consob regulation 11971 (as amended by consob...

This research has been prepared by Merrill Lynch as part of its services to itsclients, and is intended to be used only by those clients when providedthrough other means, and in the context of the overall client relationship,including individual recommendations and advice that ML provides to itsclients. It is provided here pursuant to the requirements of Article 69 ofConsob Regulation 11971 (as amended by Consob Resolution 13616) and isnot intended for use by any other person in making investment decisions. MLassumes no responsibility, and will not have any liability, to any such personwho may have access to the research. This research is subject to changeafter the date thereon and may not be current at later times. Merrill Lynchassumes no responsibility to update such research.

>> Employed by a non-US affiliate of MLPF&S and is not registered/qualified as a research analyst under the NYSE/NASD rules. Merrill Lynch does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. Refer to important disclosures on page 29 to 30. Analyst Certification on page 28. 10538954

Nice SPA

The Click Factor

Italy-based home automation play Nice is a leading company in the field of wireless home automation. It is based in NE Italy but 80% of its revenues are derived from exports, primarily in Europe. It is mostly involved in the development of systems for the Gate and Screen segments that are professionally installed. It outsources 100% of the manufacturing process and has a reputation for cutting-edge design and ease of installation and use. Nice was listed on the Milan Borsa in May 2006 at €5.70.

High margin, high growth story 1993-2005 CAGR in revenues was 41% as they soared from €2mn to €122mn. In the last two years Nice has grown 18% annually in the Gate market (over twice global market growth) and 42% annually in the Screen market (almost six times market growth) whilst delivering an EBITDA margin north of 32%. We believe revenues will increase by almost 90% by 2008 with scope for a 150-200 bp improvement in margins. Q106 revenues were up 35% on higher margins.

Drivers remain attractive Nice should benefit from strong sector trends (Frost & Sullivan estimate 8%+ growth p.a. to 2011 for both segments) as well as market share gains. Management also plans to open ten new subsidiaries over the next five years doubling the number of markets with a direct presence whilst also flagging an interest in entering into related product areas in the future (eg. security systems).

Fair value estimate: €7.3 We believe Nice is poised for further sustained growth with more upside from the current price. We have calculated our fair value based on a standalone basis around a WACC of 8.6% and a terminal growth rate of 2.5%.

Estimates (Dec)

(EUR) 2004A 2005A 2006E 2007E 2008E IFRS IFRS IFRS IFRS IFRS EPS (Reported) 0.18 0.20 0.26 0.32 0.41 EPS Change (YoY) 29.0% 10.6% 31.5% 23.3% 28.2% Dividend / Share 0 0 0 0.09 0.11

Valuation (Dec) 2004A 2005A 2006E 2007E 2008E P/E 36.6x 33.1x 25.2x 20.4x 15.9x Dividend Yield 0% 0% 0% 1.31% 1.62% EV / EBITDA* 21.6x 19.4x 14.9x 12.2x 9.77x Free Cash Flow Yield* 2.36% 0.33% 3.05% 3.81% 5.79%

* For full definitions of iQmethod SM measures, see page 28.

Initial Opinion NEUTRAL

Equity | Italy | Electrical Equipment 02 August 2006

Flavio Cereda >> +44 20 7996 1455Research Analyst MLPF&S (UK) [email protected] Andrew Crispin +44 20 7995 3290Specialist Sales MLPF&S (UK) [email protected]

Stock Data Price EUR6.52 Investment Opinion C-2-9 Volatility Risk HIGH 52-Week Range EUR5.28-EUR6.75 Mrkt Val / Shares Out (mn) EUR756 / 116.0 Average Daily Volume 203,726 ML Symbol / Exchange NIESF / MIL Bloomberg / Reuters NICE IM / NICE.MI ROE (2006E) 29.4% Net Dbt to Eqty (Dec-2005A) 0% Est. 5-Yr EPS / DPS Growth 20.0% / 20.0% Free Float 35.0%

Nice SPA 02 Augus t 2006

2

iQprofile SM Nice SPA Key Income Statement Data (Dec) 2004A 2005A 2006E 2007E 2008E (EUR Millions) IFRS IFRS IFRS IFRS IFRS

Sales 101 122 158 191 229 EBITDA Adjusted 35.0 39.1 50.7 62.2 77.4 Depreciation & Amortization (2.32) (2.78) (2.78) (3.78) (4.08) EBIT Adjusted 32.7 36.3 47.9 58.4 73.4 Net Interest & Other Income (0.21) (0.12) 1.40 1.70 2.70 Tax Expense / Benefit (12.9) (14.5) (19.2) (23.0) (28.5) Net Income (Adjusted) 19.6 21.7 30.1 37.1 47.5 Average Fully Diluted Shares Outstanding 110 110 116 116 116 Key Cash Flow Statement Data Net Income (Reported) 19.6 21.7 30.1 37.1 47.5 Depreciation & Amortization 2.32 2.78 2.78 3.78 4.08 Change in Working Capital (7.50) (6.40) (5.76) (7.05) (5.80) Deferred Taxation Charge 0 0 0 0 0 Other Adjustments, Net 5.97 (1.36) 2.50 4.00 4.00 Cash Flow from Operations 20.4 16.7 29.6 37.8 49.8 Capital Expenditure (3.50) (14.3) (6.50) (9.00) (6.00) (Acquisition) / Disposal of Investments 0 0 0 0 0 Other Cash Inflow / (Outflow) (0.90) (0.40) 0 0 6.00 Cash Flow from Investing (4.40) (14.7) (6.50) (9.00) 0 Share Issue / (Repurchase) 0 33.0 0 0 0 Cost of Dividends Paid 0 0 0 (9.92) (12.2) Cash Flow from Financing 0 0 0 0 0 Non Cash Changes to Debt NA NA NA NA NA Change in Net Debt (1.00) (2.80) 29.4 (9.92) (18.2) Net Debt (21.8) (20.0) (54.1) (73.0) (105) Key Balance Sheet Data Property, Plant & Equipment 20.3 33.9 9.50 10.0 12.6 Goodwill 5.30 5.50 5.50 5.50 5.50 Other Intangibles 18.0 15.3 10.5 7.10 4.80 Other Non-Current Assets 0.50 0.50 0 0 2.00 Trade Receivables 26.3 32.6 39.1 43.4 48.1 Cash & Equivalents 32.7 33.1 59.1 78.0 110 Other Current Assets 16.9 27.8 31.4 38.3 43.1 Total Assets 120 149 155 182 226 Long-Term Debt 7.60 9.30 2.00 2.00 2.00 Other Non-Current Liabilities 5.90 4.10 3.70 8.80 17.3 Short-Term Debt 3.30 3.80 3.00 3.00 3.00 Other Current Liabilities 27.5 34.0 38.2 48.8 57.8 Total Liabilities 44.3 51.2 46.9 62.6 80.1 Total Equity 75.7 97.5 108 120 146 Total Equity & Liabilities 120 149 155 182 226 Key Metrics

iQmethod SM - Bus Performance* Return On Capital Employed 27.6% 23.6% 28.0% 32.5% 34.3% Return On Equity 31.7% 25.2% 29.4% 32.7% 36.0% Operating Margin 32.4% 29.9% 30.3% 30.6% 32.0% Free Cash Flow (MM) 16.9 2.40 23.1 28.8 43.8

iQmethod SM - Quality of Earnings* Cash Realization Ratio 1.04x 0.77x 0.98x 1.02x 1.05x Asset Replacement Ratio 5.15x 18.3x 8.33x 11.5x 7.69x Tax Rate 39.7% 40.0% 39.0% 38.3% 37.5% Net Debt/Equity -28.8% -20.5% -50.0% -61.0% -71.8% Interest Cover 32.1x 27.1x NM NM NM

* For full definitions of iQmethod SM measures, see page 28.

Company Description Nice is a leading company in the field of wireless home

automation. It is based in NE Italy but 80% of its revenues are derived from exports, primarily in Europe. It is mostly involved in the development of systems for the Gate and Screen segments that are professionally installed. It outsources 100% of the manufacturing process and has a reputation for cutting-edge design and ease of installation and use.

Stock Data Price to Book Value 7.0x


3

Executive Summary Nice is involved in the design, development, production and marketing of a number of wireless home-automation systems via products that are increasingly integrated and activated by a single remote. It outsources 100% of all manufacturing and is not directly involved in the installation of its products. Cutting-edge design and ergonomics, as well as constant product innovation, are the key characteristics of the group’s products which comprise systems for:

Gates (automation systems for gates, garages and barriers, including motors, lights, control units, transmitters and receivers and all accessories).

Screens (automation systems for awnings, shutters, blinds and curtains, including tubular motors, climatic sensors, control units, transmitters and receivers).

Its products are not usually sold to the end-user (with the exception of the Mhouse DIY product line), but rather to installers and wholesalers via a local subsidiary or Nice’s dedicated sales force at its headquarters near Venice. Over 80% of revenues are derived from exports as Nice sells in over 100 markets with a direct presence in 10.

The company was set up in the early 90s by the current CEO and majority shareholder, Lauro Buoro and employed a total of 426 staff at year-end, including 140 in sales.

Nice was listed on the STAR segment of the Milan Stock Exchange in May 2006 at €5.70 p/share based on the minimum required 35% free float.

In 2005 Nice recorded €121.5mn in revenues, 69% in Gate Products and 31% in screen Products. EBITDA margin was 32%. Q106 figures show a 35% increase in revenues and a 250 bp improvement in EBITDA margin.

Chart 2: Nice Business Model Research &

Development Planning, Programming

and Procurement

Sales and Distribution

Marketing and Communication

Production

In-House Partially Outsourced

Logistics and Quality Control

Fully Outsourced

Design

Research & Development Planning,

Programming and Procurement



Production



Fully Outsourced

Design

Source: Company data

Positives

Growth markets: Frost and Sullivan estimates both product areas will experience strong growth in the medium-term: over 8% CAGR to 2011. We believe Nice is likely to outperform each market over the time period.

Design. Nice has a strong reputation for its cutting-edge design and ease of installation and use. There is significant evidence that this remains one of the key factors in its ongoing significant market share gains.

Chart 1: Revenue Mix (Geographies)

France, 28.3%

Other EU, 26.6%

Italy , 18.5%Asia-Pac, 2.4%

Nam, 1.7%

Africa+ME, 4.3%

RoE, 18.2%



4

Financials: Nice has developed a strong record in working capital management (22-23% of sales) which is only marginally cash absorptive. We believe Nice will be sitting on around €54mn cash by the end of the year as things stand, with a further possible cash generation of around €50mn in the following two years.

Its outsourcing approach (77 third parties almost entirely in NE Italy) has proved extremely flexible and rewarding in terms of volume management and profitability margins. Its high-quality testing facilities allow for the self-certification of the product thus significantly reducing time-to-market.

With the exception of the DIY line (10% of sales), Nice’s products are professionally installed. As a result, Nice’s customers tend to be professional installers, manufacturers and distributors: not the end customer. It should be added that the final liability on the product is assumed by the installer.

Management have indicated that they are exploring opportunities in related product areas (eg security and entry systems) that would fit current production and distribution/sales mechanics well.

Risks Any significant issue with its exclusive design consultancy may impair its ability to maintain its design and technology edge. Similarly, any delivery issues from

the larger third party manufacturers and assemblers would impact its ability to deliver required quantities on time.

Non-domestic product sourcing is increasing, mostly to Romania and China, thus entailing a greater risk profile in terms of both quality and timeliness.

Not all of Nice’s products can be fully patented such that competitors may attempt to replicate some of their components and systems.

Very significant price oscillations for raw materials may result in short-term glitches in profitability.

Any sharp downturn in the construction market or in consumers’ ability/desire to pay for house improvements may affect the growth profile of the sector and would inevitably affect Nice’s revenue growth.

Conclusion Nice is a high-growth, high-margin company that is likely to continue to gain market share in its relevant business areas. Management is gearing up for further sustained expansion in new geographies and may pursue opportunities in related product areas.

Our fair value of €7.3 is based on a standalone DCF valuation based on a WACC of 8.6% and a terminal growth rate of 2.5%. We also understand Nice will be paying a dividend in May 2007 based on 2006 parent company results (35% payout is expected). A post-IPO 365-day lock-up period on any new share issue is currently in place.

Table 1: Nice subsidiary network history market No. of subsidiaries No. of salespersons since..?ITALY 2 30 (10 for other mkts) 1993FRANCE 2 55 1995SPAIN 2 20 2001POLAND 1 14 2001BELGIUM 1 3 2002CHINA 1 8 2002UK 1 4 2003GERMANY 1 3 2005ROMANIA 1 2 2005USA 1 1 2005


Chart 3: Nice Customer Revenue Mix, 2005

distributors, 43.1%

installers, 30.8%

manufacturers, 16.1%

wholesalers, 2.8%

DIY, 7.2%



5

Company Overview Nice is a leading company in the field of wireless home automation. It is the highest-margin and fastest-growing player in this arena and is primarily involved in two business areas:

Gates (automation systems for gates, garages and barriers, including motors, lights, control units, transmitters and receivers and all accessories).

Screens (automation systems for awnings, shutters, blinds and curtains, including tubular motors, climatic sensors, control units, transmitters and receivers).

A third product area, Mhouse, is an extension of the above divisions and is aimed at the growing DIY market, generating around 10% of revenues at present.

Nice is involved in the design, development, production and marketing of a number of home-automation systems via products that are increasingly integrated and activated by a single remote. It outsources 100% of all manufacturing and is not directly involved in the installation of its products. Cutting-edge design and ergonomics, as well as constant product innovation, are the key characteristics of the group’s products.

Its products are not usually sold to the end-user (with the exception of the Mhouse DIY product line), but rather to installers and wholesalers via a local subsidiary or Nice’s dedicated sales force at its headquarters near Venice.

Fundamental to Nice’s growth story was the opportunity afforded by the development of wireless systems, both in terms of ease of use and installation and of implied potential applications. There is no need for complex set-up work, which significantly reduces the likelihood of incorrect installation and the final liability lies in any case with the installer, not Nice.

Chart 5: Nice business model Research &

Development Planning, Programming

and Procurement



Production



Fully Outsourced

Design

Research & Development Planning,

Programming and Procurement



Production



Fully Outsourced

Design


Currently, Nice sells into 100 different markets, with a direct presence in 10, with 13 subsidiaries and 140 salespersons (up from 104 at the end of 2004) out of a total staff of 400.

Nice was listed on the STAR segment of the Milan Stock Exchange in May 2006 at €5.70 p/share based on the minimum required 35% free float.

In 2005 Nice recorded €121.5mn in revenues, 69% in Gate Products and 31% in screen Products. EBITDA margin was 32%. Q106 figures show a 35% increase in revenues and a 250 bp improvement in EBITDA margin.

Chart 4: Revenue Mix (Geographies)

France, 28.3%

Other EU, 26.6%

Italy , 18.5%Asia-Pac, 2.4%

Nam, 1.7%

Africa+ME, 4.3%

RoE, 18.2%



6

Valuation Lack of comparables (see below) points us towards standalone valuation albeit with the handicap of a limited track record.

Using a DCF approach on a WACC of 8.6% and a perpetual growth rate of 2.5% points us to a fair value of the order of €7.3, or an implied market capitalisation of €842mn.

Our Cash Flow calculation is based on an explicit period running 2006-09 followed by a 6-year growth and consolidation phase with an estimated CAGR of EBITDA of 12% and a yearly increase in total working capital cash absorption of 9% (versus a 10% implicit revenue growth). Table 3: Nice Cash Flow Model €mn 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015EBITDA 51 62 77 87 97 109 122 136 153 171D+A 3 4 4 4 4 5 5 5 5 6EBIT 48 58 73 82 93 104 117 131 147 165cash taxes 18 22 28 31 35 40 44 50 56 63NOPLAT 30 36 45 51 57 65 72 81 91 103Gross Cash Flow 32 40 50 55 62 69 77 87 97 108Capex -6 -9 -6 -7 -8 -9 -10 -11 -12 -13WC -6 -7 -6 -6 -7 -7 -8 -8 -9 -10FCF 21 24 38 42 47 53 60 67 76 85Source: Merrill Lynch estimates

At this assumption, we are looking at a WACC of 8.6%, a PV of FCF during the explicit period of €97mn, a PV of later FCF of €192mn and a PV from the terminal value period of €524mn, totalling €814mn. Net of €28mn average cash this is equivalent to an equity value of €842mn or €7.26 p/share. Table 4: Nice Sensitivity Analysis

WACC TGR (%) % 1.5 2.0 2.5 3.0 3.58.0 7.0 7.3 7.7 8.1 8.68.5 6.7 7.0 7.3 7.7 8.28.6 6.5 6.8 7.3 7.6 8.09.0 6.3 6.6 7.0 7.3 7.89.5 6.1 6.3 6.6 7.0 7.410.0 5.9 6.0 6.3 6.8 7.1

Source: Merrill Lynch estimates

The implied valuation ratios at our proposed valuation read as follows: Table 5: Valuation Ratios at €7.3 2007 2008Sales 1.7 2.7EV/EBITDA 12.4 9.6EV/EBIT 13.2 10.1P/E 22.8 17.8Source: Merrill Lynch estimates

Table 2: Nice WACC hypothesis Risk-free Rate 4.30% 10Y Bond yield Market Risk premium 4.30% Matches RFR Beta 1.2 Arbitrary: 1+20% small-cap risk Cost of Debt, net 3.50% Tax rate 38% WACC 8.62% Source: Merrill Lynch estimates


7

One of the challenges with Nice is a near-total lack of comparables. Somfy in France is perhaps the only exception but is a different company in many respects in that it has a far greater market share in the Screen segment which it dominates globally (with minimal presence in Gate other than via a minority stake in FAAC) but also a different business model with far less reliance on outsourcing and far lower growth rates and margins.

Consensus estimates on Somfy point to a 2005-07 EBITDA growth of 14-15% and an EBITDA margin of just over 24% in 2007. The two companies would compare as follows: Table 6: Nice Vs Somfy SOMFY NICEprice 189.0 6.5market cap 1480 754EV/EBITDA 06E 9.2 13.7EV/EBITDA 07E 8.3 10.9EEG 2006E* 1.31 0.86P/E 06E** 19.0 25.1P/E 07E** 16.6 20.3P/E 08E 14.8 15.9PEG 07E*** 1.28 0.81* 2006 EBITDA multiple/05-07 EBITDA growth ** as declared, no adj.

*** 2007 P/E on 06-08 EPS growth (05-06 EPS ∆ was negative) source: Nice: Merrill Lynch, Somfy: broker estimates

Notice that the differential does not seem to vary much. We believe, assuming the current capitalisation of Somfy to be a fair one, that the 55% average ∆ in relative valuation may underestimate the difference in growth prospects over the time period (90% for EPS, threefold for EBITDA, where the margin differential is over one-third) even after allowing for the implicit forward risk and size difference (but the difference in free float is only €32mn and liquidity trends favour Nice).

Other possible comparables are either specialist manufacturers with a strong brand in the context of business models with a degree of similarity (eg. Geberit) or high-growth high-margin players in different sectors with similar track records (eg. Geox).

Geberit (GEBTF, CHF 1376, B-3-7) is 3.5X the market cap of Nice, delivers a 26% EBITDA margin and a 2006-2008 total estimated EPS growth of 20%. The stock trades on 15.5x 2007 P/E and 9x EBITDA (source: consensus) or around a 25% discount on average.

Geox (GXSBF, EUR9.3, C-2-7) is just over 3x the market cap of Nice, delivers a 27% EBITDA margin and a 2006-08 total estimates EPS growth of around 40%. The stock trades on 23x 2007 and 12x EBITDA (source: ML) or a 10% premium to Nice on average.

Nice is estimated to deliver a near-33% EBITDA margin and a 2006-08 total estimates EPS growth of around 58%.

We believe that at this stage in its growth process Nice is more akin to the former than to the latter, obvious differences notwithstanding.


8

The Gate and Screen markets The estimated combined wholesale value of the Gate and Screen markets in 2005 was €2.5bn (source Frost and Sullivan):

€1.7bn for the Gate market (defined as automation systems for gates, garage doors and barriers), with a 2001-05 CAGR at +7.3%.

€0.8bn for the Screen market (defined as automation systems for awnings, rolling shutters and curtains), with a 2001-05 CAGR at +7.1%.

The drivers for both markets are GDP growth and its related impact on consumer spending and new residential and commercial developments, higher standards of living and increasing demand for comfort and security.

Nice is the only operator combining three key characteristics:

Ongoing market outperformance in both areas

Monobrand player

Relevant market share in both business areas

Table 7: Nice ranking and share by geographical mix Gate market share Gate market rank Screen market share Screen market rank Western Europe 9.0% 3rd 5.0% 4th North America 0.0% none 0.0% none CE Europe 14.0% 2nd 6.0% 4th Rest of Europe 13.0% 2nd 11.0% 2nd Africa + ME 3.0% 5th 4.0% 3rd Asia-Pacific 2.0% 6th 5.0% 3rd Global 5.0% 4th 4.0% 4th Gap from No.1 17.0% 62.0% Gap from No.2 2.0% 9.0% Gap from No.3 2.0% 1.0% Source: Company data

Chart 6: Geo Mix of Global Gate Market

42%

36%

6%2%

6% 8%

North America Western Europe CE Europe ROE Africa+ME Asia-Pac

Source: Frost and Sullivan

Chart 7: Geo Mix of Global Screen Market

11%

68%

4%

2% 6%9%

North America Western Europe CE Europe ROE Africa+ME Asia-Pac



9

The Gate market The global Gate market is dominated by North America (predominantly for garage doors rather than gates) and Western Europe. The main end-users tend to be residential clients for gate openers and garage doors and commercial enterprises for gates and road barriers.

The dominant role of the garage door segment in the US market should be highlighted in that it differs from any other. As a result, the leading global player, Chamberlain in the US with a 22% market share (www.chamberlain.com), is almost exclusively a garage-door motor manufacturer. The next three global players are all Italian: FAAC with a 7% share (www.faac.it), CAME with a 7% share (www.came.it) and Nice with a 5% share. The remaining 59% share is split amongst a plethora of small manufacturers, many of which are Italy-based.

This is a fast-growing market: 2001-05 CAGR was +7.3% globally with +8.4% CAGR estimated for 2005-11 implying a target wholesale value for 2011 of €2.81bn (source: Frost and Sullivan) or almost 2.2x that of 2001. Growth rates differ by area, but remain high single digit, even in the ‘old’ European markets. We are assuming growth rates are constant for calculations to 2008.

We believe that the degree of fragmentation of the market coupled with a market leader that is dominant in only one segment of the market (and in one country only) offers Nice a significant opportunity to grow its market share and revenue base in the medium term.

Nice’s 2003-05 CAGR was 17.7% versus 7.7% for the market

The Screen market The global Screen market is entirely dominated by Western Europe, France and Germany, with the residential sector by far its main driver.

Growth rates are similar to those seen for the Gate market: +7.1% CAGR over 2001-05 and an estimated +8.2% CAGR 2005-11, although a greater market concentration would indicate huge potential for growth in those hitherto underdeveloped markets (including North America).

We are assuming growth rates are constant for calculations to 2008.

Chart 8: Wholesale Value of Global Gate Market

1.31

1.73

2.81

0

0.5

1

1.5

2

2.5

3

2001 2005 2011

€bn


Chart 9: Wholesale Value of Global Screen Market

0.62

0.82

1.32

0

0.2

0.4

0.6

0.8

1

1.2

1.4

2001 2005 2011

€bn



10

The Screen market is far more concentrated, with one player, Somfy of France (www.somfy.com), accounting for 66% of global share. This is followed by two German companies, Elero (www.elero.com) and Becker (www.becker-antriebe.de) with 13% and 5% respectively. Both the latter are predominantly domestic players. Nice ranks No.4 with 4% share but with a 42% CAGR in revenues in 2003-05 versus 7.4% for the market and just 1% organic for the market leader Somfy according to consensus.

Growth drivers The medium-term growth potential is highly significant in both business areas, although the nature of the competitive landscape is different. In the Gate sector, Nice is thriving in a very fragmented market and we believe the group will rank No.2 globally within a couple of years if we adjust for Chamberlain’s domestic near-monopoly on the garage door market. In the Screen sector, we believe Nice will be able to grow substantially more than the market as it erodes Somfy’s market share and we believe it should attain a No.3 global ranking within four years.

The main drivers for both markets are:

Increasing security concerns

Increasing demand for comfort and easy-to-use systems

Ongoing trends in new housing stock

Increasing tendency to upgrade existing stock

France, Germany and Italy remain the main markets for home automation but other areas are growing in importance, such as ‘new Europe’, Africa (South Africa, for example), the Middle East and the Asia-Pacific region. The US market is different in nature but could provide a substantial opportunity should it start to evolve towards a European model, especially insofar as the Screen sector is concerned.

Chart 10: Gate Market CAGR by Geographical Segmentation

-1.0%

1.0%

3.0%

5.0%

7.0%

9.0%

11.0%

13.0%

15.0%

West. Europe Nam CE Europe ROE* Africa+ME Asia-Pac

2001/05 2005/11

Source: Frost and Sullivan / *ROE 2001-05 CAGR was 20.2%

Chart 11: Screen Market CAGR by Geographical Segmentation

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

West. Europe Nam CE Europe ROE Africa+ME Asia-Pac

2001/05 2005/11



11

We are looking for the following trends over 2005-08 (based also on forecasts from Frost & Sullivan):

Gate market CAGR: +8.4% vs Nice gate CAGR: +15%

Screen market CAGR: +8.3% vs Nice screen CAGR: +39%

We therefore envisage Nice global market shares of 6% for Gate in 2008 and 10% for Screen versus 5% and 4% in 2005

Company Timeline The company was set up in the early 1990s by the current CEO Lauro Buoro and initially focused on the software element of the Gate sector. It then entered into the Gate hardware market after the acquisition of Movo in 1993. Exports have accounted for at least 50% of revenues since 1993.

Having entered the hardware segment of the Gate automation market via a separate division within Movo, in which Mr Galberti (originally from Movo, now on the Nice BoD) had a 15% stake, management merged this into Nice in 1998 and Mr Galberti converted his stake into a 1.6% share of the Nice Group (see corporate governance section).

At the end of 2000, Nice acquired Motus, an Italian manufacturer of motors for blinds and awnings, thereby diversifying into the Screen market. Motus was subsequently fully incorporated in 2003.

Between 2000 and 2003, Nice opened subsidiaries in four markets (Poland, Spain, China and Belgium), as well as two more branches in France and Italy and increased revenues by over 75% to almost €80mn. Each subsidiary operates and maintains a local warehousing and distribution facility. During this period the group entered the DIY market, accessible through large retailers (Castorama, Leroy Marlin, Bauhaus, B&Q), by developing ad hoc gate and screen products launched under the Mhouse logo in 2003.

Nice also has subsidiaries in the UK, Germany, Romania and the US. It sells into 100 different markets, with a direct presence in 10 of these, with 13 subsidiaries and a total of 140 sales people (104 at the end of 2004). Total staff numbers were 426 at year-end 2005 versus 332 the previous year.

Table 8: Nice subsidiary network history market No. of subsidiaries No. of salespersons since..?ITALY 2 30 (10 for other mkts) 1993FRANCE 2 55 1995SPAIN 2 20 2001POLAND 1 14 2001BELGIUM 1 3 2002CHINA 1 8 2002UK 1 4 2003GERMANY 1 3 2005ROMANIA 1 2 2005USA 1 1 2005



12

Chart 12: Nice Revenue Trends and Exports Incidence

0

50

100

150

200

250

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008€m

n

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

rev enues ex ports as % total


The Product and the Process Nice directly controls all phases of product development and distribution except for two key aspects:

Nice is not involved in the basic manufacturing process

Nice is not usually involved in the final installation process

1 - The manufacturing process Nice outsources 100% of production to 77 (at present) third parties, something which is achievable largely due to the peculiar nature of the industrial fabric of northeast Italy. These counterparts range in size from four to over 50 staff and Nice operates with more than one on any product line at any one time to reduce the risk profile (in terms of quality, delivery, etc). As a result, Nice does not enter into any long-term arrangements, but rather works on an order-by-order basis with no potentially hidden liability. Nice is often the only or main customer of these manufacturers and will often have been so for a number of years, leading to a strong business relationship and a position of considerable influence.


13

Table 9: Nice Outsourcing Process Basic Components

Silk-screen Printing

Basic Components

Basic Components Finishing

TestingAssemblingBasic Components


Basic Components



Basic Components


TestingAssembling

Note: S = suppliers, T = third-party manufacturers Source: Company data

Nice uses different parties for different stages of the production process, thus ensuring all know-how is kept internally, and different products at different stages of the manufacturing process will be stored in its warehouses at any one time, thus functioning as a finely tuned just-in-time system. All material and electrical and electronic component purchasing is centralised, including the import of ad hoc circuit boards from China. The main warehouse in Italy is 11,000 sq m and handled six million SKU movements in 2005 – this may be fully automated from 2007 (a decision will be taken given that different options are available).

Nice sources the required base components, from outer shells and materials to electrical/electronic components. The group has an established relationship with over 350 suppliers (the top 10 account for around 30%) and is increasingly benefiting from the ongoing integration of the gate and screen businesses (economies of scale, clout with suppliers, etc). The production programming committee (seven buyers based at the headquarters near Venice) attempts to quantify the likely requirements for the production forecast for the following 12 months, negotiating pricing and delivery schedules with the relevant suppliers.

The nature of the materials sourced is such that significant shifts in raw material prices are unlikely to command a tangible effect for Nice – for example, a 60% increase in copper prices only resulted in a 3% increase in the purchase cost of transformers (where copper accounts for 40%), with the ongoing deflation in electronic prices fully benefiting the group. Total raw material price increases in 2005 impacted total costs by 6% only.


14

Various components are then dispatched to different third-party manufacturers at different stages for several processes (from silk screen printing to moulding to motor assembly, etc), with goods moving in and out of the warehouse. Testing is done either directly by Nice or by third parties, with equipment supplied by Nice and with all product testing closely monitored by its headquarters.

Nice’s advanced prototype and product testing facilities have allowed the group to ensure all product development and testing is done internally including Nice training external staff and supplying internally-developed machines and tools for quality testing and control to third parties. In other words, the key elements of the value-added process are internal.

Nice is also able to self-certify its products, which, together with a carefully developed logistics structure, greatly speeds up the time-to-market process. Nice products are currently ISO 9001:2000 certified by DNV and are also fully compliant with other certification standards, such as FCC, UL and VDE.

Nice’s R&D team of 42 (20 of whom focus on wireless technology) rolled out 331 new products between 2003-05, many of which are covered by patents and are unique to the group. R&D was 2.6% of revenues in 2005 – a 3% total in 2008 according to our assumptions would imply a spend of €18mn over the next three years. Time-to-market ranges between six and 18 months, with feedback from installers on ease and suitability of use playing a major role.

Testing facilities at headquarters are very comprehensive and cover:

Electromagnetic

Electric security

Acoustic and radio (EU directives)

Climatic

The installation process Nice’s branded products are not sold directly to the end-user but are usually marketed to the relevant installers in each market, all of whom are vetted by the group. All Nice branded products are therefore professionally installed.

As a result, Nice has no need to spend vast sums on advertising (although the group’s products are increasingly featured in consumer and lifestyle magazines and the effect of the IPO on end-user brand recognition is significant) and, most importantly, the onus for correct installation and use of its product falls upon the final installer, which has the only interface with the end-user (commercial or residential) and is responsible for issuing the appropriate liability certificate in connection with the use and link-up of motors.

Nice interfaces with five different types of customers:


15

Chart 13: Nice Selling Process and Counterparts

Installers

Installers

Manufacturers

Electric Material

Wholesalers

Large-scale retail DIY

Distributors

End-UsersInstallers

Installers

Manufacturers

Electric Material

Wholesalers

Large-scale retail DIY

Distributors

End-Users


The numbers are significant: almost 6,000 professional installers (from large professional organisations to smaller ‘occasional’ players; there are 50,000 in Italy alone who could install one or more Nice products every year), 700 distributors (including of related products such as doors, gates, awnings, etc) and some 630 manufacturers of the products themselves. The category of electric material wholesalers is relatively new and focuses on the smaller accounts (five to 10 installations per annum versus the same per day with the large professional installers) totalling around 430. All these act as de facto intermediaries between Nice and the end-user (be it residential, commercial, real estate developer, etc), and it is here that Nice focuses its marketing and promotional spend.

We understand the top 10 accounts represent around 16% of total revenues.

The fifth category, the large DIY operators, is primarily based in France, Germany and the UK and is the result of the decision to launch the Mhouse product line in 2003.

In all cases, the final responsibility for the correct functioning and installation lies with either the final user (in the case of Mhouse) or any of the above. Nice would then offer full technical support and assistance, which gives it some of its competitive advantages. There is no need for a vast and expensive army of installers – these external parties are responsible for product purchasing and installation. They are also responsible for the final shipping costs in that they are the final seller of the product to the end-user. Nice relies on three warehouses in Italy, as well as smaller set-ups at all foreign subsidiaries.

The Marketing and Selling process Although Nice now has a well-established presence with a significant number of installers in a number of markets (we understand with a very high incidence of repeat business), the degree of fragmentation of the market allows scope for far greater market penetration.

Chart 14: Nice Customer Revenue Mix, 2005

distributors, 43.1%

installers, 30.8%

manufacturers, 16.1%

wholesalers, 2.8%

DIY, 7.2%



16

Apart from ‘word of mouth’, Nice expands its customer range via:

Catalogues

Advertising in specialist and trade magazines

Training courses

Targeted marketing events

Participation in all major domestic and international trade fairs (20 planned in 2006 alone)

Nice’s advertising and promotion expenses totalled just under 4% of sales in 2005, up from 3.5% in 2004. Assuming 4% by 2008 according to our assumptions would entail an additional €25mn spent over the next three years.

The Nice sales force (140 at year-end 2005; 150 now; 200 forecast at end 2008) is managed by the sales director either directly (for Italy and non-subsidiary exports) or via the local heads. Each geographical area is a profit centre and has an annual budget based on quarterly sales targets and weekly monitoring (although new software being rolled out allows daily updates) with 20-30% of total compensation performance-based . The ongoing integration of the previously separate Gate and Screen forces is yielding increasing efficiencies to the benefit of margins.

Nice tends to enter a new market with either Gate or Screen and to roll out the second product line once relationships have been established and the original marketing effort is yielding acceptable returns: we believe this approach will gradually evolve as the ‘joint product’ approach is rolled out in more markets.

Drivers Nice’s production process and product offering are characterised by the following traits:

Innovation and ease of installation

Design

One single strong brand

Clout versus third-party suppliers

As a result, Nice is the fastest-growing company in each of its product segments and its offering tends to be perceived as the ‘hippest’ and most advanced solution available on the market today.

The key to understanding Nice’s success lies in the opportunities afforded by the development of wireless systems, both in terms of ease of use and installation and of implied potential applications. There is no need for complex set-up work, which significantly reduces the likelihood of incorrect installation. This is the main difference to domotic systems, which usually involves a complex network being set up at the time of the original installation and at a far greater cost.


17

Innovation + ease of installation The key to understanding Nice’s success lies in the opportunities afforded by the development of wireless systems, both in terms of ease of use and installation and of implied potential applications. There is no need for complex set-up work, which significantly reduces the likelihood of incorrect installation. This results in a very low churn rate and relatively low price elasticity (mark-ups are very significant and the final client is often unable to breakdown the composition of his/her final cost).

Nice’s successful approach has been facilitated by the fact that most of the existing players had failed to recognise the potential to develop their business areas from standalone systems to integrated home automation components. We believe Nice’s ongoing focus on R&D and testing with the benefit of self-certification has given the company an advantage over its competitors.

Examples of Nice’s leadership in this field include:

The single control unit. Each motor now contains a single ‘control block’ rather than the familiar wire spaghetti. As a result, this unit, which is easily interchangeable and replaceable and is based on a two-wire system, has a unique ease of access and use that is favoured by installers. This project, known as bluebus, is the only one of its kind, meaning Nice has done away with polarity since 2004.

The ‘plug&work’ head of its Max tubular engine for screens (interconnecting modules) means that far fewer SKUs are required to meet the different size and power demands, thus resulting in a modular assembly concept that no competitor appears to have developed. The heads and motors are purchased separately and can be integrated, resulting in 125 different combinations with just five models of each, leading to substantial cost savings and greater ease of installation, along with easier management of spares.

The Nice Way single remote was launched at the end of 2005 and controls a number of functions, including all gate and screen requirements. It is very small and comes in a number of shells, allowing for great ease of access (table, wall-mount, or even a quasi-jewellery portability for security purposes). It can manage up to 80 separate automation ‘groups’ or 240 separate functions and is to become the new industry standard for the product.

The Nice Opera system is the latest development launched by Nice. It works as a radio-driven operations facility that will allow remote access on a number of fronts: for installers to assist, diagnose and possibly even repair; or for end-users to activate a number of functions from a distance via the GSM network.

Nice is actively involved in monitoring the ZigBee (www.zigbee.org) project, ie, the ongoing development of a wireless low-energy system that allows simultaneous interface between different products, such as gate, screen, irrigation, indoor and outdoor lighting, white and brown goods etc. This will de facto allow constant ‘dialogue’ between products and may eventually also facilitate the entry of Nice into new business areas.


18

Design Nice’s products, designed in tandem with Blu (see p. 16) have won many design awards and feature prominently in specialist publications and even in museums. We believe the visual appeal of its products has been one of the key underlying drivers for their success.

The design component features heavily in all promotional material and even in dedicated stands at trade fairs, where Nice stands out relative to the competition.

One single strong brand Unlike many of its competitors, Nice has always developed its market presence in both sectors under the Nice brand, thereby helping to create a more tangible brand identity. It is also of considerable help in the ongoing process of sales force ‘unification’ as there is no need to introduce existing clients to a new brand in any market.

The only exception to this has been the DIY segment, where all products are sold as part of the Mhouse line.

Clout vs third-party suppliers Nice has become the dominant or even single customer for many of its major parts suppliers and assemblers in NE Italy. This not only allows it greater flexibility in planning timing of deliveries but also gives it an increasingly strong position on the pricing front. Three of its major suppliers have now rolled out a foreign presence (Romania, China) in order to retain their role as preferred suppliers to the Group whilst lowering their cost base. In China, for example, sourcing is moving away from electronics-only to mechanical components and now includes finall assemblage for local delivery too. Non-Italian sourcing is estimated at 3-4% of total this year, but is estimated to grow to 8-10% by 2008.

Growth Opportunities Our estimates assume Nice will grow its revenue base only on the following two assumptions:

No new product areas

Geographical expansion only (including up to ten new subsidiaries in the next three-five years).

Possible new markets for direct presence could include Australia, North Africa, Turkey, RSA, UAE, Mexico and Scandinavia.

We understand management is looking at different options too, specifically expansion into ‘neighbouring’ product areas via an acquisition. This could include one or more of the following product segments: security and entry-phone systems, as well as automatic door systems thus relating to both commercial and residential applications. We believe there would be obvious client and distribution synergies with all of these products.


19

Risks and Concerns Nice has a long-established and exclusive relationship with a design consultancy, Blu, with which it closely co-operates in the design, marketing and communication areas. The CEO of Blu is on the BoD although he is not a Nice employee. Nice currently has a five-year contract with Blu but any future issues that might hinder this collaboration could result in Nice having to increase internal spend to maintain its cutting-edge positioning in the marketplace.

Nice’s business has a normal seasonality related to climate and the European summer holidays (Q1 and Q3 tend to be the weaker quarters). A prolonged spell of bad weather in Q1 could significantly impact the gate business in Europe. Also, visibility in the sector remains very limited, at around 15 days.

The top 5 third-party manufacturers account for 58% of total production cost, thus implying an element of short-term risk should the top two/three decline any future business.

Nice’s rate of growth in the past five years has been outstanding – and we believe this will remain the case in the medium term. Clearly this will increasingly rely on a growing sales and marketing effort for sustainability, along with an ever-growing logistics platform with increased demand on management resources and the need to source more products outside the EU. It is not yet clear how much strain this is likely to put on Nice’s business structure as it stands today.

We understand management expects to increase product procurement out of Asia: whilst the cost benefits are clear, the group’s skills in monitoring the efficiency and quality of product flows from that area is unproven.

The nature of the end product is such that not all the hardware SKUs and prototypes can be patented and protected – as a result Nice’s complex outsourcing mechanics, whereby no third-party manufacturer is ever involved in the entire production process, is of some importance in protecting its proprietary work. Failure to maintain the ‘gap’ versus its main competitors may harm growth prospects in the medium-term.

Players from other (related) fields may decide to challenge the likes of Nice and develop wireless applications from a different standpoint. This would, however, require substantial investments with limited returns in the medium term. Or they could, of course, acquire…This appears to be more of a threat than the ongoing io-homecontrol project partnered by Somfy, Honeywell and Velux as this is seen as a costly ‘closed’ system that is likely to be rendered obsolete by the roll-out of the ZigBee protocol.

Although the nature of the product is such that shifts in raw material prices are greatly diluted, some of the components may be exposed to further substantial movements in the pricing of materials such as copper, steel, brass, aluminium, silicon and cellulose plastics. Many materials are sourced the previous year on guesstimated demand trends thus implying an element of risk although price and currency can often be predetermined with some flexibility for adjustments.


20

In February 2006 (backdated to January), Nice spun off its entire real estate portfolio (mostly related to its operations, ie, offices and warehouses) into Nice Immobiliare (Nice Real Estate) with new rental agreements (7% yield) now in place. We understand that all this was supervised by an independent third party but the implied conflict of interest (Nice Immobiliare is controlled by Nice’s CEO) might result in some market concern, more so than any financial impact which we believe not to be significant going forwards. Having said that, some €30mn of cash de facto was transferred out of the company’s 2005 Balance Sheet.

Although we believe the opportunity to expand into related product areas will allow Nice to develop its position as one of the global market leaders further and provide potential for ongoing revenue accretion for some time, even partial diversification carries an element of risk especially given the size and relative youth of the company.

Whilst the installer assumes final liability for the product, any significant ‘incident’ or accident may result in adverse publicity that may harm future growth prospects for the Nice brand.

Corporate Governance

Nice was listed on the STAR segment of the Milan Borsa on May 19 2006 when a total of 40.6mn shares (the required minimum 35% float) were floated at €5.70: 6.0mn of these shares was the primary element thus implying a gross cash-in of the order of €34mn.

The selling shareholder was Nice Group BV which remains the majority shareholder with 64%: this is a Dutch-based holding company which is eventually held by Lauro Buoro, NICE CEO, with a 68.4% stake and Oscar Marchetto (electronics R+D manager) with a 31.6% stake.

Lorenzo Galberti, the original proprietor of Movo acquired by Nice in 1993, now owns 1.0% of the share capital.

All selling shareholders are subject to a 365-day Lock-Up Agreement and are barred from issuing new shares for 180 days.

Nice have initiated a stock option plan in connection with the listing of its shares. This, the ‘2006-2012’ plan entails options exercisable for a maximum of 1.5mn shares and is based on hitting certain financial targets by 2008, particularly in terms of revenues and EBITDA. 840,000 shares have already been targeted for 7 beneficiaries (this excludes the two shareholders of Nice Group BV) with 660,000 destined for possible new arrivals at senior level. It is not yet clear whether the implied shares will be sourced on the market or via a dedicated capital increase.

The Board of Directors has 10 members of which three are classified as independent (including the CEOs of Marcolin and Eurotech, both of which are quoted companies). The average age of the 7 Nice directors is 40.

Reconta Ernst and Young are the company auditors and Nice has released IFRS compliant financials from 1994 onwards.


21

Financials Revenue growth assumptions are based on a largely unchanged product mix. The nature of the product offering and breadth of SKUs at Nice is such that the range of items includes both remotes costing under €1 to motors priced at €300+.

For example, in 2005 Nice delivered over 1.4mn remotes but also 250,000 motors for gates.

We believe France will remain the main market for Nice products especially once the Gate line is more aggressively marketed via the sales force integration. We also expect gradual but ongoing increases in non-Europe revenues and believe our numbers could be conservative in this respect. Italy remains a more competitive market overall but we expect Nice to continue to gain market share especially in the aftermath of a much-publicised listing.

In Eastern Europe Nice remains n.1 in Poland and Romania with a strong growth profile in Russia and the CIS where security remains an important growth driver. Asia-Pacific is to grow in importance (with an increasingly direct presence in China) whilst management have also identified certain states of the US as showing good potential for the Screen market.

Overall we are looking for a CAGR in revenues of 23% in 2005-08 and whilst management aims for a 50:50 split between the product segments over the medium-term (achievable), our estimate for 2008 is 56:44.

Crucial to the growth and profitability of Nice is the degree of control over working capital management. This we believe will remain a strong characteristic of Nice admittedly with a slight up tick in risk with increased non-Italian outsourcing and the transition to full warehouse automation.

We are looking for ongoing small cash absorption but also for a gradual fall in net commercial working capital/sales (we adjust reported figures to strip off ‘other’ items such as taxes). With scope for significant improvements across the board especially in days receivables which will help to offset our project deterioration in payables. This forecast relies on its outsourcing model (with related implications for the amount and nature of inventories at any moment in time), increased clout

Table 10: Revenue Mix

€mn Ita

GAAP IFRS MIX % YoY 2003 2004 2005 2006E 2007E 2008E 2003 2004 2005 2006E 2007E 2008E 2004 2005 2006E 2007E 2008EGate 60.8 73.9 84.1 101.5 113.8 127.7 76.6% 73.1% 69.2% 64.2% 59.6% 55.8% 21.5% 13.8% 20.7% 12.1% 12.2%Screen 18.6 27.2 37.4 56.5 77.0 101.2 23.4% 26.9% 30.8% 35.8% 40.4% 44.2% 46.2% 37.5% 51.1% 36.3% 31.4%TOTAL 79.4 101.1 121.5 158.0 190.8 228.9 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 27.3% 20.2% 30.0% 20.8% 20.0% Italy 18.5 20.0 22.5 25.8 29.0 33.4 23.3% 19.8% 18.5% 16.3% 15.2% 14.6% 8.1% 12.5% 14.7% 12.4% 15.2%France 18.1 25.9 34.4 47.4 58.0 71.0 22.8% 25.6% 28.3% 30.0% 30.4% 31.0% 43.1% 32.8% 37.8% 22.4% 22.4%Total EU 58.0 72.8 89.3 114.7 136.5 162.4 73.0% 72.0% 73.5% 72.6% 71.5% 70.9% 25.5% 22.7% 28.4% 19.0% 19.0%ROE 14.3 19.7 22.2 28.5 34.3 40.0 18.0% 19.5% 18.3% 18.0% 18.0% 17.5% 37.8% 12.7% 28.4% 20.4% 16.6%EUROPE 72.3 92.5 111.5 143.2 170.8 202.4 91.1% 91.5% 91.8% 90.6% 89.5% 88.4% 27.9% 20.5% 28.4% 19.3% 18.5%Asia-Pac 2.1 2.4 2.9 3.8 5.0 7.0 2.6% 2.4% 2.4% 2.4% 2.6% 3.1% 14.3% 20.8% 31.0% 31.6% 40.0%M.E/Africa 4.0 4.6 5.2 8.0 11.0 14.0 5.0% 4.5% 4.3% 5.1% 5.8% 6.1% 15.0% 13.0% 53.8% 37.5% 27.3%Americas 1.0 1.6 2.0 3.0 4.0 5.5 1.3% 1.6% 1.6% 1.9% 2.1% 2.4% 60.0% 25.0% 50.0% 33.3% 37.5%TOTAL 79.4 101.1 121.6 158.0 190.8 228.9 100.0% 100.0% 100.1% 100.0% 100.0% 100.0% 27.3% 20.3% 29.9% 20.8% 20.0%Source: Company data, Merrill Lynch estimates


22

with suppliers (especially in the context of the gate + screen integration) and additional procurement activities started in 2005. Customers tend to be professionals or large wholesalers/retailers, which limits risk, but the high exposure to the Eurozone means receivables can only be improved to a point. Table 11: Working Capital Analysis €'000 2003 2004 2005 2006E 2007E 2008EInventories Raw Mats 4637 7050 7912 8500 9900 11000WIP 2074 923 4412 7600 10900 12800Finished product 4453 7398 12141 11500 13000 14800Funds -197 -223 -386 -500 -800 -1000TOTAL 10967 15148 24079 27100 33000 37600 Receivables Italy 10261 10494 10345 10900 11300 11900Other EU 7598 14889 20241 24800 28400 32200Other 4771 1825 3213 5000 5700 6400Funds -1137 -873 -1224 -1600 -2000 -2400TOTAL 21493 26335 32575 39100 43400 48100 Payables Italy 15106 16972 23428 25500 27600 29700Other EU 1436 1109 3246 4850 5700 6900Other 31 14 193 300 500 700Funds 0 0 0 0 0 0TOTAL 16573 18095 26867 30650 33800 37300 15887 23388 29787 35550 42600 48400 2003 2004 2005 2006E 2007E 2008EInventories 10.97 15.15 24.08 27.10 33.00 37.60Receivables 21.49 26.34 32.58 39.10 43.40 48.10Payables 16.57 18.10 26.87 30.65 33.80 37.30delta Inventories -4.18 -8.93 -3.02 -5.90 -4.60Receivables -4.84 -6.24 -6.53 -4.30 -4.70Payables 1.52 8.77 3.78 3.15 3.50delta NCWC -7.50 -6.40 -5.76 -7.05 -5.80 2003 2004 2005 2006 2007 2008TOTAL NCWC 15.9 23.4 29.8 35.6 42.6 48.4As a % of Sales 20.0% 23.1% 24.5% 22.5% 22.3% 21.1%TOTAL NWC* 12.3 16.5 27.5 35.6 42.6 48.4As a % of Sales 15.5% 16.3% 22.6% 22.5% 22.3% 21.1%Days Recs 98.8 95.1 97.8 90.3 83.0 76.7Days Inventory 45.0 47.1 58.9 59.1 57.5 56.3Days Payabs 128.1 113.5 128.1 147.0 140.9 130.3Source: Company data, Merrill Lynch estimates

As highlighted in Risks and Concerns, effective 1/2/06 Nice transferred 4 real estate subsidiaries to Nice Immobiliare, a newco owned by the selling shareholder. Amongst assets transferred were the HQ and central warehouse. Concurrently with said spin-off, Nice entered into lease agreements with the newco in connection with certain properties that remain instrumental to its day-to-day operations thus requiring certain minor adjustments to historical financials.


23

Table 12: Income Statement Ita GAAP IFRS €mn 2003 2004 2005 2006 2007 2008Net Sales 79.4 101.1 121.5 158.0 190.8 228.9Operating Costs Base components+consumables 28.4 32.8 40.5 51.9 61.9 73.3Services 15.7 20.1 25.2 32.0 39.1 46.2Rental+lease 1.0 1.3 1.7 3.0 3.4 3.8Other 0.2 0.7 0.4 0.4 0.4 0.7TOTAL 45.3 55.0 67.9 87.3 104.8 124.0 Gross Profit 44.2 61.1 73.5 97.2 118.6 144.0 Value Added 34.1 46.1 53.7 70.7 86.0 104.9Personnel Costs 8.6 11.1 14.6 20.1 23.8 27.5EBITDA 25.5 35.0 39.1 50.7 62.2 77.4Depreciation 1.4 0.7 0.8 0.8 0.8 0.8Amortization 1.4 1.6 2.0 2.0 3.0 3.3Total 2.8 2.3 2.8 2.8 3.8 4.1EBIT 22.7 32.7 36.3 47.9 58.4 73.4Financials -0.7 -0.2 -0.1 1.4 1.7 2.7PBT 22.0 32.5 36.2 49.3 60.1 76.1Tax -6.8 -12.9 -14.5 -19.2 -23.0 -28.5Net 15.2 19.6 21.7 30.1 37.1 47.5Minorities -0.1 0.0 0.0 0.0 0.0 0.0NET 15.1 19.6 21.7 30.1 37.1 47.5Cash earnings 18.0 21.9 24.5 32.8 40.8 51.6YoY Net Sales 27.3% 20.2% 30.0% 20.8% 20.0%Operating Costs TOTAL 21.4% 23.5% 28.7% 20.1% 18.2% Gross Profit 38.2% 20.3% 32.3% 22.0% 21.4% EBITDA 37.3% 11.5% 29.7% 22.7% 24.6%EBIT 44.3% 10.9% 32.0% 21.9% 25.7%PBT 47.9% 11.3% 36.3% 21.9% 26.6%Tax 90.1% 12.3% 32.7% 19.7% 24.0%NET 29.7% 10.7% 38.5% 23.3% 28.2%Cash earnings 22.1% 11.7% 34.1% 24.4% 26.4%% MIX Net Sales 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%Operating Costs Base components+consumables 35.7% 32.5% 33.3% 32.8% 32.4% 32.0%Services 19.7% 19.9% 20.7% 20.2% 20.5% 20.2%Rental+lease 1.3% 1.3% 1.4% 1.9% 1.8% 1.7%Other 0.3% 0.7% 0.4% 0.3% 0.2% 0.3%TOTAL 57.0% 54.4% 55.8% 55.2% 54.9% 54.2% Gross Profit 55.7% 60.4% 60.5% 61.5% 62.2% 62.9% Value Added 43.0% 45.6% 44.2% 44.8% 45.1% 45.8%Personnel Costs 10.8% 11.0% 12.0% 12.7% 12.5% 12.0%EBITDA 32.1% 34.6% 32.1% 32.1% 32.6% 33.8%EBIT 28.6% 32.4% 29.9% 30.3% 30.6% 32.0%Financials -0.9% -0.2% -0.1% 0.9% 0.9% 1.2%PBT 27.7% 32.1% 29.8% 31.2% 31.5% 33.2%NET 19.0% 19.4% 17.9% 19.0% 19.4% 20.8%Cash earnings 22.6% 21.7% 20.2% 20.8% 21.4% 22.6%Source: Company data, Merrill Lynch estimates


24

Nice has developed a strong track record of managing topline growth with margin improvement and with the improved product portfolio and outsourcing and procurement strategy we would expect to see more of the same. As a result we are reasonably confident that Nice should achieve the forecast 150+ bp improvement in EBITDA margin flagged at the time of the IPO but perhaps the better indicator of the assumed production efficiencies is the value-added margin, which, we believe, will be substantially higher in 2007 than 2003 total revenues.

Management confirms that the margin gap between the two product lines (around 300 bp and largely a function of relative size) is starting to shrink as expected with profitability in the Screen segment accelerating.

We understand management aim to pay a first dividend in May 2007 based on 2006 results. Payout is undisclosed but we believe this will hover in the area of 35%. Notwithstanding this, we believe the cash-generating potential of Nice remains very considerable relative to its size, and we would estimate a net cash position of the order of €75mn at the end of 2007 as things stand. Table 13: Balance Sheet Highlights

€mn ITA

Gaap IFRS PF* 2003 2004 2005 2005 2006 2007 2008Intangibles 7.6 7.1 7.9 7.3 7.0 6.6 6.3of which goodwill 5.2 5.3 5.5 5.5 5.5 5.5 5.5Tangibles 17.1 20.3 33.9 9.6 9.5 10.0 12.6Participations 0.3 0.3 0.5 0 0.0 0.0 0.0Other 3.1 3.1 3.1 0.1 0.0 0.0 0.0Tax Effect 9.0 13.3 9.8 9.8 9.0 6.0 6.0TOTAL Non-Current Assets 37.1 44.1 55.2 26.8 25.5 22.6 24.9 Inventories 11.0 15.1 24.1 24.0 27.1 33.0 37.6Receivables 21.5 26.3 32.6 32.6 39.1 43.4 48.1Tax receivables 0.6 1.1 3.0 2.6 3.0 3.0 3.0Cash and semi-cash 16.6 32.7 33.1 3.4 59.1 78.0 109.6Other 0.5 0.7 0.7 0.7 0.8 2.3 2.5TOTAL Current Assets 50.2 75.9 93.5 63.3 129.6 159.7 200.8 TOTAL ASSETS 87.3 120.0 148.7 90.1 155.1 182.3 225.7 Payables 16.6 18.1 26.9 26.7 30.7 33.8 37.3Short-term debt 2.4 3.3 3.8 5.3 3.0 3.0 3.0Other payables 1.6 2.5 2.7 2.5 6.0 7.5Taxes due 3.1 6.9 4.4 4.4 5.0 9.0 13.0TOTAL Current Liabs 23.7 30.8 37.8 36.4 41.2 51.8 60.8 ML Debt 7.3 7.6 9.3 0.1 2.0 2.0 2.0Taxes due 4.3 1.7 0 0 0 0 0Deferred tax 1.0 2.4 1.5 1.6 1.7 5.2 12.3Other 1.9 1.8 2.6 1.4 2.0 3.6 5.0TOTAL Non-Current Liabs 14.5 13.5 13.4 3.1 5.7 10.8 19.3 Share Capital 1.1 1.1 1.1 1.1 1.2 1.2 1.2Share Premium rserve 9.7 9.7 9.7 5.8 6.1 5.8 5.8Other reserves 22.7 44.8 64.5 21.5 71.8 75.6 90.8Net profit 15.1 19.7 21.7 21.7 28.6 36.6 47.3Shareholders Equity 48.6 75.3 97.0 50.1 107.7 119.2 145.1Minorities 0.4 0.4 0.5 0.5 0.5 0.5 0.5TOTAL 87.2 120.0 148.7 90.1 155.1 182.3 225.7Net financial pos. -54.1 -73.0 -104.5Source: Company data, Merrill Lynch estimates / PF=Pro forma for Real Estate spin-off


25

Table 14: COMPANY PROFILE Address (IR office) Investor Relations Officer via Pezza Alta Rustigne'/Oderzo (TV) Websites www.niceforyou.com Italy Telephone www.nicegroup.com

390422853838.00 www.mhouse.info SHARE PROFILE 2004A 2005A 2005PF 2006E 2007E 2008E€ Share price, high 6.68 Share price, low 5.60 Share price, ave/current 6.50 6.50 6.50% change in average Rel. stock performance Share number (avg.) 110.0 110.0 110.0 116.0 116.0 116.0Major Shareholders (%) pre post Nice Group BV 98.4% 64.0% Lorenzo Galberti 1.6% 1.0% Float 0.0% 35.0% VALUATION PROFILE 2004A 2005 2005PF 2006E 2007E 2008E€ EPS 0.18 0.20 0.19 0.26 0.32 0.41EPS adjusted 0.18 0.20 0.19 0.26 0.32 0.41P/E, high 25.8 P/E, low 21.6 P/E (average) 25.1 20.3 15.9Dividend 0.09 0.11Dividend yield (average) 1.3% 1.6%Pay-out ratio 33.0% 33.0%Book value per share 0.68 0.88 0.46 0.93 1.03 1.25P/BV (average) 7.0 6.3 5.2CEPS 0.20 0.22 0.21 0.28 0.35 0.44P/CE (average) 23.0 18.5 14.6FCFPS 0.15 0.02 0.10 0.20 0.25 0.38P/FCF (average) 32.7 26.2 17.2Net Debt p/share -0.20 -0.18 -0.01 -0.47 -0.63 -0.90Net Debt p/share ave. -0.13 -0.19 0.00 -0.24 -0.55 -0.77Enterprise value/share 6.03 5.87 5.60EBIT per share 0.30 0.33 0.32 0.41 0.50 0.63EBIT multiple (average) 14.6 11.7 8.9EBITDA per share 0.32 0.35 0.35 0.44 0.54 0.67EBITDA multiple (average) 13.8 11.0 8.4 MOMENTUM PROFILE 2004A 2005E 2005PF 2006E 2007E 2008E% change Revenues 27.3% 20.2% 0.0% 30.0% 20.8% 20.0%EBITDA 37.6% 11.1% -2.6% 33.3% 22.7% 24.5%EBIT 44.5% 10.4% -1.9% 34.9% 21.9% 25.6%Pre-tax income 48.2% 10.7% -3.9% 42.0% 21.9% 26.5%Net Income 30.5% 9.6% -3.7% 44.5% 23.3% 28.1%EPS 9.6% -3.7% 37.0% 23.3% 28.1%CEPS 10.9% -4.5% 33.7% 24.4% 26.2%FCPS -87.5% 459.7% 95.4% 24.8% 52.1%DPS 21.9%Cash p/share -8.3% -92.0% 3105.0% 34.9% 43.3%Source: Company data, Merrill Lynch estimates


26

Table 15: FINANCIAL SUMMARY IFRS INCOME STATEMENT (€mn) 2003A 2004A* 2005A 2005PF 2006E 2007E 2008ETOTAL REVENUES 79.4 101.1 121.5 121.5 158.0 190.8 228.9COGS 35.2 40.0 48.0 50.2 60.8 72.2 84.9GROSS PROFIT 44.2 61.1 73.5 71.3 97.2 118.6 144.0Commercial Costs 4.6 6.4 8.7 8.7 10.5 13.9 17.0Other Costs 5.5 8.5 11.2 10.0 16.0 18.7 22.1Labour Costs 8.6 11.1 14.6 14.6 20.1 23.8 27.5EBITDA 25.5 35.1 39.0 38.0 50.7 62.2 77.4Depreciation + Provs 2.8 2.3 2.8 2.5 2.8 3.8 4.1EBIT 22.7 32.8 36.2 35.5 47.9 58.4 73.3Net financial items -0.7 -0.2 -0.1 -0.8 1.4 1.7 2.7Other 0.0 0.0 0.0 0.0 0.0 0.0 0.0Reported pre-tax profit 22.0 32.6 36.1 34.7 49.3 60.1 76.0Minorities -0.1 0.0 0.0 0.0 0.0 0.0 0.0Tax -6.8 -12.9 -14.5 -13.9 -19.2 -23.0 -28.5Net profit 15.1 19.7 21.6 20.8 30.1 37.1 47.5Gross Margin (%) 55.7% 60.4% 60.5% 58.7% 61.5% 62.2% 62.9%EBITDA margin (%) 32.1% 34.7% 32.1% 31.3% 32.1% 32.6% 33.8%Pre-tax margin (%) 27.7% 32.2% 29.7% 28.6% 31.2% 31.5% 33.2%Tax rate (%) 30.9% 39.6% 40.2% 40.1% 39.0% 38.3% 37.5%Return on equity (%) 25.1% 28.3% 38.1% 32.7% 35.9%CASH FLOW (€mn) 2003A 2004A* 2005A 2005PF 2006E 2007E 2008EReported profit after tax 15.1 19.7 21.6 20.8 30.1 37.1 47.5Non-cash items 5.4 6.1 7.4 7.5 5.3 7.8 8.1Net Working capital -7.4 -5.4 -12.3 -12.9 -5.8 -7.1 -5.8Operating cash flow 13.1 20.4 16.7 15.4 29.6 37.8 49.8Capital expenditures -3.7 -3.2 -12.7 -3.2 -6.5 -9.0 -6.0Other investments -1.9 -1.2 -2.0 -1.0 0.0 0.0 0.0Free cash flow 7.5 16.0 2.0 11.2 23.1 28.8 43.8Other 1.4 -1.0 -2.8 -31.4 29.4 0.0 0.0Dividend paid 0.0 0.0 0.0 0.0 0.0 -9.9 -12.2Change in net debt 8.9 15.0 -0.8 -20.2 52.5 18.9 31.6Oper. CF/capex (%) 354% 637% 132% 455% 420% 830%Capex/sales (%) 4.7% 3.2% 10.5% 4.1% 4.7% 2.6%Capex/deprec. (%) 132.1% 453.6% 233.8% 238.1% 147.1%BALANCE SHEET (€mn) 2003A 2004A* 2005E 2005PF 2006E 2007E 2008ECash and liquid assets 16.6 32.7 33.1 4.4 59.1 78.0 109.6Trade receivables 21.5 26.3 32.6 32.6 39.1 43.4 48.1Other 1.1 1.8 3.7 3.3 4.3 5.3 5.5Inventory 11.0 15.1 24.1 24.1 27.1 33.0 37.6Current assets 50.2 75.9 93.5 64.4 129.6 159.7 200.8Intangibles 7.6 7.1 7.9 7.9 7.0 6.6 6.3Fixed assets 17.1 20.3 33.9 5.6 9.5 10.0 12.6Other 12.4 16.7 13.4 13.4 9.0 6.0 6.0Fixed assets 37.1 44.1 55.2 26.9 25.5 22.6 24.9Total assets 87.3 120.0 148.7 91.3 155.1 182.3 225.7Interest bearing 9.7 10.9 13.1 2.8 5.0 5.0 5.0Trade payables 16.6 18.1 26.9 26.7 30.7 33.8 37.3Other 10.0 13.5 8.6 11.2 11.2 23.8 37.8Total liabilities 36.3 42.5 48.6 40.7 46.9 62.6 80.1Minority 0.4 0.4 0.5 0.5 0.5 0.5 0.5Shareholders' equity 48.6 75.3 97.0 50.1 107.7 119.2 145.1Balance sheet total 85.3 118.2 146.1 91.3 155.1 182.3 225.7Net debt (€ m)* -6.9 -21.8 -20.0 -1.6 -54.1 -73.0 -104.5Net debt ave (€ m) -14.4 -20.9 -27.8 -63.5 -88.7Net gearing (%) -14.2% -29.0% -20.6% -3.2% -50.2% -61.2% -72.0%Interest cover (x) 32.4 164.0 362.0 44.4 -34.2 -34.3 -27.2* IFRS compliant from 2004: 2005 pro-forma indicated net of Real estate spin-off Source: Company data, Merrill Lynch estimates


27

A strong Q1 Nice Q106 figures were particularly strong, with revenues up 35.1% YoY whilst delivering a 250 bp EBITDA margin to 27.9% in what is historically a ‘weak’ quarter. In particular, revenues in France (emphasis on Screens) grew by 46% to €10mn to 33% of total, whilst sales in Italy (emphasis on Gates) increased by 18% to 19% of total. Europe accounted for 91% of total sales down from over 94% in Q105. Sales doubled or more in both Asia-Pacific and the Americas. Table 17: Q106 Financial Summary 2005 2006 Q1 Q1 ∆ YoyNet Sales 22.8 30.8 35.1%Operating Costs Base components+consumables -7.4 -10.1 36.5%Services -6.0 -7.2 20.0%Rental+lease -0.4 -0.7 75.0%Other -0.2 -0.2 0.0%TOTAL -14.0 -18.2 30.0% Gross Profit 13.4 18.7 39.6% Value Added 8.8 12.6 43.2%Personnel Costs -3.0 -4.0 33.3%EBITDA 5.8 8.6 48.3%Total D+A -0.6 -0.7 16.7%EBIT 5.2 7.9 51.9%Financials 0.0 -0.1PBT 5.2 7.8 50.0%Tax -2.2 -2.7 22.7%Net 3.0 5.1 70.0%Minorities 0.0 0.0NET 3.0 5.1 70.0%Cash earnings 3.6 5.8 61.1%% Mix Net Sales 100.0% 100.0%Operating Costs Base components+consumables -32.5% -32.8%Services -26.3% -23.4%Rental+lease -1.8% -2.3%Other -0.9% -0.6%TOTAL -61.4% -59.1% Gross Profit 58.8% 60.7% Value Added 38.6% 40.9%Personnel Costs -13.2% -13.0%EBITDA 25.4% 27.9%Total -2.6% -2.3%EBIT 22.8% 25.6%Financials 0.0% -0.3%PBT 22.8% 25.3%Tax -9.6% -8.8%Net 13.2% 16.6%Minorities 0.0% 0.0%NET 13.2% 16.6%Cash earnings 15.8% 18.8% Source: Company data

Table 16: Q1-2006 B S Highlights Inventory 26.1 Receivables 37.4 Tax credits 1 Other 0.8 Current assets 65.3 Payables 25.5 Tax liabilities 6.4 Other 2.9 Current liabilities (excl ST debt) 34.8 NWC 30.5 Total non-current assets 27.7 Total non-current liabs (- LT debt) -2.8 Net invested capital 55.4 NFP 0.5 Total shareholders equity 54.9 Non-cash sources of capital 55.4 Source: Company data


28

Analyst Certification I, Flavio Cereda, hereby certify that the views expressed in this research report accurately reflect my personal views about the subject securities and issuers. I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or view expressed in this research report.

iQmethod SM Measures Definitions Business Performance Numerator Denominator Return On Capital Employed NOPAT = (EBIT + Interest Income) * (1 - Tax Rate) + Goodwill

Amortization Total Assets – Current Liabilities + ST Debt + Accumulated Goodwill Amortization

Return On Equity Net Income Shareholders’ Equity Operating Margin Operating Profit Sales Earnings Growth Expected 5-Year CAGR From Latest Actual N/A Free Cash Flow Cash Flow From Operations – Total Capex N/A Quality of Earnings Cash Realization Ratio Cash Flow From Operations Net Income Asset Replacement Ratio Capex Depreciation Tax Rate Tax Charge Pre-Tax Income Net Debt-To-Equity Ratio Net Debt = Total Debt, Less Cash & Equivalents Total Equity Interest Cover EBIT Interest Expense Valuation Toolkit Price / Earnings Ratio Current Share Price Diluted Earnings Per Share (Basis As Specified) Price / Book Value Current Share Price Shareholders’ Equity / Current Basic Shares Dividend Yield Annualised Declared Cash Dividend Current Share Price Free Cash Flow Yield Cash Flow From Operations – Total Capex Market Cap. = Current Share Price * Current Basic Shares Enterprise Value / Sales EV = Current Share Price * Current Shares + Minority Equity + Net Debt +

Other LT Liabilities Sales

EV / EBITDA Enterprise Value Basic EBIT + Depreciation + Amortization iQmethod SM is the set of Merrill Lynch standard measures that serve to maintain global consistency under three broad headings: Business Performance, Quality of Earnings, and validations. The key features of iQmethod are: A consistently structured, detailed, and transparent methodology. Guidelines to maximize the effectiveness of the comparative valuation process, and to identify some common pitfalls. iQdatabase SM is our real-time global research database that is sourced directly from our equity analysts’ earnings models and includes forecasted as well as historical data for income statements, balance sheets, and cash flow statements for companies covered by Merrill Lynch. iQprofile SM, iQmethod SM, iQdatabase SM are service marks of Merrill Lynch & Co., Inc.


29

Important Disclosures Investment Rating Distribution: Electrical Equipment Group (as of 30 Jun 2006) Coverage Universe Count Percent Inv. Banking Relationships* Count PercentBuy 14 46.67% Buy 4 28.57%Neutral 12 40.00% Neutral 2 16.67%Sell 4 13.33% Sell 1 25.00% Investment Rating Distribution: Global Group (as of 30 Jun 2006) Coverage Universe Count Percent Inv. Banking Relationships* Count PercentBuy 1264 44.12% Buy 430 34.02%Neutral 1398 48.80% Neutral 404 28.90%Sell 203 7.09% Sell 45 22.17%* Companies in respect of which MLPF&S or an affiliate has received compensation for investment banking services within the past 12 months.

FUNDAMENTAL EQUITY OPINION KEY: Opinions include a Volatility Risk Rating, an Investment Rating and an Income Rating. VOLATILITY RISK RATINGS, indicators of potential price fluctuation, are: A - Low, B - Medium, and C - High. INVESTMENT RATINGS, indicators of expected total return (price appreciation plus yield) within the 12-month period from the date of the initial rating, are: 1 - Buy (10% or more for Low and Medium Volatility Risk Securities - 20% or more for High Volatility Risk securities); 2 - Neutral (0-10% for Low and Medium Volatility Risk securities - 0-20% for High Volatility Risk securities); 3 - Sell (negative return); and 6 - No Rating. INCOME RATINGS, indicators of potential cash dividends, are: 7 - same/higher (dividend considered to be secure); 8 - same/lower (dividend not considered to be secure); and 9 - pays no cash dividend.

MLPF&S or an affiliate was a manager of a public offering of securities of this company within the last 12 months: Nice SPA. In the US, retail sales and/or distribution of this report may be made only in states where these securities are exempt from registration or have been qualified for

sale: Nice SPA. MLPF&S or an affiliate expects to receive or intends to seek compensation for investment banking services from this company within the next three months:

Nice SPA. The analyst(s) responsible for covering the securities in this report receive compensation based upon, among other factors, the overall profitability of Merrill

Lynch, including profits derived from investment banking revenues.


30

Other Important Disclosures

UK readers: MLPF&S or an affiliate is a liquidity provider for the securities discussed in this report.

Information relating to Non-U.S. affiliates of Merrill Lynch, Pierce, Fenner & Smith Incorporated (MLPF&S): MLPF&S distributes research reports of the following non-US affiliates in the US (short name: legal name): Merrill Lynch (France): Merrill Lynch Capital Markets

(France) SAS; Merrill Lynch Dublin (Frankfurt Branch): Merrill Lynch CMB Ltd, Dublin, Frankfurt Branch; Merrill Lynch (South Africa): Merrill Lynch South Africa (Pty) Ltd; Merrill Lynch (Milan): Merrill Lynch Capital Markets Bank Limited; MLPF&S (UK): Merrill Lynch, Pierce, Fenner & Smith Limited; Merrill Lynch (Australia): Merrill Lynch Equities (Australia) Limited; Merrill Lynch (Hong Kong): Merrill Lynch (Asia Pacific) Limited; Merrill Lynch (Singapore): Merrill Lynch (Singapore) Pte Ltd; Merrill Lynch (Canada): Merrill Lynch Canada Inc; Merrill Lynch (Mexico): Merrill Lynch Mexico, SA de CV, Casa de Bolsa; Merrill Lynch (Argentina): Merrill Lynch Argentina SA; Merrill Lynch (Brazil): Banco Merrill Lynch de Investimentos SA; Merrill Lynch (Japan): Merrill Lynch Japan Securities Co, Ltd; Merrill Lynch (Seoul): Merrill Lynch International Incorporated (Seoul Branch); Merrill Lynch (Taiwan): Merrill Lynch Taiwan Limited; DSP Merrill Lynch (India): DSP Merrill Lynch Limited; PT Merrill Lynch (Indonesia): PT Merrill Lynch Indonesia; Merrill Lynch (KL) Sdn. Bhd.: Merrill Lynch (Malaysia); Merrill Lynch (Israel): Merrill Lynch Israel Limited; Merrill Lynch (Russia): Merrill Lynch CIS Limited, Moscow.

This research report has been prepared and issued by MLPF&S and/or one or more of its non-U.S. affiliates. MLPF&S is the distributor of this research report in the U.S. and accepts full responsibility for research reports of its non-U.S. affiliates distributed in the U.S. Any U.S. person receiving this research report and wishing to effect any transaction in any security discussed in the report should do so through MLPF&S and not such foreign affiliates.

This research report has been approved for publication in the United Kingdom by Merrill Lynch, Pierce, Fenner & Smith Limited, which is authorized and regulated by the Financial Services Authority; has been considered and distributed in Japan by Merrill Lynch Japan Securities Co, Ltd, a registered securities dealer under the Securities and Exchange Law in Japan; is distributed in Hong Kong by Merrill Lynch (Asia Pacific) Limited, which is regulated by the Hong Kong SFC; is issued and distributed in Taiwan by Merrill Lynch (Taiwan) Ltd or Merrill Lynch, Pierce, Fenner & Smith Limited (Taiwan Branch); is issued and distributed in Malaysia by Merrill Lynch (KL) Sdn. Bhd., a licensed investment adviser regulated by the Malaysian Securities Commission; and is issued and distributed in Singapore by Merrill Lynch International Bank Limited (Merchant Bank) and Merrill Lynch (Singapore) Pte Ltd (Company Registration No. 198602883D). Merrill Lynch International Bank Limited and Merrill Lynch (Singapore) Pte Ltd. are regulated by the Monetary Authority of Singapore. Merrill Lynch Equities (Australia) Limited, (ABN 65 006 276 795), AFS License 235132, provides this report in Australia. No approval is required for publication or distribution of this report in Brazil.

Merrill Lynch Dublin is regulated by BaFin. Copyright, User Agreement and other general information related to this report: Copyright 2006 Merrill Lynch, Pierce, Fenner & Smith Incorporated. All rights reserved. This research report is prepared for the use of Merrill Lynch clients and

may not be redistributed, retransmitted or disclosed, in whole or in part, or in any form or manner, without the express written consent of Merrill Lynch. Merrill Lynch research reports are distributed simultaneously to internal and client websites eligible to receive such research prior to any public dissemination by Merrill Lynch of the research report or information or opinion contained therein. Any unauthorized use or disclosure is prohibited. Receipt and review of this research report constitutes your agreement not to redistribute, retransmit, or disclose to others the contents, opinions, conclusion, or information contained in this report (including any investment recommendations, estimates or price targets) prior to Merrill Lynch's public disclosure of such information. The information herein (other than disclosure information relating to Merrill Lynch and its affiliates) was obtained from various sources and we do not guarantee its accuracy.

This research report provides general information only. Neither the information nor any opinion expressed constitutes an offer or an invitation to make an offer, to buy or sell any securities or other investment or any options, futures or derivatives related to such securities or investments. It is not intended to provide personal investment advice and it does not take into account the specific investment objectives, financial situation and the particular needs of any specific person who may receive this report. Investors should seek financial advice regarding the appropriateness of investing in any securities, other investment or investment strategies discussed or recommended in this report and should understand that statements regarding future prospects may not be realized. Investors should note that income from such securities or other investments, if any, may fluctuate and that price or value of such securities and investments may rise or fall. Accordingly, investors may receive back less than originally invested. Past performance is not necessarily a guide to future performance. Any information relating to the tax status of financial instruments discussed herein is not intended to provide tax advice or to be used by anyone to provide tax advice. Investors are urged to seek tax advice based on their particular circumstances from an independent tax professional.

Foreign currency rates of exchange may adversely affect the value, price or income of any security or related investment mentioned in this report. In addition, investors in securities such as ADRs, whose values are influenced by the currency of the underlying security, effectively assume currency risk.

Officers of MLPF&S or one or more of its affiliates (other than research analysts) may have a financial interest in securities of the issuer(s) or in related investments.

Merrill Lynch Research policies relating to conflicts of interest are described at http://www.ml.com/media/43347.pdf. iQanalytics, iQcustom, iQdatabase, iQmethod, iQmethod 2.0, iQprofile, iQtoolkit, iQworks are service marks of Merrill Lynch & Co., Inc. Fundamental equity reports are produced on a regular basis as necessary to keep the investment recommendation current.

consob regulation 11971 (as amended by consob...

Documents