance   with   AFEP/MEDEF   and   Middlenext   Codes,   Bel   Bel  (Gold  Status)   meets   the   independence   requirement   of   board   of   directors.   We   do   however   highlight   a   conSlict   of     interest   as   the   CEO,   Antoine   Fievet   (member   of   the   family   shareholder),   is   also   the   Chairman   of   the   Board   of   Directors.   The   establishment   of   different   committees   and   existence   of   Internal   Audit   65/100   Department  ensures  the  continuous  good  functioning  of  the  company.  The  compensation  and  beneSits   are  publicly  released  and  all  their  decisions  are  taken  in  the  shareholders’  interest  (Appendix  37).             Source:  EcoVadis                                           Rating  deYinitions:         total  return  greater  than  6%     BUY   Forecast  12-­‐month  absolute       total  return  of  +6%  to  -­‐6%     HOLD   Forecast  12-­‐month  absolute     SELL   Forecast  12-­‐month  absolute  total  return  less  than  -­‐6%    

Figure  30:  2013  EcoVadis  rating  

10  

CFA  Institute  Research  Challenge  

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  Appendix  –  Table  of  Contents     Appendix  1.  Income  Statement   Appendix  2.  Balance  Sheet   Appendix  3.  Cash  Flow  Statement   Appendix  4.  Vertical  Common  Size  Income  Statement   Appendix  5.  Horizontal  Common  Size  Income  Statement   Appendix  6.  Vertical  Common  Size  Balance  Sheet   Appendix  7.  Horizontal  Common  Size  Balance  Sheet   Appendix  8.  Key  Ratios     Business  Description   Appendix  9.  Factories  and  R&D  Centers  Worldwide   Appendix  10.  Industrial  Expertise   Appendix  11.  Five  Core  Brands   Appendix  12.  Acquisitions   Appendix  13.  Corporate  Structure      

Industry  Overview   Appendix  14.  EU-­‐27  Cheese  Production     Appendix  15.  Cheese  Consumption  Worldwide   Appendix  16.  EU  Quota  Regime   Appendix  17.  PESTLE   Appendix  18.  SWOT  Analysis  

  Financial  Analysis   Appendix  19.  Sales  Forecasts   Appendix  20.  Financial  Statements  Forecasts  Explanations   Appendix  21.  Non  Recurring  Income  and  Expense   Appendix  22.  DuPont  Analysis    

Valuation     Discounted  Cash  Flows   Appendix  23.  Liquidity  Discount  Calculation   Appendix  24.  Free  Cash  Flows   Appendix  25.  Target  Price  Calculation   Appendix  26.  Fama-­‐French  Model   Appendix  27.  WACC  Components   Appendix  28.  Sensitivity  Analyses   Appendix  29.  Monte  Carlo  Simulation    

Transactions  

Appendix  30.  Comparable  Deals     Appendix  31.  Deal  Value/Sales  Ratio  of  Comparable  Deals   Appendix  32.  Transaction-­‐based  Valuation  Target  Price    

Relative  Valuation   Appendix  33.  Peers  Multiples     Appendix  34.  P/E  Ratio  Regression  Model       Investment  Risks   Appendix  35.  Risk  Matrix    

Other  Headings   Appendix  36.  ESG   Appendix  37.  Management  Board    

         

11  

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Appendix  1.  Income  Statement    

Back  to  content  

 Income  Statement  (€m)  

2009  

2010  

2011  

2012  

2013  

2014E   2015E   2016E   2017E   2018E  

Sales  

2  221  

2  418  

2  527  

2  649  

2  720  

2  828  

3  000   3  187   3  392  

3  619  

Growth  

0.2%  

8.9%  

4.5%  

4.8%  

2.7%  

4.0%  

6.1%  

6.2%  

6.4%  

6.7%  

Europe  

1  472  

1  517  

1  597  

1  612  

1  670  

1  711  

1  759  

1  809  

1  859  

1  911  

Africa  -­‐  Middle  East  

-­‐-­‐  

561  

549  

618  

633  

696  

766  

841  

924  

1  014  

Americas  -­‐  APAC  

-­‐-­‐  

340  

381  

419  

417  

421  

475  

537  

609  

693  

Cost  of  Goods  Sold     Gross  Income  

(1  445)   (1  577)   (1  727)   (1  741)   (1  821)   (1  960)   (2  010)   (2  119)   (2  239)   (2  370)   776  

841  

800  

Gross  Income  Margin  

34.9%  

34.8%  

31.7%  

34.3%   33.1%  

SG&A  Expense  

(509)  

(544)  

(531)  

(581)  

267  

297  

269  

327  

12.0%  

12.3%  

10.6%  

Depreciation  &  Amortization  Expense  

(72)  

(86)  

(82)  

(89)  

(77)  

(91)  

(98)  

(102)  

(106)  

(110)  

EBIT    

195  

211  

187  

238  

240  

169  

247  

281  

318  

360  

EBIT  margin  

8.8%  

8.7%  

7.4%  

9.0%  

8.8%  

6.0%  

8.2%  

8.8%  

9.4%  

9.9%  

Nonoperating  Income  -­‐  Net  

(4)  

(6)  

(6)  

(2)  

4  

4  

4  

4  

4  

4  

Interest  Expense  

(24)  

(19)  

(21)  

(17)  

(20)  

(9)  

(9)  

(9)  

(9)  

(9)  

Unusual  Expense  -­‐  Net  

(42)  

(11)  

(16)  

(26)  

(5)  

(20)  

(20)  

(20)  

(20)  

(20)  

EBT  

125  

175  

144  

193  

220  

145  

222  

256  

293  

335  

Income  Taxes  

(37)  

(57)  

(47)  

(63)  

(88)  

(48)  

(74)  

(85)  

(98)  

(112)  

Consolidated  Net  Income  

88  

118  

97  

130  

131  

96  

148  

171  

196  

223  

Minority  Interest  

(3)  

(1)  

(1)  

(2)  

(6)  

(2)  

(2)  

(2)  

(2)  

(2)  

Net  Income  

85  

117  

96  

129  

126  

94  

146  

169  

194  

221  

 

 

 

 

 

 

 

 

 

 

 

EPS  (basic)  

12.40  

16.98  

14.07  

18.65  

18.45  

13.85  

21.37  

24.70  

28.38  

32.46  

EPS  (diluted)  

12.40  

16.98  

14.07  

18.65  

18.45  

13.85  

21.37  

24.70  

28.38  

32.46  

Total  Shares  Outstanding  

6.86  

6.86  

6.84  

6.89  

6.82  

6.82  

6.82  

6.82  

6.82  

6.82  

DPS  

6.00  

5.00  

6.25  

6.25  

6.25  

6.25  

7.91  

10.00  

12.65  

16.00  

48.4%  

29.4%  

44.4%  

EBITDA   EBITDA  margin  

Payout  Ratio  (%)  

NB:  Forecasts  calculations  are  explained  in  Appendix  20.     Sources:  FactSet,  Team  estimates  

12  

908  

899  

1  068   1  153  

1  248  

30.7%  

33.0%   33.5%   34.0%  

34.5%  

(582)  

(608)  

(645)  

(685)  

(729)  

(778)  

317  

260  

345  

382  

424  

470  

12.4%   11.7%  

868  

9.2%  

990  

11.5%   12.0%   12.5%  

13.0%  

33.5%   33.9%   45.1%   37.0%   40.5%   44.6%   49.3%  

CFA  Institute  Research  Challenge  

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Back  to  content  

Appendix  2.  Balance  Sheet    Balance  Sheet  (€m)  

2009  

2010  

2011  

2012  

2013  

Cash  &  ST  Investments  

117  

140  

143  

451  

510  

379  

464  

504  

584  

509  

Short-­‐Term  Receivables  

414  

444  

455  

458  

491  

508  

528  

560  

595  

631  

Inventories  

179  

224  

244  

237  

259  

239  

249  

264  

280  

308  

Current  Assets  

709  

809  

841  

1  126  

1  240  

1  328  

1  460  

1  447  

 

 

 

 

 

Net  PP&E  

549  

540  

530  

524  

588  

639  

661  

686  

716  

752  

Net  Goodwill  

383  

389  

388  

385  

381  

381  

381  

381  

381  

381  

Net  Other  Intangible  Assets  

311  

306  

303  

296  

288  

288  

288  

288  

288  

288  

LT  Investments  

48  

63  

64  

85  

116  

116  

116  

116  

116  

116  

Other  Assets  

12  

11  

11  

11  

10  

15  

15  

15  

11  

8  

1  303  

1  309  

1  439  

1  461  

1  486  

1  512  

1  545  

 

 

2  012  

2  118  

2  701  

2  814  

2  972  

2  992  

Non  Current  Assets   Total  Assets  

1  146   1  260  

1  296   1  301   1  384    

 

 

2  137   2  447   2  644  

2014E   2015E   2016E   2017E   2018E  

  2  566  

 

 

 

 

 

 

ST  Debt  &  Current  Portion  LT  Debt  

63  

56  

78  

144  

153  

47  

47  

47  

47  

47  

Accounts  Payable  

275  

333  

359  

368  

413  

404  

442  

454  

479  

508  

Other  Current  Liabilities  

143  

158  

158  

156  

182  

182  

199  

205  

216  

236  

Current  Liabilities  

482  

547  

595  

669  

748  

633  

688  

706  

742  

792  

 

 

 

 

 

 

Long-­‐Term  Debt  

410  

324  

258  

363  

378  

378  

378  

361  

361  

198  

Provisions  

45  

49  

51  

52  

78  

78  

78  

78  

78  

78  

Other  Liabilities  

154  

169  

172  

197  

213  

198  

186  

196  

210  

226  

Non  Current  Liabilities  

609  

543  

481  

612  

668  

654  

642  

635  

649  

502  

 

 

 

 

 

 

1  090  

1  090  

1  287  

1  330  

1  341  

1  391  

1  293  

 

 

 

 

 

Common  Stock  Par/Carry  Value    

10  

10  

10  

10  

10  

10  

10  

10  

10  

10  

Additional  Paid-­‐In  Capital  

22  

22  

22  

22  

22  

22  

22  

22  

22  

22  

Retained  Earnings  

106  

135  

113  

145  

1  248  

1  300  

1  392  

1  492  

1  599  

1  716  

Cumulative  Translation  Adjustment/ Unrealized  For.  Exch.  Gain  

(27)  

(10)  

(17)  

(28)  

(59)  

(59)  

(59)  

(59)  

(59)  

(59)  

Other  Appropriated  Reserves  

789  

852  

923  

1  018  

-­‐-­‐  

-­‐-­‐  

-­‐-­‐  

-­‐-­‐  

-­‐-­‐  

-­‐-­‐  

Treasury  Stock  

(7)  

(7)  

(6)  

(11)  

(8)  

(8)  

(8)  

(8)  

(8)  

(8)  

Total  Shareholders'  Equity  

892  

1  002  

1  264  

1  356  

1  457  

1  564  

1  680  

31  

26  

15  

16  

17  

18  

19  

923  

1  027  

1279  

1372  

1473  

1581  

1699  

 

 

2  013  

2  118  

2566  

2701  

2814  

2972  

2992  

Total  Liabilities  

Accumulated  Minority  Interest   Total  Equity   Total  Liabilities  &  Shareholders'   Equity  

1  076   1  281   1  417  

1  045   1  155   1  213   16  

11  

14  

1  061   1  166   1  227    

 

 

2  137   2  447   2  644  

NB:  Forecasts  calculations  are  explained  in  Appendix  20.     Sources:  FactSet,  Team  estimates  

13  

CFA  Institute  Research  Challenge  

12th  January  2015  

Appendix  3.  Cash  Flow  Statement    Cash  Flow  Statement  (€m)  

Back  to  content   2009  

2010  

2011  

2012  

2013  

Earnings  Before  Taxes  

125  

175  

144  

193  

220  

145  

222  

256  

293  

335  

Depreciation,  Depletion  &  Amortization  

122  

92  

79  

93  

77  

91  

98  

102  

106  

110  

Other  Funds  

(15)  

(40)  

(41)  

(41)  

(73)  

(73)  

(73)  

(73)  

(73)  

(73)  

Funds  from  Operations  

231  

227  

182  

245  

224  

162  

247  

285  

326  

373  

Changes  in  Working  Capital  

(4)  

(4)  

(20)  

12  

(8)  

(6)  

8  

(35)  

(27)  

(34)  

Net  Operating  Cash  Flow  

227  

223  

162  

257  

216  

156  

255  

250  

300  

338  

 

 

 

 

 

 

Capital  Expenditures  

(79)  

(64)  

(75)  

(81)  

(149)  

(141)  

(120)  

(127)  

(136)  

(145)  

     Maintenance  CapEx  

(122)  

(92)  

(79)  

(93)  

(77)  

(91)  

(98)  

(102)  

(106)  

(110)  

     Growth  CapEx  

43  

28  

4  

11  

(72)  

(51)  

(22)  

(26)  

(30)  

(34)  

Net  Assets  from  Acquisitions  

(1)  

(3)  

0  

(0)  

(0)  

0  

0  

0  

0  

0  

1  

3  

1  

2  

3  

3  

3  

3  

3  

3  

Purchase/Sale  of  Investments  

(0)  

(1)  

(1)  

(0)  

0  

0  

0  

0  

0  

0  

Other  Funds  

13  

0  

(0)  

0  

0  

0  

0  

0  

0  

0  

(66)  

(65)  

(74)  

(80)  

(146)  

(138)  

(117)  

(124)  

(133)  

(142)  

 

 

 

 

 

 

(24)  

(40)  

(48)  

(41)  

(52)  

(43)  

(54)  

(68)  

(86)  

(109)  

0  

0  

0  

(7)  

0  

0  

0  

0  

0  

0  

Issuance/Reduction  of  LT  Debt,  Net  

(263)  

(84)  

(52)  

178  

26  

0  

0  

(17)  

0  

(163)  

Issuance/Reduction  of  ST  Debt,  Net  

0  

0  

0  

0  

0  

(106)  

0  

0  

0  

0  

Other  Funds  

0  

(7)  

10  

(2)  

14  

0  

0  

0  

0  

0  

(286)  

(131)  

(91)  

127  

(12)  

(148)  

(54)  

(85)  

(86)  

(272)  

 

 

 

 

 

 

(2)  

(0)  

2  

0  

(8)  

0  

0  

0  

0  

0  

 

 

 

 

 

 

(127)  

26  

(1)  

304  

50  

(131)  

84  

40  

81  

(76)  

Sale  of  Fixed  Assets  &  Businesses  

Net  Investing  Cash  Flow  

Cash  Dividends  Paid   Change  in  Capital  Stock  

Net  Financing  Cash  Flow  

Exchange  Rate  Effect  

Net  Change  in  Cash  

NB:  Forecasts  calculations  are  explained  in  Appendix  20.     Sources:  FactSet,  Team  estimates  

14  

2014E   2015E   2016E   2017E   2018E  

CFA  Institute  Research  Challenge  

12th  January  2015  

Appendix  4.  Vertical  Common  Size  Income  Statement   Vertical  Common  Size  Income   Statement   Sales  

2009  

2010  

Back  to  content   2011  

2012  

2013  

2014E   2015E   2016E   2017E   2018E  

100.0%   100.0%   100.0%   100.0%  100.0%   100.0%  100.0%  100.0%  100.0%  100.0%  

Cost  of  Goods  Sold    

65.1%  

65.2%  

Gross  Income  

34.9%   34.8%   31.7%   34.3%   33.1%   30.7%   33.0%   33.5%   34.0%   34.5%  

SG&A  Expense  

22.9%  

EBITDA  

12.0%   12.3%   10.6%   12.4%   11.7%  

22.5%  

68.3%   65.7%   66.9%   69.3%   67.0%   66.5%   66.0%   65.5%  

21.1%   21.9%   21.4%   19.8%   22.4%   22.4%   22.0%   22.0%   9.2%   11.5%   12.0%   12.5%   13.0%  

Depreciation  and  Amortization  

3.2%  

3.6%  

3.2%  

3.4%  

2.8%  

3.2%  

3.3%  

3.2%  

3.1%  

3.1%  

EBIT    

8.8%  

8.7%  

7.4%  

9.0%  

8.8%  

6.0%  

8.2%  

8.8%  

9.4%  

9.9%  

EBT  

5.6%  

7.2%  

5.7%  

7.3%  

8.1%  

5.1%  

7.4%  

8.0%  

8.6%  

9.3%  

Net  Income  

3.8%  

4.8%  

3.8%  

4.9%  

4.6%  

3.3%  

4.9%  

5.3%  

5.7%  

6.1%  

2011  

2012  

2013  

2014E   2015E   2016E   2017E   2018E  

Sources:  FactSet,  Team  estimates  

Appendix  5.  Horizontal  Common  Size  Income  Statement   Horizontal  Common  Size  Income   Statement  

2009  

2010  

Sales  

100.0%   108.9%   113.8%   119.3%  122.5%   127.3%  135.1%  143.5%  152.8%  163.0%  

Cost  of  Goods  Sold    

100.0%   109.1%   119.5%   120.5%   126.0%   135.6%   139.1%   146.7%   154.9%   164.0%  

Gross  Income  

100.0%   108.4%   103.2%   117.0%  115.9%   111.9%  127.6%  137.6%  148.7%  160.9%  

SG&A  Expense  

100.0%   107.0%   104.5%   114.2%   114.5%   119.5%   126.8%   134.7%   143.4%   153.0%  

EBITDA  

100.0%   111.1%   100.7%   122.5%  118.8%   97.4%   129.2%  143.2%  158.7%  176.1%  

Depreciation  and  Amortization  

100.0%   119.6%   113.3%   123.6%   107.0%   125.8%   136.6%   141.2%   146.7%   153.1%  

EBIT    

100.0%   107.9%   96.0%   122.2%  123.1%   86.9%   126.3%  143.8%  163.1%  184.5%  

EBT  

100.0%   140.4%   115.8%   155.1%  176.4%   116.2%  178.1%  205.4%  235.6%  269.2%  

Net  Income  

100.0%   136.9%   113.1%   151.1%  148.0%   111.0%  171.4%  198.1%  227.6%  260.3%  

Sources:  FactSet,  Team  estimates  

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Appendix  6.  Vertical  Common  Size  Balance  Sheet    Vertical  Common  Size  Balance  Sheet     2009   Current  Assets   35.2%     Non  Current  Assets   64.8%     Total  Assets   100.0%     Current  Liabilities   44.2%     Non  Current  Liabilities   55.8%     Total  Liabilities   54.2%     Shareholders  Equity   44.3%     Total  Equity   45.8%     Liabilities  and  Equity   100.0%  

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2010   2011   2012   2013   2014E   38.2%   39.4%   46.8%   47.6%   43.9%           61.8%   60.6%   53.2%   52.4%   56.1%           100.0%   100.0%  100.0%  100.0%   100.0%           50.2%   55.3%   52.2%   52.8%   49.2%           49.8%   44.7%   47.8%   47.2%   50.8%           51.5%   50.3%   52.4%   53.6%   50.2%           47.3%   48.9%   47.2%   45.9%   49.3%           48.5%   49.7%   47.6%   46.4%   49.8%           100.0%   100.0%  100.0%  100.0%   100.0%  

2015E   2016E   2017E   2018E   45.9%   47.2%   49.1%   48.4%   54.1%  

52.8%  

50.9%  

51.6%  

100.0%   100.0%   100.0%   100.0%   51.7%  

52.7%  

53.4%  

61.2%  

48.3%  

47.3%  

46.6%  

38.8%  

49.2%   47.7%   46.8%   43.2%   50.2%  

51.8%  

52.6%  

56.2%  

50.8%   52.3%   53.2%   56.8%   100.0%   100.0%   100.0%   100.0%  

Sources:  FactSet,  Team  estimates  

Appendix  7.  Horizontal  Common  Size  Balance  Sheet   Horizontal  Common     Size  Balance  Sheet     Current  Assets   Non  Current  Assets   Total  Assets   Current  Liabilities   Non  Current  Liabilities   Total  Liabilities   Shareholders  Equity   Total  Equity   Liabilities  and  Equity  

2009   100.0%     100.0%     100.0%     100.0%     100.0%     100.0%     100.0%     100.0%     100.0%  

2010  

2011  

2012  

2013  

2014E   2015E   2016E   2017E   2018E  

114.1%   118.6%   161.6%   177.7%   158.9%           100.4%   99.4%   99.8%   106.2%   110.4%           105.2%   106.2%  121.6%  131.4%   127.5%           113.6%   123.5%   138.8%   155.3%   131.5%           89.2%   79.0%   100.6%   109.9%   107.4%           100.0%   98.7%   117.5%  129.9%   118.0%           112.3%   117.2%   129.5%   136.0%   141.7%           111.4%   115.0%  126.4%  133.0%   138.6%           105.2%   106.2%  121.6%  131.4%   127.5%  

Sources:  FactSet,  Team  estimates  

16  

175.0%   187.3%   205.9%   204.2%   112.1%   114.1%   116.0%   118.5%   134.2%   139.9%   147.7%   148.7%   142.8%   146.6%   154.1%   164.3%   105.4%   104.3%   106.6%   82.4%   122.0%   123.0%   127.6%   118.6%   152.0%   163.3%   175.3%   188.4%   148.7%   159.7%   171.4%   184.2%   134.2%   139.8%   147.7%   148.7%  

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Appendix  8.  Key  Ratios  

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Key  Ratios   Activity  Ratios   1.  Receivables  Turnover   2.  Days  of  Sales  Outstanding  (DSO)   3.  Inventory  Turnover   4.  Days  of  Inventory  on  Hand  (DOH)   5.  Payables  Turnover   6.  Number  of  Days  of  Payables   7.  Total  Asset  Turnover   8.  Fixed  Asset  Turnover   9.  Working  Capital  Turnover   10.  WC/Sales   11.  WCR/Sales   12.  CapEx/Sales  

2009     5.1   71.2   7.6   47.8   5.8   62.7   1.0   4.0   12.6   7.8%   14.3%   3.6%  

2010     5.6   64.8   7.8   46.6   6.5   56.1   1.2   4.4   13.8   7.3%   13.8%   2.6%  

2011     5.6   64.9   7.4   49.4   6.3   57.6   1.2   4.7   14.1   7.2%   13.4%   3.0%  

2012     5.8   62.9   7.2   50.4   6.1   59.8   1.2   5.0   15.1   6.4%   12.3%   3.1%  

Liquidity  ratios   1.  Current  Ratio   2.  Quick  Ratio   3.  Cash  Ratio   4.  Cash  Conversion  Cycle   5.  ST  Debt/Cash   6.  CFO/Sales  

  1.5   1.1   0.2   56.3   0.5   10.2%  

  1.5   1.1   0.3   55.2   0.4   9.2%  

  1.4   1.0   0.2   56.7   0.5   6.4%  

  1.7   1.4   0.7   53.5   0.3   9.7%  

Solvency  ratios   1.  Net  Debt   2.  Net  Debt/Equity   3.  Net  Debt/EBITDA   4.  Net  Debt/EBITDA  Minus  CapEx     5.  Total  Debt/Total  Assets   6.  Total  Debt/EBITDA   7.  LT  Debt/EBITDA   8.  Asset/Equity   9.  Interest  Coverage   10.  CFO/Interest  Expense   11.  EBITDA/Interest  Expense    

  356.6   0.4   1.3   1.9   0.2   1.8   1.5   2.4   8.0   9.3   10.9  

  239.7   0.3   0.8   1.0   0.2   1.3   1.1   2.1   11.0   11.7   15.5  

  193.3   0.2   0.7   1.0   0.2   1.2   1.0   2.0   8.8   7.6   12.6  

  56.7   0.1   0.2   0.2   0.2   1.5   1.1   2.1   13.7   14.7   18.8  

ProYitability  ratios   1.  Net  ProSit  Margin     2.  Gross  ProSit   3.  EBITDA  Margin     4.  EBIT  Margin     5.  EBT  Margin   6.  ROA   7.  Operating  ROA   8.  Return  on  Total  Capital   9.  ROE  (Shareholder  Equity)     10.  ROCE  (SH  Equity  +  LT  Debt)    

  3.8%   34.9%   12.0%   8.8%   5.6%   4.0%   9.1%   6.3%   9.5%   10.0%  

  4.8%   34.8%   12.3%   8.7%   7.2%   5.6%   10.2%   8.5%   11.9%   10.8%  

  3.8%   31.7%   10.6%   7.4%   5.7%   4.5%   8.8%   7.0%   9.2%   9.6%  

  4.9%   34.3%   12.4%   9.0%   7.3%   5.6%   10.4%   8.4%   11.5%   11.4%  

1.1  

0.9   1.1   1.0  

-­‐2.4   1.1   -­‐2.8  

5.7   1.1   6.1  

DOL   DFL   DTL  

Sources:  FactSet,  Team  estimates  

17  

2013     5.7   63.7   7.3   49.7   5.9   61.5   1.1   4.9   16.7   5.7%   12.4%   5.5%       1.7   1.3   0.7   51.8   0.3   7.9%       20.7   0.0   0.1   0.1   0.2   1.7   1.2   2.1   12.3   11.0   16.2       4.6%   33.1%   11.7%   8.8%   8.1%   4.9%   9.4%   7.4%   10.5%   9.3%     0.3   1.1   0.3  

2014E     5.7   64.4   7.9   46.4   6.0   60.7   1.1   4.6   17.9   5.7%   12.1%   5.0%  

2015E     5.8   63.0   8.2   44.3   5.9   61.8   1.1   4.6   20.2   4.5%   11.2%   4.0%  

2016E     5.9   62.3   8.3   44.2   5.9   62.1   1.2   4.7   21.2   5.2%   11.6%   4.0%  

2017E     5.9   62.1   8.2   44.4   6.0   61.2   1.2   4.8   19.6   5.3%   11.7%   4.0%  

2018E     5.9   61.8   8.1   45.3   6.0   60.9   1.2   4.9   19.3   5.4%   11.9%   4.0%  

  1.8   1.4   0.6   50.2   0.1   5.5%  

  1.8   1.4   0.7   45.5   0.1   8.5%  

  1.9   1.5   0.7   44.3   0.1   7.8%  

  2.0   1.6   0.8   45.3   0.1   8.8%  

  1.8   1.4   0.6   46.2   0.1   9.4%  

  60.0   0.0   0.2   0.5   0.2   1.7   1.5   2.1   19.3   17.8   29.6       3.3%   30.7%   9.2%   6.0%   5.1%   3.6%   6.5%   5.5%   7.5%   7.0%  

  -­‐23.4   0.0   -­‐0.1   -­‐0.1   0.2   1.3   1.1   2.0   28.0   29.0   39.2  

  -­‐62.7   0.0   -­‐0.2   -­‐0.2   0.2   1.2   1.0   1.9   31.8   28.3   43.4  

  -­‐142.4   -­‐0.1   -­‐0.3   -­‐0.5   0.1   1.0   0.9   1.9   36.0   33.9   48.0  

  -­‐65.6   0.0   -­‐0.1   -­‐0.2   0.1   0.9   0.8   1.8   40.6   38.2   53.1  

  4.9%   33.0%   11.5%   8.2%   7.4%   5.5%   9.4%   8.3%   11.0%   9.7%  

  5.3%   33.5%   12.0%   8.8%   8.0%   6.1%   10.2%   9.1%   11.8%   10.5%  

  5.7%   34.0%   12.5%   9.4%   8.6%   6.7%   11.0%   9.9%   12.7%   11.3%  

  6.1%   34.5%   13.0%   9.9%   9.3%   7.4%   12.1%   10.7%   13.5%   12.6%  

-­‐7.4   1.1   -­‐7.8  

7.5   1.0   7.7  

2.2   1.0   2.3  

2.1   1.0   2.1  

2.0   1.0   2.0  

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Appendix  9.  Factories  and  R&D  Centers  Worldwide  

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Legend:   Factories   R&D  Centers   Bel  Headquarters  

Source:  Bel  

18  

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Appendix  10.  Industrial  Expertise  

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Mini  Babybel  

«  The  curd  grains  are  molded  and  will  then  be  pressed.  After  an  average  resting  period  of  15  hours,  the  Mini  Babybel  cheeses   will  be  wrapped  in  a  wax  coating  designed  to  protect  and  conserve  them.  »  

Kiri  

“The  milk  and  cream  are  mixed  and  then  pasteurized.  Lactic  ferments,  dairy  proteins,  emulsifying  salts,  and  a  pinch  of  salt  and   milk  calcium  are  added  to  the  mix.  Kiri  is  cooked  then  hot  molded  in  aluminum  shells.”  

Source:  Bel  

19  

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Appendix  11.  Five  Core  Brands  

Brand  

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Ranking   Worldwide  

#  Countries  

✓  

#4  

136  

Fresh  &  Spreadable   Cheese  

✓    

#12  

N/A  

1977  

Pressed  Cheese  

✓    

   

#6  

76  

2002  

Pressed  Cheese  

✓    

#11  

27  

2008  

Fresh  &  Spreadable   Cheese  

✓    

N/A  

8  

Year  

Type  of  Cheese  

Creation    

1921  

Processed  Cheese  

1966  

Acquisition  

Source:  Bel  

Appendix  12.  Acquisitions      Date  of   Completion   November-­‐85   January-­‐91   July-­‐94   November-­‐94   February-­‐96   April-­‐96   May-­‐00   June-­‐00   December-­‐02   February-­‐06   January-­‐07   April-­‐07   January-­‐08   April-­‐08   April-­‐08   October-­‐14  

Target  Name  

Target  Nation  

%  Acquired  

Nestle  Foods  -­‐  Wispride  Brand   Maredsous   Cademartori  Introbio   Queserias  Ibericas   Kaukauna  Cheese  Wisconsin     Grupo  Lacto   Zeletavska  Syrarna   Zempmilk     Leerdammer  Co   Kars  Karper  Peynir  ve  Gida     Groupe  Danone  SA  -­‐  Gervais  Brand   Shostka  City  Milk  Factory   Boursin   Jaromericka  Mlekarna   J  &  R     Granja  La  Luz    

United  States   Belgium   Italy   Spain   United  States   Portugal   Czech  Republic   Slovak  Rep   Netherlands   Turkey   Czech  Republic   Ukraine   France   Czech  Republic   Czech  Republic   Spain  

100%   100%   75%   83%   100%   100%   100%   51.1%   100%   -­‐   100%   100%   100%   100%   71.5%   100%  

Source:  Thomson  Reuters   20  

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Appendix  13.  Corporate  Structure  

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Board  of  Directors   Luc  Luyten  

James  Lightburn  

Philippe  Deloffre  

Fatine  Layt  

Michel  Arnaud  

Florian  Sauvin  

Pascal  Viénot  (UNIBEL)  

Executive  Committee  

Bruno  Schoch   Deputy  General  Manager  in  charge  of   Finance,  Legal  affairs  and  IT  systems  

Antoine  Fiévet   CEO  &  Chairman  

Francis  Le  Cam   Deputy  General  Manager     in  charge  of  Operations  

Hubert  Mayet   General  Manager  in  charge  of  Group   Manufacturing  and  Technical  Division  

Chantal  Layuela   Vice-­‐President  Research  and  Innovation  

Philippe  Champlong   Vice-­‐President  Bel  Asia-­‐PaciSic  

Etienne  Lecomte   Vice-­‐President  Bel  Western  Europe  

Eric  de  Poncins   Executive  Vice-­‐President  Group   Strategy,  Development  and   Transformation  

Guillaume  Jouet   Vice-­‐President  Human  Resources,   Communications  and  Corporate  Social   Responsibility  

Management  Committee  

Frédéric  Nalis   Vice-­‐President  Bel  America   Joe  Tayard   Vice-­‐President  Bel  Near  and  Middle  East  

Robert  Schlingensiepen   Vice-­‐President  Bel  North  East  Europe  

Source:  Bel  

21  

Jennifer  Marquet   Vice-­‐President  Marketing   Chakib  Seddiki   Vice-­‐President  Bel  Greater  Africa  

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Appendix  14.  EU-­‐27  Cheese  Production  (thousand  tons)  

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16  

Slovenia   Cyprus   Latvia   Slovakia   Estonia   Bulgaria   Hungary   Portugal   Romania   Belgium   Sweden   Finland   Lithuania   Czech  Rep.   Austria   Greece   Spain   Denmark   United  Kingdom   Poland   Netherlands   Italy   France   Germany  

20   33   33   44   68   68   70   70   79  

2013  

89   102  

2007  

113   118   158   187   315   325   349   732   793   1158   1936   2182  

0  

500  

1000  

1500  

2000  

2500  

Source:  Eurostat  

Appendix  15.  Cheese  Consumption  Worldwide  (kg  per  capita)  

China  

0  

South  Africa  

1.7  

South  Korea  

2.2  

U.K.  

11.6  

U.S.  

15.4  

Sweden  

19.8  

Austria  

19.9  

Lithuania  

20.1  

Italy  

20.7  

Switzerland  

21.3  

Estonia  

21.7  

Germany  

24.3  

Finaland  

24.7  

Iceland  

25.2  

France    

25.9   0  

5  

10  

15  

Source:  International  Dairy  Foundation  

22  

20  

25  

30  

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Appendix  16.  EU  Quota  Regime  

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The  EU  introduced  a  national  quota  regime  for  milk  production  in  1984  to  limit  excess  supply  and  maintain  farmer  proSitability.     This  regime  will  come  to  an  end  in  April  2015  as  the  EU  moves  the  dairy  sector  towards  a  more  market-­‐orientated  future,  but  one  that   protects  producer  interests.       It   is   worth   noting   that   the   vast   majority   of   European   countries   have   produced   materially   below   quota   in   recent   years   (except   Germany   and   the   Netherlands),   because   the   EU   has   been   attempting   a   “soft   landing”   through   the   gradual   increase   of   quota   levels   (+1%  per  year  from  2009  through  2013)  and  reduction  of  support  levels.       Here  is  a  summary  of  the  main  academic  papers  on  the  abolition  of  EU  milk  quotas  (actual  vs.  baseline  scenario  in  2020):  

Date  

Source  

Conclusions  

2012  

Prospects  for  agricultural  markets  and  income  in  the  EU  2012-­‐2022,   European  Commission,  Agriculture  and  Rural  Development,  December   2012  

The  end  of  quotas  will  have  a  very   limited  impact.  Market  forces  rather   than  regulatory  changes  will  drive   production  and  pricing  

2011  

M.  Kempen,  H.P.  Witzke,  I.  Pérez  Dominguez,  T.  Jansson,  P.Sckokai,   Economic  and  environmental  impacts  of  milk  quota  reform  in  Europe,   Journal  of  policy  modeling,  Volume  33:  29-­‐52,  2011  

Increase  in  milk  production  of  4.4%,   drop  in  raw  milk  prices  of  10%  

2008  

H.P.  Witzke,  A.  Tonini,  Dairy  reform  scenarios  with  CAPSIM   acknowledging  quota  rent  uncertainty,  12th  Congress  of  the  European   Association  of  the  Agricultural  Economics  -­‐  EAAE,  2008  

Increase  in  milk  production  of  2.8%,   drop  in  raw  milk  prices  of  7.5%.   2008  

2008  

V.  Réquillart,  Z.  Bouamra-­‐Mechemache,  R.  Jongeneel  C.  Penel,  Economic   analysis  of  the  effects  of  the  expiry  of  the  EU  milk  quota  system,  Institut   d’économie  industrielle,  March  2008  

Increase  in  milk  production  of  5.2%,   drop  in  raw  milk  prices  of  11%.    

2008  

F.  Chantreuil,  T.  Donnellan,  M.  van  Leeuwen,  P.  Salamon,  A.  Tabeau,  L.   Bartova,  EU  Dairy  Quota  Reform  -­‐  AGMEMOD  Scenario  Analysis,  12th   Congress  of  the  European  Association  of  the  Agricultural  Economics  -­‐   EAAE,  2008    

Increase  in  milk  production  of  4.8%,   drop  in  raw  milk  prices  of  7%.  

Source:  Team  estimates    

We  therefore  expect:       1.  An   overall   increase   in   production   coupled   with   declining   prices.   We   expect   the   impacts   to   be   modest   due   to   the   soft   landing  provided  by  the  EU.     2.  No  reduction  in  current  price  volatility  after  the  end  of  quotas.  

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Appendix  17.  PESTLE  

P     E     S     T     L     E  

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POLITICAL   Ø  Rise  of  protection  barriers  against  consumption  and  manufactured  goods   Ø  Geopolitical  crisis  

ECONOMIC   Ø  High  volatility  of  forex  and  commodities  exchange  markets   Ø  Substantial  growth  in  urbanization    and  Middle  Class  in  emerging  markets  

SOCIAL  

Ø  Current  trends  in  consumption  industry:     (1)  On-­‐the-­‐go  consumption     (2)  Healthy  food   (3)  Gourmet  snacking  

TECHNOLOGICAL   Ø  Development  of  the  product  mix  particularly  focusing  on  the  higher  value  added  products  in  order  to   be  less  reliant  on  low  margin  commodity  product  (miniaturization  and  new  formula)   Ø  Involvement  of  genomic  technology     LEGAL  

Ø  Legal  requirements  relative  to  consumer  staples   Ø  End  of  quota  in  Europe  

ENVIRONMENTAL   Ø  Climate  change  adaptation   Ø  Ecological  footprint  

Source:  Team  estimates    

Appendix  18.  SWOT  Analysis   WEAKNESSES  

STRENGTHS   Ø  Strong  product  identity:  5  core  brands  

Ø  Presence  of  Lactalis  in  shareholding  structure  

Ø  Portion  format:  Expertise  in  miniaturization  

Ø  Lack  of  presence  in  South  America  

Ø  Room  for  acquisition    (sound  Sinancial  structure)  

Ø  Outsourcing  of  the  packaging  production.  

OPPORTUNITIES   OPPORTUNITIES  

SWOT   THREATS  

Ø  Consumption  trends  (on-­‐the-­‐go,  healthy  and  gourmet  snacking)  

Ø  Commodities  and  forex  headwinds  

Ø  Quotas  abolition  in  Europe  

Ø  Sanitary  issues  and  reputation  risks  

Ø  Distribution  channel  development  

Ø  Competition  of  retail  label   Ø  Geopolitical  risks  in  Middle  East  

Source:  Team  estimates    

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Appendix  19.  Sales  Forecasts  

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To  forecast  Bel  sales,  we  used  a  model  based  on  the  cheese  market  size  (per  capita  consumption  of  cheese  and  population  size)  and   Bel  market  share.  Due  to  the  various  degrees  in  the  maturity  of  the  cheese  market,  we  based  our  model  on  the  market  size  by  region.   Since  Bel  changed  its  geographical  breakdown  in  2010,  we  lacked  historical  sales  before  that  year.     To  obtain  the  market  size  for  the  period  2014E-­‐18E,  we  multiplied  the  population  of  each  region  (source:  United  Nations)  by  per   capita   consumption   in   USD   (source:   Euromonitor).   Then,   we   translated   it   in   EUR   with   EUR/USD   of   1.3391   at   1st   August   2014   (release  date  of  the  Euromonitor  report).       The  biggest  growth  comes  from  Asia-­‐PaciSic,  followed  by  Near  Middle  East  &  Greater  Africa  and  Latin  America,  which  has  pushed  up   the  sales  of  soft  cheese  in  2014  and  should  have  a  high  potential  in  the  future.     Table  1:  Estimates  of  per  capita  cheese  consumption         2014E  

2018E  

CAGR  2014E-­‐18E  

Europe  

86  

88  

0.5%  

Africa  -­‐  Middle  East  

5  

7  

6.0%  

APAC  

1  

3  

18.5%  

Northern  America  

55  

58  

1.0%  

Latin  America  

30  

36  

5.0%  

€  

Source:  Euromonitor  

We  estimate  that  Bel  global  market  share  should  reach  3.1%  in  2018E  from  2.8%  in  2013.  In  Europe,  the  market  share  should  grow   steadily   to   reach   3.7%   in   2018E.   In   the   rest   of   the   world,   the   market   share   should   grow   more   rapidly,   and   in   2018E,   the   market   share  outside  of  Europe  should  reach  2.6%.  

Table  2:  Estimates  of  Bel  market  share     2014E  

2018E  

World  

2.8%  

3.1%  

Europe  

3.4%  

3.7%  

Africa  -­‐  Middle  East  

9.3%  

9.8%  

1%  

1.3%  

%  

Americas  -­‐  APAC   Sources:  Team  estimates,  United  Nations  

Table  3:  Estimates  of  Bel  sales         €bn  

2014E  

2018E  

CAGR  2014E-­‐18E  

World  

2  828  

3  619  

6.4%  

Europe  

1  711  

1  911  

2.8%  

Africa  -­‐  Middle  East  

696  

1  014  

9.9%  

Americas  -­‐  APAC  

421  

693  

13.3%  

Source:  Team  estimates   NB:  Estimates  are  mid-­‐point  of  a  wider  range  of  possible  outcomes.   25  

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Appendix  20.  Financial  Statements  Forecasts  Explanations   Income  Statement   Sales  /  Revenue   COGS   SG&A  Expense   Depreciation  &  Amortization  Expense   Non-­‐Operating  Income  -­‐  Net   Interest  Expense   Other  Financial  Income  and  Expense   Unusual  Expense  -­‐  Net   Income  Taxes   Minority  Interest   Balance  Sheet   Cash  &  ST  Investments   Short-­‐Term  Receivables   Inventories   Net  PP&E   Net  Goodwill   Net  Other  Intangible  Assets   LT  Investments   Other  Non  Current  Assets   ST  Debt  &  Current  Portion  LT  Debt   Accounts  Payable   Other  Current  Liabilities   LT  Debt   Provision  for  Risks  &  Charges   Other  Liabilities   Common  Stock  Par/Carry  Value   Additional  paid-­‐in  capital/Capital  Surplus   Retained  Earnings  

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Explanations   Based  on  our  Sales  forecasts  (Appendix  19)   Diminishing  proportion  of  sales   Historical  trend   Historical  median  of  DAn  /  PPE  n-­‐1   Constant   Interest  Expense  =  Total  Debtn  *  interest  rate   Constant   Constant   Income  Taxes  =  EBTn  *  effective  tax  rate   Historical  average     Explanations   Cash  &  ST  Inv.n  =  Cashn-­‐1  +  Net  change  in  Cash     Historical  median  of  Receivablesn  /  Salesn+1   Historical  median  of  Inventoriesn/  Salesn+1     Net  PPEn  =  Net  PPEn-­‐1  -­‐  DAn  +  CapExn   Constant   Constant   Constant   Historical  trend     ST  Debtn  =  ST  Debtn-­‐1  +  Issuance  or  Reduction  of  ST  Debtn   Historical  median  of  ACC  Payablen  /  (COGSn-­‐1  +  ∆Inventoriesn)   Historical  median  of  Other  Current  Liabsn  /  (COGSn-­‐1  +  ∆Inventoriesn)     Bond  reductions:  €17m  in  2016,  €163m  in  2018  /  Constant  the  other  years   Constant   Historical  trend     Constant   Constant   Retained  earningsn=  Retained  earningsn-­‐1  +  NIn  -­‐Dividend  paidn  

Cumulative  Translation  Adj/Unrealized  For.  Exch.  Gain  

None  

Other  Appropriated  Reserves   Treasury  Stock   Minority  Interest  

None   Constant   Constant  percentage  of  sales  

Cash  Flow  Statement   Consolidated  Net  Income   Depreciation,  Depletion  &  Amortization   Others  Funds   Changes  in  Working  Capital  

Explanations     Historical  median  of  DAn  /  PPE  n-­‐1   Constant   ∆WC=∆Inventories+∆Receivables-­‐∆Payables    

Capital  Expenditures            Maintenance  Capex            Growth  Capex   Purchase/Sale  of  Inv.     Cash  Dividends  Paid   Change  in  Capital  Stock   Issuance/Reduction  of  LT  Debt,  Net   Issuance/Reduction  of  ST  Debt,  Net   Other  Funds   Exchange  Rate  Effect  

Depreciation   Total  CapEx  –  Maintenance  CapEx   Purchase/Sales  of  Inv.=LT  Debtn-­‐LT  Debtn-­‐1   Team  estimates   None   Issuance  or  Reduction  of  LT  Debt  =  LT  debtn  -­‐  LT  Debt  n-­‐1   None   None   None  

Source:  Team  estimates   26  

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Appendix  21.  Non  Recurring  Income  and  Expense  

50  000  

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€  

45  000   40  000   35  000   30  000   25  000   20  000   15  000   10  000   5  000   0   2009  

2010  

2011  

2012  

2013  

Gains  (losses)  on  the  sales  of  Sixed  assets  

Gains  (losses)  on  the  sales  of  activities  

Restructuring  costs  

Other  non  recurring  income  and  expense  

Year  

Explanations  

2009  

Write-­‐downs  of  goodwill  in  Ukraine,  Turkey  and  the  Czech  Republic  for  €20.9m.  

2010  

Economic  conditions  in  Ukraine  led  to  a  further  depreciation  of  €9m  of  tangible  assets.   Loss  of  €2.5m  for  the  disposal  of  the  Czech  entity.  

2011  

The   group   wrote   down   a   further   €9m   on   its   Iranian   entity   based   on   impairment   testing.   Additionally,   in   Syria,   the   group  suspended  its  manufacturing  activity  in  mid-­‐July  2012  for  safety  reasons,  and  recorded  a  non-­‐recurring  expense   of  €13.9m,  including  net  provision  charges.  

2012  

The   group   suspended   its   manufacturing   activity   in   mid-­‐July   2012   in   Syria   for   safety   reasons,   and   recorded   a   non-­‐ recurring  expense  of  €13.9m,  including  net  provision  charges.  The  group  wrote  down  a  further  €7.5m  on  its  Iranian   entity  based  on  impairment  testing.  

2013  

€4.5m   impairment   loss   write-­‐down   on   local   US   brands.   The   write-­‐down   was   offset   by   the   reversal   of   provisions   totaling  €4.2m  for  tangible  and  intangible  assets  and  current  assets  belonging  to  the  Syrian  and  Iranian  entities.  

Source:  Bel  

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Appendix  22.  DuPont  Analysis  

2010   2013   2016E  

Legend   2011   2014E   2017E  

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2012   2015E   2018E   ROE   9.2%   7.5%   12.7%  

11.9%   10.5%   11.8%  

5.6%   4.9%   6.1%  

4.8%   4.6%   5.3%  

Net  ProYit  Margin   3.8%   3.3%   5.7%  

ROA   4.5%   3.6%   6.7%  

5.6%   5.5%   7.4%  

4.9%   4.9%   6.1%  

11.5%   11.0%   13.5%  

211.8%   212.7%   193.5%  

117.1%   212.7%   193.5%  

Leverage   203.7%   207.7%   189.3%  

Asset  Turnover   118.8%   207.7%   189.3%  

205.8%   198.3%   182.0%  

115.6%   198.3%   182.0%  

Sources:  FactSet,  Team  estimates  

14%  

3.0  

12%  

2.5  

10%  

2.0  

8%   1.5   6%   1.0  

4%  

0.5  

2%   0%  

0.0  

ROE  

ROA  

Sources:  FactSet,  Team  estimates  

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Appendix  23.  Liquidity  Discount  Calculation  

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1.  Methodology:  Synthetic  bid-­‐ask  spread  method     We  used  11%  as  the  liquidity  discount  for  Bel,  which  is  based  on  the  synthetic  bid-­‐ask  spread  developed  by  Damodaran.     To   calculate   the   illiquidity   discount,   A.   Damodaran   developed   the   synthetic   bid-­‐ask   spread   method,   regressing   the   bid-­‐ask   spread   against  annual  revenues,  a  dummy  variable  for  positive  earnings  (DERN),  cash  as  a  percent  of  Sirm  value  and  trading  volume,  using   data  from  the  end  of  2000.  The  synthetic  bid-­‐ask  spread  is  given  by  the  following  equation:       Cash €MonthlyTradingVolume Spread = 0.145 - 0.0022ln(AnnualRevenues)- 0.015(DERN)- 0.016 - 0.11   FirmValue FirmValue     Table  1.  Liquidity  discount  of  Bel       Bel     CoefYicient      Intercept   0.145     Annual  Revenue  (2013,  €m)   2  720   -­‐0.0022     0.23   -­‐0.016    Cash  /  Firm  Value    DERN1   1   -­‐0.015     2 0.0   -­‐0.11    €  Monthly  Trading  Volume /  FV      Liquidity  Discount   11%     1  DERN  =  1  if    earnings  are  positive  ;  O  if  earnings  are  negative          

2The  €  Monthly  trading  volume  of  Bel  is  based  on  the  company  data  in  2013.  

     

Sources:  Factset,  Bel,  Damodaran  

    2.  Liquidity  of  peers     Each  peer  group  has  a  different  liquidity  proSile.  This  is  why  we  analyzed  the  liquidity  of  each  company,  looking  at  the  daily  average   volume  in  2014.     Since  the  “Large  DiversiSied  F&B”  peer  group  is  highly  liquid,  we  applied  the  11%  liquidity  discount  to  adjust  the  multiples.  However,   we  did  not  apply  any  liquidity  discount  to  the  other  two  peer  groups  as  they  also  have  weak  liquidity.   Figure:  Daily  average  volume  in  2014  (€m)  

9  

€m   7.92  

8   7   6   5   4   2.65  

3  

1.64  

2   1  

0.00  

0.00  

0.30  

0.68  

0.47  

0  

Source:  Bel  

29  

0.34  

0.16  

0.28  

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Appendix  24.  Free  Cash  Flows  

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Year     EBIT   as  a  %  of  sales  

2009   195   8.8%  

2010   211   8.7%  

2011   187   7.4%  

2012   238   9.0%  

2013   240   8.8%  

2014E   169   6.0%  

2015E   247   8.2%  

2016E   281   8.8%  

2017E   318   9.4%  

2018E   360   9.9%  

Tax     Tax  rate  

37   29.5%  

57   32.6%  

47   32.7%  

63   32.6%  

88   40.1%  

48   33.3%  

74   33.3%  

85   33.3%  

98   33.3%  

112   33.3%  

EBIT  (1-­‐t)   as  a  %  of  sales  

158   7.1%  

154   6.4%  

140   5.5%  

175   6.6%  

152   5.6%  

121   4.3%  

173   5.8%  

195   6.1%  

220   6.5%  

248   6.9%  

Depreciation   as  a  %  of  sales  

72   3.2%  

86   3.6%  

82   3.2%  

89   3.4%  

77   2.8%  

91   3.2%  

98   3.3%  

102   3.2%  

106   3.1%  

110   3.1%  

-­‐4  

-­‐4  

-­‐20  

12  

-­‐8  

-­‐6  

8  

-­‐35  

-­‐27  

-­‐34  

Capex   as  a  %  of  sales  

79   3.6%  

64   2.6%  

75   3.0%  

81   3.1%  

149   5.5%  

141   5.0%  

120   4.0%  

127   4.0%  

136   4.0%  

145   4.0%  

Free  Cash  Flow  (FCF)   Discounted  FCF   TV  

156    

180    

167    

172    

88    

77    

143   135  

204   184  

217   185  

248   200   2  578  

Change  in  NWC  

Sources:  FactSet,  Team  estimates  

To  estimate  terminal  value  in  2018E,  we  used  a  residual  income  model  (Ohlson).  This  model  suggests  that  g2018E  (deSined  as  ROE  x   Rentention  Rate,  RR)  converges  on  a  value  implying  a  gradual  decrease  between  ROCE  and  the  WACC,  using  a  persistence  factor  (ω).   Terminal  value  is  therefore  equal  to  the  following:     1/ ω EBIT2019E (1/ t) WACC   TV2018E = (NetPPE2018E + NWC2018E )× + × 1+ WACC / ω WACC 1+ WACC / ω     where:   EBIT2019E  =  EBIT2018E  x  (1+g2018E)   g2018E  =  ROE2018E  x  RR2018E  =  7%   ω  =1-­‐  ke=  0.945       Appendix  25.  Target  Value  Calculation   Discounted  Cash  Flows  

704  

25%  

Discounted  Terminal  Value    

2  080  

75%  

Implied  EV  (2014E)   Net  Debt  (2014E)   Minorities  (2014E)  

2  783   60   15  

Implied  Equity  (2014E)  

2  709  

Implied  Equity  (2015E)1  

2  858  

Number  of  Shares  (2015E)  

6.8  

Implied  Share  Price  (EUR)  

419  

Liquidity  Discount  

11%  

Target  Value  (EUR)  

373  

1  Implied  Equity  (2014E)  x(1+  k

 

Sources:  Team  estimates  

e)  

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Appendix  26.  Fama-­‐French  Model  

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Since  Bel  is  a  small-­‐cap,  we  decided  to  use  the  Fama-­‐French  three-­‐factor  model  (FFM)  to  compute  the  cost  of  equity,  which  appears  to   be  a  better  measure  of  market  returns  compared  to  the  CAPM.  In  fact,  research  shows  that  two  classes  of  stocks  have  tended  to  do   better  than  the  market  as  a  whole:  (1)  small-­‐caps  and  (2)  stocks  with  a  low  Price-­‐to-­‐Book  ratio.         The  three  factors  are:       §  RMRF,  which  is  the  equity  risk  premium  as  in  the  CAPM.   §  SMB   (Small   Minus   Big),   a   size   factor.   It   is   the   difference   between   small-­‐cap   and   large-­‐cap   returns.   It   is   thus   a   small-­‐cap   return   premium.   §  HML  (High  Minus  Low),  a  value  factor.  It  is  the  difference  in  returns  between  value  and  growth  stocks.           The  FFM  estimate  of  the  required  rate  of  return  is:       size value k e = rf + βmkt RMRF HML   + β SMB+ β     We   regressed   the   excess   return   of   Bel   monthly   stocks   (since   2000)   and   Rf   (Fama-­‐French   data)   against   the   three   FF   factors   (RMRF,   SMB,  HML  based  on  FF  European  data  since  2000).  The  linear  regression  gives  us  an  R-­‐Squared  of  21%.         We   applied   Dimson   (1979)   and   Scholes   (1977)   methodology   to   obtain   the   beta.   In   fact,   the   true   systematic   risk   (market   beta)   can   be   obtained  from  security  price  data  subject  to  infrequent  trading.  We  thus  ran  a  multiple  regressions  of  security  returns  against  lagged,   matching   and   leading   market   terms.   A   consistent   estimate   of   beta   is   obtained   by   aggregating   the   slope   coefSicients   from   this   regression  (here,  from  variables  RMRFT-­‐2  to  RMRFT+2).  The  same  methodology  has  been  used  to  obtain  an  estimate  of  SMB  and  HML   coefSicients.  Below  is  a  summary  of  the  results  of  the  regression:   Regression  Statistics    0.45      0.21      0.13      6.06    

Multiple  R   R-­‐Squared   Adjusted  R-­‐Squared   Standard  Error   Observations   ANOVA  

 174        

  Regression   Residual   Total       Intercept   RMRF  T-­‐2   RMRF  T-­‐1   RMRF  T   RMRF  T+1   RMRF  T+2   SMB  T-­‐2   SMB  T-­‐1   SMB  T   SMB  T+1   SMB  T+2   HML  T-­‐2   HML  T-­‐1   HML  T   HML  T+1     HML  T+2  

    df   15   158   173  

CoefYicients   0.50   0.23   0.13   0.04   0.17   -­‐0.15   -­‐0.09   0.32   0.13   0.42   0.15   0.24   -­‐0.47   -­‐0.05   -­‐0.05   0.02  

    SS   1512.48   5808.13   7320.61   Standard  Error   0.51   0.10   0.10   0.09   0.10   0.09   0.25   0.24   0.22   0.25   0.26   0.22   0.22   0.20   0.23   0.21  

Sources:  Team  estimates   31  

    MSS   100.83   36.76     t-­‐Statistic   0.99   2.34   1.37   0.43   1.67   -­‐1.66   -­‐0.36   1.34   0.60   1.68   0.58   1.09   -­‐2.13   -­‐0.22   -­‐0.21   0.12  

    F   2.74      

SigniYicance  F   8.9338E-­‐04       Betas  

0.41  

0.94  

-­‐0.29  

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Appendix  27.  WACC  Assumptions  

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WACC  Assumptions   Current  Risk-­‐free  Rate   Beta   Market  risk  Premium  (RMRF)   Premium  for  stock     Size  beta   Size  Premium  (SMB)   Premium  for  stock     Value  beta   Value  Premium  (HML)   Premium  for  stock   Cost  of  equity   Equity  as  a  %  of  target  capital  structure   WACC  

0.8%   0.41   5.9%   2.4%   0.94   3.6%   3.4%   -­‐0.29   3.7%   -­‐1.1%   5.5%   100%   5.5%  

Explanations   France's  10-­‐Year  OAT  (9  January  2015)   Fama-­‐French  (FF)  and  Dimson  models   A.Damodaran:  Total  equity  risk  premium  of  France   -­‐   Fama-­‐French  and  Dimson-­‐Scholes  models   Median  over  the  last  20  years  in  Europe  (FF)   -­‐   Fama-­‐French  and  Dimson-­‐Scholes  models   Median  over  the  last  20  years  in  Europe  (FF)   -­‐   Fama-­‐French  model   Team  estimates   Team  estimates  

Sources:  FactSet,  Team  estimates  

Appendix  28.  Sensitivity  Analyses  

Analysis  1:  Impact  of  liquidity  discount  and  WACC  on  target  price        

Liquidity     discount  

9.5%   10.0%   10.5%   11.0%   11.5%   12.0%   12.5%  

4.0%    447      445      442      440      438      435      433    

4.5%    423      420      418      416      413      411      409    

5.0%    400      398      396      394      392      389      387    

WACC   5.5%    379      377      375      373      371      369      367    

6.0%    361      359      357      355      353      351      349    

6.5%    344      342      340      339      337      335      333    

7.0%    329      327      325      323      321      319      318    

Analysis  2:  Impact  of  French  10-­‐year  yield  on  the  WACC    

Date  

Jan-­‐10  

Jan-­‐11  

Jan-­‐12  

Jan-­‐13  

Jan-­‐14  

Jan-­‐15  

Rf  

3.6%  

3.3%  

3.3%  

2.1%  

2.4%  

0.8%  

WACC  

8.3%  

8.1%  

8.0%  

6.8%  

7.1%  

5.5%  

Source:  Team  estimates  

32  

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Appendix  29.  Monte  Carlo  Simulation  

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In   addition   to   our   sensitivity   analyses,   we   performed   a   Monte   Carlo   simulation   to   analyze   how   the   long-­‐term   growth   rate   (deSined   as   ROE*RR)  and  the  WACC  may  affect  the  target  price.  We  added  liquidity  as  well  since  it  constitutes  a  key  feature  of  the  stock.     The  results  of  the  simulation  gives  support  to  our  BUY  recommendation.       Base  assumptions  are  summarized  in  the  table  below:   Factor  

Data  range  

g2018E   WACC  

N  =  5000  

Parameters   Mean  =  7%   σ  =  1%   Mean  =  5.5%   σ  =  0.5%   Mean  =  11%   σ  =  0.5%  

LIQ  

Monte  Carlo  Results   250  

DCF:  €373  

Frequency  

200  

150  

100  

50  

0  

SELL  

HOLD  

BUY  

Statistics   Mean  

339.6  

Median  

337.3  

Max  

501.3  

Min  

261.7  

25th  percentile  

320.1  

75th  percentile  

355.8  

Source:  Team  estimates  

33  

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Appendix  30.  Comparable  Deals  

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Date  Announced  

Acquiror  Name  

Target  Name  

%  of  Shares   Acquired  

Deal  Value   ($m)  

November-­‐07  

Fromageries  Bel  SA  

Boursin  

100.00  

579.21  

December-­‐13  

Nuova  Castelli  SpA  

Alival  SpA  

100.00  

103.41  

April-­‐13  

PAI  Partners  SAS  

R&R  Ice  Cream  PLC  

100.00  

1  218.58  

Saputo  Inc  

Warrnambool  Cheese  &   Butter  

100.00  

459.72  

October-­‐13  

NB:  We  used  the  deals  of  the  last  two  years  in  the  Food  and  Beverages  sector  (except  for  Boursin).     Source:  Thomson  Reuters  

Acquiror  Name  

Country  

Fromageries  Bel   SA  

FR  

Nuova  Castelli  SpA  

IT  

PAI  Partners  SAS  

FR  

Saputo  Inc  

CA  

Business  description   Target  Name   Listed  company  which  is   engaged  in  the  processing   Boursin   and  sale  of  branded   cheeses   Private  company  which   supplies  and  distributes   Alival  SpA   dairy  specialties  and   canned  Sish  products.  

Country  

Business  description  

FR  

Private  company  which  manufactures   and  supplies  cheese  products.  

IT  

Private  company  which  manufactures   and  distributes  cheese  products.  

R&R  Ice  Cream   PLC  

UK  

Private  company  which  manufactures   and  sells  ice  creams,  lollipops  and  other   frozen  confectionery  products.  

Listed  company  which   produces,  markets,  and   distributes  dairy  and   Warrnambool   grocery  products.  The   Cheese  &  Butter   company  operates  its   business  through  Canada,   U.S.A.  and  International  

AU  

Listed  company  engages  in  the   manufacturing,  processing  and  sale  of   cheese,  milk  powder,  butter,  and  cream.  

Private  equity  Sirm  

Source:  FactSet  

Appendix  31.  Deal  Value/Sales  Ratio  of  Comparable  Deals  

Target  Name  

Deal  Value/Sales  

Adj.  Deal  Value/Sales*  

Alival  SpA  

0.41  

0.29  

R&R  Ice  Cream  PLC  

2.14  

1.51  

Boursin  

4.21  

2.97  

Warrnambool  Cheese  &  Butter  

1.06  

0.75  

Median  

1.60  

1.13  

*Adj.  Deal  Value/Sales  is  equal  to  Deal  Value/Sales  less  the  transaction  premium  in  the  Food  &  Beverages  sector  observed  over  the   last  two  years  (29%)   Source:  Thomson  Reuters  

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Appendix  32.  Transaction-­‐based  Valuation  Target  Price  

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Transaction-­‐based  Valuation   Median  Adj.  Deal  Value/Sales  

1.13  

Sales  2015E  (€m)  

3  000  

Deal  Value  (€m)  

3  385  

Shares  outstanding  2015  (m)  

6.82  

Implied  Price  (€)  

496  

Liquidity  discount  

11%  

Target  Price  (€)  

442  

Source:  Thomson  Reuters  

Appendix  33.  Peers  Multiples   Table  1:  Valuation  Table   Price     Mkt  Cap     (9  January   EV   (€bn)   2014)   EUR        

 

2  007       723       4  318       3  730        

EV/EBIT     (x)  

EV/Sales     (x)  

EBIT  margin    (%)  

2014E  

2015E  

2014E  

2015E  

2014E  

2015E  

2  235   1  421   3  439   4  208    

13.2   7.3   11.8   20.8   13.3   (1%)  

9.1   6.8   10.5   18.7   12.0   (25%)  

0.8   0.3   0.7   1.5   0.8   (2%)  

0.7   0.2   0.6   1.4   0.8   (1%)  

6.0%   3.6%   5.5%   7.2%   5.4%   10%  

8.2%   3.5%   5.8%   7.6%   5.6%   46%  

Fromageries  Bel   Bongrain     Parmalat     Glanbia     Closest  Peers  -­‐  Mean   Premimum  /  (Discount)  to  mean  

FBEL   BH   PLT   GL9    

300.0   51.5   2.4   12.6    

Kraft  Foods  Group     Danone     Mondelez  Intl  A   Large  DiversiYied  (F&B)  -­‐  Mean   Premimum  /  (Discount)  to  mean  

KRFT   BN   MDLZ    

53.9   53.2   31.5    

31  736       38  927   34  263       39  983   52  834       65  727      

13.5   14.1   18.4   15.3   (14%)  

12.0   13.3   16.6   13.9   (35%)  

2.2   1.9   2.2   2.1   (62%)  

2.2   1.8   2.1   2.0   (63%)  

16.6%   13.4%   11.8%   13.9%   (57%)  

18.2%   13.5%   12.6%   14.7%   (44%)  

Saputo     Diamond  Foods     Snyder's-­‐Lance     TreeHouse  Foods     High-­‐Growth  Small  Caps  (F&B)  -­‐  Mean   Premimum  /  (Discount)  to  mean  

SAP   DMND   LNCE   THS    

24.7   22.9   25.2   77.1    

9  648       720       1  774       3  262        

14.7   21.3   17.5   15.2   17.2   (23%)  

13.4   16.6   14.9   12.5   14.4   (37%)  

1.4   1.7   1.4   1.4   1.5   (47%)  

1.3   1.5   1.3   1.2   1.3   (45%)  

9.5%   7.9%   8.1%   9.4%   8.7%   (31%)  

9.5%   9.3%   8.9%   9.9%   9.4%   (13%)  

11  092   1  237   2  041   4  475    

Figures:  EV/Sales  15E  vs.  EBIT  margin  15E  and  EV/EBIT  15E  vs.  EBIT  CAGR  13-­‐15E   3.0  

21   R²  =  0.81098  

2.5  

KRFT  

2.0   DMND  

1.5  

LNCE   1.0  

BN  

SAP   THS  

LNCE  

15   SAP   KRFT  

DMND  

MDLZ  

17  

EV/EBIT  15E  

EV/Sales  15E  

MDLZ  

GL9  

GL9  

19  

R²  =  0.18641  

BN  

13  

THS  

11  

PLT   FBEL  

9   0.5  

PLT  

BH   0.0   0%  

5%  

FBEL  

BH  

7  

10%  

15%  

(20%)  

20%  

EBIT  Margin  15E  

(10%)  

5   0%  

10%  

20%  

EBIT  CAGR  13-­‐15E  

Sources:  FactSet,  Team  estimates   35  

30%  

40%  

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Table  2:  Liquidity-­‐adjusted  Multiples      

Weight  

EV/EBIT  (x)  

Applied  discount  

Liquidity-­‐adj.  EV/EBIT  (x)  

Closest  Peers  

70%  

12.0  

0%  

12.0  

Large  DiversiSied  (F&B)  

10%  

13.9  

11%  

12.6  

High-­‐Growth  Small  Caps  (F&B)  

20%  

14.4  

0%  

14.4  

Weighted  Average    

12.5  

   

Weight  

EV/Sales  (x)  

Applied  discount  

Liquidity-­‐adj.  EV/Sales  (x)  

Closest  Peers  

70%  

0.8  

0%  

0.8  

Large  DiversiSied  (F&B)  

10%  

2.0  

11%  

1.8  

High-­‐Growth  Small  Caps  (F&B)  

20%  

1.3  

0%  

1.3  

Weighted  Average    

1.0  

Sources:  FactSet,  Team  estimates  

Table  3:  Target  Price  Calculation    

EV/Sales  

EV/EBIT   Weighted  avg  liq.  adj.  2015E  EV/EBIT  (x)   EBIT  2015E  (€m)   Enterprise  Value  2015E  (€m)    

12.5  

Weighted  avg  liq.  adj.  2015E  EV/Sales  (x)  

247  

Sales  2015E  (€m)  

3  000  

Enterprise  Value  2015E  (€m)    

2  996  

3  090  

Net  Debt  2015E  (€m)  

-­‐23  

Net  Debt  2015E  (€m)  

Minority  Interest  2015E  (€m)  

16  

Minority  Interest  2015E  (€m)  

1.0  

-­‐23   16  

Equity  Value  2015E  (€m)  

3  132  

Equity  Value  2015E  (€m)  

3  003  

Nb  shares  outstanding  (m)  

6.82  

Nb  shares  outstanding  (m)  

6.82  

Target  Value  (€)  

459  

Target  Value  (€)  

440  

Sources:  FactSet,  Team  estimates  

Table  4:  Multiple  weight  

    EV/EBIT  (x)  

Weight  

EV/Sales  (x)  

50%  

50%  

Sources:  FactSet,  Team  estimates  

36  

Target  Value  (€)   450    

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Appendix  34.  P/E  Regression  Model  

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Below  are  the  results  of  the  P/E  regression  model  used  to  compute  the  estimated  forward  P/E.  The  7  variables  used  are:  leverage,   EPS  long-­‐term  growth  rate  (g),  payout,  beta,  market  capitalization  (logarithm),  return  on  equity,  illiquidity  ratio  (based  on  Amihud’s   research).       Regression  Statistics   Multiple  R   R-­‐Squared   Adjusted  R-­‐Squared   Standard  Error   Observations  

0.81   0.65   0.62   8.11   200  

ANOVA    

df   16   183   199  

Regression   Residual   Total    

SS   22239.67   12033.00   34272.67  

MSS   1389.98   65.75    

CoefYicients  

Standard  Error  

t-­‐Statistic  

Intercept  

-­‐33.33  

8.50  

-­‐3.92  

Leverage  

19.30  

4.75  

4.06  

EPS  growth  rate  

37.79  

2.31  

16.36  

Payout  

0.39  

2.07  

0.19  

Beta  

-­‐8.90  

1.83  

-­‐4.87  

LMV  

2.12  

0.38  

5.51  

ROE  

6.68  

4.54  

1.47  

-­‐1292.07  

3522.17  

-­‐0.37  

S10  

-­‐6.08  

5.00  

-­‐1.22  

S15  

-­‐2.40  

4.13  

-­‐0.58  

S20  

1.72  

3.62  

0.47  

S25  

1.46  

3.69  

0.39  

S30  

-­‐1.26  

3.93  

-­‐0.32  

S35  

1.71  

3.96  

0.43  

S40  

1.01  

3.66  

0.28  

S45  

-­‐0.92  

3.79  

-­‐0.24  

S50  

2.33  

5.80  

0.40  

Amihud  

F   21.14  

SigniYicance  F   1.84801E-­‐33  

 

 

NB:  S10  to  S50  are  dummy  variables  corresponding  to  the  sub-­‐sectors  of  the  companies  (S30  for  Bel).   BEL   Estimated  P/E  

18  

EPS  2015E  

21.4  

Target  Value  (EUR)  

415  

Sources:  FactSet,  Team  estimates  

37  

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Appendix  35.  Risk  Matrix  

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Liquidity  Risk  

Raw  Material   Price  Volatility  

Governance  Risk  

I   M   P   A   C   T    

World  GDP   Growth   Slowdown  

Forex   Headwinds  

Lack  of   Aggressiveness  

Unplanned   Breakdown  of  a   Production  Site  

DeSlation   Risk   Threats  of   Geopolitical   Events  

Contamination   Risk  

PROBABILITY   Governance  Risk  

Market  Risk  

Economic  Risk  

Strategic  Risk  

Source:  Team  estimates  

38  

Political  Risk  

Operational  Risk  

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Appendix  36.  ESG  

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    •  2013  :  EcoVadis  ,  GOLD  statut  obtained   •  2014:    "Aressy  Award”  (for  CSR  (corporate  Social   Responsibility)  communication)   •  2014  :  «  CR  Reporting  Awards  2014  »  Sinalists   •  2013  :  CSR  trophy  was  given  to  the  Lebanese  team  to   reward  the  “Happiness  Heroes”  initiative,  led  by  the   Picon®  brand   •  2013  :  "The  Best  and  Brightest  Companies  to  Work   For®"  awards     •  2003  :  membership  to  the  United  Nations  Global   Compact   •  2008  :  creation  of  Bel  Foundation  (children)   •  "Responsible  Purchasing  Charter"   •  "Purchasing  Ethics  Charter  for  buyers"   •  2013  :  join  the  "Supply  Chain  Initiative"  (to  promote   balanced  relationships  throughout  the  food  supply   chain)   •  2013:    creation  of  the  Sharing  Cities  program   •  Partnership  with  SOS  Children’s  Villages,  Le  rire   médecin,    Comic  Relief  and  Arcenciel  association   •  The  Group’s  Health  and  Safety  manual  and  policy  

           

Environmental  

Gouvernance  

           

Rewards       •  2012  :  "  Lean  &  Green  Award  "  (for  reducing  CO2   emission)       •  Ranked  between  the  top  5  of  GAIA  index  (120       enterprises)(  reward  its  CSR  policy)       •  2013  :  Little  Chute  site  in  the  US       was  awarded  the  title  of  Dairy  plant  of  the  year  by       industry  magazine  Dairy  Foods    

    •  2012:  "Lombard  &  CIE"  award  (French  Family   Business    for  combining  tradition  and  innovation)       •  2013  :  "Lynx  Awards"  -­‐  Gold  prize  in  "the  branded       content  and  entertainment"  category  and  -­‐  Bronze  prize       in  the  "corporate  reputation  section  of  public  relations"       category       •  2014  :  Finance  Leaders  -­‐  Gold  prize  

   

   

Internal  Rules  and  membership       •  "Sustainable  Purchasing  Charter"         •  AFEP  MEDEF's  &  code   •  WASABEL  (Water  Saving  At  BEL)     •  MiddleNext  Code       •  ESABEL  (Energy  Saving  At  BEL)         •  Annual  Audits  each  year       •  2012  :  a  three-­‐year  partnership  agreement  with  WWF       •  Code  of  Best  Business  Practices  (in  17  languages)       •  Life  Carbon  dairy       •  Responsible  Communications  Charter       •  CSR  Packaging  Passport       •  Group  procedure  with  regard  to  the  processing       •2013  :  member  of  EUROPEN       of  the  personal  data  of  consumers   •  Crisis  management  manual  and  procedures                                      

   

CertiYications   •OHSAS  18001  for  occupational  health  and  safety       •  ISO  14001  for  environmental  management   management   •  Leerdammer  products  certiSied  by  the  Forest   •  Global  Food  Safety  Initiative  standards  :  82%  of  their       Stewardship  Council  (FSC)       •  "Best  livestock  farming  practices  charter"  :  100%  of   products  are  manufactured  on  sites  certiSied       their  producers  have  signed  in  France  &  "The  Cow       Compass"  in  Netherland   Source:  Company        

    •  ISO  9001  for  quality  management   •  ISO  26000,  which  is  the  benchmark  international       standard  for  corporate  social  responsibility                  

Source:  Bel  

Appendix  37.  Management  Board  

Name  

Start   Current  Postion   in  BEL   term  

Previous  experiences  

Start   Current  Position  in   Remuneration   Age   Note   term   Unibel  SA   (2013)  

Antoine   Chairman  and   2001-­‐2009  Director  of  Board  in  Bel  and  a  managing   2009   Fiévet   CEO   partner  of  Unibel  SA  

2005  

Chairman  of  the   51   Management  Board  

€1  161  219  

Paid  by   Unibel  

Deputy  CEO   2003-­‐2008  Financial  Director,  and  then  Director  of   responsible  for   Strategy  and  Development  at  Unibel  SA           Sinancial  and     Bruno   2008   legal  affairs  and    Before  2003  Several  posts  in  auditing  (Deloitte)  and   Schoch   information   M&A  (Chase  Manhattan  Bank,  Swiss  Bank   Schweizerischer  Bankverein)   systems  

2005  

Member  of  the   50   Management  Board  

€763  096  

Paid  by   Unibel  

€781  332  

Paid  by   Bel  

1995-­‐2003  CEO  of  Bel  France,  and  then  Vice-­‐Chairman   for  Western  Europe  zone                 Deputy  CEO     Francis   2012   responsible  for   Before  1995  Various  experiences  (P&G,  Danone)  of  mass   NONE   Le  Cam   operations   consumption  goods  (marketing,  sales  etc.)  in   international  companies     Source:  Bel   39  

NONE  

67  

Disclosures:

Ownership and material conflicts of interest: The author(s), or a member of their household, of this report does not hold a financial interest in the securities of this company. The author(s), or a member of their household, of this report does not know of the existence of any conflicts of interest that might bias the content or publication of this report. Receipt of compensation: Compensation of the author(s) of this report is not based on investment banking revenue. Position as a officer or director: The author(s), or a member of their household, does not serve as an officer, director or advisory board member of the subject company. Market making: The author(s) does not act as a market maker in the subject company’s securities. Disclaimer: The information set forth herein has been obtained or derived from sources generally available to the public and believed by the author(s) to be reliable, but the author(s) does not make any representation or warranty, express or implied, as to its accuracy or completeness. The information is not intended to be used as the basis of any investment decisions by any person or entity. This information does not constitute investment advice, nor is it an offer or a solicitation of an offer to buy or sell any security. This report should not be considered to be a recommendation by any individual affiliated with CFA France, CFA Institute or the CFA Institute Research Challenge with regard to this company’s stock.

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