de GRISOGONO GENEVE Board Meeting 11th of February Agenda 2013 un-audited accounts dc GR 15? 201x10 2013 results overview Executive summary In Sales and Margin: 2013 started with revenue expectations of 92m CH F, of which 30m expected to come from Private Sales (doubling the peak value of the last 10 years). However, throughout the year it became evident that the Private Sales goal was unachievable, and thus efforts were focused on having Wholesale and Retail channels surpass their budget and partially compensate for expected shortfall. In the end, 2013 closed with 73.2m CHF in revenue whereby from a channel perspective: Riail sold 39m CHF the highest result since 2008, and aligned with the budget (despite the closing LV and Tokyo boutiques) 0 Wholesale sold 30m, inverting the downward trend of the last 3 years and 10% above budget (after taking out the impact of dG France) 0 Private Sales sold 5m, well below the 30m target and one of the worst performance of the last few years From a product perspective: 0 Jewelry sold 39m the highest result since 2008 and 29% higher than last year 0 Watches sold 16m, continuing the deterioration planned to stop this year Allegra watch) 0 High Jewelry sold 18m, 32% below last year, but aligned with previous years and generating the same margin as in 2013 In terms of due to the shortfall in PS, dG failed to perform in-Iine with the ambitious budget set forward at the start of the year: 0 Sales 74m, 19m below budget 25m shortfall only compensated in 6m by other channels) 0 Gross margin 35m, 7m below budget, due to the lower than expected sales 0 Operational costs 30m, 3m above budget, due to (1) the increased activity and (2) inability to achieve the ambitious cost decrease targets 0 Marketing costs 16m, 1m above budget, in-Iine with the approval received from SC in May 2013 0 EBIDTA -11m, a long way from the expected breakeven due to the lower sales (-7m in GM) and higher costs (4m) 0 Net losses -25m, due to all the impacts above, plus an unrealized 5m exchange rate loss In terms of cashflow: despite the shortfall in performance vs. budget, business financing needs were very much in-Iine with budget 0 However, part of the financing planned to originate from stone credit lines, had to replaced by extra shareholder loans In conclusion: dG failed significantly to achieve the set upon budget for the year, despite having improved its performance vs. 2012: 0 Gross margin almost doubled from 19m to 36m, due to the stop of dump sales and stock destructions EBITDA losses decreased to half, from -21m to -11m 0 Net Earnings improved by 6m, if unrealized exchange losses are not considered EJ dc GR ISOGONO 2013 still a year of large losses, despite improved performance Result mostly due to shortfall in Private Sales, plus increase in costs 2012 2013B 2013 F2 2013 A 12 Reasons Net Sales 77.5 92.4 71.6 73.9 -3.6 Lower Private Sales HJ Retail 34.5 40.0 37.0 38.8 +4.2 Wholesale 22.2 21.9 27.1 29.6 4 Private Sales 20.8 30.5 7.5 5.5 -15.3 Cost of Sales (58.0) (50.7) (35.3) (37.4) +20.6 Gross Margin 18.9 41.7 36.3 34.7 +15.8 %net sales 24% 45% 51% 47% Operational costs (except Marketirg) (28.1) (26.8) (27.3) (30.0) -1.9 Increased investment and activity Salaries (apex) (15.2) (14.5) (14.3) (15.2) -0.1 Rental costs (5- 5) (5-1) (5-5) (5-9) -0-3 Closure opening ofboutiques Other opex 7 - 4) (5-2) 7 - 4) -15 Increased activity restatement of costs Marketing costs (12.0) (14.5) (16.2) (15.5) -3.5 Increased planned investment %netsales 16% 16% 23% 21% Total operational costs (40.1) (41.3) (43.5) (45.6) -5.4 Increased investment %net sales 52% 45% 61% 62% EBITDA (21.2) 0.4 (7.3) (10.9) +10.4 Performance improvement Depreciation &Amortization (1.6) (1.8) (1.5) +0.1 Financial income (charges) 1 (4.0) (6.3) (7.2) -3.2 Increasein debt Excha nge gain (loss) (1.9) 0.0 (4.5) -2.7 Changes in exhange rates Non recurring income (expenses) 0.6 (1.6) (0.9) -1.5 Net Eamings (Loss) (28.3) (9.2) (25.4) +2.9 Net losses without unrealized exchange impact (26.4) (9.2) (20.8) +5.6 2 Source: de Grlsogono (16 (ER iF\ Sales 18m below budget, due to the shortfall in Private Sales Although both retail and wholesale growing considerably vs. 2012 4 Sales per channel (m CHFDefined as sales minus standard costs; Source: de Grisogono 35 39 Retail 22 22 Wholesale Private Sales 92 74 I 2012 2013 2013 Total de GR ISOGONO CENEVE Operating costs 4m above budget, due to the organizational changes, the inability to capture savings, and increased investment in marketing 5 Source: de Grisogono Operational costs 2012 2013B 2013 A '138-?13 Reasons $3 a ri es (15.2) (14.5) (15.2) -0. 7 Termination costs and new team Re ntal cos ts (5.6) (6.1) (5.9) +0.2 Savings from closings Travel and expenses (1.8) (1.6) (2.1) -0.5 Restatement ofmkt costs Commercial and promotional expenses 0.0 0.0 (0.3) -0.3 (Sameasabove) Security costs (0.8) (0.7) (0.9) -0.2 Innability to achieve planned savings Small equipment office supplies (0.4) (0.2) (0.5) -0.3 (Sameasabove) Telecommunication costs (0.7) (0.6) (0.6) -0.1 (Same as above) Fees (excluding restructuri ng costs) (1.5) (1.1) (1.3) -0-2 (Same as above) Bad debt 0.6 0.0 0.0 Insura nce (0.9) (0.7) (1.0) -0.3 (Same as above) Ma i ntena nce (0.8) (0.6) (1.0) -0.4 (Same as above) Ba nk Cha rges (0.6) (0.4) (0.7) -0.3 (Same as above) Other operating expenses (0.5) (0.4) (0.6) -0.1 (Sameasabove) Total (28.1) (26.8) (30.0) -3.2 Organizational changes and inability to achieve planned savings Marketing costs 2012 2013B 2013 A '138-?13 Reasons Media Coop (5.6) (6.1) (4.9) +1.2 fie-allocation to new campaign Events (3.5) (5.2) (5.0) +0.2 Graphic and photos hoot (0.2) (0.9) (1.5) -0.6 Launch ofnew campaign Print mate rials and merchandizing (0.5) (0.1) (0.7) -0.6 Increased investmentin Cannes PR (0.6) (0.7) (0.9) oz Retail Ma rketi ng (0.3) (0.7) (0.9) -02 Re-allocation of part ofevents budget Private Sales ma rketi n5 (1.2) (0.9) (1.7) -0.8 Increased investment in Cannes Total (12.0) (14.5) (15.5) -1.0 Total operating costs (40.1) (41.3) (45.6) 4.3 de GR ISOGONO C- Despite net income shortfall, cash needs mostly in-line with budget However, 5m in cash from the stone credit line had to come from increased shareholder loans 2012 2013B 2013 A Reasons Cash Flow from Operating Activities Net Income (28.3) (25.4) Non-ca cha ges 3.7 11.5 Mainly impact unrealized exchange gains and accrued liabilities (-) Cha nge in Re ceiva bl es (0.2) (4.0) 1.3 +5.3 Better than expected improvement ofreceivables Cha nge in Pa ya bl es 6.2 (3.1) (0.8) +2.3 Lower than planned reduction in payables (-) Cha nge in Net Inve ntory 4.2 (1.8) (5.9) ?4.1 Higher than planned expansion ofstock (due to sale ofconsigned pieces) Net cash flow used in operating activities (14.4) (20.9) (19.3) +1.6 Cash Flow from Investing Activities (1.0) (3.0) (3.2) -0.2 Boutique renovations and Moiami launch (1 m) Cash Flow from Financing Activities Us of stones credit lines 0.0 12.0 4.4 -7.6 Inability to leverage credit line tofu/l extent Increase Payment of loa ns 20.5 15.1 20.0 +4.9 Needfor increased investment Net cash used from financing activities 20.5 27.1 24.4 -2.7 Total cash flow 5.2 3.2 1.9 -1.3 Source: de Grisogono (16 (ER 6 Agenda Turnaround operation overview dc GR ISOGONO (iFNl-"il" Despite dG?s total sales having changed little in the last 5 dG?s total sales in the last 10 years 160 - 140 - 135 114 120 - 106 100 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 LE 1. Gross margin includes COGS, other production costs and logistics; Source: de Grisogono (16 ONO iF\ 2013 was an important year in dG?s turnaround Boutiques reached record sales of the last 5 years, and wholesale inverted its declining trajectory Boutigues with Wholesale has finally Private Sales the highest sales in five years stopped the declining trend only to suffer a bad year ISOGONO (iFNl-"il? With the efforts put into Jewelry at the start of the turnaround operation, having paid off significantly High Jewelry suffered Jewelry with highest Watches still declining from low Private Sales sales in five years for lack of novelties 301x10 Next critical turnaround step: to restart the watch dG watch storyline and lifetime sales of each collection No relevant success since 2008 2000 2013 I Uno I-iP$tiCk FG One Meccanico Sugar Be Eight Otturatore OCChio Piccolina Fuso Quadrato Tino Tondo Power Breaker Novantatre ?iv-2 5:3 0 Life time net sales (M CHF) dc GRISOGONO 11 with several novelties set for this year 12 New iconic Ladies? Watch High Jewelry talking piece Animation of several existing collections Tondo Tourbillon dc GR ISOGONO C- Agenda 13 Middle East update is? de GR LSQGONO Middle East dG presence setup with one partner per country Three of which having franchised stores Abou Wafta . Sylvie Saliba Syria Eb Iran Irak Lebanon JB Jewelers Jordan . Trafalgar Rama Watch Asia Jewellers Egypt Qurum Oman Time Swiss Bahrain 0 Saudi Arabia Joca?a Ghadah Al Fardan Franchisee Yemen Active wholesaler dG presence 9 Inactive wholesaler No dG presence Source: de Grisogono internal data, 806 analysis (16 GR 14 ?xxrw M.E. historically a key region for Historically, M.E accounts for 30-40% of dG?s business Share of total WS sales 100 - 10 Other 90 9 15 \Asia 80 North America 70 - Middle East 60 - 50 - 40 - Eastern Europe 30 - 20 - 1O - Europe Source: de Gnsogono Internal data, BCG d6 GR 15 (.2er however with a very significant decline in sales since 2007 Especially due to the strong drop in watch sales, which have decreased by 63% since 2006 Middle East wholesale sales 12 - 1057 10J7 Source: de Grisogono internal data, 806 analysis (16 GR BOGONO 16 CExm-i Four major priorities agreed upon in early 2013, on which significant ground has been covered 17 Set priorities Revamp the relationship with key partners Increase presence in the region Ensure adequate support/ control of partners Position dG to gain presence in major retail spaces Actions already taken Pre-Basel 2013 roadshow executed with Mr. Gruosi, John wholesale manager visiting each client to (1) explain the changes underway and (2) agree on a plan of action for the coming years Large majority of plans of action executed, with the exception of the poor performing Saudi partner Subsidiary head recruited in May, Omar Chaoui, with wide experience in the industry (former head of region?s top client, previously having setup Roger Dubuis? presence in the region) Local subsidiary setup in August, with local office, communication and back-office staff setup Marketing activity increased and optimized, e.g. local events, advertising presence, Close monitoring and support of partners setup, namely restarting the business with Jocalia, the ?still born? franchise in Abu Dhabi Comprehensive franchise contract and guidelines developed to ensure adequate management of expectations to all future partners Dubai presence increased: expansion of presence in partner?s multibrand stores set (space at Dubai Mall POS being doubled, presence in Mall of the Emirates POS being setup, introduction into Four Seasons and/or Atlantis POS being discussed) Kuwait retail space increased: Introduced in Multibrand concept Alma in Hamra Mall (1 PCS). dG will be part of the future 2 other Alma POS (360 and Prestige Avenues). Boutique space at Dubai and Prestige Mall still to be secured (although all efforts being made) do GR ISOGONO iF\ with several additional steps under way in this first semester Set priorities Revamp the relationship with key partners Increase presence in the region Ensure adequate support/ control of partners Position dG to gain presence in major retail spaces 18 Actions underway HJ rotation program being setup, whereby top partners pay a fee to gain access sets of HJ pieces which rotate every 10-12 weeks. Agreed in Principle with Seddiqi Trafalgar for now. Negotiations under way to replace poor performing Saudi partner Launch of presence in India scheduled for September with partners signed up for Mumbai and Delhi. This will be focused on Watch business only. Several local initiatives scheduled, e.g. promotion in Dubai Mall, trunkshow in India, Blogger?s lunch in Kuwait Comprehensive training program being launched: As of March 2014, 3 part training program to be implemented over a 4 month period Incentive program for sales associates under review: two parallel programs will be running all year: first is linked to Sales performance, second to Quality of the performance Continue efforts to lock-in boutique at Dubai Mall and Prestige Mall: Dubai Mall extension project is underway, no decision taken by the mall yet (no efforts are spared). As for Prestige Mall, Trafalgar is pushing to secure space for dG in Phase 4 (planned for 2017) 3.3 de GR ISOGONO iF\ As a first result, stock levels at key clients are already closer to normality Due to improved sell-out results, and increased investment of from some clients Years of stock (reported stock level divided by sell-out sales) 100 - 2012 95 2013 90 - 89,1 17,3 15 - 14l?l?I AL FARDAN GHADAH AHMED SEDDIQI TRAFALGAR JB JEWELERS 5m" "we 3'247 4'581 2'033 997 370 '12 (in CHF) 3'222 2'306 2'209 905 Stock value 2'939 ?13 (in CHF) 19 de GR ISOGONO Agenda 20 United States update is? de GR LSQGONO US not appropriately addressed, with low sales and high costs A loss generating region with low and stagnant Net sales EBIT 12 - 11Private Sales SS - Wholesale Retail EBIT Margin 1. At constant exchange rate of 0.937845 Source: de Grisogono internal data, BCG analysis 21 driven by three major structural problems Poor performing boutiques (US boutiques the worst performing in all "segments) Small to insignificant WS presence (with the exception of Bergdorf) Very heavy organization (with ~40% of sales spent in labor) 1" . I de GR BEGONO In 2012, US boutiques were the worst performing in all New York and Las Vegas were the worst in their respective segments 2012 Sales (m CHF) 9.000 - 8.244 7.500 6.000 4.500 3.000 1.500 895 823 789 0 Paris Geneva London New Porto St St Gstaad Tokyo Rome Las York Cervo Barth Moritz Vegas Flagship Seasonal Classic Boutiques Boutiques Boutiques - - - a Source: de Grlsogono Internal data, BCG d6 GR 2 2 9 and wholesale accounts were extremely small With the exception of Bergdorf (since then reclassified to retail) Only Bergdorf as one of the top 15 representing 50-60% of global wholesale the total US wholesale business Top 15 worldwide WS accounts US W8 accounts Italdizain 3,5 3?5 3,18 Others Mercury 2 5 3 th B..gdo.f_ 11.9 3'0 - Chronovision l1,6 Bergdorf Viled 1,3 2,5 - 27% Trafalgar 1,2 Jocalia 1,1 2,0 - Ghadah 0,9 - Eastern Europe :telier _: 007r8 Europe 1,5 - 1,28 Watch Int'l 0,5 I M'dd'e Ea? 1 0 62% Azra I 0,6 Latam 34% Vendome 0'6 Next US account is 0?5 - N??rdzee .: 0'5 ranked 18th, with 400k 50% Seddiqi -o2012 Sales Sales Net margin Source. de Gnsogono Internal data6+:er 0 Moreover, a "Heavy" organization was installed Organizational structure and fixed salaries Regional managing director (197k) Retail Wholesale Central I 328 315 I WS manager PR manager Logistics Accounting New York Las Vegas . Bal Harbor . manager manager 84k 122k 66k 80k Bouti ue Bouti ue Junior manager manager ?1 manager 5 Canada WS accountant 84k 103k 9_ 4k _3 rep 47k ~23k Deputy Deputy _D_ep_u_ty_ _i manager? manager manager 103k 56" BG sales 5 support 3x Sales 4x Sales 4 3x Sales 128k 140k 155k 113k Existing positions Setup in 2013 Staff's full cost a Fixed salary v; 1. Total amount for 2013 will be lower, in proportion of opened months 2. The cost of the Regional Managing Director is allocated to Central Source: de Grisogono internal data, BCG analysis (16 GR BOG ONO 24 axxrw <11: Five major initiatives set in early 2013 to turnaround region, however, limited ground covered to date due to competing priorities 0 Close Las Vegas Improve New York performance Ensure Miami's success Improve wholesale performance Build private sales platform 25 Actions already taken Exit negotiated for 500k vs. 2m set in contract (cost offset by just one year of losses) Boutique closed, with no visible impact on brand perception Fired regional director, improving team effectiveness and environment Replaced the 2 poor performing staff elements However, very limited sales growth not reaching budget Boutique launched although with 3 months delay (May) Major event organized in Miami, establishing brand awareness Sales in continuous growth (864k in 2013), with break even expected this year (1,8m) Support to Bergdorf greatly improved and increased (sales up 85%, to 3,4m) However, wholesale network still negligent and with only 1,5m in sales Team setup in September of 2013 (former regional head RL personal shopper) Three events executed, and contacts established with several former and potential clients However, only 173k in sales generated in 2013 (a strong loss vs. ?500k cost of team) 0% <5 i} do GR ISOGONO i Nonetheless the US operation has started to improve with growth in retail and wholesale sales Retail: New York and Wholesale: performance Private Sales Miami increasing in sales improving due to Bergdorf however still dormant ?923 dc GR Is 201x10 Several actions underway to push progress over next 3 months 27 Close Las Vegas Improve New York performance Ensure Miami's success Improve wholesale performance Build private sales platform Actions planned for the first semester Done Streamlined media plan to ensure constant presence in top publications NY times) Map key sales executives in Madison avenue to approach for recruitment Increased advertising presence, especially through billboards on key roads Targeted promotional campaign at private jet terminals (with product showcases and promoters) Partnership program with Ferreti boats, with product and staff presence at 4 events On-boarding of new wholesale manager (former responsible of Roger Dubois, responsible for establishing brand?s presence in the US, from 0,5 to 8m in five years) Review team plan and budget for 2014, to ensure sustainable trajectory L3 dc GR ISOGONO