notori ous pictures - ubi banca · akros • joint bookrunner: ... 12 may 2014 6 3. company profile...

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NOTORIOUS PICTURES

IPO Research

12 May 2014

Entertainment

Marco Cristofori [email protected] Tel. +39 0277814393 Website: www.ubiunity.it

A cherry to pick in the entertainment industry

We believe Notorious Pictures represents an attractive opportunity to invest in the entertainment market. The company, one of the leading Italian movie distributors, has been growing fast and was the largest independent by box office revenues in 1Q14. A small team with a huge expertise in the industry, a lean cost structure and the direct control of the entire value chain should allow Notorious Pictures to achieve very high EBITDA margins (we expect >60% this year vs. 31.2% in 2013 and 56.7% in 1Q14) while top line growth is secured by the wide pipeline of movies. The possibility of entering the film production industry and increasing the standing of forthcoming movie acquisitions made possible by the IPO proceeds, coupled with a net cash position, complete our investment case.

> Notorious Pictures is a leading Italian movie distributor, with an excellent track record (in just one year, 2013, Notorious Pictures became the tenth largest distributor in Italy and the fourth in 1Q14). Its strategy is to select the best movies for the Italian market with a cherry picking approach while the acquisition of full rights lasting 16-18 years coupled with arrangements with the main movie theatre chains and long term contracts with Sky and RAI Cinema (for Pay and free TV) should provide high visibility on future developments.

> Based on the release of 15/16 films per annum, we expect the top line to increase to >EUR31 million in 2016 (from EUR9 million in 2013) with an EBITDA margin of more than 65%. The bottom line should rise to more than EUR10 million in 2016 while strong cash generation should lift net cash to EUR18 million at Dec-16 without taking the IPO proceeds into consideration.

> The free float is expected to be 20% following the IPO (23% considering the greenshoe). The offering also provides a bonus share in a ratio of 1 new share every 10 shares on condition that the shares are retained for a period of 12 months following first trading day. All proceeds are expected to be used to increase the number and the scale of forthcoming movie acquisitions and to enter the film production industry, giving a significant boost to the top line.

> The main risk is clearly the low visibility of future box office revenues. However, the quality of the management and its proven track record (all the movies distributed to date have been profitable in the first cycle of exploitation) should mitigate this risk.

Financials

2013A 2014E 2015E 2016E

Revenues (EURm) 9,0 25,2 27,1 31,3

EBITDA (EURm) 2,8 15,3 17,2 20,5

EBITDA margin (%) 31% 61% 63% 65%

EBIT (EURm) 2,0 12,2 13,4 15,7

Net Profit (EURm) 1,3 8,0 9,0 10,5

Net margin (%) 14% 32% 33% 34%

Net Debt (EURm) -0,3 -2,3 -9,8 -18,3

Source: Company Data, UBI Banca Estimates

Ratios

2013A 2014E 2015E 2016E

ROE 76% 83% 48% 36%

ROI 99% 149% 136% 126%

Dividend Yield 0% 0% 0% 0%

NWC/Sales 4% 23% 21% 20%

Capex/Sales 22% 14% 20% 20%

Debt/Equity (x) -0.1 -0.1 -0.6 -0.9

Debt/EBITDA (x) 0.0 -0.1 -0.3 -0.4 Source: UBI Banca Estimates

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Key Financials

(EURm) 2013A 2014E 2015E 2016E

Revenues 9,0 25,2 27,1 31,3

EBITDA 2,8 15,3 17,2 20,5

EBIT 2,0 12,2 13,4 15,7

Free Cash Flow 5,6 12,9 14,8 16,3

Net Capital Employed 1,3 7,4 8,9 10,9

Shareholders’ Equity 9,7 18,6 29,2 41,4

Net Financial Position -0,3 -2,3 -9,8 -18,3

Source: Company data, UBI Banca estimates

Key Profitability Drivers

2013A 2014E 2015E 2016E

Net Debt/Ebitda (x) -0,1 -0,1 -0,6 -0,9

Net Debt/Equity (x) 0,0 -0,1 -0,3 -0,4

ROE (%) 76% 83% 48% 36%

ROI (%) 99% 149% 136% 129%


Key Value Drivers

(%) 2013A 2014E 2015E 2016E

Payout 0% 0% 0% 0%

NWC/Sales 4% 23% 21% 20%

Capex/Sales 22% 14% 20% 20%


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1. INVESTMENT CASE ....................................................... 4 2. OFFER STRUCTURE ....................................................... 5 3. COMPANY PROFILE AND BUSINESS MODEL ........... 6 3.1. Key people ....................................................................................... 9 3.2. Swot analysis ................................................................................. 10 4. STRATEGY .....................................................................11 5. REFERENCE MARKET AND COMPETITION ............12 5.1. The Size of the Italian Film Industry ............................................ 12 5.2. Theatrical Distribution .................................................................. 13 5.3. TV distribution ............................................................................... 14 5.4. Home Video and New Media Distribution .................................. 15 5.5. Competitive positioning ................................................................ 16 5.6. Production market ......................................................................... 17 6. FINANCIALS ..................................................................19 6.1. 2013 Results ................................................................................... 19 6.2. 1Q14 Results .................................................................................. 20 6.3. Financial projections ..................................................................... 21 7. MULTIPLES REFERENCE .............................................23

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1. INVESTMENT CASE

Notorious Pictures is a leading operator in Italian movie distribution. The company typically acquires full rights for movies, lasting 16-18 years, and distributes them through all available channels (cinema, Pay TV, Free TV, home video, new media), with an excellent track record (in 2013, Notorious Pictures was the tenth largest Italian distributor becoming the fourth in 1Q14, source Cinetel) and a sustainable strategy in our opinion.

We believe several key factors could drive share price performance in the

coming months, making the IPO of the company an attractive investment:

Full control of the distribution value chain: Notorious Pictures typically cherry picks from hundreds of screenplays those movies that it believes have the best prospects for success in the Italian market both in terms of box office and TV, which are the main sources of revenue. The movies are then directly distributed to cinemas and other distribution channels (home video are indirectly distributed). A significant proportion of revenues is secured by arrangements with the main movie theatre chains (which determine the success of the movie) and with long term contracts with Sky and RAI Cinema. The company directly manages editing and P&A costs (printing and advertising). In this way it controls the entire value chain, optimizing the economic cycle of each movie (first and second exploitation cycle).

Expertise of the management: the business model is clearly based on the box office results of the movies distributed and management expertise is therefore a critical factor. The Notorious Pictures team has long experience in the film industry (17 years on average) and has worked together for many years. Its ability to select successful titles is confirmed by the company’s outstanding financial results in less than two years of existence and by the track record of the team in the previous experiences.

Attractive fundamentals: profitability in the film distribution industry can be extremely attractive with EBITDA margins of more than 60%. Notorious Pictures already achieved 31.2% last year and 56.7% in 1Q14 and we estimate that should grow further as investments are concentrated in the first phase of the cycle while revenues are spread over a much longer period. In addition the company has a net cash position. We forecast that revenues could rise to more than EUR31 million in 2016 (vs. EUR9 million last year) with a 65.5% EBITDA margin and a bottom line of EUR10.5 million in 2016. We estimate that strong cash generation should allow the company increase its net cash position to EUR18 million in 2016, excluding the IPO proceeds.

New opportunities: IPO proceeds (not included in our estimates) will be invested in enlarging the movie library (18/20 films per annum) and acquiring movies with a higher standing. In addition, Notorious Pictures aims to enter the film production industry, which could generate higher profitability compared to pure distribution. These opportunities could give Notorious Pictures a significant boost if the new strategy is a success, making today the best time to invest in our opinion.

The company is exposed to few risks, mostly related to the low visibility of future box office revenues and its short history. However, we believe that risks are mitigated by the quality of the management and by its excellent track record both with Notorious Pictures (all the movies distributed to date have been profitable in the first cycle of exploitation) and in previous experiences.

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2. OFFER STRUCTURE The offer could be summarized as follows:

• IPO Market: AIM Italia;

• Issue: capital increase with exclusion of pre-emption rights;

• Free float: post IPO up to 20%; post greenshoe execution up to 23%;

• The global offer is composed of:

� Offer to qualified investors in Italy and institutional investors in EU;

� a public offer exclusively to Italian retail investors up to EUR5

million (by online distribution);

• Greenshoe: 15% of the global offer through the sale of main

shareholder’s shares.

• Lock up: 12 months

• Nomad, global coordinator, specialist and bookrunner: Banca

Akros

• Joint Bookrunner: Ubi Banca

The global offer provides a bonus share in a ratio of 1 new share every 10 shares on condition that the shares are retained for a period of 12 months following first trading day.

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3. COMPANY PROFILE AND BUSINESS MODEL

Notorious Pictures was established in 2012 with the mission of becoming a leading Italian distributor based on its founder’s knowledge and network of contacts (Mr. Marchetti, controlling 100% of the share capital before the IPO) as well as those of his team.

The business model is relatively straightforward:

• The company usually acquires full rights for film titles for the Italian

market lasting 16-18 years, from independent production companies in the US and in Europe and from international sales agencies, after scouting a large number of screenplays (about 450 p.a.) mainly at AFM (America Film Market) and at the most important film festivals (Toronto, Berlin, Cannes). Distributors such as Notorious Pictures usually have to pay a Minimum Guarantee (MG), which is a sort of upfront fee, to the producers (the movie is generally released after 12-18 months). This fee can range from EUR10k to over EUR1 million, depending on the standing of the movie. In addition, the producer is entitled to receive royalties based on box office revenues, known as “bumps”, if a given threshold of revenues is exceeded. The MG is capitalized by Notorious Pictures as an intangible asset and amortized over the exploitation period (based on the revenues reported each year compared with the original sales budget);

• Notorious Pictures incurs all the expenses for dubbing the film (about EUR30-60k per movie, also capitalized) and the so-called P&A costs (printing & advertising, which are not capitalized). Printing costs are now limited to EUR480 per movie theatre and could decline in future as Italian movie theatres are rapidly changing to digital, while advertising costs are generally much higher and exceed the amount of MG. Marketing is usually carried out through advertisements in newspapers and magazines, poster campaigns, promotional events and mass communication (TV, radio, Internet) utilizing materials provided by the producer;

Figure 1 – Notorius Pictures business model

Acquisition of long

term Italian full

distribution rights

Editing and

P&A

Distribution

Home Video

Sale of rights

to Pay and

Free TV

Sale of rights

to New Media

Distribution

Theatrical

Partnership withContract with

Minimum guarantee + bump +royalties

Contract with

Editing: ~EUR100k

P&A: ~20% production cost

Cost

~ 60% of box office revenues to

the distributor

Linked to the box office revenues

Revenues On sale at least for 2 years

EUR5-50k per movie

Based on the numberof the access

Source: Company Data, UBI Banca

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• Usually a movie is ready for distribution 12-18 months following

acquisition of full rights. Theatrical distribution normally lasts two months, though it can be higher for successful movies, with box office revenues divided between the movie theatre (60%) and the distributor (40%). It is important to stress that Notorious Pictures entered into arrangements with the largest Italian movie theatre chains (UCI Cinemas and The Space, >800 screens, 40% market share in Italy) which are a key factor for the success of the movie. Movies are also distributed through independent agents covering the whole Italian regions. Ideally, theatrical revenues should allow Notorious Pictures to break even covering all MG, editing and P&A costs;

• Four months after distribution in theatres stops, Notorious Pictures begins Home video distribution (sale of DVD and Blu Ray) through the traditional retail chains and kiosks. Distributors are responsible for production costs though they retain a percentage of the sale price. Although it has agreements with RAI Cinema and Mondadori (for kiosk sales), home video distribution represents a minimal part of Notorious Pictures’ revenues (<7% of 2013 turnover) and is expected to decline as the home video market is gradually shrinking to be replaced by new media (Vod, or video on demand);

Figure 2 – Full right product cycle

Source: Company data

• Some months later, Notorious Pictures begins exploitation of full rights

on Pay and Free TV channels (plus PPV or pay per view) which represent a significant proportion of expected revenues (nearly 50% in 2014 based on our estimates). The company has signed a 3 year agreement with Sky Italia to license the exclusive rights on 37 movies (Sky will have the right of first refusal on additional movies) for 12/17 months (respectively for Pay TV and PPV), with a fee based on the admissions recorded for each film in cinemas. It also has a contract with RAI Cinema for 9 movies lasting 4/6 years. Generally, Pay TV revenues represent >25% of the box office revenues while Free TV less than 10%. It is important to underline that these channels can be exploited for several years (up to 20), therefore with a 100% margin after the end of the amortization period of the library (2-3 years);

• Finally, Notorious Pictures may exploit new media channels by distributing titles through several platforms (mobile devices such as tablets, smartphones, PCs). New Media rights are usually negotiated

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through licensing agreements that provide for the possibility of allowing end-users a single viewing or to download the film. New Media channels currently make a limited contribution to Notorious Pictures’ revenues (less than 1% expected in 2014) but their importance is growing rapidly and we believe they will be an important source of revenues in the coming years.

Clearly the key factor that determines the profitability of a single movie is the box office which ought to cover all costs (including the D&A of the library) and is the driver for Pay and Free TV revenues. In this respect, Notorious Pictures has an outstanding track record as every film it has distributed was already profitable in the first phase of the exploitation cycle, meaning that all additional marginal revenue represents a 100% gain for the company.

Figure 3 – Profitability of the library All the movies distributed by Notorious Pictures were profitable, with several of them reporting sales well above expectations

Theatrical

revenues

Total

revenues

Cost (m.g. + editing + P&A)


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3.1. Key people Notorious Pictures has 15 employees and a board of 5 directors of which one is

independent. Clearly the company’s team is its most valuable asset considering Notorious Pictures’ conspicuous success in less than two years of existence and considering the team’s past track redord. The CEO, the General Director and the Purchasing Director are the key team members in selecting the titles that are expected to drive the company’s revenues. All of them have long experience in the film industry and many of them have worked together for many years.

Figure 4 – Key people at Notorious Pictures

Name Position Previous working experience Years in the business

G. Marchetti Founders, CEO and owner Walt Disney (sales manager), Mondo Home Entertainment (CEO), Moviemax (Chairman and

CEO)

30

U. Girardi Chairman Mondo TV (CFO) 10

R. Proia General Director MTV Networks (Media director), Nexo (Strategy Director), Moviemax (General Director)

20

M. Brioschi Purchasing Director Mikado Film (acquisitions) 19

I. Tomio Marketing Director Toto 2000 (Media director), Moviemax (Promotion Manager)

10

L. Miorando Editing Director In charge for production (Divisual), Dubbing coordinator (MTV, Sedif, Sailing Channel)

17

G. Davalli Commercial Director Commercial ssistant (Athena, Mikado), Commercial Director (Moviemax)

17

B. Noviello Administrative Director Administrative and auditing manager (Frimm, Eustema, Feidos)

16


Given the importance of its key personnel, one of the main risks that Notorious

Pictures is exposed to is the risk of key personnel leaving the company. In order to retain its team, the company is currently studying incentive plans, possibly including stock options. We believe that there is limited risk of any key people leaving the company in the short term, given that Notorious Pictures is still enjoying a period of rapid growth.

Figure 5 – Notorius Pictures Key People Organizational Chart


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3.2. Swot analysis

Figure 6 – SWOT Analysis

Strengths Weaknesses

Outstanding track record in film distribution (>EUR27 million box office in less than 2 years)

High volatility of box office revenues

Strong management expertise in the movie sector The business is totally dependent on a small number of key personnel

Solid balance sheet with net cash of EUR0.6 million at Mar-14

Short history of the company. However, top management has been in the industry for more than 20 years and therefore has a strong network of relationships with the leading upstream producers

Distribution contracts and arrangements with the most important Italian clients (RAI Cinema, Sky, UCI and The Space)

Opportunities Threats

Upstream integration through the entrance in the production and co-production sector which generally generates higher margins

Entry to the film production industry could present higher risk than pure distribution

Bonus share (1 new share every 10 shares held for more than 12 months)

Home video market is rapidly declining (-14% CAGR in 2007-12)

Development of a factory for new and young movie directors

Technological breakthrough in the movie distribution market

Source: UBI Banca estimates

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4. STRATEGY Notorious Pictures’ strategy differs from the strategy of other companies in the

market: first, the company does not have long term film distribution agreements with premier producers for the film acquisition, instead it adopts a cherry picking strategy to select its titles (management examined about 450 screenplays last year). Second, Notorious Pictures does not partner-up with other downstream distributors (see however the partnership with Leone Film Group for distributing two movies) but directly controls all its Italian theatrical distribution due to its partnership with UCI Cinemas and The Space (>800 screens representing about 40% of the Italian box office) and through its agent network. In this way, the company controls the entire value chain and this is one of the main strengths of the company in our view. Lastly, Notorious Pictures is not present in the product placement niche, focusing on pure distribution.

Following the potential cashflow from the proceeds of the IPO, Notorious

Pictures is considering to invest in two main directions (not included in our estimates):

1. Increasing the acquisition of rights on new movies from 14/15 p.a. to around 18/20, with a higher production budget. The targets will be thriller, family and action movies. Based on our assumptions, the addition of 4 new films, coupled with a generally higher standing, could translate into additional sales of about EUR10 million, or nearly 40% of 2014E revenues, which should significantly increase the size of the company in the medium term ;

2. Entry into film production industry probably from 2015 with 2 films, possibly through co-production. The clear advantage of production is that a large part of the production budget can be funded before the investments for production are incurred, thanks to the sale of co-production shares and distribution rights (also outside Italy) and the attractive tax credit arrangements in Italy (up to 55% of the production costs plus eventual regional subsidies). Anyway, the production budget will still have to be covered before the start of shooting by tax incentives (tax credit), government grants, product placement and pre-sales rights (HV, Pay TV PPV, VOD, free TV). As a result, production investments are generally limited to less than the half of the production costs while the distribution agreement can generate revenues for several years. In addition, with international co-productions generating revenues abroad and increasing geographical diversification, the risk of relying only on the Italian market will be reduced. Notorious Pictures is considering dedicating about 30% of its IPO proceeds to production in the next few years. This percentage could be increased gradually to 40/50% and the company does not rule out the possibility of producing TV fiction in future.

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5. REFERENCE MARKET AND COMPETITION 5.1. The Size of the Italian Film Industry Italian film industry revenue amounted to EUR5 billion in 2010, slightly higher

than in 2009 (+3.2% and EUR4.94 billion), which was the worst performing year for the industry over the past decade (source: Film Report 2012 based on data Istat). The recovery was also sustained by the introduction of the film production tax credit (which could cover the majority of production costs) and a series of government incentives which, due to their efficient implementation, contributed to partially overcome the 2008-2009 crisis. The sector is composed of a discrete number of firms (6,139 firms in 2010), but suffers from an element of sector fragmentation and, considering the average number of employees per firm (only 95 companies have more than 50 employees and 3,803 have no employees but prefer to work with external partners), highlights the problem of the small average size of the typical Italian film company which has negative repercussions on their competitive capacity in a business of potential global size (source : Film Report 2012 based on Istat data) The following tables provide the principal aggregate financial data of the active firms in the sector for each business area.

Figure 7 – Aggregate data of the Italian film industry

(EURm) 2008 2009 2010

Film Production, video and TV programmes

Revenues 3.179,2 2.843,7 2.696,8

VoP 2.003,5 1.299,2 1.265,4

Purchases, other costs 2.371,4 1.671,9 1.607,6

Personnel expenses 899,3 560,9 537,4

Post production, video and TV programmes

Revenues 292,6 245,4 311,4

VoP 77,7 70,1 114,3

Purchases, other costs 212,4 185,6 202,2


Theatrical distribution, video and TV programmes

Revenues 1.466,6 853,7 896,6

VoP 711,2 331,1 259,1



Film projection

Revenues 719,5 653,4 794,4

VoP 163,3 201,1 315,4



Total Revenues 5.658,0 4.596,3 4.699,4

Source: Rapporto “Il mercato e l’industria del cinema in Italia” 2012, Fondazione ente dello Spettacolo

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Figure 8 – break down of firms per activity

Firms 2008 2009 2010

Production 4.592 4.337 4.306

Post production 485 624 698

Distribution 328 281 273

Film projection 981 898 862

Total 6.386 6.140 6.139

Source: Rapporto “Il mercato e l’industria del cinema in Italia” 2012, Fondazione ente dello Spettacolo

5.2. Theatrical Distribution Theatrical distribution is the main distribution channel for films, with box office

revenues of EUR28 billion worldwide in 2012. Italy, the fourth biggest European market after France, UK and Germany, registered theatrical revenue of about EUR680 million in 2013 (with an average ticket price of EUR6), including both box office and other services (source: Anica, Cinetel, SIAE), with 1,063 movie theatres accounting for a total of 3,256 movie screens (source: Cinetel). Since 2006 the number of movie theatres has declined by 148 units (-12.1%) with a progressive increase in the penetration of multiplex and megaplex theatres, equipped with an ever increasing number of screens and therefore able to provide spectators with a broader range of films to watch (while offering new amenities, such as food and drinks) which helps prolong the length of the exhibition period of films on general release. This trend has increased the number of screens by 194 units since 2006 (+6.3%) with the global average per movie theatre now at 3.1 compared with 2.5 in 2006 (source: Cinetel). In 2013 the number of films released in Italy in movie theatres rose by 97 units, representing a significant increase of +27.1% YOY.

Figure 9 - Movie theatres and screens in Italy

Source: Anica, Cinetel, SIAE

Figure 10 - Number of films released in Italy in movie theatres

Source: Anica, Cinetel, SIAE

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In terms of box office (source: Cinetel amounting to 90% market share) attendance increased in 2013 to over 97 million tickets (+6.6% vs 2012) with revenues of EUR618 million (+1.45% vs 2012). This trend accelerated further in 1Q14 with an increase of 4.2% in attendance and 4.5% of box office revenue (QoQ).

Figure 11 - Box office and admissions (mn) Italian movies represented around 30% of total box office while >50% come from the US

Source: Cinetel

Figure 12 - Box office and admissions - average per movie (000) The decline of the average box office per movie is offset by the higher number of movies released

Source: Cinetel

5.3. TV distribution Once the period of theatrical distribution has ended, generally after four of

months, the movie is ready for distribution through other channels, with Pay TV generating the lion’s share of revenues. In Italy, growing competition between the two existing operators (Sky Italia and Mediaset Premium, which only became operational a few years ago), has produced an increase in the selection of films, with consistent growth in the number of showings, that rose to more than 52,000 in 2012, with a showings to film ratio of 19.7x.

In 2012 the number of films broadcast on free TV (generalist tv stations RAI,

Mediaset and La7) also rose by 4.6% compared to 2011. Another contribution to this phenomenon has been the proliferation of thematic channels on Digital Terrestrial Television (DTT) and on Satellite TV, which have practically tripled the film content of national Free TV. In particular, 2012 witnessed the programming of 3,945 films, for a total of 11,884 showings and an average programming per film of 3, significantly higher than for the generalist tv stations. On the basis of this trend, it is evident that the main TV operators have a constant need to enrich their film library, not only in terms of enlarging their catalogue of films but also to support the various thematic channels (32 in total) and the demand for PPV.

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Figure 13 – Movies offered in the generalist TV (RAI channels, Mediaset channels, La7)

3.995

3.815

3.951

3.791

3.967

2008 2009 2010 2011 2012

Source: Fondazione Ente dello Spettacolo Rapporto 2012

5.4. Home Video and New Media Distribution Home Video and New Media distribution registered contrasting trends in the

various channels. The sales of DVD and Blu-ray in 2012 decreased by 9.2% to 21.2 million units (with a 2007-12 CAGR of -13.9%), with the drop in turnover also due to a decrease in the average unit price, although Blu-ray registered an increase of 74% from 2007 to 2012. Traditional film rental was severely impacted by technological progress, registering a CAGR (2007-2012) amounting to -24.9%. This figure is mostly a consequence of the change in consumer behaviour in favour of more innovative distribution channels related to the digital market. On the opposite, VoD is growing rapidly because the platforms on which it is based can be managed both by traditional tv operators (and therefore by generalist tv stations) and satellite and cable tv companies, telecommunications operators, ISPs, retailers of musical and publishing content such as Virgin or Amazon, research engines, web portals and DVD rental companies. According to data from Digital TV Research Ltd., this sector registered revenue of USD3.6 billion in 2010 on a global level and should reach USD5.7 billion by 2016.The Italian digital market (VoD, EST and Electronic Rental) registered an increase in 2012 of 47.7% YOY rising to EUR13 million from EUR8.8 million in 2011.

Figure 14 – Revenue trend of Home video, rental and new media Sales of Home video declined at a CAGR of 13.9% in 2007-12, while rentals at a CAGR of 24.9%. Digital are relatively new and are rapidly growing

(EURm) 2007 2008 2009 2010 2011 2012

Sales 750 642 545 500 411 355

Rental 218 161 115 90 75 52

Digital

9 13

Totale 968 803 660 590 495 420

Source: Rapporto Univideo 2013

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5.5. Competitive positioning Starting from zero in mid 2012, Notorious Pictures has grown to become the

fourth largest independent distributor in 2013 (on the basis of Italian box office revenue in 2013) through the distribution of 14 movies of which four generated box office income of >EUR1 million. We believe that this clearly demonstrates the expertise of the company’s management and its skill in selecting the right movies for the Italian market.

Figure 15 – Admissions and box office per distributor in Italy in 2013

The US majors generated >50% of total admissions and box office revenues in 2013.

Distributor (FY 2013) Admission (m) % Box office (EURm) %

Majors

Warner Bros Italia 19,03 20% 125,28 20%

Universal 14,35 15% 92,99 15%

Walt Disney 10,30 11% 69,56 11%

20 th century fox 7,05 7% 46,30 7%

Medusa Film (Mediaste) 13,07 13% 83,56 14%

01 Distribution (RAI) 13,06 13% 80,04 13%

Total 76,87 79% 497,74 80%

Independents

Lucky red 4,50 5% 27,72 4%

Eagle Pictures 3,67 4% 22,27 4%

BIM 2,05 2% 11,74 2%

Notorius Pictures 1,90 2% 11,13 2%

Moviemax 1,59 2% 8,53 1%

M2 Pictures 1,53 2% 8,78 1%

Teodora Film 0,81 1% 4,40 1%

Videa-CDE 0,49 1% 2,85 0%

Good Films 0,42 0% 2,06 0%

Academy Two Distr. 0,42 0% 2,14 0%

Koch Media 0,38 0% 2,25 0%

Nexo Digital 0,34 0% 3,06 0%

Officine UBU 0,30 0% 1,71 0%

Bolero Film Distr. 0,27 0% 1,39 0%

others 1,84 2% 10,58 2%

Subtotal 20,51 21% 120,62 20%

Total 97,38 100% 618,35 100%

Source: Cinetel

Notorious Pictures improved its ranking during 1Q14, placing itself as the number one independent operator by Italian box office revenue and the fourth largest when the Majors are included. During the quarter its box office revenues surpassed the entire performance of 2013 with just five movies distributed,

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mostly due to the outstanding performance of “Belle and Sebastian” (box office at EUR7.5 million) and “La belle et la bête” (EUR4.8 million box office).

Figure 16 – Box office per distributor in Italty in 1Q14

Leone Film Group, one of the main Italian distributors, is not listed as it subcontracts its rights to other Italian distributors (primarily 01 Distribution and Medusa Film)

Distributor (1Q14) Box office (EURm) %

Warner Bros Italia Majors 32,50 21%

01 Distribution Majors 31,50 20%

Universal Majors 14,10 9%

Notorius Pictures Independent 13,80 9%

20 th century fox Majors 12,70 8%

Medusa Film Majors 12,40 8%

Lucky red Independent 10,60 7%

BIM Independent 7,6 5%

Eagle Pictures Independent 7,40 5%

Videa-CDE Independent 5,70 4%

M2 Pictures Independent 2,80 2%

Koch Media Independent 1,70 1%

Good Films Independent 1,60 1%

Walt Disney Majors 1,50 1%

Nexo Digital Independent 0,80 1%

Bolero Film Distr. Independent 0,60 0%

Adler Entertainement Independent 0,50 0%

Parthenos Independent 0,40 0%

Microcinema Independent 0,20 0%

others Independent 0,10 0%

Total 158,50 100%

Source: Cinetel

5.6. Production market Although Notorious Pictures is not a producer, it hopes to enter the production

sector in 2015 assisted by the IPO proceeds. Production of Italian films in 2013 remained stable at 167 movies, of which 138 exclusively Italian and 29 in co-production, mostly with French producers (in 2012 the production of Italian films was 166, of which 37 in co-production). In 2013, total investment in production and co-production amounted to EUR358 million, a decline of 27% compared to the previous year (EUR493 million). Average production costs per film are also declining: exclusively Italian productions have an average budget of EUR1.7 million while those produced under Italian initiative or in majority co-production have an average budget of EUR1.8 million.

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Figure 17 – Italian movie production market

2011 2012 2013

Number of Italian Productions 155 166 167

Number of Italian productions and co-productions* 146 150 156

Number of minority co-productions 9 16 11

Total cost of Italian Productions (EURm) 423,3 493,1 357,6

Total cost of Italian productions and co-productions* 333,2 333,22 280,4

Total cost of minority co-productions (EURm) 90,1 159,91 77,2

Average cost of Italian productions and co-productions* (EURm) 2,32 2,22 1,81

Average cost of minority co-productions (EURm) 9,4 9,99 7,02

Source: Anica * including 100% Italian productions, majority co-productions and 50/50 co-productions

Concerning funding sources, a significant stake of EUR42 million represents the

contribution from foreign investors while EUR32 million represents a 2013 film production tax credit. In 2013 Sovereign Funds and Regional Funds made their appearance for the first time, contributing approximately EUR7 million.

Figure 18 – Italian film production in 2013: founding sources (%) Incentives and tax credit from Italian government and regions covered >20% of total production costs

Foreign investors

15%

Production Tax

credit

11%

national

government

incentives

7%

International

minority co-

production

3%

regional

government

incentives

2%

sovereign

government

incentives

1%

Others

61%

Source: Anica

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6. FINANCIALS 6.1. 2013 Results Notorious Pictures was founded in July 2012 and 2013 was therefore its first

year of being fully operational, with revenues generated both from theatrical sales and from other distribution sales (mostly Pay TV and Home video). During the year the company distributed 14 movies and generated revenues from 15 movies of which 3 were distributed in 2012.

Figure 19 – 2013 Revenues by movie

Theatrical sales represented nearly 50% of total revenues, Pay TV 42%, Home video, Vod and Kiosk sales about 8%. The last two movies did not generate sales as they were released at the end of the year.

Movie title Release Genre Box office (EUR 000) Revenues (EUR 000)

Matching Jack Oct-12 Drama 200 311

Hello I Must Be Going Nov-12 Drama 200 316

Ex Terminators Dec-12 Comedy 240 323

Rec 3- Genesis Jan-13 Horror 290 432

Snowflake Jan-13 Animation 1,500 1,216

Upside Down Feb-13 Fantasy 2,000 1,325

Olympus Has Fallen Apr-13 Action 3,700 2,186

Lords of Salem Apr-13 Horror 400 508

Ghost Academy Apr-13 Comedy 210 308

Blood Jun-13 Drama 120 421

Dino Time Jul-13 Animation 560 255

Plan De Table Jul-13 Comedy 370 167

So Undercover Aug-13 Comedy 260 7

Riddik Sep-13 Sci-FI 1,500 576

Kill Your Darlings Oct-13 Thriller 330 124

Los Ultimos Dias Oct-13 Sci-FI 270

Pete's Christmas Dec-13 Family 220

Total

12,370 8,475


After EUR5.15 million of direct costs (of which EUR4.62 million for P&A) and

about EUR1 million of labour and other costs, Notorious Pictures reported an EBITDA of EUR2.82 million, representing a margin of 33.2%. D&A was EUR0.82 million mostly due to the amortization of capitalized costs (the library of the company or minimum guarantee and editing costs for EUR1.72 million in the year). It is important to stress that the company’s film library is amortized using the so-called “individual-film-forecast-computation method” which is based on the ratio determined for each movie between the revenues earned at the reporting date and the plan of sale made by the Board with an overall period of ten years from the release of the movie and its commercial exploitation. This means that a movie that exceeds its revenue plan would have a higher amortization, making this method very conservative. EBIT reached EUR2.0 million (23.5% margin), leading to a net result of EUR1.26 million after tax of EUR0.7 million (35.6% tax rate). During the year the company invested nearly EUR2 million but net cash flow was positive for EUR0.23 million leading net cash to reach EUR0.32 million at Dec-13.

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Figure 2012 – 2013 results

(EURm) 2012A 2013A

Sales Theatrical 0,00 4,19

Sales Other 0,00 4,28

Sales total 0,00 8,48

EBITDA -0,28 2,82

% margin 33,2%

EBIT -0,29 1,99

% margin 23,5%

Pre tax profit -0,29 1,96

Net profit -0,21 1,26

Net cash 0,08 0,32


6.2. 1Q14 Results In the first quarter of the year, Notorious Pictures distributed 5 new movies, of

which two reported outstanding box office results (“Belle and Sebastian” with EUR7.5 million and “La belle et la bête” with EUR4.8 million). New distributions, together with revenues from movies released in 2012 and 2013 (nearly EUR5 million) pushed up total revenues to EUR9.46 million (+11.6% compared with the whole 2013). The EBITDA margin increased significantly to 56.7% and net profit was close to EUR3 million after EUR1 million of D&A costs and a 32.5% tax rate. Net cash increased to EUR0.6 million despite substantial growth in trade receivables (EUR11.24 million vs. EUR4.83 million at Dec-13) which are directly linked to the success of the movies released in the period (theatrical revenues are cashed in after an average of 120 days).

Figure 21 – 1Q14 Results

1Q14 strongly benefitted from two movies, which together represented >50% of revenues: “Belle and Sebastien” and “La belle et la bête”

(EURm) 1Q13A 1Q14A % Chg. 2013A 2014E % Chg.

Sales Theatrical 1,45 6,10 319,8% 4,19 11,88 183,4%

Sales Other 0,06 3,36 nm 4,28 13,37 212,0%

Sales total 1,51 9,46 527,0% 8,48 25,25 197,9%

EBITDA -0,10 5,36 nm 2,82 15,31 443,8%

% margin -6,6% 56,7% 33,2% 60,6%

EBIT -0,18 4,36 nm 1,99 12,22 513,9%

% margin -11,7% 46,1% 23,5% 48,4%

Pre tax profit -0,20 4,36 nm 1,96 12,18 522,5%

Net profit -0,14 2,94 nm 1,26 8,04

Net cash na 0,60 0,32 2,28


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6.3. Financial projections It is very difficult to assess reliable estimates for a distributer of motion picture

content, as its top line is strictly linked to the box office results of future releases that are clearly unpredictable. However, Notorious has already secured a significant proportion of expected revenues for 2014 (EUR9.46 million reported in 1Q14 plus EUR4.1 million of sales not yet matured but already "certain", by virtue of the contracts with Pay TV that the company has in place) while there is a clear pipeline of forthcoming movies for 2014 (10 movies) and 2015. Our estimates do not take into consideration the cash inflow from the IPO and therefore do not incorporate any revenues from production activity nor for greater acquisition potential, both in term of numbers of titles and the quality of individual films. In order to assemble our forecasts we have divided the number of forthcoming movies over the next three years (15-16 per annum) into clusters based on expected box office revenues (on which all other sales are dependent). Theatrical sales are accounted at 40% of box office, Pay TV at an average of 26% of the box office (the contract with Sky includes a fee escalator clause on the basis of the admissions to the cinemas), Free TV at 8% (based on the contract with RAI Cinema), home video at 4%, and other revenues (Vod, PPV, Kiosk) at 2%, for a total of about 80% of the total box office spread along with the full rights duration (17 years on average). Clearly, the bulk of revenues is accounted in the first year of release (100% of theatrical revenues, 80% of Pay TV sales).

Figure 22 - Assumption of revenues per movie cluster Our assumptions are below results already achieved in the past. For example a 2014 A movie (“La belle et la bête”) with a box office of EUR4.8 million, already generated >EUR2.8 million secured sales in the first two months after the release.

(EUR 000) Admission (000) Box office Theatrical Pay and Free TV, HV, others Total

Movies A 800 4,800 1,920 1,525 3,445

Movies B 400 2,400 960 1,075 2,035

Movies C 200 1,200 480 735 1,215

Movies D 0 0 0 330 330


Our cost projections assume that the minimum guarantee (which is capitalized as

an intangible asset) could range from EUR1.0 million for an A movie to EUR0.15 million for a D movie, editing costs (also capitalized) are fixed at EUR35k per movie and P&A costs can range from EUR0.75 million for an A movie to EUR0.30 million for a D movie. This translates to a potential gross margin per movie (after D&A costs) ranging from 44% for an A movie to 70% for a D movie.

Figure 23 – Assumption of cost per movie cluster

If the movie deserves a large box office success, the gains could grow dramatically, even as royalties for the production mature: a good example is “Belle and Sebastian” which is expected to report a gain of >EUR2.0 million despite the payment of royalties for >EUR1.1 million.

(EUR 000) M.G. Editing P&A Other costs Total Theoretical gain % margin

Movies A 1,000 35 750 150 1,935 1,510 43,8%

Movies B 350 35 600 100 1,085 950 46,7%

Movies C 80 35 400 50 565 650 53,5%

Movies D 15 35 30 20 100 230 69,7%


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It should be noted that our estimates do not include the payment of bumps and/or royalties as estimated box office revenues are conservative and therefore always below the threshold above which royalties mature. If bumps or royalties come as a result, this is the consequence of performance far higher than expected and therefore generating higher gains for Notorious Pictures.

Figure 24 – P&L estimates

The top line CAGR for 2013-16 is expected to exceed 50%, even with a conservative approach (i.e. excluding any potential outstanding box office success), while the operating margin is expected to rise to 50% in 2016. In the coming years the company should also benefit from revenues from the second exploitation of the rights.

(EUR 000) 2013A 2014E 2015E 2016E

Movies A 1 2 3 3

Movies B 2 2 6 8

Movies C 4 10 4 3

Movies D 7 2 2 2

Total movies 14 16 15 16

Theatrical 4,19 11,88 13,44 14,88

Pay TV 3,55 9,03 9,50 10,30

Free TV 0,00 2,97 2,39 3,14

Home video 0,62 1,02 0,98 1,38

Vod, PPV, Kiosk 0,12 0,35 0,73 0,80

Other 0,54 0,00 0,08 0,78

Total sales 9,01 25,25 27,12 31,28

Direct costs (P&A and other) (5,15) (8,48) (8,27) (9,08)

Gross margin 3,86 16,77 18,85 22,20

Gross margin (%) 42,8% 66,4% 69,5% 71,0%

Labour and other structure costs (1,05) (1,46) (1,64) (1,72)

EBITDA 2,82 15,31 17,21 20,48

% margin 31,2% 60,6% 63,5% 65,5%

D&A on the library (0,76) (2,89) (3,51) (4,33)

Other D&A (0,06) (0,20) (0,28) (0,41)

EBIT 1,99 12,22 13,41 15,74

% margin 22,1% 48,4% 49,5% 50,3%


Below the operating line, the company should have minimal financial charges

(given its net cash position) and a tax rate of about 33%. This implies a net profit which is expected to grow from EUR1.26 million in 2013 to EUR8.04 million already this year and to EUR10.52 million in 2016.

As for the balance sheet, we expect an increasing value of the library (classified

as immaterial fixed asset) tied to the acquisition of new rights, which could approach EUR6 million at the end of 2016. Net working capital should remain broadly stable at about 20% of revenues. Net equity, assuming no dividend distribution and without considering the IPO proceeds, is expected to rise to nearly EUR30 million at end 2016 from EUR1.65 million at Dec-13.

We forecast that investments (mostly in the library) could be EUR3.5 million this year, rising gradually to EUR6.26 million expected in 2016. This trend would allow Notorious Pictures to generate a sizeable net cash flow leading to a rapid increase in net cash (EUR18.26 million expected at Dec-16 vs. EUR0.23 million at Dec-13).

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7. MULTIPLES REFERENCE Figure 25 – Multiples reference

Market Cap P/E EV/EBITDA EV/EBIT Share performance

(EURm) 2014 2015 2016 2014 2015 2016 2014 2015 2016 1M 3M 1Y

Leone Film Group 62 13,5 x 5,5 x

3,6 x 2,4 x

9,3 x 4,0 x

-8,37% -4,67%

DreamWorks 1.448 104,6 x 18,1 x 12,1 x 30,1 x 13,4 x 7,3 x 50,2 x 12,7 x 8,0 x -13,47% -30,83% 5,00%

EuropaCorp 137 4,2 x 3,4 x

3,7 x 3,4 x

5,3 x 4,6 x

1,30% 27,52% 36,84%

Splendid Medien 27 6,5 x 5,5 x 5,1 x 2,4 x 2,3 x 2,1 x 6,1 x 5,4 x 4,8 x -4,59% 21,57% 2,48%

Lions Gate Entertainment 2.581 15,9 x 14,1 x 15,0 x 9,5 x 8,6 x 8,3 x 11,5 x 10,0 x 10,0 x -5,32% -23,10% -6,84%

Entertainment One 1.067 14,2 x 13,0 x

10,4 x 9,4 x

10,8 x 9,8 x

-5,71% -3,62% 68,07%

Average

26,5 x 10,0 x 10,7 x 10,0 x 6,6 x 5,9 x 15,5 x 7,7 x 7,6 x -6,03% -2,19% 21,11%

Average excluding outliers

12,5 x 9,5 x 12,1 x 6,8 x 6,0 x 7,3 x 9,4 x 7,3 x 8,0 x

Median

13,9 x 9,3 x 12,1 x 6,6 x 6,0 x 7,3 x 10,1 x 7,6 x 8,0 x -5,52% -4,15% 5,00%

Source: Factset

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Appendix

Figure 26 – Library 2012

Movie title Release Genre Country Box office (EUR 000)

Matching Jack Oct-12 Drama Australia 200

Hello I Must Be Going Nov-12 Drama USA 200

Ex Terminators Dec-12 Comedy USA 240


Figure 27 – Library 2013


Rec 3- Genesis Jan-13 Horror Spain 290

Snowflake Jan-13 Animation Spain 1,500

Upside Down Feb-13 Fantasy Canada, France 2,000

Olympus Has Fallen Apr-13 Action USA 3,700

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Lords of Salem Apr-13 Horror USA 400

Ghost Academy Apr-13 Comedy Spain 210

Blood Jun-13 Drama UK 120

Dino Time Jul-13 Animation USA, South Korea 560

Plan De Table Jul-13 Comedy France 370

So Undercover Aug-13 Comedy USA 260

Riddik Sep-13 Sci-FI USA 1,500

Kill Your Darlings Oct-13 Thriller USA 330

Los Ultimos Dias Oct-13 Sci-FI Spain 270

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Pete's Christmas Dec-13 Family Canada 220


Figure 28 – Library 2014 (up to date)


Le Manoir Magique Jan-14 Animation Belgium 1,300

Belle and Sebastian Jan-14 Family France 7,500

The Numbers Station Feb-14 Thriller USA, UK, Belgium 224

La Belle et la Bete Feb-14 Fantasy France 4,800

A Long Way Down Feb-14 Comedy UK 1,200


Figure 29 – Coming soon

Movie title Release Genre Country

Devil's Knot May-14 Thriller USA

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the Nut Job May-14 Animation USA, South Korea, Canada

Ghost Movie 2 May-14 Comedy Usa

Univeral Soldier Jul-14 Action USA

L'Ape Maia Sep-14 Animation Germany

A Most Wanted Man Sep-14 Thriller Germany, UK, USA

Posh Sep-14 Thriller UK

Cub Oct-14 Horror Belgium

The Giver Oct-14 Sci-FI USA

Left Behind Nov-14 Thriller, Action USA


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Income Statement

(EURm) 2013A 2014E 2015E 2016E

Net Revenues 9,0 25,2 27,1 31,3

EBITDA 2,8 15,3 17,2 20,5

EBITDA margin 31% 61% 63% 65%

EBIT 2,0 12,2 13,4 15,7

EBIT margin 22% 48% 49% 50%

Net financial income /expense 0,0 0,0 0,0 0,0

Profit before taxes 2,0 12,2 13,4 15,7

Taxes -0,7 -4,1 -4,4 -5,2

Net Income 1,3 8,0 9,0 10,5


Balance Sheet

(EURm) 2013A 2014E 2015E 2016E

Net working capital 0,3 5,9 5,7 6,2

Net Fixed assets 1,7 2,3 4,1 6,1

M/L term funds 0,7 0,8 1,0 1,3

Capital employed 1,3 7,4 8,9 10,9

Shareholders' equity 1,6 9,7 18,6 29,2

Net financial debt/(cash) -0,3 -2,3 -9,8 -18,3


Cash Flow Statement

(EURm) 2013A 2014E 2015E 2016E

NFP Beginning of Period -0,1 -0,3 -2,3 -9,8

Group Net Profit 1,3 8,0 9,0 10,5

D&A 0,8 3,1 3,8 4,7

Change in Funds & TFR 0,0 0,0 0,0 0,0

Gross Cash Flow 2,1 11,1 12,8 15,3

Change In Working Capital -0,6 -5,6 0,2 -0,4

Other 0,0 0,0 0,0 0,0

Operating Cash Flow 1,5 5,6 12,9 14,8

Net Capex -2,0 -3,6 -5,4 -6,3

Other Investments 0,0 0,0 0,0 0,0

Free Cash Flow -0,4 2,0 7,5 8,5

Dividends Paid 0,0 0,0 0,0 0,0

Other & Chg in Consolid. Area 0,7 0,0 0,0 0,0

Chg in Net Worth & Capital Incr. 0,0 0,0 0,0 0,0

Change in NFP 0,2 2,0 7,5 8,5

NFP End of Period -0,3 -2,3 -9,8 -18,3


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Financial Ratios

(%) 2013A 2014E 2015E 2016E

ROE 76% 83% 48% 36%

ROI 99% 149% 136% 129%

Net Fin. Debt/Equity (x) -0,1 -0,1 -0,6 -0,9

Net Fin. Debt/EBITDA (x) 0,0 -0,1 -0,3 -0,4

NWC/Sales 4% 23% 21% 20%

Capex/Sales 22% 14% 20% 20%

Pay Out Ratio 0% 0% 0% 0%


Growth Rates

(%) 2013A 2014E 2015E 2016E

Growth Group Net Sales nm 180% 7% 15%

Growth EBITDA nm 444% 12% 19%

Growth EBIT nm 514% 10% 17%

Growth Net Profit nm 538% 11% 17%


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Disclaimer

THIS DOCUMENT HAS BEEN DRAFTED BY MARCO CRISTOFORI WHO IS EMPLOYED BY UBIBANCA AS FINACIAL ANALYST; UBIBANCA IS RESPONSIBLE FOR THE DRAFTING OF THIS DOCUMENT.

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AUSTRALIA OR ANY SUCH OTHER JURISDICTION.

THIS DOCUMENT DOES NOT CONSTITUTE OR FORM PART OF, AND SHOULD NOT BE CONSTRUED AS, AN OFFER OR INVITATION TO SUBSCRIBE FOR OR PURCHASE ANY SECURITIES IN ANY JURISDICTION, AND NEITHER THIS DOCUMENT NOR ANYTHING CONTAINED HEREIN SHALL FORM THE BASIS OF OR BE RELIED ON IN CONNECTION WITH OR ACT AS ANY INDUCEMENT TO ENTER INTO ANY CONTRACT OR COMMITMENT WHATSOEVER. THIS DOCUMENT HAS NOT BEEN PUBLISHED GENERALLY AND HAS ONLY BEEN MADE AVAILABLE TO INSTITUTIONAL OR PROFESSIONAL INVESTORS. ANY DECISION TO PURCHASE OR SUBSCRIBE FOR SECURITIES IN ANY OFFERING MUST BE MADE SOLELY ON THE BASIS OF THE INFORMATION CONTAINED IN THE OFFERING DOCUMENTATION ISSUED IN CONNECTION WITH SUCH OFFERING.

THIS DOCUMENT IS FOR DISTRIBUTION IN ITALY ONLY TO QUALIFIED INVESTORS PURSUANT TO ARTICLE 100 OF LEGISLATIVE DECREE NO. 58 OF 24 FEBRUARY 1998, AS AMENDED, AND AS DEFINED IN ARTICLE 34-TER OF CONSOB REGULATION NO. 11971. THIS DOCUMENT MAY NOT BE DISTRIBUTED TO (I) A MEMBER OF THE GENERAL PUBLIC; (II) DISTRIBUTION CHANNELS,THROUGH WHICH INFORMATION IS, OR IS LIKELY TO BECOME AVAILABLE TO A LARGE NUMBER OF PERSONS; OR (III) INDIVIDUALS OR ENTITIES FALLING OUTSIDE THE DEFINITIONS OF "QUALIFIED INVESTORS" AS SPECIFIED ABOVE.

IN THE UNITED KINGDOM, THIS DOCUMENT IS BEING DISTRIBUTED ONLY TO, AND IS DIRECTED ONLY AT PERSONS WHO (A) ARE (I) PERSONS FALLING WITHIN ARTICLE 19 OR ARTICLE 49 OF THE FINANCIAL SERVICES AND MARKETS ACT 2000 (FINANCIAL PROMOTION) ORDER 2005 (AND ONLY WHERE THE CONDITIONS CONTAINED IN THOSE ARTICLES HAVE BEEN, OR WILL AT THE RELEVANT TIME BE, SATISFIED) OR (II) ANY OTHER PERSONS TO WHOM IT MAY BE LAWFULLY COMMUNICATED; AND (B) ARE QUALIFIED INVESTORS WITHIN THE MEANING OF ARTICLE 2(1)(E) OF THE PROSPECTUS DIRECTIVE (DIRECTIVE 2003/71/EC, TOGETHER WITH ANY APPLICABLE IMPLEMENTING MEASURES IN ANY SUCH MEMBER STATE, THE "PROSPECTUS DIRECTIVE"), (ALL SUCH PERSONS BEING REFERRED TO AS "RELEVANT PERSONS"). THIS DOCUMENT MUST NOT BE ACTED ON OR RELIED ON BY PERSONS WHO ARE NOT RELEVANT PERSONS. ANY INVESTMENT OR INVESTMENT ACTIVITY TO WHICH THIS COMMUNICATION RELATES IS AVAILABLE ONLY TO RELEVANT PERSONS AND WILL BE ENGAGED IN ONLY WITH RELEVANT PERSONS.

THIS DOCUMENT IS BEING DISTRIBUTED TO AND IS DIRECTED ONLY AT PERSONS IN THE MEMBER STATES OF THE EUROPEAN ECONOMIC AREA ("EEA") THAT HAVE IMPLEMENTED THE PROSPECTUS DIRECTIVE, WHO ARE "QUALIFIED INVESTORS" IN THAT MEMBER STATE WITHIN THE MEANING OF ARTICLE 2(1)(E) OF THE PROSPECTUS DIRECTIVE ("QUALIFIED INVESTORS"). ANY PERSON IN THE EEA WHO RECEIVES THIS DOCUMENT WILL BE DEEMED TO HAVE REPRESENTED AND AGREED THAT IT IS A QUALIFIED INVESTOR. ANY SUCH RECIPIENT WILL ALSO BE DEEMED TO HAVE REPRESENTED AND AGREED THAT IT HAS NOT RECEIVED THIS DOCUMENT ON BEHALF OF PERSONS IN THE EEA OTHER THAN QUALIFIED INVESTORS OR PERSONS IN ANY MEMBER STATES (WHERE EQUIVALENT LEGISLATION EXISTS) FOR WHOM THE INVESTOR HAS AUTHORITY TO MAKE DECISIONS ON A WHOLLY DISCRETIONARY BASIS.

THIS DOCUMENT HAS BEEN PRODUCED INDEPENDENTLY OF NOTORIOUS PICTURES S.P.A. (THE "COMPANY") AND ITS SHAREHOLDERS AND SUBSIDIARIES AND AFFILIATES, AND ANY FORECASTS, OPINIONS AND EXPECTATIONS CONTAINED HEREIN ARE ENTIRELY THOSE OF ITS AUTHOR AND ARE GIVEN AS PART OF ITS NORMAL RESEARCH ACTIVITY AND SHOULD NOT BE RELIED UPON AS HAVING BEEN AUTHORISED OR APPROVED BY ANY OTHER PERSON. THE

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JOINT BOOKRUNNER HAS NO AUTHORITY WHATSOEVER TO MAKE ANY REPRESENTATION OR WARRANTY ON BEHALF OF THE COMPANY, ITS SHAREHOLDERS, ITS SUBSIDIARIES, ITS AFFILIATES, THEIR RESPECTIVE ADVISORS, OR ANY OTHER PERSON IN CONNECTION THEREWITH. WHILE ALL REASONABLE CARE HAS BEEN TAKEN TO ENSURE THAT THE FACTS STATED HEREIN ARE ACCURATE AND THAT THE FORECASTS, OPINIONS AND EXPECTATIONS CONTAINED HEREIN ARE FAIR AND REASONABLE, THE JOINT BOOKRUNNER HAS NOT VERIFIED THE CONTENTS HEREOF AND ACCORDINGLY NONE OF THE JOINT BOOKRUNNER, THE COMPANY, ITS SHAREHOLDERS, ITS SUBSIDIARIES, ITS AFFILIATES, THEIR RESPECTIVE ADVISORS OR ANY OTHER PERSON IN CONNECTION THEREWITH NOR ANY OF THEIR RESPECTIVE DIRECTORS, OFFICERS OR EMPLOYEES OR ADVISERS, SHALL BE IN ANY WAY RESPONSIBLE FOR THE CONTENTS HEREOF AND NO RELIANCE SHOULD BE PLACED ON THE ACCURACY, FAIRNESS, OR COMPLETENESS OF THE INFORMATION CONTAINED IN THIS DOCUMENT. NO PERSON ACCEPTS ANY LIABILITY WHATSOEVER FOR ANY LOSS HOWSOEVER ARISING FROM THE USE OF THIS DOCUMENT OR OF ITS CONTENTS OR OTHERWISE ARISING IN CONNECTION THEREWITH.

UBIBANCA IS A JOINT BOOKRUNNER IN RESPECT OF A PROPOSED OFFERING OF SECURITIES BY THE COMPANY.

UBIBANCA (OR ITS OFFICERS, DIRECTORS OR EMPLOYEES) MAY, TO THE EXTENT PERMITTED BY LAW, HAVE A POSITION IN THE SECURITIES OF (OR OPTIONS, WARRANTS OR RIGHTS WITH RESPECT TO, OR INTEREST IN THE SHARES OR OTHER SECURITIES OF) THE COMPANY AND UBIBANCA MAY MAKE A MARKET OR ACT AS A PRINCIPAL IN ANY TRANSACTION IN SUCH SECURITIES.

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