exane dec 2010 on distillers and vintners 52pp

Please refer to important disclosures at the end of this report.

www.exanebnpparibas-equities.com

Distillers & Vintners

Beverages: Outperform 8 December 2010

Equity Research

Main changes Laurent-Perrier Rating to Neutral, TP 14% to EUR75

Rémy Cointreau TP 5% to EUR58

Report

Something is bubbling

► Another wave of consolidation in champagne? The decision by Rémy Cointreau to dispose of its champagne business, Piper & Charles-Heidsieck, has sparkled interest back onto champagne assets. Champagne remains a fragmented industry and consolidation has long been argued as a key long-term driver for returns. We see size as indeed being a critical factor for champagne houses to enhance their efficiency and their ability to build a presence in international markets, as well as a way to secure better supply agreements within an industry where vertical integration is limited.

► We increase our price target on Rémy to EUR58; reiterate Outperform We view positively a potential disposal by Rémy of its champagne unit. We believe Rémy could fetch a valuation of as much as EUR393m, which we derive using an asset-based approach which reflects the value of inventories, land, supply contracts and brands. As we expect that this value will now be crystallised, we increase our target valuation for Rémy to EUR58 (from EUR55), retaining our Outperform rating.

► We upgrade Laurent-Perrier to Neutral; Vranken remains Underperform We see renewed consolidation talks in the industry as reigniting interest for those names that have some takeover appeal. Within our coverage, Laurent-Perrier is the name that screens as being highly attractive by virtue of its brands and valuable assets. We upgrade the stock to Neutral from Underperform as we acknowledge that the stock may no longer be trading on fundamentals. Our increased TP (from EUR66 to EUR75), however, does not price-in a take-over scenario, but reflects a reassessment of the value of the group’s brands. In a take-over scenario the stock could fetch at least EUR131. We retain our Underperform recommendation on Vranken-Pommery Monopole and price target of EUR31. Until we have more visibility on the outcome of the sale of P&C-Heidsieck, potential acquisition risk is likely to weigh on the shares. Indeed, we see a compelling strategic rationale for a combination of the two businesses.

Paola Bertini [email protected](+44) 207 039 9521 [email protected] Javier Gonzalez Lastra, CFA (+44) 207 039 9431

Rating Price* TP Upside (EUR) (EUR) (%)

Large Caps Diageo plc (p) = 1,142 1,205 6 Pernod Ricard = 65.1 61 (6) Mid Caps Rémy Cointreau + 52.0 58 12 Small Caps Laurent-Perrier = 81.4 75 (8) Vranken Pommery - 32.2 31 (4) * Priced at 6 December 2010

[email protected]

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2 Distillers & Vintners

Contents

Investment case__________________________________________ 3 Valuation ____________________________________________________________ 5

Rémy puts its champagne unit up for sale______________________ 6 Rémy Cointreau’s champagne business: an overview_________________________ 6 An unsuccessful turnaround _____________________________________________ 7 How much could this business be worth?__________________________________ 10 What would a disposal mean for Rémy Cointreau? __________________________ 14 Rémy selling: who could be interested? ___________________________________ 17

Consolidation scenario____________________________________ 28

Renewed interest in champagne assets ______________________ 31 Laurent-Perrier is an attractive asset in champagne _________________________ 31

A review of current industry trends __________________________ 35

Appendix – Laurent Perrier ________________________________ 42

Appendix - Vranken-Pommery Monopole _____________________ 43

Funding analysis ________________________________________ 45

Financial highlights ______________________________________ 47


Investment case

Consolidation in champagne is needed for industry returns to improve Increased concentration has long been heralded as a key long-term driver of returns for champagne players. At present, among the major champagne houses, LVMH’s Moët Hennessy business is the only one generating superior returns, and this reflects in our view the highly fragmented nature of the industry.

Interestingly, we identify the periods following a recession as historically the ones when consolidation takes place. Within this context, Rémy Cointreau’s decision to dispose of its P&C-Heidsieck (i.e. Piper Heidsieck and Charles Heidsieck) champagne business could turn out to be a catalyst for the industry, triggering more corporate activity in the sector. We see size as indeed being a critical factor for champagne houses, as a way to enhance their efficiency as well as their ability to build a presence in international markets, where the long-term growth potential for this industry lies. In an industry with limited vertical integration and where the balance of power has historically been tilted towards the grape growers, size would also allow champagne houses to enjoy better negotiating power and capture more value from the supply chain.

Potential disposal of P&C-Heidsieck a positive for Rémy (OP): new TP EUR58 (EUR55) We reiterate our Outperform recommendation on Rémy Cointreau, as we regard as positive the potential disposal of the Piper & Charles-Heidsieck business. The business has long underperformed the rest of Rémy’s portfolio of brands. A disposal would release capital from an underperforming operation, helping de-leveraging as well as freeing resources which could be re-invested into the fast-growing Rémy Martin business or in the acquisition of more profitable spirits brands.

We had previously valued the P&C-Heidsieck business at EUR271m, using a multiples-based approach (2.5x EV/Sales) within our DCF-SOTP valuation for Rémy Cointreau. However, on the expectation that Rémy will now be able to crystallise the value of its champagne assets, we switch to an asset-based approach. After valuing the inventories, the land, the grape supplies and the brands that the group owns, we believe that Rémy could get as much as EUR393m for its champagne business (EUR373m for the assets and an additional EUR20m for the brands). We increase our price target for Rémy to from EUR55 to EUR58 (12% upside) to reflect the market value of these assets.

Figure 1: We believe Rémy’s champagne business could fetch c.EUR400m Asset-based valuation of Rémy Cointreau’s champagne

EURm

Bottles (m) 32Valuation per bottle (EUR per bottle) 8.0Inventory valuation (EUR m) 256 Ha under group ownership (ha) 65Value per ha (EURm) 0.9Land valuation (EURm) 59 Rémy Cointreau's champagne avge sales volumes (mn bottles) 10Average AOC yield (kg/ha) 12,500Ha of land required for production (ha) 940Ha of land not owned (ha) 875Value of supply contract (EUR m per ha) 0.05Value of supply contracts (EUR m) 44 Other assets (EURm at book value) 15 Asset valuation (EURm) 373Brand valuation (EURm) (please see details on pg 13) 20 Total valuation for Rémy's champagne division (EURm) 393

Source: Exane BNP Paribas estimates


Although at this stage we are not changing our estimates (as we are waiting for the bidding process for the business to conclude), we believe that the possible sale of the business could positively impact our earnings forecasts for Rémy by 7% in FY11/12e, as we assume the proceeds from the disposal would be initially used to pay down debt.

Renewed interest to support the value of champagne assets: Laurent-Perrier upgraded to Neutral With Rémy potentially disposing of its champagne unit, we see renewed consolidation talks as being likely to reignite interest in champagne assets, especially for those names that have some takeover appeal. This is despite the short-term outlook for the industry still showing signs of vulnerability. Within our coverage, Laurent-Perrier is the name that screens as being highly attractive by virtue of its brands and valuable assets. We upgrade our recommendation for Laurent-Perrier to Neutral from Underperform as we acknowledge that the stock may no longer be trading on fundamentals. Our increased TP (from EUR66 to EUR75), however, does not price-in a take-over scenario, but reflects a reassessment of the value of the group’s brands. In a take-over scenario we believe the stock could fetch at least EUR131.

Following 1H FY2010/11 results (published on December 1, 2010), we have reviewed our price-mix assumptions for the group. The group did indeed reiterate its firm medium-term commitment to a value approach and, as we see the Laurent-Perrier brand progressively representing a higher percentage of group volumes, we have updated our brand valuation for the group. We now value the group’s brands at EUR106m (from previous EUR33m). Our new net asset-based target price is EUR75 per share.

We remain Underperform on Vranken-Pommery Monopole on acquisition risk We retain instead our Underperform recommendation on Vranken-Pommery Monopole and keep our price target of EUR31 (4% downside). There is a good strategic fit between Vranken and Rémy’s champagne operations which could be a good enough reason for the group to be looking into the P&C-Heidsieck business, despite Vranken’s highly geared balance sheet. With pending acquisition risk, we believe that the shares are unlikely to perform well on a sector-relative basis. Vranken-Pommery Monopole could however emerge as an industry consolidator in champagne.

Q4 is an important data point for the industry As we get into the more critical trading weeks of the year for champagne players, shipments will start to reflect depletions, offering a better indication of the underlying state of consumer demand. Outlook comments from companies have become more constructive during the year; however, we caution about a consumer environment which remains fragile in important champagne markets such as France (62% of global champagne shipments), the UK (10%), the US (4%) and Belgium (3%).

We see the pricing environment becoming more supportive in 2011 The expectation of an improving pricing environment in 2011 gives us some element of comfort, though. Throughout 2009, excess available supply against a contracting demand exacerbated the pricing pressures in the industry and champagne bottle prices were on average 8% lower y/y. However, limitations on the allowable yields at the last two harvests and continued inflation in grape prices should be supportive to pricing in the industry in 2011.

Where could we be wrong? The high dependency of this industry on developed markets leaves us overall cautious on the short-term fundamentals. However, should the consumer environment turn out to be stronger than we had anticipated, our estimates could prove conservative. With relatively low margins (Laurent-Perrier 17.0% 2010/11e EBIT margin, Vranken-Pommery Monopole 12.9% 2010e EBIT margin), the leverage to changes in demand is significant.


Valuation We summarize here our target price methodologies and new target valuations for Rémy Cointreau, Laurent-Perrier and Vranken-Pommery Monopole.

Figure 2: Summary of changes in PTs and recommendations New PT Previous PT New Rating Previous Rating

Rémy Cointreau EUR 58 EUR 55 Outperform OutperformLaurent-Perrier EUR 75 EUR 66 Neutral UnderperformVranken-Pommery Monopole EUR 31 EUR 31 Underperform Underperform


Figure 3: Price target methodologies PT Price target methodology Comments

Rémy Cointreau EUR 58 DCF-SOTP Incl. takeout valuation for the champagne unit Laurent-Perrier EUR 75 Net asset-based valuation Incl. market value of land and inventories and brand valuation Vranken-Pommery Monopole EUR 31 Net asset-based valuation Incl. market value of land and inventories and brand valuation


In the case of Rémy Cointreau, we reflect in our new target valuation of EUR58 (up from EUR55) a takeout valuation for the champagne business. We value the gross champagne assets of Rémy at EUR393m, after taking into account the market value of its vineyards and inventories, as well as the market value of its supply contracts to an acquirer and the value of its brands, Piper-Heidsieck and Charles Heidsieck (for more details, please refer to pg 10-13).

For Vranken-Pommery Monopole and Laurent-Perrier, we retain our net asset-based valuation approach (for more details, please refer to our initiation report “Slow Brewing Recovery”, Sept. 7 2010). We have re-assessed the brand valuation for Laurent-Perrier, as we reflect improving price-mix throughout our forecast period (see pg 34 of this report).

Figure 4: Peer comparison table – Valuation & EPS growth Market

CapEPS CAGR

(%)(EURbn) 2010 2011 2010 2011 2010 2011 2010 2011 2010-2012

Rémy Cointreau (+) EUR 52 2.5 21.7 16.8 3.2 2.9 14.6 12.1 30 29 25Laurent-Perrier (=) EUR 81 0.5 32.9 23.6 4.0 3.7 20.8 16.0 39 39 35Vranken-Pommery Monopole (-) EUR 32 0.2 14.1 12.1 2.2 2.0 13.2 11.5 125 16 27Diageo (=) p 1,142 33.5 14.3 13.5 3.6 3.4 11.0 10.2 11 6 8Pernod Ricard (=) EUR 65 17.2 15.8 14.4 3.8 3.6 13.2 12.5 10 9 10Median ratio 15.8 14.4 3.6 3.4 13.2 12.1 30 16 25

EV/Sales (x)

EV/EBITDA (x)

EPS Growth (%)Price

(06 Dec 10)

P/E (x)



Rémy puts its champagne unit up for sale

On 15 November Rémy Cointreau announced its decision to dispose of its champagne business, which encompasses the Piper-Heidsieck and Charles-Heidsieck brands (P&C-Heidsieck). Crédit Agricole-CIB has been mandated to run the auction process. No details on the timeframe have been provided, though we would expect the bidding process to be run over the coming weeks and a decision to be announced as early as late December / early January.

After assessing the asset-based value of the business, we increase our price target on Rémy Cointreau to EUR58 (12% upside) and reiterate our Outperform recommendation. We indeed regard as positive for Rémy Cointreau a potential disposal of the Piper & Charles-Heidsieck business, which we believe could fetch as much as EUR393m. On the expectation that Rémy will now be able to crystallise the value of its champagne unit, we reflect the market value of these assets into our target valuation.

Rémy Cointreau’s champagne business: an overview The two champagne brands, Charles Heidsieck and Piper-Heidsieck, were acquired by Rémy Cointreau in 1985 and 1988 respectively. The sales of the champagne division have averaged 10m bottles over the last three years (although we estimate that current sales would be closer to 8-9m bottles) and reached EUR96.7m in value terms in FY09/10, ranking as the fifth-largest global champagne house both by volume and value.

P&C-Heidsieck has limited exposure to France and we estimate that about 75% of sales are generated in international markets. The US, UK, Germany and Belgium as well as duty free channels are the main markets for the group.

Figure 5: P&C-Heidsieck business is highly exposed to export markets Estimated breakdown of Rémy Cointreau’s champagne sales by market

France25%

US12%

UK18%

Germany12%

Australia3%

Duty Free12%

Others8%

Belgium8%

Japan2%



Thanks to its strong footprint outside France, Piper-Heidsieck ranks as the fourth-largest champagne brand in export markets, according to Impact Databank. We estimate that Piper-Heidsieck represents around 80% of Rémy Cointreau’s total champagne sales volumes. Recent channel checks show that Piper-Heidsieck retails at c.EUR 25 per bottle. Charles Heidsieck sells instead at an average retail price of c.EUR 27 per bottle and would be mostly selling through specialist channels, mainly in France, Italy, the US and the UK.

Figure 6: Piper-Heidsieck is the No. 4 champagne brand in export markets Thousands of 9-litre case shipments

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Moë

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Cha

ndon

Veu

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licqu

ot

Laur

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Mum

m

Lans

on

Pom

mer

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Nic

olas

Feui

llatte

Taitt

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ouet

Source: Impact Databank.

An unsuccessful turnaround Over the years, Rémy’s champagne business has been lagging rivals such as LVMH, Vranken-Pommery Monopole and Laurent-Perrier in terms of profitability.

Over the period 2004-2008, which saw exports markets growing at a +3.2% CAGR, Rémy Cointreau’s champagne sales have grown by an average of 1.9% p.a. and EBIT margins averaged 9%. This is below the 15% level that had been indicated back in 2005 by management as achievable within a three-year timeframe. The 2008-10 industry downturn only exacerbated the situation, despite the group sticking to a firm value strategy for the two brands during the period, and the group actually ended FY09/10 with a EUR4m loss.


Figure 7: An underperforming division

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FY04/05 FY05/06 FY06/07 FY07/08 FY08/09 FY09/10 FY10/11e(10%)

(5%)

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Sales (EUR m) EBIT margin

Medium-term target

Source: Company data, Exane BNP Paribas estimates

What has been driving the underperformance? The underperformance of Rémy Cointreau’s champagne business appears to stem from a combination of factors, which historically have included a less favourable product mix and a lack of focus within Rémy’s outsourced distribution system (Rémy exited the Maxxium distribution partnership in March 2009). Eight years ago, Rémy Cointreau was rumoured to have considered a potential disposal of its champagne unit, but no final decision was eventually taken.

Historical reasons for underperformance… The new management team appointed in 2004, headed by CEO Jean-Marie Laborde, previously CEO and Chairman at Moët Chandon, has focussed its efforts on trying to tackle the historical reasons for the underperformance of the division, in particular:

– Volume mix Historically, Rémy Cointreau’s champagne portfolio has included a private label business (representing c.30% of sales volumes in 2005) and this has been one of the reasons for the group’s depressed profitability versus peers (Laurent-Perrier, which similarly to Rémy has significant exposure to export markets, reported average margins of 22.4% over the period 2004-2008). The group has been progressively exiting this part of the business, strategically shifting volumes into more upscale products under the Piper-Heidsieck and/or Charles-Heidsieck brands.

Efforts at enhancing the value of the portfolio have needed time though, initially resulting in short-term volume losses and negative implications for working capital, as it typically takes three to five years to age higher-quality wines. This is different from entry-level products for which only 15 months of ageing are required to be granted the champagne appellation. Initiated around 2005, the process was mostly completed by the end of 2008.

Whereas such a firm value approach is likely to pay off as demand for higher quality brands resumes, the group suffered worse volume declines than peers in the last two years, as the reshaped brand portfolio did not offer any cushion against downtrading by consumers (Rémy was the only champagne player to increase prices during the downturn within a context of strong downward pressures on pricing). Because of the absence of entry-level products in its portfolio and high exposure to export markets (which saw significant volume declines against a more resilient demand in France), Rémy Cointreau was impacted by the crisis to a greater extent than competitors.


– Cost structure Rémy Cointreau’s champagne operations have historically included a highly fragmented network of facilities at five different locations. Initially, storage was spread across three facilities, cellars were housed at two sites and the admin offices were distributed across four sites, resulting in high levels of inefficiency across the division.

By 2008, most of the production and ageing operations, as well as the admin offices, were centralised at the Allée du Vignoble site, generating c.EUR1m annual cost savings from FY08/09. The sale of the Boulevard Henri Vasnier site is said to have generated proceeds close to EUR20m, only partly offset by the c.EUR10m investments required for the renovation of the Allée du Vignole site, which is recognised in the industry as a state-of-the-art facility. However, recent initiatives aimed at further streamlining the cost structure (which would have resulted in additional 40-45 job cuts out of 160 employees currently at the operations) found strong resistance from labour unions and disruptive strikes took place during the harvest season in September.

… and for continuing underperformance

– Lack of focus within the portfolio Alongside these historical reasons for the underperformance of these operations, we believe that the business has suffered overall from a lack of focus within the Rémy Cointreau group. Cognac remains the core business for Rémy Cointreau, its importance to the group having grown further over the last years, supported by favourable consumer trends in Asian markets. Even as the group exited the Maxxium partnership in 2009, most of its investments in distribution have favoured cognac over the other parts of the business (the sales force in China has been largely expanded to close the performance gap of Rémy Martin with Hennessy and Martell).

– Marketing mix The commercial approach used to market Piper-Heidsieck and Charles-Heidsieck appears to have been mostly relying on techniques imported from the spirits world, i.e. use of big-impact advertising campaigns (such as Piper-Heidsieck’s collaboration with the luxury shoe brand Louboutin) as a way to support a more premium strategy for the two brands. However, we would argue that in champagne, especially outside France, the critical opportunity comes from educating the consumer about the product, as per capita consumption figures remain low and consumption tends to concentrate around big urban centres. In this sense, sponsorships at well-attended events can sometimes prove more successful at promoting sales and helping brand equity. Hence, the mix of the marketing levers used could have been another factor for the not entirely satisfying performance of the Piper-Heidsieck and Charles-Heidsieck brands and their difficulties in strongly establishing themselves as dominant brands within the crowded universe of champagne.

– Demanding negotiations to renew the supply agreements In recent years, the group has had several contractual agreements coming up for renewal, with c.54% of them coming close to expiry in 2009 alone. Renewal is likely to have entailed long negotiations and to have carried costs for the group.


How much could this business be worth?

Previous transaction multiples paid can be useful … We show below a table with previous industry transactions and respective multiples paid. With the champagne business having reported a EUR4m loss in FY09/10, the most appropriate measure to look at, in our view, is a multiple to sales. We note that representative industry deals averaged at an EV/Sales multiple of 3x.

Figure 8: Champagne M&A table Amount Stocks Vineyards Inventories Vineyards Asset value Sales EV/SalesYear Buyer Seller Brand (EURm) (m bottles) (ha) (EUR/bottle) (EURm) (EURm) (EURm) (x)

1996 Remy Cointreau

Cie Navigation Mixte

de Venoge 51 6 17 49 7 56 19 2.7

1997 Vranken Seagram Heidsieck-Monopole

61 3 132 25 58 82 28 2.2

1997 Boizel-Chanoine

Marie Brizard Philiponnat, Abel Lepitre

11 37 0 16 16 n.a. n.a.

1998 Boizel-Chanoine

Family Alexandre Bonnet

24 41 0 20 20 23 1.1

1998 LVMH Remy Cointreau

De Venoge 31 4 0 34 0 34 15 2.0

1999 Vranken Frey Germain 24 3 0 22 0 22 13 1.81999 LVMH Remy

Cointreau Krug 152 4 37 30 19 50 17 8.9

1999 Hicks & Frey Seagram Mumm, Perrier-Jouet

295 33 301 283 156 439 133 2.2

2000 Allied Domecq Hicks & Frey Mumm, Perrier-Jouet

575 33 301 289 170 459 133 4.3

2002 Vranken LVMH Pommery 175 20 10 184 7 191 100 1.82006 Boizel-

Chanoine Family +

Caisse d'Espargne

Lanson 430 55 1 550 1 551 220 2.0

2006 Credit Agricole + Taittinger

family

Starwood Capital

Taittinger 660 22 288 216 259 475 94 7.0

2008 LVMH Family Montaudon 29 5 45 52 41 92 27 1.1


… but we would prefer an asset-based approach to value the business However, we believe the real value of this business for a potential acquirer would lie with the assets contained within the operations – that is to say, the inventories in the cellars, the hectares of vineyards owned and the supply contracts in place.

1) Inventories According to the most recent data available, Rémy Cointreau’s champagne unit includes 32m bottles in inventories (close to four years of sales), 65ha of vineyards and contractual agreements with suppliers covering around 875ha of AOC land.

To assess the market value of these inventories, we take the latest quotes available on the ‘marché sur latte’, which is the liquid secondary market for champagne. On this basis, we estimate that the current value of a bottle held in inventory is, on average, EUR8 (prices in 2006-07 in the marché sur latte were closer to EUR10/bottle though). Rémy’s champagne stocks could therefore fetch a valuation close to EUR256m.

2) Land Because of the limitations regarding the surface of land qualifying for the AOC appellation (currently 35,000ha) and restrictions around ownership of vineyards (Contrôle de Structure), land is a highly valuable asset in the Champagne region. Even during the downturn that the industry has gone through, prices of land in the Champagne region have barely moved and remain within a range of EUR0.8 to EUR1.1m per hectare. In our asset-based valuation for Rémy’s champagne business, in line with the assumptions we use for Laurent-Perrier and Vranken-Pommery Monopole, we value the 65ha of land owned by the group using an average market value of EUR0.9m/ha, which leaves us with a valuation of EUR59m.


Figure 9: Prices of land in Champagne have continued to grow

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Champagne - Coté des Blancs (EURm/ha) Champagne - Cotés d'Epernay (EURm/ha)Champagne - Other regions (EURm/ha) Average Champagne (EURm/ha)

Source: SAFER

The value of the supply contracts As we have said in the section above, the strategic rationale for increased consolidation in the industry is often the need to secure grape supply contracts. The takeover of a champagne house would in most cases come together with a series of contractual agreements with the suppliers; the risk is that the suppliers might decide to interrupt the relationship because of the change of ownership, but this would be in most cases damaging on both sides, and so we see it as a remote possibility.

Suppliers can be either independent grape owners or cooperatives. Typically the contracts would cover a minimum period of six years. In certain instances, the contract could entail the champagne house being sub-contracted to take care of the management of the vineyards (this is increasingly the case with the new generations of owners no longer interested in working the land) and these types of contracts would tend to have a more extended length (15 to 20 years).

It is difficult to attach a value to these contracts, as the value mostly depends on the long-term benefit that the acquirer would derive from the increased production capacity. In the case of Rémy Cointreau, the group’s contractual agreements cover approximately 875ha of land.

What is the value of these contractual agreements to an acquirer? In our analysis, we use an average AOC yield of 12,500kg/ha, which is the average yield per hectare in champagne over the last 10 years. This gives us a theoretical annual level of production of 9m bottles p.a. from these supply contracts. In our assumptions, we take six years as the average length of a supply contract and we assume the ageing process would cover a period of four years (three to five years is the average ageing period for vintage champagne wines). Assuming an average selling price for a bottle at EUR13, we estimate incremental revenues and EBIT for an acquirer of EUR118m and EUR16m respectively. Using EBITDA as a proxy for cash flow and a WACC of 9%, we get to a NPV of EUR44m. This implies an average value per ha of c.EUR50,000.


Figure 10: We look at the incremental cash flows to assess the value of the supply agreements Land covered by contractual agreements with suppliers (ha) 875 Average AOC yield (kg/ha) 12,500 Theoretical level of production (m bottles) 9 Average contract length (nr of yrs) 6 Average ageing period (nr of years) 4 Average manufacturer selling price (EUR per bottle) 13 Incremental sales p.a. (EUR m) 118 Average manufacturer EBIT margin (%) 14 Incremental EBIT p.a. (EUR m) 16 Depreciation rate (as % sales) 3 Incremental EBITDA p.a. (EUR m) 19 Tax rate (%) 33 NOPLAT (EUR m) 13 WACC (%) 9 Yr 0 Yr 1 Yr 2 Yr 3 Yr 4 Yr 5 Yr 6 Yr 7 Yr 8 Yr 9 Incremental cash flows 13 13 13 13 13 13NPV (EUR m) 44 Value per hectare (EUR/ha) 50,285


The brands: Piper-Heidsieck and Charles-Heidsieck Piper-Heidsieck is the core champagne brand of the group, mainly selling in international markets (c.70% of its total sales volumes) where it ranks as the fourth largest champagne export brand by volumes behind Moët et Chandon, Veuve Clicquot and Laurent-Perrier. Charles-Heidsieck (c.20% of Rémy’s champagne sales volumes) is instead more of a niche brand and it tends to be sold mostly through specialist channels.

Valuing a brand can be a difficult exercise, often being a discretionary assessment. However, for a consumer business which is based on an idea of exclusivity and premiumness as it is the case of champagne, brands are one of the most important assets and cannot be ignored.

Looking at Rémy Cointreau, an insufficient pricing premium has historically resulted in subdued levels of profitability for its champagne unit, calling into question the brand equity attached to Piper-Heidsieck and Charles-Heidsieck.

Brand repositioning has however been a key priority for management over the last five years. This has translated into a rigorous pricing policy (Rémy Cointreau has been the only player among the major champagne houses to increase prices across its champagne portfolio, even during the downturn) and attempts to increase exposure to the more profitable on-trade channel – the target has been to reach a balanced 50/50 on/off-trade exposure, though we believe that the group is still far from reaching this objective.

International rankings are showing improving price positioning and brand perception As expected, the volume declines suffered by the two brands over the last two years have been exacerbated by the value strategy pursued by the group, within a competitive environment that turned increasingly more aggressive on pricing. However, some international statistics on brand power (defined as the ability of a brand to generate value for its owner) have indicated encouraging developments for Piper-Heidsieck.

Overall, and not surprisingly, consumers’ search for value for money resulted in champagne brands losing out to other sparkling wine brands during the crisis, this also being the case for Piper-Heidsieck. However, a survey compiled by Intangible Business – a consulting firm specialising in brand valuation that has been compiling a ranking of spirits and wines brands over the last four years, using inputs from a panel of leading experts in the drinks industry – indicates that Piper-Heidsieck succeeded in improving its price positioning over the last three years. It said the brand now scores higher on metrics like brand heritage (a brand’s longevity and a measure of how it is embedded in local culture) and perception (loyalty and how close a strong brand image is to a desire for ownership).


Figure 11: Overall rank disappointing, but encouraging trends on price positioning and brand perception Year Overall

rank Share of market

Premium Price Positioning

Market Scope

Awareness Relevance Heritage Brand Perception

2006 Not included in the rankings 2007 81 4.0 4.9 5.6 5.9 5.2 5.8 5.3 2008 74 3.1 5.1 6.3 6.0 5.7 6.4 5.6 2009 78 4.6 5.1 6.0 5.9 5.4 6.1 5.6 2010 92 3.6 5.7 6.0 5.4 5.7 6.7 5.9

Source: Power Brand 2010 from Intangible Business.

Upside in the valuation of the business can come from the brands In champagne, the existence of a non-branded market makes it possible to estimate the value of a brand. To do so, we take the difference in the average manufacturing selling price per bottle of a branded and a private label champagne. We then account for the estimated additional production and selling costs needed for a labelled champagne bottle. The resulting amount (post-tax) is the annual excess return of a branded label.

The brand value is then calculated as the net present value of the excess return generated per bottle over a 10-year period, assuming that the price differential between the branded and the private label brands remains constant over time. We get to a valuation of c.EUR20m for the two brands.

Figure 12: Valuation of Piper-Heidsieck and Charles-Heidsieck Brand valuation

Average manufacturing price of RC's champagne brands (EUR) 13.5Average private label selling price (EUR) 10Additional A&P and COGS per bottle (EUR) 3.5Tax (@ 33%) 0.2Excess per bottle (EUR) 0.3Volume sold (m bottles) 8.5Total annual premium for brand (EUR m) 2.8NPV (EUR m) 20


We value the business at EUR393m Adopting an asset-based valuation approach, we believe Rémy could get as much as EUR393m for its champagne business. We believe the greatest scope for variation is in the value attached to the brands.

Figure 13: We believe Rémy could fetch c.EUR400m for the champagne division Valuation of Rémy Cointreau’s champagne division

EURm

Bottles (m) 32Valuation per bottle (EUR per bottle) 8.0Inventory valuation (EUR m) 256 Ha under group ownership (ha) 65Value per ha (EURm) 0.9Land valuation (EURm) 59 Rémy Cointreau's champagne avg sales volumes (mn bottles) 10Average AOC yield (kg/ha) 12,500Ha of land required for production (ha) 940Ha of land not owned (ha) 875Value of supply contract (EUR m per ha) 0.05Value of supply contracts (EUR m) 44 Other assets (EURm at book value) 15 Asset valuation (EURm) 373Brand valuation (EURm) 20 Total valuation for Rémy's champagne division (EURm) 393



What would a disposal mean for Rémy Cointreau?

We increase our target price to EUR58 (+12% upside) Rémy’s champagne division has underperformed the rest of Rémy’s portfolio of brands over the past 10 years. We believe the disposal of this business, which ultimately ties up significant capital and generates low returns, would be a positive for the share price.

We had previously valued the champagne division at EUR271m in our DCF-SOTP valuation for Rémy Cointreau. This was based on a EV/Sales valuation multiple that we used for the champagne division of 2.5x on the expectation that over the economic cycle Rémy would be able to return the business to profitability levels closer to those of other competitors in the champagne industry (like Vranken-Pommery Monopole, which generated operating margins of 11.5% in 2009).

On the expectation that now Rémy may be able to crystallise the value of its champagne assets in the immediate future, we are raising our target price to reflect what we believe is the market value of its champagne assets. We are therefore increasing our valuation for the champagne division to EUR393m (from EUR271m). This raises our target price to EUR58 (from EUR55). Rémy remains one of our preferred names in the sector, as the group benefits from the tremendous positive dynamics of increasing demand in China for high-quality cognac.


Figure 14: Rémy Cointreau valuation % FY10 FY11e FY12e FY13e FY14e

Trend GDP growth 2.5%

Long term RPI 2.0%

Long bond 2.7%

Risk premium 6.5%

Equity cost of capital 9.2%

At constant prices 7.2%

Beta Trend

FY14e Risk premium growth Tax

FCF ECC vs. GDP rate Holding Valuation

EURm FY10 FY11e FY12e FY13e FY14e (EURm) (%) (%) (%) (%) (EURm)

Cognac

Revenues 406 481 539 604 676 0.90 2.25%

Operating profit 106 152 182 218 251 159 5.9% (10%) 28% 100% 2,369

Operating margin (%) 26% 32% 34% 36% 37% 8.6%

NOPLAT 76 109 131 157 181

Depreciation 10 11 12 13 14

WC change 7 (6) (22) (5) (16)

Capex (12) (15) (17) (18) (20)

FCF 82 99 105 147 159

FCF conversion (%) 77% 65% 58% 67% 63%

Revenues multiple (x) 5.8 4.9 4.4 3.9 3.5

P/E (x) 31.1 21.7 18.1 15.1 13.1

EV/EBITA (x) 22.4 15.6 13.0 10.8 9.4

EV/FCF (x) 29.0 23.9 22.6 16.1 14.9

FCF yield to firm (%) 3.5% 4.2% 4.4% 6.2% 6.7%

Capex as % sales 2.9% 3.1% 3.1% 3.0% 3.0%

Liqueurs & Spirits

Revenues 206 208 216 224 231 0.85 1.50%

Operating profit 52 44 48 53 57 35 5.5% (40%) 28% 100% 496

Operating margin (%) 25% 21% 22% 24% 25% 8.2%

NOPLAT 37 32 35 38 41


WC change 3 (2) (7) (2) (5)

Capex (5) (5) (5) (6) (6)

FCF 39 28 26 35 35

FCF conversion (%) 76% 64% 54% 66% 61%


P/E (x) 13.3 15.5 14.2 13.1 12.1

EV/EBITA (x) 9.6 11.2 10.3 9.4 8.7

EV/FCF (x) 12.6 17.4 18.9 14.3 14.2

FCF yield to firm (%) 7.9% 5.7% 5.3% 7.0% 7.0%

Capex as % sales 2.5% 2.5% 2.5% 2.5% 2.5%

Champagne & WinesRevenues 97 109 116 128 138 Asset-based valuation 393

Operating profit (4) 1 6 9 15 7 28%

Operating margin (%) (4%) 1% 5% 7% 11%

NOPLAT (3) 1 4 7 11


WC change 1 (1) (4) (1) (3)

Capex (2) (3) (3) (3) (3)

FCF (2) (1) (1) 5 7

FCF conversion (%) 49% (78%) (9%) 52% 48%


P/E (x) (136.5) 454.9 95.8 60.3 36.4

EV/EBITA (x) (98.3) 327.5 68.9 43.4 26.2

EV/FCF (x) (202.0) (417.8) (776.9) 83.9 55.2

FCF yield to firm (%) (0.5%) (0.2%) (0.1%) 1.2% 1.8%

Capex as % sales 2.5% 2.5% 2.5% 2.5% 2.5%

Third party brands

Revenues 99 118 122 126 129 0.85 1.50%

Operating profit 4 3 3 3 3 2 5.5% (40%) 28% 100% 31Operating margin (%) 4% 3% 2% 2% 2% 8.2%

NOPLAT 3 2 2 2 2


WC change 0 0 0 0 0

Capex 0 0 0 0 0

FCF 3 2 2 2 2

FCF conversion (%) 72% 72% 72% 72% 72%


P/E (x) 9.9 14.5 14.5 14.5 14.5



Figure 15: Rémy Cointreau valuation - continued Beta Trend

FY14e Risk premium growth Tax

FCF ECC vs. GDP rate Holding Valuation

EURm FY10 FY11e FY12e FY13e FY14e (EURm) (%) (%) (%) (%) (EURm)

Holding costs (18) (19) (20) (20) (21) (15) 0.90 0.00%

NOPLAT (13) (14) (14) (15) (15) 5.9% (100%) 28% 100% (175)

8.6%

Total group

Revenues 808 916 994 1,081 1,175

Operating profit 140 181 219 263 305 188 28% 100% 3,114

Operating margin (%) 17% 20% 22% 24% 26%

NOPLAT 101 131 158 189 220


WC change 12 (9) (32) (8) (23)

Capex (19) (23) (25) (27) (29)

FCF 110 115 118 174 188

FCF conversion (%) 78% 64% 54% 66% 62%


P/E (x) 30.9 23.8 19.7 16.5 14.2

EV/EBITA (x) 22.2 17.2 14.2 11.8 10.2

EV/FCF (x) 28.4 27.0 26.3 17.9 16.5

FCF yield to firm (%) 3.5% 3.7% 3.8% 5.6% 6.1%

Capex as % sales 2.4% 2.5% 2.5% 2.5% 2.5%

Associates

Dynasty Wines

Revenues Share price: HKD5.2

Operating profit No. of shares (m) 1245 27.0% 176

Operating margin EUR:HKD 9.97

P/E (x)

Tax shield 6 8 5 4 3 8 0.90 +0.00%

100% 5.9% 100% 17

8.6%

Minorities 3 (1) (1) (1) (1) (1)

Net debt (501) (474) (435) (341) (232) (474)

Provisions (29) (29) (29) (29) (29) (29)

Equity value 2,803

Shares in issue (million) 48.5 48.6 48.6 48.6 48.6 48.6

Valuation per share (EUR) 58

P/Es on target valuation

FY10 FY11e FY12e FY13e FY14e

EPS pre-excepts (EUR) 1.79 1.91 3.09 3.79 4.48P/E (x) 32.2 30.3 18.6 15.2 12.9


A possible disposal would positively impact earnings by about 7% Although we are not including it in our forecasts at present, we believe that the possible disposal of the champagne division (on the assumption that is disposed of for EUR393m would positively impact our earnings forecasts for FY11/12e (to March) by about 7%. With Rémy Cointreau net debt standing at EUR485m (as of 1H 10/11), the disposal of the champagne division would bring the financial leverage of the company down to almost nil. This is something that we believe would likely be welcomed by investors as it would increase the group’s ability to further invest in its fast-growing cognac business.


Figure 16: Disposal of the champagne division could increase earnings by 7% Analysis of the potential impact of disposal of champagne on Rémy earnings forecasts

FY11/12e FY11/12e Rémy w.

champagneRémy w/o

champagne % chge

Revenues 994 878 -11.7%incl Cognac 539 539 0.0%incl Liqueurs & Spirits 216 216 0.0%incl Champagne & Wine 116 0 n.a.incl Third Party Brands 122 122 0.0%

Operating profit 219 214 -2.6%incl Cognac 182 182 0.0%incl Liqueurs & Spirits 48 48 0.0%incl Champagne & Wine 6 0 n.a.incl Third Party Brands 3 3 0.0%Incl. Holding costs -20 -20 0.0%

Net interest -19 1 -104%

PBT - pre-exceptionals 200 214 7.1%

Tax -56 -60 7.1%

Diluted EPS - pre-exceptionals (Euro) 3.09 3.30 6.7%


Rémy selling: who could be interested? The fragmented nature of the champagne industry is in our view likely to result in increasing corporate activity over the coming years and Rémy Cointreau’s decision to dispose of its champagne unit could potentially be a trigger for the sector. Whereas a consolidation scenario can be easily argued when analysing the fundamentals of the champagne industry, it is not as easy to identify the players that could act as industry consolidators. We would argue that trade buyers are the ideal candidates. However, several champagne houses have emerged from the recession with drained finances and might look more like potential takeover targets than acquirers. Foreign investors in the industry has so far been limited (the notable exception being Belgium’s P.F. Vranken whose group, Vranken-Pommery Monopole, currently ranks as the third-largest champagne player behind Moët Hennessy and Lanson-BCC), but we would not exclude the possibility of external players getting involved at some stage in the sector, including large spirits groups or new buyers from emerging countries.

Within this context, we have tried to identify the potential candidates that could participate in the bidding process for the Piper-Heidsieck business. We have examined the strategic fit of operations and the potential rationale for getting involved as well as the respective financial implications.

Strategic rationale for Vranken, but it could be stretched financially Vranken-Pommery Monopole is the player whose operations are in our view most complementary to the ones of Rémy Cointreau, with a compelling strategic rationale for a business combination between the two, beyond the rationale for securing additional supply. However, the financial implications for Vranken for such an acquisition could be stretched, as we analyse in more detail in the section below. Vranken’s geared balance sheet (c.10x 2010e net debt/EBITDA, although 2/3 of the debt is pledged against inventories) would need an important equity component to be able to proceed with such a deal. This could potentially jeopardise the majority control that CHC Holding (the family holding group) exercises over the company. In virtue of its stronger financial position, LVMH could be another likely suitor for the champagne business of Rémy. The appeal for LVMH would mainly derive from the value of the land and the supply contracts. We believe the rationale is less compelling for Laurent-Perrier and we do not see the group as a likely suitor for Remy's champagne business. The group has recently reiterated its focus on growing the Laurent-Perrier brand, which is expected to reach 2/3 of the group's volumes in a medium-term timeframe. To do so, the group has already secured valuable supplies of high-quality grapes through the acquisition of Champagne Malakoff in 2004.


Vranken-Pommery Monopole Founded in 1976 by P.F. Vranken, Vranken-Pommery Monopole has over time developed into one of the major players in the industry, ranking third in terms of sales behind MH and Lanson-BCC. An initial organic focus was substituted over the years with a more aggressive, acquisition-lead growth strategy, culminating in the purchase of Pommery from LVMH in 2002 (a buyout of the 33.5% minority shareholders followed in 2005).

A diversified price offer and a relatively high exposure to the more resilient French market (55% of sales in 2009) have helped Vranken-Pommery Monopole’s sales volumes outperform peers during the recession. That said, the negative sales mix has been detrimental to margins. Mix enhancement has been a focus for the group as a way to drive margin growth; however, c.40% of the group’s champagne sales continue to be derived from bottles retailing at EUR20/bottle or less.

Figure 17: Mix deterioration has been driving a sharp margin contraction

17.6%

15.5%

12.9%

11.5%

16.9%16.5%

0

50

100

150

200

250

300

350

400

2005 2006 2007 2008 2009 2010E10%

12%

14%

16%

18%

20%

22%

Sales (EUR m) EBIT margin


Vranken is still digesting the Domaines Listel acquisition At the moment, Vranken is still trying to digest the acquisition of Domaines Listel (EUR86m corresponding to 17x EV/EBIT for a highly capital intensive business – 8% EBIT margin), which was financed through a combination of debt and equity. The leverage of the group is high, at an expected 10x net debt/EBITDA at the end of 2010e. Operating leverage, critical for the group to boost its cash generation and hence accelerate its deleveraging, has been so far subdued, as the group has been lagging peers this year and has not been benefiting as much as the other champagne houses from a rebound in export shipments. The subdued price-mix environment in the industry did not help either. On a positive note, the refinancing of EUR350m (c.60% of outstanding debt) was successfully negotiated at the end of June and the group is not facing any important debt maturity in the next 24 months. Moreover, c.2/3 of the group’s debt is “collateralised” against its inventories.

A combination with P&C-Heidsieck offers compelling strategic rationale An acquisition of the size of Rémy Cointreau’s champagne unit (we estimate a valuation of EUR393m would almost be a big bang for Vranken (whose market cap is currently EUR216m). The strategic rationale for Vranken to be looking into the Piper-Heidsieck business exists and looks quite compelling. In particular, Rémy’s business would be offering Vranken:


Increased exposure to export markets We estimate Rémy Cointreau’s champagne business derives c.75% of its sales from international markets. Its main exposure is to the US, the UK and Germany, as well as duty-free channels. For a group which remains highly dependent on the competitive and fragmented French market, as it is the case of Vranken, the integration of the Piper-Heidsieck business could bring critical mass in markets with high potential for growth.

Figure 18: P&C-Heidsieck could reduce Vranken’s reliance on the French market VPM’s geographical exposure P&C-Heidsieck’s geographical exposure

France56%

Europe ex France37%

Americas5%

Asia & RoW2%

France

25%

Europe ex France44%

Asia & RoW18%

Americas13%


Complementary nature of the brand portfolios We see the Piper-Heidsieck franchise as offering a good opportunity for Vranken to strengthen its brand portfolio. In international markets, Pommery has been developing nicely, especially in markets like the US. However, we believe that the potential of the Heidsieck & C° Monopole brand in international markets could be better exploited by regrouping the three Heidsieck brands under the same umbrella. Indeed, each one has its own price positioning, so there is no risk of portfolios overlapping, and Heidsieck & C° Monopole could benefit from the good brand heritage and perception (see section above on the Intangible Business survey) of Piper-Heidsieck.

Figure 19: Complementary brand portfolios Vranken-Pommery Monopole’s brand portfolio Rémy Cointreau’s champagne brand portfolio

Diamant

Pommery

Demoiselle Vranken

Charles Lafitte

Heidsieck & Co M onopole

National brands

Retail Price

10

15

20

30

50

100

150

Louise

(EUR bottle)

Cuvée rare

Charles Heidsieck

Piper Heidsieck

Retail Price

10

15

20

30

50

100

150

Blancs des M illénaires

Piper Heidsieck

Charles Heidsieck

(EUR bottle)

Source: Company data, Exane BNP Paribas estimates.


A sizeable acquisition would require a capital increase As mentioned above, the financial implications of such an acquisition would be meaningful for Vranken-Pommery Monopole. A fully debt-funded deal is to be excluded, as the group does not have sufficient financial headroom (at least, if we are thinking about a purchase of the entirety of the P&C-Heidsieck business). An equity component would therefore be needed. In this respect, we note that the group has issued equity in the past to finance acquisitions (Pommery in 2002, Domaines Listel in 2009). In this case, however, the equity component needed to fund the deal would be very significant and could potentially result in the majority shareholder losing control (CHC, the family holding of Mr Vranken).

Figure 20: Vranken-Pommery Monopole’s shareholder structure as of 31 December 2009 Shareholders Structure Distribution of voting rights

P.F. Vranken0.1%

Free f loat28.2%

CHC70.9%

Employee fund0.8%

P.F. Vranken

0.1%

Free f loat18.4%

CHC81.5%

Source: Exane BNP Paribas estimates.

At the moment, the equity of Vranken-Pommery Monopole comprises 6.7m shares, 56% of which carry double voting rights. Outstanding shares at Vranken can qualify for double voting rights after having been registered under the name of the same shareholder for a minimum period of four years. At the moment, CHC (the family holding) retains almost all of the double voting-right shares and this grant the founding family c.82% of the voting rights against a c.71% economic interest.

The family would try to retain control of the combined entity We have attempted to model a potential acquisition of Rémy’s P&C-Heidsieck business by Vranken-Pommery Monopole. We base our scenario on an implied valuation for the business of EUR393m, which we derive using an asset-based approach.

In our base case scenario we assume that 50% of the deal will be financed with debt, the remaining amount to be funded through a capital increase. This would result in the issue of 6.2m new shares, i.e. almost doubling the current outstanding share capital.

We do not have visibility on the financial headroom at the holding level (CHC). Assuming that CHC does not participate, a 50% equity component would result in the family diluting its economic interest in the group to 37% from the previous 71%, but still retaining control with 51% of the voting rights. The leverage would instead increase to EUR758m, i.e. a pro-forma net debt/EBITDA of 11.9x , a level which is very high in absolute terms and also when compared to other champagne houses (Laurent-Perrier trades on 8.3x 2011e net debt/EBITDA, Lanson-BCC on 10.4x 2009 net debt/EBITDA).


Figure 21: VPM / P&C-Heidsieck – funding scenario Transaction funding

Acquisition price (EUR m) 393Equity component 50%Debt component 50%Equity (EUR m) 196 Debt (EUR m) 196 VPM market cap (EUR m) 211 Shares to be issued as % market cap (m) 93%VPM share price (EUR) 31.5 Issue discount 0%Issue price 31.5Outstanding shares (m) 6.7 New shares 6.2 % outstanding shares 93% Implications of a capital increase Before the capital increase Total nr of oustanding shares (m) 6.7Shares carrying one voting-right (m) 3.0Shares carrying double voting-rights (m) 3.7 P.F. Vranken + CHC : Total nr of shares owned (m) 4.8Shares carrying one voting-right (m) 1.0Shares carrying double voting-rights (m) 3.7% economic interest 71%% voting rights 81% After the capital increase Total nr of oustanding shares (m) 12.9Shares carrying one voting-right (m) 9.2Shares carrying double voting-rights (m) 3.7 P.F. Vranken + CHC : Total nr of shares owned (m) 4.8Shares carrying one voting-right (m) 1.0Shares carrying double voting-rights (m) 3.7% economic interest 37%% voting rights 51%


There could be potential for revenue synergies The appeal of a combination between Vranken-Pommery Monopole and Rémy’s P&C-Heidsieck lies also in the potential for revenue synergies, thanks to the good strategic fit of the two businesses. However, revenue synergies take time to materialise.

Because of the complementary nature of the two operations, we do see instead more limited room for cost synergies. Typically, in the spirits industry synergies would be mostly derived from eliminating overlapping distribution. In this specific case, however, we only assume that 30% of the distribution costs of the P&C-Heidsieck business would be taken out.

There could be some savings on the production side, as we would expect a larger entity to enjoy better negotiating power with the suppliers. However, any streamlining plan on the operational side could face opposition from labour unions in Champagne. Overall, we assume additional synergies from overheads accounting for just 2% of acquired sales.

Assuming total pre-tax synergies of EUR6m (i.e. 6% of combined sales, EUR4m post-tax) being generated over two years, a deal valuing the P&C-Heidsieck business at EUR393m would be 49% earnings dilutive for Vranken in our scenario.


Figure 22: We estimate c.EUR6m pre-tax cost synergies March yr end, EUR m 2009 2010 2011e 2012e 2013e 2014e

Sales 126 97 109 116 128 138 CAAP 29 8 14 20 24 32 Distribution & Selling Expenses -15 -12 -13 -14 -15 -17as % sales 12% 12.0% 12.0% 12.0% 12.0% 12.0% EBITDA 18 -1 6 10 16 20 Depreciation 4 3 4 4 4 5as % sales 3.5% 3.5% 3.5% 3.5% 3.5% 3.5% EBIT 14 -4 1 6 9 15 Base case scenario - Cost Synergies (pre-tax) 7 5 6 7 7 8- 30% of D&S expenses 5 3 4 4 5 5- 2% additional from overheads 3 2 2 2 3 3 Base case scenario - Cost Synergies (post-tax) 5 4 4 4 5 5- VPM tax rate 32.0% 32.0% 32.0% 32.0% 32.0% 32.0% Cost synergies (pre-tax) as % sales 6% 6% 6% 6% 6% 6%Cost synergies (post-tax) as % sales 4% 4% 4% 4% 4% 4%


Figure 23: VPM/P&C-Heidsieck potential earnings accretion/dilution scenario EUR m Vranken standalone Vranken + P&C Heidsieck Accretion / Dilution Vranken + P&C Heidsieck

+ Synergies Accretion / Dilution

2010e Pre-Synergies Post-Synergies

Sales 352 460 460 EBITDA 58 64 6 69 Depreciation -12 -16 -16 as % sales 3.5% 3.5% 3.5% EBIT 46 48 6 53 Interest rate 4.0% 4.0% 4.0% Interest -23 -30 -30 PBT 23 17 22 Tax -7 -6 -7 Tax rate 32.0% 32.0% 32.0% Minorities 0 0 0 Net income 15 12 15 Number shares 6.7 13 13 EPS (EUR) 2.29 0.89 -61% 1.17 -49% Net debt 562 758 758 Net debt / EBITDA (x) 9.7x 11.9x 11.0x

Source: Company data, Exane BNP Paribas estimates Note: We take Vranken-Pommery Monopole’s 2010e figures and P&C-Heidsieck’s estimated FY2010/11 numbers.


Going alone or with a partner? The scenario we have analysed above is a simple one that assumes that Vranken will decide to bid for Rémy’s champagne business on its own. Of course, there could be more complicated ways of structuring a possible acquisition. Vranken could indeed team up with another player or with a fund in order to make the acquisition less burdensome. It could even sell some of its existing brands to fund part of the acquisition.

In Champagne this would not be unusual. The most recent deals in the industry, the acquisition of Lanson and the buyback of Taittinger, involved the help of a financial institution, for instance. And back in 2003, Vranken and LVMH already teamed up in a consortium to buy Bricout-Delbeck, with Vranken keeping the brands, 5m bottles of inventories and c.115-120ha of land, and LVMH getting c. 40ha of land and c.1m bottles of stocks.

We would also mention two interesting situations. The first one dates back to 1996, when Rémy Cointreau took control of Champagne de Venoge from Paribas (which took it over from Compagnie de Navigation Mixte). The brand was then handed in 1998 to LVMH (at that time the champagne division at MH was headed by Jean-Marie Laborde, currently CEO of Rémy Cointreau), to be resold after only 10 days to BCC (Boizel-Chanoine Champagne). Interestingly, LVMH kept the land and the supply contracts but not the brands. Another similar example, again involving LVMH, actually dates back to a few years earlier, in 1990, when the French luxury goods group acquired Lanson and Pommery. After only four months, the Lanson brand was resold to Marne et Champagne. Again, LVMH kept the valuable land.

We retain our Underperform recommendation on potential acquisition risk As we have shown above, an acquisition the size of the P&C-Heidsieck business in the specific case of Vranken-Pommery Monopole carries short-term risk for dilution. The strategic appeal of the P&C-Heidsieck business for Vranken leaves, however, an acquisition risk pending on the shares, as the group could nevertheless be looking into these operations. Interestingly, on 22 November the group convened an EGM which will be held on 8 December. The agenda of the day includes the discussion of a clause which, if approved, would give the group the flexibility to issue bonds. According to the company’s release, the bonds would be used to either “re-structure its debt” or “finance an acquisition”.

Because of these pending risks, we have decided to maintain at this stage our Underperform recommendation on the shares. We keep a price target of EUR31 (2% downside), which we derive using an asset-based valuation (please see the table below). We have, however, updated our estimates to reflect new assumptions on grape costs and price-mix. You can find the details of our estimate revisions in the Appendix section at the back of this report.


Figure 24: Vranken - we maintain our asset-based target valuation of EUR 31 Asset-based valuation

Champagne Bottles (million) 57Valuation per bottle (EUR per bottle) 8Inventory valuation (EURm) 456 Ha under group ownership 44Value per ha (EURm) 0.9Land valuation (EURm) 40 Ha under lease 100Value per lease (EURm) 0.25Lease value (EURm) 25 Other assets (EURm at book value) 160Net debt (EURm) 563 Net asset valuation (EURm) 117Number of shares (million) 6.7Valuation per share (EUR) 17 Brand Average sale price of Vranken (EUR) 13.0Average private label selling price (EUR) 10.0Additional A&P and COGS per bottle (EUR) 2.4Tax (@ 33%) 0.2Excess per bottle (EUR) 0.4Volume sold (mn bottles) 20.6Total annual premium for brand (EURm) 8.5NPV (EURm) 61 Port wine Inventories (mn bottles) 10Valuation per bottle (EUR per bottle) 0.5Inventory valuation (EURm) 5Vineyards (ha) 250Valuation per hectare (EUR) 100,000Land valuation (EURm) 25Minorities (EUR m at market value) -3Total valuation (EURm) 27 Champagne assets (EURm) 117Brands valuation (EURm) 61Port wine (EURm) 27Asset valuation (EURm) 206 Number of shares (million) 6.7Valuation per share (EUR) 31



Moët Hennessy Moët Hennessy (66% LVMH, 34% Diageo) is the leading producer and exporter in Champagne, shipping around 17% of global volumes. Our luxury goods team expects the Moët Hennessy (MH)’s Champagne & Wines unit to reach an EBIT margin of 29% in 2010e (and the business was on a 36% EBIT margin in 2007 and 2008!), which makes it by far the most profitable business among the major champagne players. Among the key determinants of this superior performance, we would highlight its premium portfolio (70% of sales) and high exposure to export markets (85% of sales) as well as its relatively high self-sufficiency ratio (c.28% of its requirements).

Figure 25: Moët Hennessy: a highly profitable business with superior exposure to export markets MH Champagne: EBIT and EBIT margin progression MH Champagne’s sales exposure to export markets

33.0%32.0%

31.0%30.0%

29.0%

25.9%

36.0%36.1%

35.4%36.2%34.8%

-

100

200

300

400

500

600

700

800

900

2004 2005 2006 2007 2008 2009 2010e 2011e 2012e 2013e 2014e23%

25%

27%

29%

31%

33%

35%

37%

39%

41%

43%

Profit from recurring operations (EUR m) Operating margin

France15%Exports

85%


A strong balance sheet gives MH firepower to go for P&C-Heidsieck The LVMH group has an enviable balance sheet (0.7x 2010e net debt/EBITDA) and can count on very strong FCF (c.EUR2bn+ per annum). An acquisition, which we believe could attain a valuation of EUR393m, would therefore be more than feasible for MH in virtue of the strong financial position of its parent company.

Why would LVMH buy the Piper-Heidsieck business? Over the last decade, Moët Hennessy has been refocusing its champagne business around its central brands (Moët et Chandon, Veuve Clicquot, Mercier) and developing its portfolio of super-premium brands (Ruinart, Krug and Dom Pérignon). This portfolio restructuring entailed in 2002 the sale of the Pommery brand to Vranken Monopole and the disposal of Canard-Duchêne to Groupe Thiénot in 2003. Interestingly, in both cases, the group only sold the brands, but retained ownership of the vineyards. Aware of the benefits of vertical integration within an industry that faces potential supply constraints, Moët Hennessy has over time consistently pursued a strategy of securing supplies through land ownership. This was the strategic rationale behind the acquisition of Champagne Montaudon in late 2008 (45ha of land). Interestingly, LVMH has just sold its Montaudon’s assets to Alliance Champagne, keeping ownership, however, of the vineyards. The desire to further improve its self-sufficiency could thus lead LVMH to look into Rémy Cointreau’s champagne business, more than any interest in the brands themselves. As discussed in the section above, the P&C-Heidsieck operations include 65ha of vineyards and contractual agreements covering approximately 875ha of land, allowing a theoretical annual production of c.10m bottles.


Lanson-BCC All the arguments we have been discussing for Vranken-Pommery Monopole in terms of the strategic appeal of a tie-up with Rémy Cointreau’s P&C-Heidsieck business can also apply for Lanson-BCC. Similarly to Vranken, Lanson remains a dominant player in France, but still lacks significant exposure to international markets (61% of sales are generated in France). As with Vranken, Lanson-BCC is highly indebted (10.4x reported net debt/EBITDA in 2009), as it is still carrying debt from the 2006 acquisition of the Lanson brand.

Figure 26: Lanson-BCC’s financials Dec. yr-end

2006 2007 2008 2009 2010e

Sales 311 359 301 276 293EBITDA 42 65 62 45 53EBIT 33 57 50 38 46EBIT margin 10.6% 15.8% 16.7% 13.8% 15.6%Net debt 553 494 535 471 456Net debt / EBITDA 13.3x 7.6x 8.7x 10.4x 8.6xBook value of stocks 461 433 456 426 n.a.

Source: Company data, Reuters.

Other potential suitors The champagne industry is highly fragmented and the champagne universe is populated by many non-listed, mostly family-owned businesses. Among the largest ones, there is Roederer, Champagne Thiénot, Taittinger and G.H. Martel & Co. The limited financial data available on these companies prevent us from assessing the likelihood of one of them being able to acquire the P&C-Heidsieck business, but we cannot rule out the possibility that a private champagne player could be contemplating the option of adding two good brands enjoying international status to its portfolio. Also, Rémy’s business comes with new production facilities which could attract interest from other players.

Rémy’s P&C-Heidsieck business could also appeal to a farmers’ cooperative. The availability of grape supplies and supplier contracts could enable a cooperative to further develop the brands in size. The two largest cooperatives in Champagne are Centre Vinicole de la Champagne and Alliance Champagne.

Figure 27: A well-populated universe of mostly family-owned businesses Group Type Brands Date Sales (EUR m)

Centre Vinicole de la Champagne Cooperative Nicolas Feuillatte 2008 193G.H. Martel & Co Private Gh Martel & Co, Charles de Cazanove, Mansard Baillet, E. Rapeneau 2009 79Alliance Champagne Cooperative Jacquart 2009 72Taittinger Private Taittinger, Irroy 2010 88Thiénot Private Alan Thiénot, Canard-Duchêne, Marie Stuart, Paul Gobillard, Trouillard,

Joseph Perrier, Malard 2009 73

Roederer Private Roederer, Deutz 2009 100Bollinger Private Bollinger 2009 53Duval - Leroy Private Duval – Leroy 2009 51Billecart Salmon Private Billercart Salmon 2009 31

Source: Company data.


Large spirits & wines groups such as Brown-Forman, Bacardi and Constellation Brands could also be looking at this business, as it could be a way to premiumize their product portfolio. Pernod-Ricard already has a champagne business (Mumm and Perrier Jouët, a legacy of their Allied Domecq acquisition). However, we would be surprised to see them become involved in the bidding for P&C-Heidsieck, as the group remains quite indebted (5.3x net debt/EBITDA in FY09/10) following the acquisition of V&S.

A coup de théâtre would be a sale to a foreign investor, perhaps one from a new, fast-growing economy. The champagne industry has so far been quite reticent to open its doors to external players. However, this option cannot be ruled out, especially if a foreign investor were able to bid up the price. Already in cognac, another relatively closed industry, we have seen Russian investors buying small brands and land the last few years. And Russian investor, Boris Titov, has received heavy media coverage recently, after purchasing in champagne the Château d’Avize (with its 2ha of vineyards) from LVMH in June 2010.

Within our coverage, Vranken and LVMH are the more likely suitors A plethora of players could be currently looking into the books of Rémy Cointreau’s champagne business, as its land and inventories make it a valuable asset especially to a trade buyer. Within our coverage, Vranken-Pommery Monopole is the player for which we see more of a compelling strategic rationale for acquiring Rémy Cointreau’s business. However, financially Vranken could find it difficult to structure an acquisition. A strong balance sheet gives LVMH more firepower, as the French luxury goods group tries to secure more grape supplies.


Consolidation scenario

Increased consolidation has long been heralded as a key long-term driver of returns for champagne players. Within this context, Rémy Cointreau’s decision to sell its champagne brands could be seen as a trigger for increased corporate activity in the sector and could eventually lead to a more concentrated competitive scenario.

Size is critical for returns As in other industries, size is an important determinant of a company’s ability to export, develop a brand, enhance its product mix, improve efficiency and, therefore, strengthen financial returns. Size enables the champagne houses to support their own distribution network and retain a high proportion of the value added. The larger houses with international reach have greater resources with which to invest in brand development through marketing, along with the ability to charge premium prices and therefore enhance margins. In addition, size would in most cases enable champagne houses to better negotiate their supply contracts, which is critical in an industry characterized by constrained supply and where the wine growers control some 89% of available supply.

Industry fragmentation remains high in champagne The industry remains quite fragmented. In 2009, the top five champagne players (LVMH, Vranken-Pommery Monopole, Lanson BCC, Laurent-Perrier and Rémy Cointreau) controlled only 23% and 27% of total champagne shipments in volume and value, respectively (CIVC figures). These figures compare with the top four cognac players (LVMH, Pernod Ricard, Rémy Cointreau and Fortune Brands) representing 83% of global cognac sales volumes.

The competitive environment is even more fragmented in France, the world’s largest champagne market with approximately 181m bottles sold in 2009 (i.e. 62% of the global champagne market by volume). In the French market, small champagne houses, cooperatives and independent wine growers compete alongside larger champagne houses, enjoying easier access to distribution than in export markets. The higher degree of fragmentation translates into lower average industry prices in France and, typically, into lower margins.

Figure 28: France is a highly competitive market for champagne companies Breakdown of shipments by category of player % of volumes controlled by the 5 top players

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France ExportsChampagne houses Wine grow ers Cooperatives

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US UK EU Other France

5 top players as % total market vo lumes



Figure 29: Export markets are more profitable – among the larger champagne producers Rémy is the exception that confirms the rule Latest available data

Centre Vinico le de la Champagne

G.H. M artel & Co

Alain Thienot

Roederer

Lanson-BCC

Taittinger

M oët Hennessy

Vranken-Pommery M onopole

Laurent-Perrier

Rémy Cointreau

BollingerPernod Ricard

(10%)

(5%)

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5%

10%

15%

20%

25%

30%

35%

40%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90%

% Sales in Expo rt M arkets


Growing importance of export markets would require larger scale An increasing weight of export markets in terms of growth contribution is in this sense likely to accelerate industry consolidation. Scale and resources are needed to build and/or strengthen a presence in new geographies and this could progressively force some players to combine operations and/or open to larger players.

Supply constraints could be another driver of consolidation The aftermath of the 1990 deregulation of grape prices has, in our view, prompted a change in attitude within the industry. We believe that the volatility in grape prices experienced in the early ‘90s has made champagne houses more aware of the grape growers’ negotiating strength. This is especially true as grapes remain the most important cost of production for a champagne house, representing between 65% and 75% of the total cost of a bottle. Acquisitions could provide a means of securing better supply contracts, and also of improving self-sufficiency ratios (the percentage of grape supplies that come from owned vineyards), and this could prove critical as concerns over supply constraints are likely to resurface in the industry.

Current regulations (under the framework of the Contrôle de Structure) prevent champagne houses from directly purchasing vineyards. For a champagne house, the only way to own more land and, hence, secure more grape supplies, is through acquisitions. This was the rationale behind Laurent-Perrier buying Château Malakoff in 2004 and LVMH acquiring Champagne Montaudon in 2008 (all the assets except for the land, have just been sold to Alliance Champagne).

Figure 30: Vertical integration is limited in champagne Self-sufficiency is defined as the % of grape requirements that come from owned vineyards

Self-sufficiency ratio

Moët Hennessy 28%Pernod Ricard 20%Industry average 20%Vranken Pommery-Monopole 12%Laurent Perrier 11%Rémy Cointreau 6%



Previous downturns have eventually led to consolidation waves It is interesting to look back in time at previous economic recessions in champagne. A dangerous combination of falling demand, high levels of debt and rising grape prices, prompted, in the aftermath of both the 1991 and 2001 crises, an urgent need for restructuring. In both cases, industry restructuring resulted in waves of corporate activity, as shown in the chart below. We believe this pattern may be just about to repeat again following the recent global economic recession.

Figure 31: Previous crises have accelerated the pace of industry consolidation Herfindahl index

0.02

0.04

0.06

0.08

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0.12

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0.16

1960

1963

1965

1968

1970

1973

1975

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1985

1988

1990

1993

1995

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2002

Herf indahl Index

Oil crisisOil crisis

'90s recession

Source: Joint paper from Essec Business School and University of Quebec.


Renewed interest in champagne assets

Within an industry that remains fragmented, Rémy Cointreau’s decision to sell its champagne assets could trigger further corporate activity in the sector. Just after Rémy’s announcement, LVMH announced on 1 December 2010 that it has entered an agreement with the cooperative Aliance Champagne for the sale of its Montaudon business (acquired in late 2008). Interestingly, we note that previous recessions have ultimately led to more consolidation in champagne.

While we see it as premature at this stage to call for further M&A activity in the coming months, we nevertheless believe that renewed interest in the space could result in a revaluation of champagne assets for those companies that could be perceived as potential takeover candidates. As we have shown in the previous section, the current market value of Rémy Cointreau does not fully capture the intrinsic value of its champagne unit in a take-over scenario yet.

Among the listed champagne players, we see Laurent-Perrier as a name which could benefit from the current fizzling state of the industry. Also the champagne business of Pernod Ricard (Mumm and Perrier Jouët brands) could attract interest. Within Pernod’s wine & spirits portfolio, champagne has not received over the last few years as much focus as other areas of the business, like cognac, Scotch and vodka. The group’s focus on de-leveraging suggests that it could eventually consider a disposal of the champagne business as an option to further reduce financial leverage.

Laurent-Perrier is an attractive asset in champagne

A niche player with valuable assets Over the years, Laurent-Perrier has been refocusing its business around its premium portfolio. A value-oriented approach has resulted in the group increasingly positioning itself within the industry as more of a niche player. The group generates c.50% of its sales volumes from its flagship brand Laurent-Perrier. The medium-term target is to increase the contribution of the Laurent-Perrier brand to 2/3 of group volumes.

In FY08, at the peak of the premiumisation trend, the “haute-de-gamme” range represented as much as 39.5% of the turnover of the Laurent-Perrier brand. This makes the group one of the best positioned in the industry in terms of brand equity. In particular, Laurent-Perrier’s brand equity is strong in the rosé category, where its Cuvée Rosé Brut is perceived as one of the best, if not the best, brands. Laurent-Perrier boasts a unique technique for the production of its champagne rosé, which gives the group a competitive advantage in this category.


Figure 32: Reshaping its business around its premium portfolio Premium sales as % Laurent-Perrier brand

36.2%

34.0%33.0%

29.5%31.1%

35.3%36.2% 36.5%

39.5%

37.5%

35.0%

25.0%

27.0%

29.0%

31.0%

33.0%

35.0%

37.0%

39.0%

41.0%

FY99

/00

FY00

/01

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/02

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/03

FY03

/04

FY04

/05

FY05

/06

FY06

/07

FY07

/08

FY08

/09

FY09

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Source: Company data

Figure 33: Laurent-Perrier enjoys good brand equity in rosé, an important category in export markets Laurent-Perrier’s brand portfolio % of shipments by category in export markets

Salon

Grand

Cuvée Rosé Brut

Brut M illésimé, Ultra Brut

Brut L-P

Vicomte de Castellane Delamotte

Jeanmarie, Oudinot, Beaumet

Laurent- Perrier

Retail Price EUR bottle)

10

15

20

30

50

100

150

Brut non millesimé

85%

Rosés8%

Demi-sec2%

Others0%

Millésimés2%

Cuvées de prestige

3%

Source: CIVC, Exane BNP Paribas estimates

Beyond its brands, the group has valuable inventories (c. 60m bottles in its caves, i.e. five years of sales in inventories) and vineyards (150ha of land and contractual agreements covering an area of c.1,300ha).

Looking at previous representative deals in the industry, we believe that, in the event of a takeover, the Laurent-Perrier could attain at least an EV/Sales multiple of 5.5x, i.e. an implied price per share of EUR131. This compares with Krug having been sold at 9x EV/Sales (to LVMH in 1999), Taittinger at an EV/Sales multiple of 7x (re-acquired by the family from Starwood Capital in 2006) and Mumm/Perrier Jouët at 4x EV/Sales (part of the Allied Domecq acquisition).


A family-owned business which has recently undergone management changes The Laurent-Perrier group is controlled by the de Nonancourt family. The family owns 56.7% of the capital and 69% of the voting rights (according to the FY09/10 annual report). The family has always denied it has any intention of selling and has regularly stated its desire to remain independent. However, the recent death of Bernard de Nonancourt, honorary chairman of Laurent-Perrier, has left the group without the main driving force behind Laurent-Perrier’s development to become the No. 4 player in the industry. Mr de Nonancourt’s two daughters, Alexandra and Stéphanie, sit on the board.

Figure 34: Shareholders Structure as of March 31 2010 Laurent-Perrier’s breakdown of share capital Breakdown of voting rights

Family de Nonancourt

57.0%

Free float33.2%

Treasury shares1.3%

Employee fund0.3%

Inst. investors8.1%

Family de Nonancourt

67.3%

Free float21.8%

Inst. investors10.5%

Employee fund0.4%

Source: Company data

In May this year Mr Stéphane Tsassis left his role as the group’s CEO, after only 18 months with the company. The role has now been taken by Michel Boulaire, 62 years old, whose background includes several positions in the Wines & Spirits industry. His responsibilities have been clearly delineated to help the group through this period of transition. He will be working alongside Etienne Auriau, the group’s CFO.

Revaluation of champagne assets offers support; upgrade to Neutral As discussed above, we believe that Rémy’s decision to dispose of its P&C-Heidsieck business is likely to reignite interest in champagne assets, in particular for those names that could have some takeover appeal. Within the universe of listed champagne houses, a group like Laurent-Perrier screens as a highly attractive one by virtue of its good brands and valuable assets.

We see this renewed interest as a support for the share price, and we upgrade Laurent-Perrier to Neutral from Underperform. We increase our net asset based target price to EUR75 from previous EUR66 due to a re-assessment of the value of the group’s brands.

In connection with the 1H FY2010/11 results (released on December 1 2010), the group did indeed re-affirmed its strong commitment to a value strategy. Medium-term target is to grow the Laurent-Perrier brand to represent c. 2/3 of the group’s volumes (currently close to 50%). Secured supply of high-quality grapes and continued brand investments will be at the heart of this renewed focus on growing the Laurent-Perrier brand’s franchise. As we reflect in our estimates we incorporate a higher price-mix element in our forecast period (slightly at the expense of volume growth), and we also update our base assumptions for our brand valuation. We now assume a higher sale price for Laurent-Perrier’s brand portfolio (EUR15.5 vs. previous EUR14) which implies a brand valuation of EUR106m. For details on our earnings revision following the publication of 1H FY2010/11 results, please see the Appendix.


Figure 35: Our base valuation of Laurent-Perrier’s assets is EUR75 per share EUR m

Bottles (million) 60Valuation per bottle (EUR per bottle) 8Inventory valuation (EUR m) 480 Ha under group ownership (ha) 150Value per ha (EUR m) 0.9Land valuation (EUR m) 135 Other assets (EUR m at book value) 46Debt (m EUR) 323Minorities 3 Net asset valuation (EUR m) 335 Brand valuation Average manufacturing price of LP's champagne brands (EUR) 15.5Average private label selling price (EUR) 10Additional A&P and COGS per bottle (EUR) 3.4Tax (@ 33%) 0.7Excess per bottle (EUR) 1.4Volume sold (millon bottles) 11.0Total annual premium for brand (EUR m) 15NPV (EUR m) 106 Net asset valuation (EUR m) 335Brand valuation (EUR m) 106Net asset-based valuation for Laurent-Perrier (EUR m) 442 Number of shares (m) 5.9 Net asset-based valuation for Laurent-Perrier per share (EUR) 75

Source: Exane BNP Paribas estimates.

Valuation The stock is not cheap trading at 25.8x and 19.3x 2011e and 2012e calendarised earnings, respectively. However, as we see price-mix improving and operating leverage kicking in, the earnings growth profile of the group is rapidly improving. We estimate earnings to grow at a CAGR +32% between 2010 and 2014e. Due to the high leverage of the group (8.3x 2011e net debt/EBITDA), we do point out that our earnings estimates are highly sensitive to interest rate assumptions, though.

Figure 36: Laurent-Perrier’s valuation and earnings profile

6.0x

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Aug-99 Aug-00 Aug-01 Aug-02 Aug-03 Aug-04 Aug-05 Aug-06 Aug-07 Aug-08 Aug-09 Aug-10 Aug-11

12m P/E

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A review of current industry trends

A time to rebuild champagne The champagne industry took a hit in 2008 and 2009. According to the CIVC, shipments declined by 4.8% in 2008 and by 9% in 2009. The fall in shipments in 2009 was somewhat limited by 1) France’s resilience (down only 4% over the past two years compared with a 25% decline in export shipments) and 2) promotional and pricing activities.

Industry news flow has improved significantly in 2010. CIVC’s figures for monthly shipments so far highlight +14% y/y growth in volumes (as of September). Statistics show a sharp rebound in Europe (+24%) and RoW (+37%), with more moderate growth in France (+5%). Among export markets, the UK and Germany appear to have returned to growth, as have the US and Duty Free (the latter has been helped by a recovery in passenger travel).

Figure 37: Export markets have been driving the rebound in champagne shipments Global champagne shipments (y/y % chg) Shipments by region (y/y % chg, 9 months to Sept. 2010)

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Source: CIVC

Figure 38: Most markets are in recovery mode Y/y change in champagne shipments

(40%) (30%) (20%) (10%) 0% 10% 20% 30%

Other

Switzerland

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Change 2009 vs 2008 Change 1H 2010 vs 1H 2009

Source: CIVC


On a two-year basis, however, absolute champagne volumes remain below the 2008 level (by c.5%). We note that in previous recessions it took 4-6 years for shipments to recover to pre-crisis levels.

Figure 39: It takes time for volumes to recover to pre-crisis levels Cumulative champagne shipments (mn 75cl bottles) Champagne shipments (mn 75cl bottles)

140

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210

Jan. - Sept. 2007 Jan. - Sept. 2008 Jan. - Sept. 2009 Jan. - Sept. 2010

100

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Source: CIVC.

Is this just a technical rebound? Most champagne houses have reported strong sales figures in the nine months to September, up in the double digits. But how much of this growth is due to restocking and at what level is end-consumer demand running are the key questions.

It is difficult to assess how underlying consumption has developed. In France, for instance, Pernod Ricard has cited off-trade figures for the French market (as tracked by AC Nielsen) up by +1%, with some improvements starting to become visible in the on-premise channel as well. This compares with shipments data up by +5%.

Figure 40: Shipments should start to reflect underlying consumption

200

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1997

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Consumption (mn bottles) (LHS) Shipments (mn bottles) (LHS)Inventories (indexed to 100 in 1997) (RHS)

Source: Exane BNP Paribas estimates. Note: Movement in inventory levels is determined by calculating the differential between shipments and depletions. Changes in inventory levels have been indexed to 100 in 1997.


De-stocking across markets throughout 2009 left distributors and retailers running on lower inventory levels compared to the historical average (3-4 months vs. 6-8 months). Hence, the strong sales figures reported YTD have been to a large extent reflecting inventory replenishments. In a recent interview (Source: L’Union Champagne Ardenne Picardie, 16 November 2010), Dominique Pierre, the director of Nicolas Feuillatte (a brand which has been developed by CV-CNF, a farmers’ cooperative), confirmed that the rebound in champagne shipments has been somewhat hiding the re-stocking dynamics taking place in the market. “There has been a technical replenishment of channels. In 2009, inventories had been depleted, hence a restocking was needed,” he said.

Q4 will reveal the true situation As we approach the end of the year, and we get into the important trading weeks around the holiday season, stock levels across distribution channels should now be close to normal levels. This belief was confirmed by LVMH at its Q3 10 conference call. The luxury goods group sounded quite upbeat about consumer trends across markets, saying: “At this point in the year, we have nine months of improving trend in champagne. We thought that only the Q1 would be very strong and after that we would come back to slow sell-in figures. It’s been consistently higher than our expectations for quite some time. So, we think that we have a real pick-up in demand. Nevertheless, you know that the fourth quarter of the year is the most important one, so we definitely need to see what happens at the end of the year to get a better assessment of the champagne demand situation.”

Figure 41: Recent outlook comments from the major champagne players

Laurent-Perrier Outlook comment at 1H 2011 results (December 1 2010)

"While results for 1H show encouraging recovery signs, growth in 1H cannot be extrapolated to project performance for the rest of the year due to a less favourable comparative base in 2H. It is worth keeping in mind that last year 2H sales had already grown by more than 10%, with volumes up

+26.5%."

Lanson-BCC Outlook comment at 9M 2010 sales (Nov. 4 2010)

"The fourth quarter of 2009 saw a clear upturn in sales. An equivalent fourth quarter in 2010 could, despite the increase in the cost of bottles sold this year and the disruption to transport in October,

enable the Lanson-BCC Group to end 2010 with a better performance than in 2009".

Vranken-Pommery Monopole

Outlook comment at 9M 2010 sales (Oct. 21 2010)

"The decision on 19 July 2010 by Interprofession de la Champagne to only release 10,500kg/ha from the 2010 harvest onto the grape market rather than the traditional 14,000kg, will make it possible to curb downward pressure on the price-mix and progressively set Champagne back on to the path to

value creation."

Pernod Ricard Comment at 1Q 2011 sales (Oct. 21 2010)

In relation to Perrier-Jouët: "Shipments were up because we have some anticipation of Christmas and New Year's orders from clients."

LVMH Outlook comment at 9M 2010 sales (Oct. 14 2010)

"We think that we have a real pick-up in demand. Nevertheless, you know that the fourth quarter of the year is the most important one, so we definitely need to see what happens at the end of the year

to get a better assessment of the champagne demand situation."

Source: Companies’ press releases, Bloomberg.

We would however highlight that the comparative base in Q4 this year is less favourable, as in 2009 shipments returned to growth in November, and Christmas sales came as a positive surprise, partly helped by intense promotional activities in off-premises. As shipments should now increasingly be mirroring depletions, we would caution about projecting the high growth rates seen so far, especially as the consumer environment remains fragile in our view. With austerity measures pending on consumers in important champagne markets like France, the UK, Italy and Belgium, the outlook for 2011 remains uncertain. We believe re-stocking has largely run its course.


Figure 42: Champagne consumption remains skewed to developed Western markets Top champagne markets by volume (2009) Top champagne markets by value (2009)

France 62%

UK10%

Japan2%

Italy2%

Belgium3%

Germany4%

Other13%

US4%

France56%US

6%

Other14%

Germany4%

Italy4%

Belgium3%

Japan2%

UK11%


As a more positive note for the industry, it is worth keeping in mind that in markets like the UK and the US, champagne consumption remains quite an urban phenomenon. We would say that so far the consumer environment in big cities like London and New York has remained quite supportive based on company contacts.

The strong are getting stronger? In export markets, data on volumes by brand released by Impact Databank has shown that LVMH’s two key champagne brands, Moët et Chandon and Veuve Cliquot, have consolidated their dominant position throughout the downturn.

Figure 43: Moët et Chandon and Veuve Clicquot have gained share in exports Volume share by champagne brand outside France

Brand Company 2006 2007 2008 2009

Moët et Chandon LVMH 21.1% 20.6% 20.8% 22.4%Veuve Clicquot LVMH 10.2% 10.0% 10.0% 10.9%Laurent-Perrier Laurent-Perrier 4.1% 4.1% 3.3% 3.5%Piper-Heidsieck Rémy Cointreau 4.3% 4.3% 4.4% 3.4%Mumm Pernod Ricard 3.2% 3.0% 3.3% 3.2%Lanson Lanson-BCC 2.5% 2.5% 2.4% 2.7%Pommery Vranken-Pommery Monopole 2.8% 2.0% 2.1% 2.6%Nicolas Feuillatte Centre Vinicole de la Champagne 2.6% 2.7% 2.7% 2.4%Taittinger Taittinger 2.3% 2.2% 2.1% 2.1%Perrier-Jouet Pernod Ricard 1.7% 1.6% 1.6% 1.8%

Source: Impact Databank, Exane BNP Paribas estimates.

Although no published statistics are available for market shares by player for this year, our impression is that this positive trend for LVMH has continued in 2010 and that the French luxury goods group has benefited more than peers from the strong rebound in export shipments (LVMH generates c.85% of its champagne sales in export markets). When compared to other champagne houses, the strong sales figures reported by LVMH (+22% organic growth over 9M 10, +20% in Q3 10 with a flat price-mix) suggest significant market share gains YTD.


Figure 44: LVMH has outperformed peers YTD Quarterly organic sales by company

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30%

40%

1Q 2008 2Q 2008 3Q 2008 4Q 2008 1Q 2009 2Q 2009 3Q 2009 4Q 2009 1Q 2010 2Q 2010 3Q 2010

LVMH (85% sales in exports mkts) Pernod Ricard* (65% sales in exports mkts)

Rémy Cointreau (75% sales in exports mkts) Laurent-Perrier (69% sales in exports mkts)

Source: Companies, Exane BNP Paribas estimates Note : Pernod Ricard’s champagne organic sales have been estimated by weighting the sales of Mumm (60%) and Perrier Jouët (40%).

How is price-mix evolving into the closing weeks of the year? So far we have not seen a significant improvement in the price-mix in champagne. On the mix front, champagne houses have indicated in recent months a return to growth for sales of prestige cuvées and this should be increasingly reflected in better sales mix numbers. However, we would also point out that the high-end segment remains highly reliant on the on-premise, a channel that tends to be highly correlated with the macro environment. A sustainable improvement in mix would therefore require consistently supportive macro data points.

As far as pricing is concerned, promotional activities have continued throughout 2010. The phenomenon of highly accessible entry-price bottles (EUR10 a bottle), which unsettled the French market in 2009, has not disappeared and remains in our view a threat to the premium image of champagne. We estimate that the price premium of champagne to potential substitute products (prosecco, cava, etc.) narrowed by 10 percentage points to 20% in 2009.

However, on the positive side, our channel checks have not so far shown any worrying spikes in promotional activities or any data suggesting aggressive price reductions into Christmas. We will monitor this closely over the next two weeks. Our view is that the pricing environment should be slowly improving as the impact of the reduced harvest yields in 2009 and 2010 start to impact the supply/demand balance again.


A more supportive pricing environment in 2011 While we do caution about the consumer environment in some key champagne markets (the UK, France, Belgium and Italy), there are some elements of comfort in the 2011 outlook for champagne sales. A key source of concerns in 2009 and 2010, the pricing environment should improve as early as in 2011. LVMH has already indicated price increases of 2.5% across their champagne portfolio in 2011 (Source: La Lettre de l’Expansion, 22 November 2010).

There are two key factors that should prove supportive to pricing:

Reduced yields in 2009 and 2010 Against a backdrop of excess supply and increased price competitiveness, champagne houses and wine growers agreed to reduce the allowable yields at both the 2009 and 2010 harvests. Yields have been reduced by 22% in 2009 (29% after taking into account the additional 1,200kg/ha which were released in 2008) to 9.700kg/ha and were also kept at below pre-crisis levels in 2010 (10,500kg/ha). Within the 9,700kg/ha yield agreed in 2009, champagne houses were only allowed to bottle 8,000kg/ha of grapes, the remaining 1,700kg/ha being released in October 2010. Assuming an ageing period of 15 months (the minimum ageing period for a non-vintage wine to be granted the AOC appellation in champagne) and on the basis that 33,000ha of land is planted in the region, this means that in Christmas 2011 approximately 124m fewer bottles will be available in the marketplace than there would have been at average yields (12,500kg/ha is the average AOC over the last 10 years). Were consumption to stay around 300m bottles or increase from these levels, the industry could rapidly find itself with demand starting to outstrip supply.

Figure 45: Below-average yields during the last two years

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

2006 2007 2008 2009 2010

Usable Yield (kg/ha) Release (kg/ha) Yield Usable as of October 2010 (kg/ha)

-29%


Figure 46: Under simplistic assumptions, you will have 124m bottles less on the shelves in Christmas 2011 Base case 2009 Differential

AOC Yield (kg/ha) 12500 8000 Surface under production (ha) 33000 33000 Production (kg) 413 264 Production (m 75cl bottles) 344 220 124



Grape prices still on their way up Prices of grapes have proven relatively resilient throughout the downturn. Whereas AOC yields have been revised downwards, grape prices have not fallen. Hence, expectations of potential input cost deflation to be visible in the P&Ls in 2011e and 2012e (ageing results in a longer production cycle than other alcoholic beverages like vodka or beer) are not likely to materialise. We expect champagne houses to report grape costs up close to +3% in 2010e, slightly moderating (to +2% on average) in 2011e. Continued COGS inflation, with higher freight costs also contributing, will require champagne houses to increase prices to avoid further dilution on gross margins (following the significant margin compression suffered during the crisis and triggered mainly by a negative sales mix).

Price increases in the past have not kept pace with grape inflation We have been looking at the average price of a bottle of champagne over the last 10 years. If we were to exclude 2009, a year that saw significant pricing pressure in the industry, average prices of champagne rose by +1.8% p.a. in the years 1999-2008 (in 2009 prices reduced on average by 8%).

Meanwhile, over the period 1999-2008 grape prices rose steadily by an average of +3.3% p.a. Given the limitations on supply, it is fair to assume that grape price inflation is set to continue. Grapes represent 65%-75% of the cost of a bottle of champagne.

Figure 47: Grape prices have risen steadily over time

7.5

8.5

9.5

10.5

11.5

12.5

13.5

14.5

15.5

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

3.00

3.50

4.00

4.50

5.00

5.50

Price of a 75cl bottle of champagne (EUR current) (LHS)Price of a 75cl bottle of champagne (EUR constant) (LHS)Grape Price (EUR /kg) (RHS)


This data supports our argument about the need for more consolidation in the champagne industry. As things stand at the moment, the industry’s fragmentation leaves the balance of power on the side of the grape growers. For value to be transferred within the supply chain back to the champagne houses, we believe we would need to see increased concentration.


Appendix – Laurent Perrier

Estimates revision post H1 We have updated our estimates following the publication of 1H 10/11 results on 1 December 2010. A favourable comparative base and re-stocking across key export markets drove strong sales growth (+22% organically) during the six months to September (March year-end). Strong growth of the Laurent-Perrier brand (volumes up in the double-digits) and, within this, of prestige cuvees helped reduce the negative price-mix effect throughout the period (-24% in 1Q, -8% in Q2).

However, and as we had cautioned against, a sustained recovery in the price-mix is needed for operating leverage to kick in for these companies. Subdued price-mix and higher grape costs have continued to weigh on profitability in H1 and the group reported gross margins contracting by over 700bp from 55% to 48% of sales. A focus on cost containment (despite continued brand investments) limited the margin decline at the operating profit level and EBIT margins only contracted from 13.8% to 12.3% in H1.

The comparative base for volumes will now become more demanding for the group, as was flagged at the H1 presentation and as we have previously highlighted. However, we see the price-mix progressively improving, as the pricing environment is expected to become more supportive and the group continues to invest in its Laurent-Perrier brand. As we reflect a higher element of the price-mix in the forecasted period (partly offset by higher grape costs, though), our EPS estimates are upgraded by 9% and by 8% in FY11e and FY12e, respectively.

Figure 48: New vs. old estimates March year-end

FY2011e FY2012e £m Old New % chge Old New % chge

Sales 181 202 11.2% 197 218 10.7% EBITDA 35 39 10.3% 46 51 10.7% Operating profit 31 34 9.5% 41 46 10.6% Net interest -11 -11 5.9% -13 -14 9.8% PBT - pre-exceptionals 21 23 11.4% 29 32 11.0% Tax -7 -8 16.2% -10 -12 15.9% Diluted EPS - pre-exceptionals 2.27 2.47 8.8% 3.18 3.45 8.5%



Appendix - Vranken-Pommery Monopole

Earnings revision We update our estimates for Vranken-Pommery Monopole. We increase our 2010e EPS forecasts by 14% to EUR2.29, mainly as we now expect slightly more benign grape cost inflation for the year (+3.0% vs. +3.5% previously). The high leverage of the group amplifies the impact of our change in assumptions at the EPS level. Beyond 2010e however we increase our assumptions for grape cost inflation (we now look for +2% on average). In 2011e, a stronger price-mix offsets our higher COGS expectations.

Figure 49: New vs. old estimates December year-end

FY2010e FY2011e FY2012e£m Old New % chge Old New % chge Old New % chge

Sales 348 352 1.1% 364 372 2.3% 383 394 2.8% Gross profit 103 106 2.8% 114 115 0.7% 128 127 -0.3% EBITDA 55 58 5.5% 64 66 2.0% 76 77 0.7% Operating profit 43 46 6.7% 52 53 1.9% 64 63 -1.5% Net interest -23 -23 -0.2% -25 -25 0.9% -24 -25 3.0% PBT - pre-exceptionals 20 23 14.6% 27 27 2.8% 40 38 -4.3% Tax -6 -7 14.6% -9 -9 2.8% -13 -13 -5.7% Diluted EPS - pre-exceptionals 2.02 2.29 13.7% 2.61 2.66 2.0% 3.88 3.71 -4.3%



Analyst location As per contact details, analysts are based in the following locations: London, UK for telephone numbers commencing +44; Paris, France +33; Brussels, Belgium +32; Frankfurt, Germany +49; Geneva, Switzerland +41; Madrid, Spain +34; Milan, Italy +39; New York, USA +1; Singapore +65; Zurich, Switzerland +41 Rating definitions Stock Rating (vs Sector) Outperform: The stock is expected to outperform the industry large-cap coverage universe over a 12-month investment horizon. Neutral: The stock is expected to perform in line with the industry large-cap coverage universe over a 12-month investment horizon. Underperform: The stock is expected to underperform the industry large-cap coverage universe over a 12-month investment horizon. Sector Rating (vs Market) Outperform: The sector is expected to outperform the DJ STOXX50 over a 12-month investment horizon. Neutral: The sector is expected to perform in line with the DJ STOXX50 over a 12-month investment horizon. Underperform: The sector is expected to underperform the DJ STOXX50 over a 12-month investment horizon. Key ideas BUY: The stock is expected to deliver an absolute return in excess of 30% over the next two years. Exane BNP Paribas’ Key Ideas Buy List comprises selected stocks that meet this criterion. Distribution of Exane BNP Paribas’ equity recommendations As at 04/10/2010 Exane BNP Paribas covered 577 stocks. The stocks that, for regulatory reasons, are not accorded a rating by Exane BNP Paribas are excluded from these statistics. For regulatory reasons, our ratings of Outperform, Neutral and Underperform correspond respectively to Buy, Hold and Sell; the underlying signification is, however, different as our ratings are relative to the sector. 42% of stocks covered by Exane BNP Paribas were rated Outperform. During the last 12 months, Exane acted as distributor for BNP Paribas on the 3% of stocks with this rating for which BNP Paribas acted as manager or co-manager on a public offering. BNP Paribas provided investment banking services to 9% of the companies accorded this rating*. 38% of stocks covered by Exane BNP Paribas were rated Neutral. During the last 12 months, Exane acted as distributor for BNP Paribas on the 0% of stocks with this rating for which BNP Paribas acted as manager or co-manager on a public offering. BNP Paribas provided investment banking services to 5% of the companies accorded this rating*. 20% of stocks covered by Exane BNP Paribas were rated Underperform. During the last 12 months, Exane acted as distributor for BNP Paribas on the 1% of stocks with this rating for which BNP Paribas acted as manager or co-manager on a public offering. BNP Paribas provided investment banking services to 3% of the companies accorded this rating*. * Exane is independent from BNP Paribas. Nevertheless, in order to maintain absolute transparency, we include in this category transactions carried out by BNP Paribas independently from Exane. For the purpose of clarity, we have excluded fixed income transactions carried out by BNP Paribas.

Commitment of transparency on potential conflicts of interest Complete disclosures, please see www.exane.com/compliance

Exane Pursuant to Directive 2003/125/CE and NASD Rule 2711(h)

Unless specified, Exane is unaware of significant conflicts of interest with companies mentioned in this report.

Source: Exane See www.exane.com/disclosureequitiesuk for details

BNP Paribas Exane is independent of BNP Paribas (BNPP) and the agreement between the two companies is structured to guarantee the independence of Exane's research, published under the brand name “Exane BNP Paribas”. Nevertheless, to respect a principle of transparency, we separately identify potential conflicts of interest with BNPP regarding the company/(ies) covered by this research document. Potential conflicts of interest: Pernod Ricard: As of 30/11/2010 BNPP owns 1,11% of PERNOD-RICARD SA

Source: BNP Paribas


Funding Analysis Diageo plcGross cash position at 30 Jun. 09 914GBPm Jun. 10 Jun. 11 Jun. 12 Jun. 13 Jun. 14FCF 2,174 1,980 2,166 2,306 2,551Gross debt reimbursements ¹ (453) (301) (1,185) (818) (1,894)New funds (debt, capital, divestment) 1Other cash outflows (acquisitions etc) (206)Dividend base case (1,021) (1,127) (1,200) (1,270) (1,345)Share buybacks 85 0 0 0 0

SURPLUS/(SHORTFALL)Annual 1,494 552 (219) 217 (688)Cumulative 1,494 2,046 1,827 2,045 1,356Annual if div is 0 from Jun. 10 na 1,679 981 1,488 657Cumulative if div is 0 from Jun. 10 na 3,173 4,154 5,641 6,298

Available credit lines

Covenant(s):

None ² 6.0x 7.1x 7.3x 9.3x 12.7xMinimum None threshold% change to breach covenants

No covenant details available on the short and long-term borrowings. Committed bank facilities are subject to a minimum interest cover of 2x

► At the end of 2008/09 (June 2009), the group had net debt of GBP7.7bn, or 2.7xEBITDA. This ratio is expected to decrease to below 2x by the end of 2010/11e,despite paying the group's healthy GBP1bn+ forecast dividend payment. On ournumbers, Diageo does not appear to be in any urgent need of refinancing, particularlyafter the suspension of its share buyback programme in early 2009. (Commentupdated on 25 Jan. 10)

¹ Gross debt reimbursement post Jun.14: GBP3,924m² Ratio based on our estimates

Laurent-PerrierGross cash position at 31 Mar. 10 5EURm Mar. 11 Mar. 12 Mar. 13 Mar. 14FCF 9 5 6 11Gross debt reimbursements ¹ (10) (10) (10) (10)New funds (debt, capital, divestment)Other cash outflows (acquisitions etc)Dividend base case (4) (4) (5) (7)Share buybacks 0 0 0 0

SURPLUS/(SHORTFALL)Annual 1 (9) (9) (5)Cumulative 1 (8) (17) (22)Annual if div is 0 na (5) (3) 2Cumulative if div is 0 na (4) (7) (5)


No covenant details available

► The group remains highly leveraged, with an estimated 2011e net debt/EBITDAratio at 8.6x. However, out of the group's total gross debt 2/3 relates to credit lineswhich are pledged against stocks and which relate to the cost of laying down stockover the production cycle. The remaining part of the debt mainly relates to theChateau Malakoff's financing and this was refinanced in 2008. (Comment updated on 07 Sep. 10)

¹ Gross debt reimbursement post Mar.14: EUR294m

Pernod RicardGross cash position at 30 Jun. 09 520EURm Jun. 10 Jun. 11 Jun. 12 Jun. 13 Jun. 14FCF 1,146 849 973 1,125 1,252Gross debt reimbursements ¹ 0 (1,000) (1,700) (200) (7,200)New funds (debt, capital, divestment) 1,221Other cash outflows (acquisitions etc) 0Dividend base case (136) (354) (357) (360) (396)Share buybacks

SURPLUS/(SHORTFALL)Annual 2,751 (504) (1,084) 564 (6,344)Cumulative 2,751 2,247 1,163 1,727 (4,617)Annual if div is 0 from Jun. 10 na (151) (727) 925 (5,948)Cumulative if div is 0 from Jun. 10 na 2,600 1,873 2,798 (3,150)


Covenant(s):

None ² 5.3x 4.4x 4.0x 3.4x 2.9xMinimum None threshold 1,693 1,663% change to breach covenants (13%) (19%)

Coverage ratio (i.e. consolidated EBITDA/consolidated net financial expenses) and solvency ratio (i.e. total consolidated net debt/consolidated EBITDA) tested each half-year end. The solvency ratio must be less than or equal to 6.25x at 31 June 2010 and less or equal to 5.50x at 31 June 2011.

► Following the EUR5.6bn acquisition of V&S, Pernod Ricard ended 2008/09 withnet debt of EUR11.1bn and a net debt/EBITDA ratio of 5.4x. Over the last 18 monthsthe group announced a EUR1bn rights issue (April 2009), a 6-year EUR800m bond(May 2009), EUR800m of asset disposals and a 6-year EUR1,200m bond (March2010). Going forward, there now appears to be little refinancing risk until July 2013, bywhich time the net debt/EBITDA ratio is expected to be around 3x. There are no covenant details available going forward - the group comfortably stayedwithin its covenant limits as at June 2009. (Comment updated on 07 Sep. 10)

¹ Gross debt reimbursement post Jun.14: EUR1,308m² Ratio based on our estimates

Rémy CointreauGross cash position at 31 Mar. 10 86EURm Mar. 11 Mar. 12 Mar. 13 Mar. 14FCF 93 86 149 154Gross debt reimbursements ¹ (50) (1) (345)New funds (debt, capital, divestment) 154Other cash outflows (acquisitions etc) 0Dividend base case (63) (69) (72) (74)Share buybacks

SURPLUS/(SHORTFALL)Annual 220 15 (268) 79Cumulative 220 235 (33) 47Annual if div is 0 na 84 (196) 154Cumulative if div is 0 na 304 108 262

Available credit lines 210

Covenant(s):

Net Debt / EBITDA ² 2.4x 1.9x 1.3x 0.9xMinimum EBITDA threshold 135 131 109 86% change to breach covenants (32%) (45%) (62%) (74%)

Net debt/EBITDA must be less than 3.5x in order to comply with terms of DA

► The group financial position looks strong after the announced EUR140m privateplacement and EUR200m bond issuance in June. Funds from the latter have beenused to redeem outstanding 2012 notes, effectively extending refinancing maturities.(Comment updated on 07 Sep. 10)

¹ Gross debt reimbursement post Mar.14: EUR345m² Ratio based on our estimates


Vranken-Pommery MonopoleGross cash position at 31 Dec. 09 5EURm Dec. 10 Dec. 11 Dec. 12 Dec. 13 Dec. 14FCF 17 13 12 12 14Gross debt reimbursements ¹ (77) (77) (362) (9) (9)New funds (debt, capital, divestment)Other cash outflows (acquisitions etc)Dividend base case (8) (8) (8) (9) (10)Share buybacks

SURPLUS/(SHORTFALL)Annual (62) (71) (359) (6) (5)Cumulative (62) (134) (492) (498) (503)Annual if div is 0 from Dec. 10 na (63) (350) 4 5Cumulative if div is 0 from Dec. 10 na (125) (475) (472) (466)


No covenant details available

► During the year the group has successfully refinanced a maturing debt facility forEUR350m. This is rolling debt which relates to the cost of laying down stock. Althoughwe see no reason to believe that this debt would not continue to be rolled over, wehave included its maturity in 2012e. (Comment updated on 07 Sep. 10)

¹ Gross debt reimbursement post Dec.14: EUR43m



Price at 06 Dec. 10 / Target Price1,142p / 1,205p +6%

Analyst: Javier Gonzalez Lastra (+44) 207 039 9431 Distillers & Vintners | Beverages (Outperform) - United KingdomCompany Highlights GBPm / EURmEnterprise value 36,424 / 43,012 Market capitalisation 28,390 / 33,526 Free float 28,390 / 33,526 3m average volume 48 / 57 Performance (*) 1m 3m 12mAbsolute (2%) 3% 8%Rel. Sector NC NC NCRel. DJ STOXX50 2% 1% 10%12m Hi/Lo : 1,193p -4% / 1,000p +14%CAGR 1998/2009 2009/2013EPS restated (**) 8% 9%CFPS 9% 10%Price (yearly avg from Jun. 01 to Jun. 10) 674.2 784.8 701.4 705.8 739.4 851.2 992.7 1 039.1 890.6 1 027.5 1 142.0 1 142.0 1 142.0 1 142.0PER SHARE DATA (p) Jun. 01 Jun. 02 Jun. 03 Jun. 04 Jun. 05 Jun. 06 Jun. 07 Jun. 08 Jun. 09 Jun. 10p Jun. 11e Jun. 12e Jun. 13e Jun. 14eNo of shares year end, basic, (m) 3 411.000 3 214.900 3 099.600 3 057.500 2 964.400 2 799.000 2 640.000 2 509.000 2 499.600 2 486.000 2 486.000 2 486.000 2 486.000 2 486.000Average no of shares, diluted, excl. treasury stocks (m) 3 377.000 3 316.000 3 113.000 3 030.000 2 973.000 2 852.400 2 707.000 2 582.343 2 494.000 2 495.000 2 495.000 2 495.000 2 495.000 2 495.000EPS reported 36 48 2 46 45 67 55 59 65 66 79 85 93 102EPS restated 41 43 48 48 40 50 50 60 64 72 80 84 93 102% change 14.3% 5.7% 9.9% 0.9% (17.7%) 26.8% (0.9%) 20.8% 6.3% 12.1% 11.0% 5.8% 9.9% 9.7%CFPS 52.70 44.05 55.25 56.05 50.78 72.94 56.24 70.41 72.32 78.04 87.39 98.01 106.22 115.89Book value (BVPS) (a) 152.1 186.7 90.4 120.8 150.4 160.8 150.5 139.4 128.9 161.7 200.4 242.3 289.9 343.9Net dividend 22.30 23.80 25.60 27.60 29.55 31.10 32.70 34.35 36.10 38.10 40.39 42.81 45.38 48.10STOCKMARKET RATIOS YEARLY AVERAGE PRICES for end Jun. 01 to Jun. 10 Jun. 06 Jun. 07 Jun. 08 Jun. 09 Jun. 10p Jun. 11e Jun. 12e Jun. 13e Jun. 14eP / E (P/ EPS restated) 16.4x 18.0x 14.7x 14.6x 18.6x 16.9x 19.9x 17.2x 13.9x 14.3x 14.3x 13.5x 12.3x 11.2xP / E relative to DJ STOXX50 81% 75% 66% 92% 133% 128% 179% 158% 104% 126% 136% 146% 146%P / CF 12.8x 17.8x 12.7x 12.6x 14.6x 11.7x 17.7x 14.8x 12.3x 13.2x 13.1x 11.7x 10.8x 9.9xFCF yield 5.7% 3.1% 5.2% 6.4% 5.9% 6.8% 3.9% 4.9% 5.6% 8.0% 6.6% 7.2% 7.7% 8.5%P / BVPS 4.43x 4.20x 7.76x 5.84x 4.92x 5.29x 6.60x 7.45x 6.91x 6.35x 5.70x 4.71x 3.94x 3.32xNet yield 3.3% 3.0% 3.6% 3.9% 4.0% 3.7% 3.3% 3.3% 4.1% 3.7% 3.5% 3.7% 4.0% 4.2%Payout 54.2% 54.7% 53.6% 57.2% 74.5% 61.8% 65.6% 57.0% 56.4% 53.1% 50.7% 50.8% 48.9% 47.3%EV / Sales 2.48x 3.26x 3.56x 3.63x 4.01x 4.00x 4.35x 4.18x 3.34x 3.50x 3.60x 3.40x 3.19x 2.97xEV / Restated EBITDA 11.5x 12.7x 11.3x 11.6x 13.6x 12.9x 13.7x 13.3x 10.8x 11.0x 11.0x 10.2x 9.4x 8.5xEV / Restated EBITA 14.3x 14.9x 12.9x 13.0x 15.5x 14.2x 15.1x 14.7x 11.9x 12.5x 12.3x 11.4x 10.4x 9.4xEV / OpFCF 14.8x 21.0x 16.0x 13.5x 13.7x 14.8x 17.5x 17.6x 14.9x 12.1x 13.0x 11.7x 11.0x 9.9xEV / Capital employed (incl. gross goodwill) 2.5x 3.0x 3.3x 3.6x 3.3x 3.2x 3.8x 3.4x 2.7x 3.1x 3.3x 3.2x 3.0x 2.9xENTERPRISE VALUE (GBPm) 27,168 29,896 25,340 24,260 26,796 29,041 32,552 33,855 31,069 34,260 36,424 35,452 34,416 33,211Market cap 22,766 26,024 21,834 21,384 21,976 24,182 26,683 26,664 22,130 25,543 28,390 28,390 28,390 28,390 + Adjusted net debt 5,794 5,839 5,354 4,150 3,759 4,061 4,782 6,494 7,661 7,311 6,569 5,597 4,562 3,356 + Other liabilities and commitments 653 814 869 1,459 1,996 1,851 1,373 1,532 2,531 2,471 2,471 2,471 2,471 2,471 + Revalued minority interests 1,280 1,392 1,456 1,440 880 912 1,330 1,311 1,446 1,634 1,692 1,692 1,692 1,692 - Revalued investments 3,325 4,173 4,173 4,173 1,815 1,965 1,616 2,146 2,699 2,699 2,699 2,699 2,699 2,699P & L HIGHLIGHTS (GBPm) Switch to IFRS data from FY ended 06/07 Jun. 05 Jun. 06 Jun. 07 Jun. 08 Jun. 09 Jun. 10p Jun. 11e Jun. 12e Jun. 13e Jun. 14eSales 10,963 9,163 7,115 6,682 6,677 7,260 7,481 8,090 9,311 9,780 10,129 10,425 10,789 11,176Restated EBITDA (b) 2,358 2,350 2,244 2,095 1,972 2,258 2,369 2,537 2,889 3,123 3,318 3,486 3,675 3,897Depreciation (459) (338) (285) (222) (241) (214) (210) (233) (276) (372) (355) (365) (356) (369)Restated EBITA (b) (**) 1,899 2,012 1,959 1,873 1,731 2,044 2,159 2,304 2,613 2,751 2,964 3,121 3,319 3,528Reported operating profit (loss) 1,873 1,653 1,787 1,871 1,945 2,201 2,159 2,235 2,443 2,559 2,934 3,121 3,319 3,528Net financial income (charges) (350) (399) (315) (295) (141) (186) (212) (319) (592) (462) (416) (426) (356) (277)Affiliates 199 1,082 (840) 393 194 131 288 203 166 123 170 187 197 207OtherTax (435) (632) (491) (487) (599) (181) (678) (522) (292) (477) (591) (634) (695) (761)Minorities (80) (87) (91) (90) (55) (57) (67) (76) (104) (114) (131) (144) (151) (159)Goodwill amortisation (26) (12) (4) (2) 0 0 - - - - - - - -Net attributable profit reported 1,207 1,617 50 1,392 1,344 1,908 1,490 1,521 1,621 1,629 1,965 2,105 2,313 2,538Net attributable profit restated (c) 1,363 1,430 1,484 1,460 1,180 1,436 1,350 1,556 1,597 1,791 1,989 2,105 2,313 2,538CASH FLOW HIGHLIGHTS (GBPm) Jun. 01 Jun. 02 Jun. 03 Jun. 04 Jun. 05 Jun. 06 Jun. 07 Jun. 08 Jun. 09 Jun. 10p Jun. 11e Jun. 12e Jun. 13e Jun. 14eEBITDA (reported) 2,358 2,003 2,076 2,095 2,186 2,415 2,369 2,468 2,719 2,931 3,288 3,486 3,675 3,897EBITDA adjustment (b) 0 347 168 0 (214) (157) 0 69 170 192 30 0 0 0Other items 0 (217) (47) 39 214 157 0 (69) (210) (384) (167) (17) (17) (17)Change in WCR (84) (125) (227) (13) 89 (192) (180) (282) (282) 334 (10) (103) (162) (153)Operating cash flow 2,274 2,008 1,970 2,121 2,275 2,223 2,189 2,186 2,397 3,073 3,141 3,366 3,495 3,727Capex (439) (585) (382) (327) (316) (257) (330) (262) (313) (231) (334) (344) (356) (369)Operating free cash flow (OpFCF) 1,835 1,423 1,588 1,794 1,959 1,966 1,859 1,924 2,084 2,842 2,807 3,022 3,139 3,358Net financial items + tax paid (476) (584) (372) (331) (606) (252) (771) (561) (758) (668) (827) (856) (834) (807)Free cash flow 1,359 839 1,216 1,463 1,353 1,714 1,088 1,363 1,326 2,174 1,980 2,166 2,306 2,551Net financial investments & acquisitions (135) 1,565 874 (5) 970 586 3 (571) (101) (205) 0 0 0 0Other (427) 60 103 894 (301) (262) 516 (506) (1,032) 0 0 0 0 0Capital increase (decrease) (77) (1,711) (913) (306) (733) (1,436) (1,429) (1,085) (392) 85 0 0 0 0Dividends paid (756) (798) (795) (842) (898) (904) (899) (913) (968) (1,021) (1,127) (1,200) (1,270) (1,345)Increase (decrease) in net financial debt 36 45 (485) (1,204) (391) 302 721 1,712 1,167 (1,033) (853) (966) (1,035) (1,206)Cash flow, group share 1,780 1,461 1,720 1,698 1,510 2,080 1,522 1,818 1,804 1,947 2,180 2,445 2,650 2,891BALANCE SHEET HIGHLIGHTS (GBPm) Jun. 01 Jun. 02 Jun. 03 Jun. 04 Jun. 05 Jun. 06 Jun. 07 Jun. 08 Jun. 09 Jun. 10p Jun. 11e Jun. 12e Jun. 13e Jun. 14eFixed operating assets, incl. gross goodwill 8,900 7,997 6,269 5,998 6,267 6,515 6,342 7,700 8,538 8,602 8,582 8,561 8,561 8,561WCR 1,919 2,047 1,332 769 1,939 2,586 2,322 2,372 2,909 2,575 2,585 2,688 2,850 3,003Capital employed, incl. gross goodwill 10,819 10,044 7,601 6,767 8,206 9,101 8,664 10,072 11,447 11,177 11,167 11,249 11,411 11,564Shareholders' funds, group share 5,187 6,001 2,801 3,692 4,459 4,502 3,972 3,498 3,221 4,021 4,982 6,023 7,208 8,550Minorities 606 555 525 491 167 179 198 677 715 722 730 739 748 758Provisions/ Other liabilities 653 814 2,017 1,459 1,908 1,795 1,313 1,532 2,531 2,518 2,428 2,469 2,514 2,566Net financial debt (cash) 5,794 5,839 5,354 4,150 3,759 4,061 4,782 6,494 7,661 6,628 5,775 4,809 3,773 2,568FINANCIAL RATIOS (%) Jun. 01 Jun. 02 Jun. 03 Jun. 04 Jun. 05 Jun. 06 Jun. 07 Jun. 08 Jun. 09 Jun. 10p Jun. 11e Jun. 12e Jun. 13e Jun. 14eSales (% change) 8.6% (16.4%) (22.4%) (6.1%) (0.1%) 8.7% 3.0% 8.1% 15.1% 5.0% 3.6% 2.9% 3.5% 3.6%Organic sales growth 5.4% 2.3% 4.7% 6.0% 3.7% 6.0% 8.0% 6.5% (0.1%) 1.9% 3.7% 5.1% 5.5% 5.5%Restated EBITA (% change) (**) 5.6% 6.0% (2.6%) (4.4%) (7.6%) 18.1% 5.6% 6.7% 13.4% 5.3% 7.7% 5.3% 6.3% 6.3%Restated attributable net profit (% change) (**) 13.8% 3.8% 3.2% (1.7%) (19.3%) 21.7% (6.0%) 15.3% 2.6% 12.1% 11.0% 5.8% 9.9% 9.7%Personnel costs / Sales 14.6% 14.9% 15.2% 13.5% - - - - - - - - - - Restated EBITDA margin 21.5% 25.6% 31.5% 31.4% 29.5% 31.1% 31.7% 31.4% 31.0% 31.9% 32.8% 33.4% 34.1% 34.9%Restated EBITA margin 17.3% 22.0% 27.5% 28.0% 25.9% 28.2% 28.9% 28.5% 28.1% 28.1% 29.3% 29.9% 30.8% 31.6%Tax rate 24.8% 40.8% 25.4% 24.2% 31.1% 8.4% 32.3% 24.9% 14.5% 21.3% 22.0% 22.0% 22.0% 22.0%Net margin 11.7% 18.6% 2.0% 22.2% 21.0% 27.1% 20.8% 19.7% 18.5% 17.8% 20.7% 21.6% 22.8% 24.1%Capex / Sales 4.0% 6.4% 5.4% 4.9% 4.7% 3.5% 4.4% 3.2% 3.4% 2.4% 3.3% 3.3% 3.3% 3.3%OpFCF / Sales 16.7% 15.5% 22.3% 26.8% 29.3% 27.1% 24.8% 23.8% 22.4% 29.1% 27.7% 29.0% 29.1% 30.0%WCR / Sales 17.5% 22.3% 18.7% 11.5% 29.0% 35.6% 31.0% 29.3% 31.2% 26.3% 25.5% 25.8% 26.4% 26.9%Capital employed (excl. gross goodwill) / Sales 46.5% 50.1% 46.5% 41.1% 58.0% 62.7% 57.0% 55.9% 56.0% 50.6% 48.7% 48.1% 48.0% 47.7%ROE 26.8% 24.0% 53.1% 39.6% 26.5% 31.9% 34.0% 44.5% 49.6% 44.5% 39.9% 34.9% 32.1% 29.7%Gearing 100% 89% 161% 99% 81% 87% 115% 156% 195% 154% 115% 83% 57% 36%EBITDA / Financial charges 6.7x 5.9x 7.1x 7.1x 14.0x 12.1x 11.2x 8.0x 4.9x 6.8x 8.0x 8.2x 10.3x 14.1xAdjusted financial debt / EBITDA 2.5x 2.5x 2.4x 2.0x 1.9x 1.8x 2.0x 2.6x 2.7x 2.3x 2.0x 1.6x 1.2x 0.9xROCE, excl. gross goodwill 28.0% 25.9% 44.2% 51.8% 30.8% 41.1% 34.2% 38.4% 39.0% 43.6% 46.9% 48.5% 50.0% 51.6%ROCE, incl. gross goodwill 13.2% 11.9% 19.2% 21.0% 14.5% 20.6% 16.9% 17.3% 17.8% 19.3% 20.7% 21.6% 22.7% 23.8%WACC 7.4% 7.8% 7.8% 8.0% 8.1% 7.3% 7.1% 7.1% 6.7% 7.7% 8.0% 8.0% 8.0% 8.0%Average number of employees 71,523 62,124 38,955 23,720 22,966 22,619 22,520(a) Intangibles: GBP6,215.00m, or GBP2p per share. (b) adjusted for capital gains/losses, impairment charges, exceptional restructuring charges, capitalized R&D, pension charge replaced by service cost(c) adj.for capital gains losses, imp.charges, capitalized R&D, am. of intangibles from M&A, exceptional restructuring, (*) In listing currency, with div. reinvested, (**) also adjusted for am. of intangibles from M&A, or for am. of gwill for pre IFRS years

Reuters / Bloomberg: DGE.L / DGE LN

DIAGEO PLC (Neutral)

Price 13.8*CFPS Relative to DJ STOXX50 (Pence)364.8

2,000.0

800.0

1,200.0

1,600.0

Target Price


Price at 06 Dec. 10 / Target PriceEUR81.4 / EUR75 -8%

Analyst: Paola Bertini (+44) 207 039 9521 Distillers & Vintners | Beverages (Outperform) - FranceCompany Highlights EURmEnterprise value 812 Market capitalisation 478 Free float 203 3m average volume 0 Performance (*) 1m 3m 12mAbsolute (9%) 18% 58%Rel. Sector NC NC NCRel. DJ STOXX50 (7%) 17% 51%12m Hi/Lo (EUR) : 90.0 -10% / 51.1 +59%CAGR 1999/2010 2010/2013EPS restated (**) (3%) 30%CFPS (2%) 25%Price (yearly avg from Mar. 01 to Mar. 10) 30.4 27.9 30.0 28.7 30.3 44.1 67.6 109.9 72.0 52.0 81.4 81.4 81.4 81.4PER SHARE DATA (EUR) Mar. 01 Mar. 02 Mar. 03 Mar. 04 Mar. 05 Mar. 06 Mar. 07 Mar. 08 Mar. 09 Mar. 10 Mar. 11e Mar. 12e Mar. 13e Mar. 14eNo of shares year end, basic, (m) 5.946 5.946 5.946 5.946 5.787 5.805 5.910 5.895 5.946 5.946 5.876 5.876 5.876 5.876Average no of shares, diluted, excl. treasury stocks (m) 5.946 5.946 5.946 5.946 5.895 5.820 5.970 5.959 5.911 5.898 5.898 5.898 5.898 5.898EPS reported 2.49 2.19 2.12 2.13 2.82 3.87 5.11 5.88 3.23 1.81 2.48 3.46 4.54 5.48EPS restated 2.72 2.30 2.34 2.35 2.76 3.86 5.06 5.81 3.23 1.79 2.47 3.45 4.53 5.46% change (21.8%) (15.2%) 1.4% 0.8% 17.4% 39.6% 31.0% 14.9% (44.4%) (44.8%) 38.6% 39.3% 31.3% 20.5%CFPS 2.51 2.51 3.05 2.94 5.37 4.22 6.28 5.94 3.29 2.67 3.26 4.26 5.40 6.39Book value (BVPS) (a) 17.8 19.2 20.4 21.6 26.2 28.9 33.8 37.4 37.7 38.9 41.1 43.8 47.5 51.8Net dividend 0.67 0.67 0.67 0.67 0.75 1.00 1.30 1.40 0.83 0.69 0.76 0.91 1.14 1.42STOCKMARKET RATIOS YEARLY AVERAGE PRICES for end Mar. 01 to Mar. 10 Mar. 06 Mar. 07 Mar. 08 Mar. 09 Mar. 10 Mar. 11e Mar. 12e Mar. 13e Mar. 14eP / E (P/ EPS restated) 11.2x 12.1x 12.8x 12.2x 10.9x 11.4x 13.4x 18.9x 22.3x 29.1x 32.9x 23.6x 18.0x 14.9xP / E relative to DJ STOXX50 55% 50% 58% 77% 78% 86% 120% 174% 166% 257% 312% 254% 213%P / CF 12.1x 11.1x 9.8x 9.7x 5.6x 10.5x 10.8x 18.5x 21.9x 19.5x 25.0x 19.1x 15.1x 12.7xFCF yield (9.8%) (1.6%) 9.2% (25.3%) (1.6%) (2.4%) 5.8% 0.7% (12.7%) (7.3%) 1.9% 1.0% 1.3% 2.4%P / BVPS 1.71x 1.45x 1.47x 1.33x 1.16x 1.52x 2.00x 2.94x 1.91x 1.34x 1.98x 1.86x 1.71x 1.57xNet yield 2.2% 2.4% 2.2% 2.3% 2.5% 2.3% 1.9% 1.3% 1.2% 1.3% 0.9% 1.1% 1.4% 1.7%Payout 24.5% 28.9% 28.5% 28.3% 27.1% 25.9% 25.7% 24.1% 25.7% 38.6% 30.7% 26.4% 25.1% 26.1%EV / Sales 2.03x 1.90x 1.80x 2.32x 2.16x 2.42x 2.69x 3.61x 4.07x 3.75x 4.03x 3.72x 3.44x 3.20xEV / Restated EBITDA 9.6x 9.2x 9.3x 12.1x 10.6x 11.1x 10.5x 12.9x 15.6x 19.7x 20.8x 16.0x 13.3x 11.5xEV / Restated EBITA 10.2x 10.5x 10.6x 13.8x 11.9x 12.0x 11.2x 13.7x 17.0x 22.6x 23.6x 17.7x 14.5x 12.5xEV / OpFCF NC 25.6x 9.6x NC 34.0x 37.1x 13.8x 23.0x NC NC 28.3x 26.7x 23.0x 18.6xEV / Capital employed (incl. gross goodwill) 1.3x 1.2x 1.2x 1.1x 1.1x 1.2x 1.5x 1.9x 1.4x 1.1x 1.4x 1.4x 1.3x 1.3xENTERPRISE VALUE (EURm) 299 286 294 386 412 504 637 901 738 645 812 812 811 806Market cap 181 166 178 171 178 256 404 655 423 306 478 478 478 478 + Adjusted net debt 117 120 117 218 232 245 229 242 303 328 323 322 321 316 + Other liabilities and commitments 0 0 0 0 5 6 6 6 9 9 9 9 9 9 + Revalued minority interests 1 1 1 1 1 1 2 2 4 3 3 3 3 3 - Revalued investments 1 1 3 4 4 3 3 4 0 0 0 0 0 0P & L HIGHLIGHTS (EURm) Switch to IFRS data from FY ended 03/06 Mar. 05 Mar. 06 Mar. 07 Mar. 08 Mar. 09 Mar. 10 Mar. 11e Mar. 12e Mar. 13e Mar. 14eSales 146.9 150.8 162.8 166.1 191.0 208.1 236.7 249.4 181.3 171.8 201.7 218.5 236.0 251.9Restated EBITDA (b) 31.2 31.2 31.7 31.9 38.9 45.6 60.9 69.9 47.4 32.7 39.0 50.7 61.0 69.9Depreciation (1.8) (3.9) (4.0) (3.8) (4.3) (3.6) (4.2) (4.1) (4.0) (4.1) (4.6) (4.8) (5.2) (5.5)Restated EBITA (b) (**) 29.4 27.3 27.8 28.0 34.7 42.0 56.7 65.8 43.4 28.6 34.4 45.8 55.8 64.3Reported operating profit (loss) 29.4 27.3 27.8 28.0 34.7 42.0 56.7 65.8 43.4 28.6 34.4 45.8 55.8 64.3Net financial income (charges) (7.8) (6.6) (7.0) (6.9) (9.0) (9.0) (10.0) (12.2) (14.1) (11.9) (11.4) (13.9) (13.8) (13.7)Affiliates 0.0 0.0 0.0 (0.2) (0.0) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Other (1.0) (0.4) (1.0) (0.7) 0.0 0.0 0.0 0.0 (0.2) 0.1 0.0 0.0 0.0 0.0Tax (5.7) (7.2) (7.1) (7.5) (9.3) (10.4) (16.4) (18.8) (10.0) (6.0) (8.3) (11.5) (15.1) (18.2)Minorities (0.1) (0.1) (0.1) (0.1) (0.1) (0.1) (0.2) (0.1) (0.1) (0.1) (0.1) (0.1) (0.2) (0.2)Goodwill amortisation (1.0) (0.9) (1.0) (1.3) 0.0 - - - - - - - - -Net attributable profit reported 13.8 12.1 11.6 11.4 16.3 22.5 30.2 34.6 19.0 10.6 14.6 20.3 26.7 32.2Net attributable profit restated (c) 15.2 12.8 12.9 12.7 16.3 22.5 30.2 34.6 19.1 10.5 14.6 20.3 26.7 32.2CASH FLOW HIGHLIGHTS (EURm) Mar. 01 Mar. 02 Mar. 03 Mar. 04 Mar. 05 Mar. 06 Mar. 07 Mar. 08 Mar. 09 Mar. 10 Mar. 11e Mar. 12e Mar. 13e Mar. 14eEBITDA (reported) 31.2 31.2 31.7 31.9 38.9 45.6 60.9 69.9 47.4 32.7 39.0 50.7 61.0 69.9EBITDA adjustment (b) 0.0 0.0 0.0 (0.0) 0.0 (0.0) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Other items (2.7) (2.3) 0.6 0.1 7.9 (1.2) (0.3) (0.1) 0.0 0.0 0.0 0.0 0.0 0.0Change in WCR (29.0) (14.6) 2.7 (17.6) (23.5) (25.1) (9.0) (16.2) (65.0) (34.9) (3.2) (11.5) (16.3) (16.4)Operating cash flow (0.4) 14.3 35.0 14.4 23.3 19.2 51.6 53.6 (17.6) (2.3) 35.8 39.1 44.7 53.5Capex (4.0) (3.1) (4.3) (43.4) (11.2) (5.6) (5.3) (14.5) (8.8) (3.5) (7.1) (8.7) (9.4) (10.1)Operating free cash flow (OpFCF) (4.4) 11.2 30.7 (29.0) 12.1 13.6 46.3 39.2 (26.4) (5.7) 28.7 30.4 35.3 43.4Net financial items + tax paid (13.5) (13.8) (14.1) (14.4) (15.0) (19.7) (22.9) (34.3) (27.8) (16.8) (19.6) (25.4) (28.9) (31.9)Free cash flow (17.9) (2.6) 16.6 (43.4) (2.9) (6.1) 23.4 4.9 (54.2) (22.5) 9.1 5.0 6.3 11.5Net financial investments & acquisitions 0.0 0.0 0.0 0.0 0.7 0.1 (0.9) (2.1) 0.0 0.0 0.0 0.0 0.0 0.0Other 1.0 3.5 (9.6) (53.4) (7.9) (3.7) (3.2) (0.5) 4.2 2.3 0.0 0.0 0.0 0.0Capital increase (decrease) 0.0 0.0 0.0 0.0 0.0 1.7 1.9 (7.3) (2.1) 0.4 0.0 0.0 0.0 0.0Dividends paid (4.0) (4.0) (3.9) (4.2) (3.9) (4.5) (6.0) (7.8) (8.3) (5.3) (4.1) (4.5) (5.4) (6.7)Increase (decrease) in net financial debt 20.9 3.1 (3.1) 101.0 14.0 12.5 (15.2) 12.8 60.4 25.1 (5.0) (0.5) (1.0) (4.8)Cash flow, group share 15 15 18 17 32 25 37 35 19 16 19 25 32 38BALANCE SHEET HIGHLIGHTS (EURm) Mar. 01 Mar. 02 Mar. 03 Mar. 04 Mar. 05 Mar. 06 Mar. 07 Mar. 08 Mar. 09 Mar. 10 Mar. 11e Mar. 12e Mar. 13e Mar. 14eFixed operating assets, incl. gross goodwill 36 35 36 111 136 140 148 164 169 168 170 174 179 183WCR 192 204 205 244 255 280 288 305 365 398 401 413 429 445Capital employed, incl. gross goodwill 228 239 241 355 391 420 436 469 533 566 572 587 608 629Shareholders' funds, group share 106 114 121 129 151 168 199 221 224 231 242 258 279 304Minorities 1 1 1 1 2 2 2 2 2 2 2 2 2 3Provisions/ Other liabilities 5 6 5 11 10 9 8 8 9 9 9 9 9 9Net financial debt (cash) 117 120 117 218 232 245 229 242 303 328 323 322 321 316FINANCIAL RATIOS (%) Mar. 01 Mar. 02 Mar. 03 Mar. 04 Mar. 05 Mar. 06 Mar. 07 Mar. 08 Mar. 09 Mar. 10 Mar. 11e Mar. 12e Mar. 13e Mar. 14eSales (% change) (13.6%) 2.7% 8.0% 2.0% 14.9% 9.0% 13.7% 5.4% (27.3%) (5.2%) 17.4% 8.3% 8.0% 6.7%Organic sales growth 2.7% 7.9% 1.9% 13.8% 9.0% 13.7% 5.4% (25.2%) (4.7%) 15.3% 8.2% 7.8% 7.2%Restated EBITA (% change) (**) (16.9%) (7.1%) 1.6% 1.0% 23.6% 21.2% 35.0% 16.1% (34.1%) (34.1%) 20.2% 33.5% 21.8% 15.2%Restated attributable net profit (% change) (**) (21.8%) (15.2%) 1.4% 0.8% 16.4% 37.9% 34.4% 14.7% (44.8%) (44.9%) 38.6% 39.3% 31.3% 20.5%Personnel costs / Sales 14.9% 14.8% 15.5% 16.1% 17.0% 16.4% 14.2% 14.6% 19.0% 20.2% - - - - Restated EBITDA margin 21.3% 20.7% 19.5% 19.2% 20.4% 21.9% 25.7% 28.0% 26.1% 19.0% 19.3% 23.2% 25.9% 27.7%Restated EBITA margin 20.0% 18.1% 17.0% 16.9% 18.1% 20.2% 23.9% 26.4% 23.9% 16.6% 17.0% 21.0% 23.7% 25.5%Tax rate 27.7% 35.5% 36.0% 36.6% 36.2% 31.6% 35.0% 35.2% 34.4% 36.0% 36.0% 36.0% 36.0% 36.0%Net margin 9.5% 8.1% 7.2% 6.9% 8.6% 10.9% 12.8% 13.9% 10.5% 6.2% 7.3% 9.4% 11.4% 12.9%Capex / Sales 2.7% 2.1% 2.6% 26.1% 5.9% 2.7% 2.2% 5.8% 4.9% 2.0% 3.5% 4.0% 4.0% 4.0%OpFCF / Sales (3.0%) 7.4% 18.9% (17.5%) 6.3% 6.5% 19.6% 15.7% (14.5%) (3.3%) 14.3% 13.9% 15.0% 17.2%WCR / Sales 131.0% 135.3% 126.1% 147.0% 133.6% 134.6% 121.8% 122.3% 201.1% 231.6% 198.9% 188.9% 181.8% 176.8%Capital employed (excl. gross goodwill) / Sales 148.2% 151.9% 142.4% 196.6% 190.3% 188.3% 172.6% 176.4% 276.7% 310.6% 267.5% 254.0% 243.8% 236.7%ROE 15.3% 12.0% 11.5% 10.9% 10.8% 13.4% 15.1% 15.7% 8.5% 4.6% 6.0% 7.9% 9.6% 10.6%Gearing 110% 105% 96% 169% 152% 144% 114% 109% 134% 140% 132% 124% 114% 103%EBITDA / Financial charges 4.0x 4.7x 4.5x 4.6x 4.3x 5.1x 6.1x 5.7x 3.4x 2.7x 3.4x 3.7x 4.4x 5.1xAdjusted financial debt / EBITDA 3.8x 3.9x 3.7x 6.8x 6.0x 5.4x 3.8x 3.5x 6.4x 10.0x 8.3x 6.4x 5.3x 4.5xROCE, excl. gross goodwill 9.8% 7.7% 7.7% 5.4% 6.1% 7.3% 9.0% 9.7% 5.7% 3.4% 4.1% 5.3% 6.2% 6.9%ROCE, incl. gross goodwill 9.3% 7.4% 7.4% 5.0% 5.6% 6.8% 8.4% 9.1% 5.3% 3.2% 3.8% 5.0% 5.9% 6.5%WACC 8.5% 8.9% 8.9% 7.8% 7.9% 7.9% 8.6% 9.2% 6.3% 8.4% 9.6% 9.6% 9.6% 9.6%Average number of employees 384 382 397 482 524 486 470 463 460 456(a) Intangibles: EUR32.24m, or EUR5 per share. (b) adjusted for capital gains/losses, impairment charges, exceptional restructuring charges, capitalized R&D, pension charge replaced by service cost(c) adj.for capital gains losses, imp.charges, capitalized R&D, am. of intangibles from M&A, exceptional restructuring, (*) In listing currency, with div. reinvested, (**) also adjusted for am. of intangibles from M&A, or for am. of gwill for pre IFRS years

Reuters / Bloomberg: LPER.PA / LPE FP

LAURENT-PERRIER (Neutral)

Price 12.9*CFPS Relative to DJ STOXX5018.8

160.0

60.0

100.0

Target Price



Analyst: Javier Gonzalez Lastra (+44) 207 039 9431 Distillers & Vintners | Beverages (Outperform) - FranceCompany Highlights EURmEnterprise value 27,250 Market capitalisation 17,234 Free float 11,868 3m average volume 50 Performance (*) 1m 3m 12mAbsolute 3% 9% 9%Rel. Sector NC NC NCRel. DJ STOXX50 5% 7% 4%12m Hi/Lo (EUR) : 67.5 -4% / 55.3 +18%CAGR 1995/2009 2009/2013EPS restated (**) 9% 10%CFPS 9% 2%Price (yearly avg from Dec. 00 to Jun. 10) 17.8 24.9 29.2 31.1 42.2 57.5 68.5 69.9 47.5 57.7 65.1 65.1 65.1 65.1PER SHARE DATA (EUR) Dec. 00 Dec. 01 Dec. 02 Dec. 03 Jun. 05 Jun. 06 Jun. 07 Jun. 08 Jun. 09 Jun. 10p Jun. 11e Jun. 12e Jun. 13e Jun. 14eNo of shares year end, basic, (m) 169.160 169.160 169.162 169.162 169.162 188.123 219.224 219.683 258.641 264.232 266.114 266.114 266.114 266.114Average no of shares, diluted, excl. treasury stocks (m) 169.160 169.160 169.584 169.792 168.793 210.378 214.983 217.234 236.491 266.114 266.114 266.114 266.114 266.114EPS reported 1.71 1.31 1.51 2.12 2.94 2.31 3.65 3.92 4.03 3.60 4.13 4.51 4.96 5.47EPS restated 1.59 1.83 2.60 2.73 2.95 3.38 3.87 4.13 4.27 3.76 4.13 4.51 4.96 5.47% change 10.8% 15.1% 41.9% 5.2% (28.0%) 71.9% 14.6% 6.5% 3.5% (11.9%) 9.7% 9.3% 10.0% 10.2%CFPS 2.16 2.86 2.54 2.81 3.69 2.43 1.62 3.79 3.38 5.04 4.14 4.52 5.00 5.54Book value (BVPS) (a) 12.2 14.5 14.9 16.1 18.3 30.3 28.7 29.2 28.7 34.5 37.1 40.2 43.7 47.5Net dividend 0.80 0.90 0.90 0.98 1.61 1.26 1.26 1.32 0.50 1.34 1.34 1.35 1.49 1.64STOCKMARKET RATIOS YEARLY AVERAGE PRICES for end Dec. 00 to Jun. 10 Jun. 06 Jun. 07 Jun. 08 Jun. 09 Jun. 10p Jun. 11e Jun. 12e Jun. 13e Jun. 14eP / E (P/ EPS restated) 11.2x 13.6x 11.3x 11.4x 21.5x 17.0x 17.7x 16.9x 11.1x 15.3x 15.8x 14.4x 13.1x 11.9xP / E relative to DJ STOXX50 55% 57% 51% 72% 154% 129% 159% 155% 83% 136% 150% 155% 155%P / CF 8.2x 8.7x 11.5x 11.1x 17.1x 23.6x 42.3x 18.5x 14.1x 11.4x 15.7x 14.4x 13.0x 11.8xFCF yield 4.8% 11.5% 5.1% 7.4% 4.4% 6.2% 0.5% 0.4% 7.2% 7.4% 4.8% 5.5% 6.4% 7.1%P / BVPS 1.45x 1.72x 1.97x 1.93x 2.30x 1.90x 2.39x 2.39x 1.66x 1.67x 1.76x 1.62x 1.49x 1.37xNet yield 4.5% 3.6% 3.1% 3.1% 3.8% 2.2% 1.8% 1.9% 1.1% 2.3% 2.1% 2.1% 2.3% 2.5%Payout 50.3% 49.2% 34.7% 35.9% 54.6% 37.3% 32.5% 32.0% 11.7% 35.6% 32.5% 30.0% 30.0% 30.0%EV / Sales 0.89x 0.90x 1.55x 2.11x 2.69x 3.14x 3.39x 3.33x 3.15x 3.76x 3.76x 3.56x 3.30x 3.04xEV / Restated EBITDA 7.4x 7.1x 8.7x 8.8x 12.0x 13.6x 13.7x 13.0x 11.3x 13.4x 13.2x 12.5x 11.4x 10.4xEV / Restated EBITA 9.3x 9.1x 10.0x 10.1x 13.7x 15.2x 15.1x 14.4x 12.3x 14.8x 14.4x 13.5x 12.4x 11.3xEV / OpFCF 13.0x 6.5x 13.5x 11.3x 16.9x 15.2x 17.8x 34.1x 14.1x 15.5x 16.9x 15.5x 13.9x 12.6xEV / Capital employed (incl. gross goodwill) 1.3x 0.7x 1.3x 1.3x 1.5x 1.2x 1.4x 1.6x 1.1x 1.4x 1.4x 1.3x 1.3x 1.3xENTERPRISE VALUE (EURm) 3,917 4,118 7,511 7,454 9,399 19,026 21,854 21,916 22,714 26,617 27,250 26,539 25,774 24,918Market cap 3,006 4,207 4,948 5,264 7,049 11,709 14,468 14,860 11,106 15,164 17,234 17,234 17,234 17,234 + Adjusted net debt 874 493 2,791 2,109 2,170 6,350 6,514 6,143 10,888 10,584 9,147 8,436 7,671 6,815 + Other liabilities and commitments 34 77 88 180 181 1,009 773 478 405 464 464 464 464 464 + Revalued minority interests 168 122 48 50 69 206 340 435 315 405 405 405 405 405 - Revalued investments 165 782 364 148 70 248 241 0 0 0 0 0 0 0P & L HIGHLIGHTS (EURm) Switch to IFRS data from FY ended 06/06 Jun. 05 Jun. 06 Jun. 07 Jun. 08 Jun. 09 Jun. 10p Jun. 11e Jun. 12e Jun. 13e Jun. 14eSales 4,382 4,555 4,836 3,534 5,246 6,066 6,443 6,589 7,203 7,081 7,239 7,449 7,805 8,187Restated EBITDA (b) 528 580 863 847 1,176 1,403 1,595 1,688 2,003 1,991 2,058 2,130 2,252 2,389Depreciation (107) (129) (113) (108) (146) (148) (149) (166) (157) (196) (166) (164) (172) (180)Restated EBITA (b) (**) 421 451 750 739 1,030 1,255 1,446 1,522 1,846 1,795 1,891 1,967 2,081 2,209Reported operating profit (loss) 421 451 750 739 1,030 1,312 1,446 1,522 1,846 1,795 1,891 1,967 2,081 2,209Net financial income (charges) (52) (40) (153) (102) (131) (410) (351) (333) (619) (497) (493) (440) (403) (362)Affiliates 2 1 1 0 (0) 2 1 0 0 0 0 0 0 - Other (53) 80 3 59 10 (126) 20 (97) (152) (97) 0 0 0 0Tax (97) (96) (150) (166) (230) (108) (260) (224) (108) (223) (273) (298) (327) (360)Minorities (5) (6) (8) (8) (13) (31) (25) (29) (21) (27) (27) (28) (30) (31)Goodwill amortisation (20) (31) (30) (58) (22) - - - - - - - - -Net attributable profit reported 195 358 413 464 644 639 831 839 946 951 1,098 1,201 1,321 1,456Net attributable profit restated (c) 248 278 410 405 476 711 833 897 1,010 1,001 1,098 1,201 1,321 1,456CASH FLOW HIGHLIGHTS (EURm) Dec. 00 Dec. 01 Dec. 02 Dec. 03 Jun. 05 Jun. 06 Jun. 07 Jun. 08 Jun. 09 Jun. 10p Jun. 11e Jun. 12e Jun. 13e Jun. 14eEBITDA (reported) 528 580 863 847 1,176 1,460 1,595 1,688 2,003 1,991 2,058 2,130 2,252 2,389EBITDA adjustment (b) 0 0 (0) 0 0 (57) 0 0 0 0 0 0 0 0Other items (6) 50 (122) (95) (175) (351) (76) (260) (394) (39) (161) (161) (161) (161)Change in WCR (65) 122 (43) 13 (22) 238 (149) (513) 246 (48) (81) (54) (21) (27)Operating cash flow 456 752 698 765 979 1,290 1,370 915 1,855 1,904 1,815 1,916 2,070 2,201Capex (156) (117) (143) (104) (145) (37) (140) (273) (241) (184) (199) (205) (215) (225)Operating free cash flow (OpFCF) 300 635 555 661 834 1,253 1,230 642 1,614 1,720 1,616 1,711 1,856 1,976Net financial items + tax paid (149) (135) (303) (267) (361) (518) (1,161) (579) (794) (574) (767) (738) (731) (723)Free cash flow 151 500 253 394 473 735 69 63 820 1,146 849 973 1,125 1,252Net financial investments & acquisitions (133) (3,201) 107 289 22 (1,261) (33) 44 (5,477) 230 117 0 0 0Other (27) (11) 646 122 (165) (6,060) 42 338 (794) 0 0 0 0 0Capital increase (decrease) 0 0 0 0 (101) 2,519 9 206 1,007 (38) 0 0 0 0Dividends paid (108) (108) (102) (122) (290) (113) (251) (280) (301) (136) (354) (357) (360) (396)Increase (decrease) in net financial debt 116 2,821 (903) (682) 61 4,180 164 (371) 4,745 (1,202) (613) (616) (764) (856)Cash flow, group share 365 484 430 477 623 512 348 822 798 1,342 1,103 1,203 1,330 1,473BALANCE SHEET HIGHLIGHTS (EURm) Dec. 00 Dec. 01 Dec. 02 Dec. 03 Jun. 05 Jun. 06 Jun. 07 Jun. 08 Jun. 09 Jun. 10p Jun. 11e Jun. 12e Jun. 13e Jun. 14eFixed operating assets, incl. gross goodwill 1,804 3,616 3,287 3,170 3,328 13,429 13,229 12,255 18,254 18,012 17,927 17,968 18,011 18,056WCR 1,192 2,554 2,396 2,354 2,761 1,984 2,951 1,810 1,603 1,651 1,732 1,786 1,807 1,835Capital employed, incl. gross goodwill 2,995 6,170 5,683 5,524 6,089 15,413 16,180 14,065 19,857 19,663 19,659 19,754 19,818 19,891Shareholders' funds, group share 2,072 2,452 2,515 2,731 3,101 5,700 6,291 6,420 7,430 9,122 9,864 10,704 11,629 12,648Minorities 84 61 24 25 34 172 168 177 185 216 243 271 301 332Provisions/ Other liabilities 150 518 585 637 620 3,980 3,988 1,233 1,238 531 372 213 87 (34)Net financial debt (cash) 874 3,695 2,791 2,109 2,170 6,350 6,514 6,143 10,888 9,686 9,073 8,457 7,693 6,837FINANCIAL RATIOS (%) Dec. 00 Dec. 01 Dec. 02 Dec. 03 Jun. 05 Jun. 06 Jun. 07 Jun. 08 Jun. 09 Jun. 10p Jun. 11e Jun. 12e Jun. 13e Jun. 14eSales (% change) 22.1% 4.0% 6.2% (26.9%) (1.0%) 73.4% 6.2% 2.3% 9.3% (1.7%) 2.2% 2.9% 4.8% 4.9%Organic sales growth 4.4% 8.1% 5.8% 4.3% 9.1% 8.5% (0.4%) 1.8% 4.6% 5.3% 5.3% 5.4%Restated EBITA (% change) (**) 13.1% 7.0% 66.5% (1.5%) (7.1%) 82.8% 15.2% 5.2% 21.3% (2.8%) 5.4% 4.0% 5.8% 6.2%Restated attributable net profit (% change) (**) 10.8% 15.1% 42.3% 5.3% (28.4%) 114.3% 17.2% 7.6% 12.6% (0.9%) 9.7% 9.3% 10.0% 10.2%Personnel costs / Sales - - - - - - - - - - - - - - Restated EBITDA margin 12.0% 12.7% 17.8% 24.0% 22.4% 23.1% 24.8% 25.6% 27.8% 28.1% 28.4% 28.6% 28.9% 29.2%Restated EBITA margin 9.6% 9.9% 15.5% 20.9% 19.6% 20.7% 22.4% 23.1% 25.6% 25.3% 26.1% 26.4% 26.7% 27.0%Tax rate 26.2% 23.3% 25.1% 26.0% 25.6% 11.9% 23.7% 18.8% 8.8% 17.2% 19.5% 19.5% 19.5% 19.5%Net margin 4.6% 8.0% 8.7% 13.4% 12.5% 11.0% 13.3% 13.2% 13.4% 13.8% 15.5% 16.5% 17.3% 18.2%Capex / Sales 3.6% 2.6% 2.9% 2.9% 2.8% 0.6% 2.2% 4.1% 3.3% 2.6% 2.8% 2.7% 2.8% 2.7%OpFCF / Sales 6.9% 13.9% 11.5% 18.7% 15.9% 20.7% 19.1% 9.7% 22.4% 24.3% 22.3% 23.0% 23.8% 24.1%WCR / Sales 27.2% 56.1% 49.6% 66.6% 78.9% 32.7% 45.8% 27.5% 22.3% 23.3% 23.9% 24.0% 23.2% 22.4%Capital employed (excl. gross goodwill) / Sales 45.8% 80.7% 66.5% 89.9% 103.8% 59.7% 71.8% 52.9% 47.7% 45.8% 44.7% 44.7% 43.5% 42.4%ROE 13.0% 12.6% 17.5% 17.0% 10.7% 12.5% 13.2% 14.0% 13.6% 11.0% 11.1% 11.2% 11.4% 11.5%Gearing 41% 20% 110% 77% 69% 108% 101% 93% 143% 113% 91% 77% 64% 53%EBITDA / Financial charges 7.8x 10.4x 5.1x 7.7x 8.9x 3.4x 4.5x 5.1x 3.2x 4.0x 4.2x 4.8x 5.6x 6.6xAdjusted financial debt / EBITDA 1.7x 0.9x 3.2x 2.5x 2.8x 4.5x 4.1x 3.6x 5.4x 5.3x 4.4x 4.0x 3.4x 2.9xROCE, excl. gross goodwill 15.5% 9.4% 17.5% 17.2% 14.1% 30.5% 23.8% 34.0% 44.8% 43.8% 47.0% 47.5% 49.3% 51.3%ROCE, incl. gross goodwill 10.4% 5.6% 9.9% 9.9% 8.4% 7.2% 6.8% 8.4% 7.8% 7.2% 7.7% 8.0% 8.5% 8.9%WACC 8.0% 9.3% 7.9% 8.4% 8.7% 7.4% 7.4% 7.6% 8.7% 9.6% 10.7% 10.7% 10.7% 10.7%Average number of employees 20,679 18,582 18,651 12,621 12,304 16,304 16,304 17,625 18,975(a) Intangibles: EUR16,198.00m, or EUR63 per share. (b) adjusted for capital gains/losses, impairment charges, exceptional restructuring charges, capitalized R&D, pension charge replaced by service cost(c) adj.for capital gains losses, imp.charges, capitalized R&D, am. of intangibles from M&A, exceptional restructuring, (*) In listing currency, with div. reinvested, (**) also adjusted for am. of intangibles from M&A, or for am. of gwill for pre IFRS years

Reuters / Bloomberg: PERP.PA / RI FP

PERNOD RICARD (Neutral)


80.0

20.0

40.0

60.0 Target Price


Price at 06 Dec. 10 / Target PriceEUR52.0 / EUR58 +12%

Analyst: Javier Gonzalez Lastra (+44) 207 039 9431 Distillers & Vintners | Beverages (Outperform) - FranceCompany Highlights EURmEnterprise value 2,888 Market capitalisation 2,523 Free float 706 3m average volume 3 Performance (*) 1m 3m 12mAbsolute (0%) 18% 44%Rel. Sector NC NC NCRel. SBF 80 (1%) 7% 16%12m Hi/Lo (EUR) : 53.8 -3% / 34.0 +53%CAGR 1996/2010 2010/2013EPS restated (**) 11% 23%CFPS 13% 23%Price (yearly avg from Mar. 01 to Mar. 10) 33.5 29.9 29.6 26.6 28.4 37.4 43.8 49.2 31.1 30.7 52.0 52.0 52.0 52.0PER SHARE DATA (EUR) Mar. 01 Mar. 02 Mar. 03 Mar. 04 Mar. 05 Mar. 06 Mar. 07 Mar. 08 Mar. 09 Mar. 10 Mar. 11e Mar. 12e Mar. 13e Mar. 14eNo of shares year end, basic, (m) 44.378 44.460 44.580 44.780 45.023 45.345 45.682 46.326 46.877 48.490 48.570 48.570 48.570 48.570Average no of shares, diluted, excl. treasury stocks (m) 44.294 53.565 53.563 53.523 58.065 45.894 45.657 46.792 47.113 48.191 48.905 48.905 48.905 48.905EPS reported 1.96 1.94 1.97 1.43 0.95 1.55 1.73 2.01 1.84 1.80 1.92 3.11 3.79 4.48EPS restated 2.22 2.21 2.22 1.75 1.01 1.55 1.73 2.01 1.61 1.84 2.40 3.09 3.77 4.45% change 52.5% (0.5%) 0.3% (21.0%) (42.2%) 53.4% 11.6% 16.2% (20.0%) 14.4% 30.0% 28.9% 22.0% 18.1%CFPS 2.66 2.62 2.34 1.52 1.41 1.91 (3.31) 3.29 (1.39) 1.54 2.56 3.37 4.08 4.78Book value (BVPS) (a) 22.4 23.5 24.4 24.8 19.3 20.3 18.7 19.7 20.7 21.0 21.6 23.3 25.6 28.6Net dividend 0.90 0.90 1.00 1.00 1.00 1.10 1.20 1.30 1.30 1.30 1.43 1.47 1.52 1.58STOCKMARKET RATIOS YEARLY AVERAGE PRICES for end Mar. 01 to Mar. 10 Mar. 06 Mar. 07 Mar. 08 Mar. 09 Mar. 10 Mar. 11e Mar. 12e Mar. 13e Mar. 14eP / E (P/ EPS restated) 15.1x 13.5x 13.4x 15.2x 28.1x 24.1x 25.3x 24.4x 19.3x 16.7x 21.7x 16.8x 13.8x 11.7xP / E relative to DJ Euro STOXX Small 97% 109% 73% 85% 138% 124% 155% 148% 224% 217% 203%P / CF 12.6x 11.4x 12.7x 17.5x 20.2x 19.6x NC 14.9x NC 20.0x 20.3x 15.4x 12.7x 10.9xFCF yield 6.1% 4.2% 3.5% 8.1% 7.4% 3.9% (8.1%) 4.4% (6.1%) 4.7% 3.7% 3.4% 5.9% 6.1%P / BVPS 1.49x 1.27x 1.21x 1.07x 1.47x 1.85x 2.34x 2.49x 1.50x 1.46x 2.40x 2.23x 2.03x 1.82xNet yield 2.7% 3.0% 3.4% 3.8% 3.5% 2.9% 2.7% 2.6% 4.2% 4.2% 2.8% 2.8% 2.9% 3.0%Payout 40.5% 40.7% 45.1% 57.1% 98.8% 70.9% 69.3% 64.5% 80.7% 70.5% 59.7% 47.7% 40.5% 35.5%EV / Sales 2.44x 2.13x 2.11x 2.26x 2.87x 2.79x 3.09x 3.12x 2.65x 2.31x 3.15x 2.89x 2.58x 2.31xEV / Restated EBITDA 10.8x 9.2x 9.0x 10.3x 15.1x 14.2x 14.6x 14.7x 12.5x 12.0x 14.6x 12.1x 9.9x 8.3xEV / Restated EBITA 12.2x 10.4x 9.9x 11.6x 17.0x 15.6x 15.8x 16.0x 13.8x 13.3x 15.9x 13.1x 10.6x 8.9xEV / OpFCF 12.9x 14.1x 14.2x 10.4x 13.1x 18.6x NC 21.4x NC 12.4x 17.9x 18.2x 12.1x 11.0xEV / Capital employed (incl. gross goodwill) 1.2x 1.1x 1.1x 1.0x 1.1x 1.5x 1.6x 1.9x 1.3x 1.3x 2.0x 1.9x 1.8x 1.7xENTERPRISE VALUE (EURm) 2,254 2,174 2,110 2,005 2,102 2,178 2,430 2,554 1,890 1,868 2,888 2,872 2,795 2,715Market cap 1,384 1,328 1,319 1,192 1,257 1,698 2,002 2,278 1,458 1,475 2,523 2,523 2,523 2,523 + Adjusted net debt 870 832 865 876 854 561 534 438 532 501 474 457 380 301 + Other liabilities and commitments 83 81 36 19 18 16 15 14 37 29 29 29 29 29 + Revalued minority interests 54 78 15 15 77 22 22 (2) 1 1 1 1 1 - Revalued investments 137 146 126 97 104 119 143 174 134 139 139 139 139 139P & L HIGHLIGHTS (EURm) Switch to IFRS data from FY ended 03/06 Mar. 05 Mar. 06 Mar. 07 Mar. 08 Mar. 09 Mar. 10 Mar. 11e Mar. 12e Mar. 13e Mar. 14eSales 926 1,020 1,000 888 734 781 786 818 714 808 916 994 1,081 1,175Restated EBITDA (b) 208 237 234 194 140 154 167 173 152 156 198 237 282 326Depreciation (24) (28) (20) (20) (16) (14) (13) (14) (15) (16) (16) (18) (19) (21)Restated EBITA (b) (**) 184 209 214 174 124 140 154 160 137 140 181 219 263 305Reported operating profit (loss) 184 209 214 174 124 121 (90) 159 152 133 136 219 263 305Net financial income (charges) (54) (62) (67) (64) (55) (63) (37) (46) (31) (22) (28) (19) (17) (14)Affiliates 10 10 9 7 7 9 10 10 3 5 6 7 7 8Other 0 (7) (1) 2 3 21 45 5 0 3 0 0 0 0Tax (42) (47) (51) (38) (23) (13) 50 (29) (38) (29) (21) (56) (69) (82)Minorities (4) (5) 0 (1) (6) 4 (2) 0 0 (3) 0 0 0 0Goodwill amortisation (4) (3) (3) (3) 0 - - - - - - - - -Net attributable profit reported 90 95 102 76 50 78 (23) 98 86 86 93 151 184 218Net attributable profit restated (c) 94 104 105 79 47 71 79 94 76 89 117 151 184 218CASH FLOW HIGHLIGHTS (EURm) Mar. 01 Mar. 02 Mar. 03 Mar. 04 Mar. 05 Mar. 06 Mar. 07 Mar. 08 Mar. 09 Mar. 10 Mar. 11e Mar. 12e Mar. 13e Mar. 14eEBITDA (reported) 208 237 234 194 140 136 (76) 173 167 149 152 237 282 326EBITDA adjustment (b) 0 0 0 0 0 18 243 1 (15) 8 46 0 0 0Other items 0 (7) (18) (28) 1 (17) (240) (1) (229) 2 (5) 0 0 0Change in WCR (15) (73) (51) 29 26 0 14 (26) 3 12 (9) (54) (24) (51)Operating cash flow 193 157 165 195 166 138 (59) 146 (74) 170 184 183 259 275Capex (19) (3) (16) (2) (6) (20) (24) (27) (27) (19) (23) (25) (27) (29)Operating free cash flow (OpFCF) 174 154 149 193 160 117 (83) 119 (101) 150 161 158 232 246Net financial items + tax paid (87) (95) (102) (96) (62) (50) (81) (19) 12 (81) (68) (72) (83) (92)Free cash flow 88 59 47 97 98 68 (164) 101 (89) 69 93 86 149 154Net financial investments & acquisitions (469) (9) (48) 64 19 11 6 62 54 (11) 0 0 0 0Other (82) 36 6 (131) (64) 250 224 (28) (18) 7 0 0 0 0Capital increase (decrease) 175 (9) 2 3 14 9 11 9 (1) 3 2 0 0 0Dividends paid (8) (40) (40) (44) (44) (45) (50) (48) (39) (39) (63) (69) (72) (74)Increase (decrease) in net financial debt 296 (38) 33 11 (22) (293) (27) (95) 94 (30) (32) (16) (77) (79)Cash flow, group share 117 129 114 70 70 88 (151) 154 (65) 74 125 165 199 234BALANCE SHEET HIGHLIGHTS (EURm) Mar. 01 Mar. 02 Mar. 03 Mar. 04 Mar. 05 Mar. 06 Mar. 07 Mar. 08 Mar. 09 Mar. 10 Mar. 11e Mar. 12e Mar. 13e Mar. 14eFixed operating assets, incl. gross goodwill 1,123 1,138 1,124 1,112 1,118 810 800 807 827 839 845 852 859 868WCR 786 804 839 871 823 681 763 545 577 572 580 635 658 709Capital employed, incl. gross goodwill 1,909 1,942 1,963 1,983 1,942 1,491 1,563 1,352 1,404 1,410 1,425 1,487 1,518 1,577Shareholders' funds, group share 996 1,047 1,086 1,111 869 919 854 913 971 1,018 1,049 1,131 1,244 1,387Minorities 59 65 8 13 19 (3) (2) (2) (2) 1 1 1 1 1Provisions/ Other liabilities 112 116 109 84 334 222 414 191 37 29 41 35 27 19Net financial debt (cash) 870 832 865 876 854 561 534 438 532 501 470 453 376 297FINANCIAL RATIOS (%) Mar. 01 Mar. 02 Mar. 03 Mar. 04 Mar. 05 Mar. 06 Mar. 07 Mar. 08 Mar. 09 Mar. 10 Mar. 11e Mar. 12e Mar. 13e Mar. 14eSales (% change) 26.5% 10.1% (1.9%) (11.2%) (17.4%) 6.4% 0.7% 4.1% (12.7%) 13.1% 13.4% 8.5% 8.8% 8.6%Organic sales growth 1.0% 0.3% 5.1% 1.4% 5.1% 4.2% 3.7% 9.7% (11.6%) 12.0% 5.0% 4.8% 5.2% 5.2%Restated EBITA (% change) (**) 39.3% 13.5% 2.2% (18.8%) (28.7%) 12.8% 10.3% 3.8% (14.2%) 2.2% 29.5% 20.9% 19.8% 16.1%Restated attributable net profit (% change) (**) 69.8% 9.4% 0.4% (23.6%) (42.7%) 51.4% 11.1% 19.1% (19.4%) 17.0% 31.9% 28.9% 22.0% 18.1%Personnel costs / Sales 11.3% 11.3% 12.5% 12.7% 14.6% 13.5% 13.4% 12.8% 15.1% - - - - - Restated EBITDA margin 22.5% 23.2% 23.4% 21.8% 19.0% 19.7% 21.2% 21.2% 21.3% 19.3% 21.6% 23.9% 26.1% 27.8%Restated EBITA margin 19.9% 20.5% 21.4% 19.5% 16.9% 17.9% 19.6% 19.5% 19.2% 17.3% 19.8% 22.1% 24.3% 26.0%Tax rate 32.5% 33.4% 34.7% 34.3% 29.8% 22.9% NC 25.5% 31.1% 26.4% 19.8% 28.0% 28.0% 28.0%Net margin 10.2% 9.9% 10.1% 8.7% 7.5% 9.5% (2.7%) 12.0% 12.1% 11.0% 10.2% 15.2% 17.0% 18.5%Capex / Sales 2.1% 0.3% 1.6% 0.2% 0.8% 2.6% 3.1% 3.3% 3.8% 2.4% 2.5% 2.5% 2.5% 2.5%OpFCF / Sales 18.8% 15.1% 14.9% 21.7% 21.8% 15.0% (10.6%) 14.6% (14.1%) 18.6% 17.6% 15.9% 21.4% 20.9%WCR / Sales 84.9% 78.9% 83.9% 98.1% 112.2% 87.2% 97.0% 66.7% 80.8% 70.8% 63.4% 63.9% 60.9% 60.4%Capital employed (excl. gross goodwill) / Sales 103.3% 95.3% 99.1% 114.1% 138.9% 110.4% 118.9% 88.7% 108.4% 96.6% 86.9% 86.2% 82.1% 80.6%ROE 9.8% 10.2% 9.9% 7.4% 5.4% 7.8% 9.3% 10.3% 7.8% 8.7% 11.2% 13.4% 14.8% 15.7%Gearing 82% 75% 79% 78% 96% 61% 63% 48% 55% 49% 45% 40% 31% 22%EBITDA / Financial charges 3.9x 3.8x 3.5x 3.0x 2.5x 2.4x 4.5x 3.8x 4.8x 7.0x 7.2x 12.4x 16.4x 23.4xAdjusted financial debt / EBITDA 4.2x 3.5x 3.7x 4.5x 6.1x 3.6x 3.2x 2.5x 3.5x 3.2x 2.4x 1.9x 1.3x 0.9xROCE, excl. gross goodwill 12.7% 14.2% 14.2% 11.3% 8.0% 10.7% 12.7% 16.4% 12.2% 13.2% 16.4% 18.4% 21.3% 23.2%ROCE, incl. gross goodwill 6.4% 7.1% 7.2% 5.8% 4.2% 6.2% 7.6% 8.8% 6.7% 7.3% 9.2% 10.6% 12.5% 13.9%WACC 7.2% 7.8% 7.6% 7.5% 7.8% 7.9% 8.1% 8.5% 10.1% 10.2% 9.9% 9.9% 9.9% 9.9%Average number of employees 1,906 2,217 2,187 2,071 1,895(a) Intangibles: EUR629.90m, or EUR13 per share. (b) adjusted for capital gains/losses, impairment charges, exceptional restructuring charges, capitalized R&D, pension charge replaced by service cost(c) adj.for capital gains losses, imp.charges, capitalized R&D, am. of intangibles from M&A, exceptional restructuring, (*) In listing currency, with div. reinvested, (**) also adjusted for am. of intangibles from M&A, or for am. of gwill for pre IFRS years

Reuters / Bloomberg: RCOP.PA / RCO FP

RÉMY COINTREAU (Outperform)

Price 9.0*CFPS Relative to SBF 8012.1

60.0

15.0

25.0

35.0

45.0Target Price



Analyst: Paola Bertini (+44) 207 039 9521 Distillers & Vintners | Beverages (Outperform) - FranceCompany Highlights EURmEnterprise value 761 Market capitalisation 216 Free float 60 3m average volume 0 Performance (*) 1m 3m 12mAbsolute (5%) (3%) 8%Rel. Sector NC NC NCRel. DJ STOXX50 (4%) (4%) 3%12m Hi/Lo (EUR) : 35.5 -9% / 27.8 +16%CAGR 2000/2010 2010/2014EPS restated (**) 2% 22%CFPS 2% 15%Price (yearly avg from Dec. 01 to Dec. 09) 26.9 25.1 27.1 31.3 36.1 42.6 53.9 41.3 25.3 32.2 32.2 32.2 32.2 32.2PER SHARE DATA (EUR) Dec. 01 Dec. 02 Dec. 03 Dec. 04 Dec. 05 Dec. 06 Dec. 07 Dec. 08 Dec. 09 Dec. 10e Dec. 11e Dec. 12e Dec. 13e Dec. 14eNo of shares year end, basic, (m) 3.509 4.556 4.553 4.535 5.214 5.218 5.221 5.266 6.703 6.703 6.703 6.703 6.703 6.703Average no of shares, diluted, excl. treasury stocks (m) 3.509 4.556 4.553 4.535 5.214 5.218 5.221 5.210 6.703 6.703 6.703 6.703 6.703 6.703EPS reported 1.88 1.51 2.31 2.21 2.83 3.13 3.42 2.21 2.72 2.29 2.66 3.71 4.63 5.04EPS restated 1.99 1.60 2.39 2.29 2.95 3.13 3.42 2.17 1.02 2.29 2.66 3.71 4.63 5.04% change 3.2% (19.9%) 49.7% (4.0%) 28.5% 6.2% 9.2% (36.6%) (53.0%) 124.9% 16.3% 39.4% 24.7% 8.7%CFPS 3.24 4.95 4.15 4.42 5.82 5.77 5.38 2.18 1.94 4.11 4.58 5.75 6.79 7.29Book value (BVPS) (a) 24.5 25.5 26.8 34.9 35.6 37.6 40.1 36.7 35.9 37.1 38.5 41.0 44.2 47.7Net dividend 0.55 0.72 0.69 0.66 1.10 1.20 1.29 1.35 1.15 1.21 1.27 1.39 1.53 1.69STOCKMARKET RATIOS YEARLY AVERAGE PRICES for end Dec. 01 to Dec. 09 Dec. 06 Dec. 07 Dec. 08 Dec. 09 Dec. 10e Dec. 11e Dec. 12e Dec. 13e Dec. 14eP / E (P/ EPS restated) 13.5x 15.7x 11.4x 13.7x 12.2x 13.6x 15.8x 19.0x 24.9x 14.1x 12.1x 8.7x 7.0x 6.4xP / E relative to DJ STOXX50 56% 71% 71% 98% 93% 122% 145% 142% 220% 133% 130% 103%P / CF 8.3x 5.1x 6.5x 7.1x 6.2x 7.4x 10.0x 19.0x 13.0x 7.8x 7.0x 5.6x 4.7x 4.4xFCF yield (14.8%) (109.9%) (16.0%) (23.8%) 6.2% (7.1%) (14.1%) (17.1%) (0.9%) 7.9% 6.1% 5.5% 5.7% 6.5%P / BVPS 1.10x 0.98x 1.01x 0.90x 1.01x 1.13x 1.34x 1.12x 0.71x 0.87x 0.84x 0.79x 0.73x 0.67xNet yield 2.0% 2.9% 2.5% 2.1% 3.1% 2.8% 2.4% 3.3% 4.5% 3.8% 3.9% 4.3% 4.8% 5.2%Payout 27.4% 45.0% 28.8% 28.7% 37.4% 38.3% 37.8% 62.3% 112.9% 52.7% 47.6% 37.5% 33.1% 33.5%EV / Sales 2.36x 1.87x 1.90x 2.49x 2.35x 2.42x 2.64x 2.59x 2.68x 2.16x 2.03x 1.91x 1.79x 1.70xEV / Restated EBITDA 11.1x 10.2x 10.3x 11.5x 11.6x 11.8x 12.6x 13.6x 17.7x 13.2x 11.5x 9.8x 8.6x 8.1xEV / Restated EBITA 12.7x 11.8x 12.1x 14.3x 14.3x 14.3x 15.0x 16.7x 23.4x 16.7x 14.4x 12.0x 10.3x 9.8xEV / OpFCF 83.1x NC 84.6x NC 17.2x 55.2x NC NC 27.6x 16.1x 15.8x 15.2x 14.0x 13.2xEV / Capital employed (incl. gross goodwill) 1.0x 0.9x 1.0x 0.9x 0.9x 1.0x 1.0x 1.0x 0.9x 0.9x 0.9x 0.9x 0.9x 0.9xENTERPRISE VALUE (EURm) 326 432 479 567 589 650 757 733 724 761 756 752 749 745Market cap 94 114 124 142 188 222 281 215 170 216 216 216 216 216 + Adjusted net debt 234 330 350 405 411 430 476 530 571 562 556 553 550 546 + Other liabilities and commitments 0 0 0 3 3 3 3 5 7 7 7 7 7 7 + Revalued minority interests 1 20 11 22 3 1 3 1 2 2 3 3 3 3 - Revalued investments 3 8 6 5 16 6 6 17 26 26 26 26 26 26P & L HIGHLIGHTS (EURm) Switch to IFRS data from FY ended 12/05 Dec. 05 Dec. 06 Dec. 07 Dec. 08 Dec. 09 Dec. 10e Dec. 11e Dec. 12e Dec. 13e Dec. 14eSales 138.3 230.6 251.6 227.5 250.5 268.3 286.8 283.4 269.8 351.9 372.2 394.0 417.9 437.4Restated EBITDA (b) 29.5 42.2 46.4 49.2 50.7 55.3 60.1 53.9 41.0 57.8 65.6 76.6 87.1 91.7Depreciation (3.8) (5.7) (6.7) (9.5) (9.4) (10.0) (9.7) (10.0) (10.1) (12.3) (13.0) (13.8) (14.6) (15.3)Restated EBITA (b) (**) 25.6 36.5 39.7 39.6 41.3 45.3 50.4 43.8 30.9 45.5 52.5 62.8 72.4 76.4Reported operating profit (loss) 25.6 36.5 39.7 39.6 41.3 45.3 50.4 43.8 30.9 45.5 52.5 62.8 72.4 76.4Net financial income (charges) (13.9) (14.8) (20.4) (18.9) (16.2) (19.5) (22.4) (26.3) (20.7) (22.7) (25.2) (25.0) (24.8) (24.7)Affiliates - - - - - - - - - - - - - - Other (0.6) (12.7) (0.6) (1.6) (3.1) (1.3) (0.6) 0.2 11.4 0.0 0.0 0.0 0.0 0.0Tax (4.1) (2.5) (6.8) (6.9) (6.4) (8.2) (9.4) (6.2) (3.4) (7.3) (9.3) (12.7) (16.2) (17.6)Minorities (0.1) 0.8 (1.0) (1.8) (0.3) (0.1) (0.2) (0.0) (0.1) (0.2) (0.2) (0.3) (0.4) (0.4)Goodwill amortisation 0.0 0.0 0.0 0.0 - - - - - - - - - -Net attributable profit reported 7.0 7.3 10.9 10.4 15.4 16.3 17.8 11.5 18.2 15.4 17.9 24.9 31.1 33.8Net attributable profit restated (c) 7.0 7.3 10.9 10.4 15.4 16.3 17.8 11.3 6.8 15.4 17.9 24.9 31.1 33.8CASH FLOW HIGHLIGHTS (EURm) Dec. 01 Dec. 02 Dec. 03 Dec. 04 Dec. 05 Dec. 06 Dec. 07 Dec. 08 Dec. 09 Dec. 10e Dec. 11e Dec. 12e Dec. 13e Dec. 14eEBITDA (reported) 29.5 42.2 46.4 49.2 50.7 55.3 60.1 53.9 41.0 57.8 65.6 76.6 87.1 91.7EBITDA adjustment (b) 0.0 (0.0) 0.0 0.0 0.0 0.0 (0.0) (0.0) 0.0 0.0 0.0 0.0 0.0 0.0Other items 0.0 (2.4) 1.4 0.2 2.8 2.6 0.1 (11.0) (0.1) 0.0 0.0 0.0 0.0 0.0Change in WCR (18.0) (106.5) (23.3) (54.5) (7.0) (38.0) (57.5) (36.1) (6.7) (0.1) (4.7) (13.3) (19.0) (20.0)Operating cash flow 11.5 (66.6) 24.5 (5.1) 46.5 19.9 2.7 6.8 34.1 57.8 60.9 63.4 68.1 71.8Capex (7.6) (36.6) (18.9) (8.3) (12.2) (8.1) (11.0) (12.2) (7.9) (10.6) (13.0) (13.8) (14.6) (15.3)Operating free cash flow (OpFCF) 3.9 (103.2) 5.7 (13.4) 34.4 11.8 (8.4) (5.4) 26.2 47.2 47.9 49.6 53.4 56.5Net financial items + tax paid (18.0) (17.3) (27.2) (25.8) (22.6) (27.7) (31.8) (31.5) (27.7) (30.0) (34.5) (37.6) (41.0) (42.3)Free cash flow (14.0) (120.5) (21.5) (39.2) 11.8 (15.9) (40.2) (36.9) (1.5) 17.2 13.4 11.9 12.4 14.2Net financial investments & acquisitions 0.0 0.0 0.0 0.0 0.0 0.0 0.0 (0.3) (69.8) 0.0 0.0 0.0 0.0 0.0Other (0.3) (14.6) 4.2 (11.5) (40.6) 3.4 0.7 (10.2) 2.3 0.0 0.0 0.0 0.0 0.0Capital increase (decrease) 0.0 40.7 1.0 0.0 27.1 0.0 0.0 0.0 35.3 0.0 0.0 0.0 0.0 0.0Dividends paid (2.0) (2.0) (3.4) (4.2) (4.9) (6.0) (6.5) (7.0) (7.0) (7.8) (8.1) (8.5) (9.3) (10.3)Increase (decrease) in net financial debt 16.4 96.4 19.7 54.9 6.6 18.4 46.0 54.4 40.8 (9.5) (5.3) (3.4) (3.1) (3.9)Cash flow, group share 11 23 19 20 30 30 28 11 13 28 31 39 46 49BALANCE SHEET HIGHLIGHTS (EURm) Dec. 01 Dec. 02 Dec. 03 Dec. 04 Dec. 05 Dec. 06 Dec. 07 Dec. 08 Dec. 09 Dec. 10e Dec. 11e Dec. 12e Dec. 13e Dec. 14eFixed operating assets, incl. gross goodwill 92 123 132 214 219 220 224 221 298 296 296 296 296 296WCR 235 344 364 424 433 455 513 498 506 506 511 524 543 563Capital employed, incl. gross goodwill 327 468 496 637 651 675 737 719 804 802 807 820 839 859Shareholders' funds, group share 86 116 122 158 185 196 210 193 241 248 258 275 296 320Minorities 5 20 22 24 8 8 8 8 11 11 11 12 12 13Provisions/ Other liabilities 5 6 6 50 50 52 54 5 7 7 7 7 7 7Net financial debt (cash) 234 330 350 405 411 430 476 530 571 562 556 553 550 546FINANCIAL RATIOS (%) Dec. 01 Dec. 02 Dec. 03 Dec. 04 Dec. 05 Dec. 06 Dec. 07 Dec. 08 Dec. 09 Dec. 10e Dec. 11e Dec. 12e Dec. 13e Dec. 14eSales (% change) 9.1% 66.8% 9.1% (9.6%) 10.1% 7.1% 6.9% (1.2%) (4.8%) 30.4% 5.8% 5.9% 6.1% 4.7%Organic sales growth 7.4% 0.3% (5.1%) 4.8% 5.4% 5.7% 5.9% 4.5%Restated EBITA (% change) (**) 8.2% 42.5% 8.7% (0.2%) 4.2% 9.8% 11.2% (13.1%) (29.4%) 47.0% 15.5% 19.6% 15.3% 5.5%Restated attributable net profit (% change) (**) 2.8% 4.0% 49.6% (4.4%) 47.7% 6.2% 9.3% (36.7%) (39.5%) 124.9% 16.3% 39.4% 24.7% 8.7%Personnel costs / Sales 9.6% 9.2% 11.8% 14.3% 13.2% 12.8% 12.2% 12.8% 13.2% 12.1% 11.7% 11.5% 11.2% 11.1%Restated EBITDA margin 21.3% 18.3% 18.4% 21.6% 20.2% 20.6% 21.0% 19.0% 15.2% 16.4% 17.6% 19.5% 20.8% 21.0%Restated EBITA margin 18.5% 15.8% 15.8% 17.4% 16.5% 16.9% 17.6% 15.5% 11.5% 12.9% 14.1% 16.0% 17.3% 17.5%Tax rate 34.8% 11.6% 35.3% 33.5% 25.4% 31.7% 33.5% 35.4% 32.9% 32.0% 34.0% 33.5% 34.0% 34.0%Net margin 5.1% 2.8% 4.7% 5.4% 6.2% 6.1% 6.3% 4.1% 6.8% 4.4% 4.9% 6.4% 7.5% 7.8%Capex / Sales 5.5% 15.9% 7.5% 3.6% 4.9% 3.0% 3.8% 4.3% 2.9% 3.0% 3.5% 3.5% 3.5% 3.5%OpFCF / Sales 2.8% (44.8%) 2.2% (5.9%) 13.7% 4.4% (2.9%) (1.9%) 9.7% 13.4% 12.9% 12.6% 12.8% 12.9%WCR / Sales 170.1% 149.4% 144.8% 186.1% 172.6% 169.7% 178.9% 175.8% 187.6% 143.9% 137.3% 133.0% 130.0% 128.7%Capital employed (excl. gross goodwill) / Sales 197.9% 173.6% 167.7% 238.0% 220.9% 215.0% 222.6% 221.7% 262.0% 200.4% 190.7% 183.5% 177.6% 174.2%ROE 8.1% 6.2% 8.9% 6.6% 8.3% 8.3% 8.5% 5.8% 2.8% 6.2% 6.9% 9.1% 10.5% 10.6%Gearing 256% 243% 244% 223% 213% 211% 219% 263% 227% 216% 206% 193% 178% 164%EBITDA / Financial charges 2.1x 2.9x 2.3x 2.6x 3.1x 2.8x 2.7x 2.1x 2.0x 2.6x 2.6x 3.1x 3.5x 3.7xAdjusted financial debt / EBITDA 7.9x 7.8x 7.5x 8.2x 8.1x 7.8x 7.9x 9.8x 13.9x 9.7x 8.5x 7.2x 6.3x 6.0xROCE, excl. gross goodwill 6.1% 8.1% 6.1% 4.9% 5.6% 5.4% 5.2% 4.5% 2.9% 4.4% 4.9% 5.8% 6.4% 6.6%ROCE, incl. gross goodwill 5.1% 6.9% 5.2% 4.1% 4.7% 4.6% 4.5% 3.9% 2.6% 3.9% 4.3% 5.1% 5.7% 5.9%WACC 8.0% 9.4% 7.7% 7.9% 7.9% 7.7% 7.9% 7.9% 7.3% 7.8% 7.8% 7.8% 7.8% 7.8%Average number of employees 322 512 557 593 623 620 632 637 631(a) Intangibles: EUR97.17m, or EUR14 per share. (b) adjusted for capital gains/losses, impairment charges, exceptional restructuring charges, capitalized R&D, pension charge replaced by service cost(c) adj.for capital gains losses, imp.charges, capitalized R&D, am. of intangibles from M&A, exceptional restructuring, (*) In listing currency, with div. reinvested, (**) also adjusted for am. of intangibles from M&A, or for am. of gwill for pre IFRS years

Reuters / Bloomberg: VRKP.PA / VRAP FP

VRANKEN-POMMERY MONOPOLE (Underperform)


60.0

25.0

35.0

45.0

Target Price

LONDON Exane Ltd 20 St. James’s Street London SW1A 1ES UK Tel: (+44) 207 039 9400 Fax: (+44) 207 039 9432 / 9433

PARIS Exane S.A. 16 Avenue Matignon 75008 Paris France Tel: (+33) 1 44 95 40 00 Fax: (+33) 1 44 95 40 01

BRUSSELS Branch of Exane S.A. Ravenstein 29 1000 Brussels Belgium Tel: (+32) 2 400 3750 Fax: (+32) 2 400 3751

FRANKFURT Branch of Exane S.A. Bockenheimer Landstrasse 23 60325 Frankfurt am Main Germany Tel: (+49) 69 42 72 97 300 Fax: (+49) 69 42 72 97 301

GENEVA Branch of Exane S.A. Rue du Rhône 80 1204 Geneva Switzerland Tel: (+41) 22 718 65 65 Fax: (+41) 22 718 65 00

MADRID Branch of Exane S.A. Calle Serrano 73 28006 Madrid Spain Tel: (+34) 91 114 83 00 Fax: (+34) 91 114 83 01

MILAN Branch of Exane S.A. Via dei Bossi 4 20121 Milan Italy Tel: (+39) 02 89 63 17 13 Fax: (+39) 02 89 63 17 01

NEW YORK Exane Inc. 640 Fifth Avenue 15th Floor New York, NY 10019 USA Tel: (+1) 212 634 4990 Fax: (+1) 212 634 5171

SINGAPORE Branch of Exane Ltd 6 Battery Road #39-09 Singapore 049909 Tel: (+65) 6212 9055 Fax: (+65) 6212 9082

ZURICH Representative office of Exane S.A. Lintheschergasse 12 8001 Zurich Switzerland Tel: (+41) 1 228 66 00 Fax: (+41) 1 228 66 40

Exane research is also available on the website (www.exanebnpparibas-equities.com) as well as on Bloomberg (EXAA), First Call and Reuters. Important notice: Please refer to our complete disclosure notice available on www.exane.com/compliance This research is produced by EXANE SA and / or EXANE LTD (“EXANE”) on behalf of themselves. EXANE SA is regulated by the "Autorité des Marchés Financiers" (AMF) and EXANE LTD is regulated by the "Financial Services Authority" (FSA). In accordance with the requirements of FSA COB 7.16.7R and associated guidances “Exane’s policy for managing conflicts of interest in relation to investment research" is published on Exane’s web site (www.exane.com). Exane also follows the guidelines described in the code of conduct of the AFEI (Association Francaise des Entreprises d'Investissement) on "managing conflicts of interest in the field of investment research". This code of conduct is available on Exane’s web site (www.exane.com). This research is solely for the private information of the recipients. All information contained in this research report has been compiled from sources believed to be reliable. However, no representation or warranty, express or implied, is made with respect to the completeness or accuracy of its contents, and it is not to be relied upon as such. Opinions contained in this research report represent Exane's current opinions on the date of the report only. Exane is not soliciting an action based upon it, and under no circumstances is it to be used or considered as an offer to sell, or a solicitation of any offer to buy. While Exane endeavours to update its research reports from time to time, there may be legal and/or other reasons why Exane cannot do so and, accordingly, Exane disclaims any obligation to do so. This report is provided solely for the information of professional investors who are expected to make their own investment decisions without undue reliance on this report and Exane accepts no liability whatsoever for any direct or consequential loss arising from any use of this report or its contents. ANALYST CERTIFICATION: all of the views expressed in the research report accurately reflect the research analyst's personal views about any and all of the subject securities or issuers of this research report. No part of the research analyst's compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by the research analyst in this research report. This report may not be reproduced, distributed or published by any recipient for any purpose. Any United States person wishing to obtain further information or to effect a transaction in any security discussed in this report should do so only through Exane Inc., which has distributed this report in the United States and, subject to the above, accepts responsibility for its contents. BNP PARIBAS has acquired an interest in VERNER INVESTISSEMENTS the parent company of EXANE. VERNER INVESTISSEMENTS is controlled by the management of EXANE. BNP PARIBAS’s voting rights as a shareholder of VERNER INVESTISSEMENTS will be limited to 40% of overall voting rights of VERNER INVESTISSEMENTS.

exane dec 2010 on distillers and vintners 52pp

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