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CORPORATE RESEARCH Artprice.com 14th May 2013

All figures based on closing prices on 18th April Focus on Asia Media Fair Value EUR43.6 (price EUR26.70) CORPORATE

Bloomberg ARP FP Reuters ARTF.PA 12-month High / Low (EUR) 37.0 / 19.9 Market capitalisation (EURm) 171 Enterprise Value (BG estimates EURm) 171 Avg. 6m daily volume ('000 shares) 106.8 Free Float 66.4% 3y EPS CAGR NM Gearing (12/12) -2% Dividend yield (12/13e) NM

Over 16 years, Artprice has created a key position in the field of artistic communication and built up one of the most comprehensive databases in the global Art market. Artprice boasts the first fixed-price Standardised Marketplace (Place de Marché Normalisée) and since 2012, has been attacking the online auctions market.

Asia, a strong growth driver: For several years now, a shift in the Art market has taken place in favour of Asia with China becoming the world no. 1 market. Under this framework, Artprice has developed two major partnerships with Artstage Singapore as well as with Artron in China and is preparing its installation in Hong Kong, which should help facilitate the group's development in all businesses, and more specifically, in the auction segment.

Launch of 4G kiosk subscription: the emergence of 4G networks offers an excellent opportunity for all data providers. In this respect, the group is working on rolling out a 4G kiosk system accessible via mobile handsets (tablets, smartphones), which should provide considerable leverage to the group's sales growth over the medium term.

High potential to improve margins: Based on the median scenario we have retained, sales are set to come in at EUR20m in 2014e and EUR50m in 2015e, pointing to net profit of EUR11.4m and EUR26.6m in each year respectively.

Fair Value of EUR43.6 per share. Our Fair Value is obtained from the average of three valuation methods, among which a DCF calculation is the most dominant, in our median scenario. Our two alternative scenarios suggest a Fair Value range for the share price of EUR34.4 (low-end) and EUR59.9 (high-end).

WARNING: This document is destined exclusively for Bryan Garnier clients. It is provided for information purposes only and cannot be communicated to a third party without the prior consent of Bryan Garnier&Co. See complementary warnings on page 2. This Report has been sent to you for marketing purposes. It is non-independent research within the meaning of the FSA rules. It is not being held out as an objective or independent explanation of the matters contained in it and should not be treated as such. It has not been prepared in accordance with the legal requirements designed to promote the independence of investment research. Accordingly, the Firm is not subject to any prohibition on dealing ahead of the dissemination of investment research. Please see the section headed “Important information” on the back cover.

YE December 12/12 12/13e 12/14e 12/15e Revenue (EURm) 5.31 5.64 19.99 50.13 EBIT(EURm) 0.10 0.13 12.68 39.82 Basic EPS (EUR) 0.02 0.02 1.77 4.15 Diluted EPS (EUR) 0.02 0.02 1.77 4.15 EV/Sales 32.1x 30.2x 8.0x 2.7x EV/EBITDA NM NM 12.0x 3.3x EV/EBIT NM NM 12.5x 3.4x P/E NM NM 15.1x 6.4x ROCE NM NM NM NM

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ARTPRICE.COM CAC SMALL

Contact details Corporate Broking corporatebroking@bryangarnier.com

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Bryan Garnier&Co has concluded a Corporate research contract with the issuer concerning one or more of its financial instruments.

This document is destined exclusively for Bryan Garnier clients, is provided for information purposes and cannot be divulged to a third party without the prior consent of Bryan Garnier&Co.

The present research note is destined for investors qualified as professionals and any usage by non-professional individuals engages only themselves.

This note only be understood once a prior reading has been undertaken of risk factors included in the Artprice reference document posted online on the AMF website, " www.actusnews.com Diffuseur Professionnel d'Information Réglementée autorisé par l’AMF" as well as of Artprice regulated information on interim and full-year accounts containing themselves the risk factors present on the AMF site.

It is not and must not be taken as an offer or a solicitation for a sales or purchase offer or a subscription to an investment whatsoever.

The information contained in this document stems from carefully selected public sources. Despite the undertaking of all diligence required to ensure that this information is exact at the time of publication, no guarantee is given concerning their exact, exhaustive and sincere nature.

Past performances do not guarantee future performances.

Any opinion contained in the present document reflects the current context and can be modified at any moment without notice.

Bryan Garnier&Co is approved by the FSA and is regulated by the AMF (Autorité des Marchés Financiers).

"Wall of China" information barrier measures have been set up in order to avoid the undue distribution of confidential information and to guard against and manage situations of conflicting interest.

At the time of publication of this note, Bryan Garnier&Co may have conflicting interests with the issuer mentioned.

In particular, Bryan Garnier&Co may act or envisage acting, in the coming 12 months, as a liquidity provider, market maker, adviser, or investment banker in one of the companies mentioned in this publication.

Bryan, Garnier & Co has been mandated by the issuer for the writing and distribution of this research note to institutional clients of Bryan, Garnier & Co.

A copy of the Bryan Garnier & Co Limited conflicts policy in relation to the production of research is available at www.bryangarnier.com

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Simplified Profit & Loss Account (EURm) 2010 2011 2012 2013e 2014e 2015e 2016e Revenues 5.2 5.2 5.3 5.6 20.0 50.1 79.8 Change (%) -% -0.1% 1.7% 6.3% 254% 151% 59.2% Adjusted EBITDA 0.21 0.19 0.16 0.24 13.3 40.6 67.8 EBIT 0.13 0.15 0.10 0.13 12.7 39.8 66.8 Change (%) -% 13.2% -31.5% 34.2% -% 214% 67.7% Financial results 0.15 0.14 0.15 0.14 0.14 0.26 0.52 Pre-Tax profits 0.15 0.09 0.13 0.16 12.7 40.0 67.2 Exceptionals 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Tax 0.0 0.0 0.0 0.0 1.3 13.3 22.4 Minority interests 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Net profit 0.15 0.09 0.13 0.16 11.4 26.6 44.8 Restated net profit 0.15 0.09 0.13 0.16 11.4 26.6 44.8 Change (%) -% -39.2% 39.8% 20.9% -% 134% 68.1% Cash Flow Statement (EURm) Operating cash flows 0.28 0.22 0.19 0.27 12.0 27.5 45.8 Change in working capital (0.36) (0.05) (0.08) (0.31) (0.35) (1.7) (4.3) Capex, net (0.02) (0.01) (0.01) (0.03) (0.08) (1.5) (2.5) Financial investments, net 0.0 0.02 0.0 0.0 0.0 0.0 0.0 Dividends 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Other (0.00) 0.00 0.0 0.0 0.0 0.0 0.0 Net debt (0.02) (0.22) (0.32) (0.24) (11.8) (36.1) (75.1) Free Cash flow (0.10) 0.19 0.10 (0.08) 11.6 24.3 39.0 Balance Sheet (EURm) Tangible fixed assets 8.1 8.1 8.0 8.0 7.4 8.1 9.6 Intangibles assets 0.08 0.05 0.05 0.05 0.04 0.05 0.06 Cash & equivalents 0.05 0.03 0.03 0.03 0.03 0.03 0.04 current assets 8.2 8.2 8.1 8.0 7.5 8.2 9.7 Total assets 14.9 15.0 15.2 15.4 31.5 67.9 122 L & ST Debt 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Others liabilities 1.8 1.8 1.8 1.9 6.6 16.4 26.0 Shareholders' funds 13.1 13.2 13.4 13.5 24.9 51.6 96.4 Total Liabilities 14.9 15.0 15.2 15.4 31.5 68.0 122 Ratios Operating margin 2.47 2.80 1.88 2.38 63.42 79.43 83.70 Tax rate 0.0 0.0 0.0 0.0 10.30 33.32 33.32 Net margin 2.93 1.78 2.45 2.79 57.01 53.16 56.15 ROE (after tax) 1.03 0.62 0.86 1.02 36.18 39.26 36.67 Gearing (0.18) -1.67 -2.39 -1.79 -47.41 -70.03 -77.93 Pay out ratio 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Number of shares, diluted 6.40 6.40 6.41 6.42 6.42 6.42 6.42 Data per Share (EUR) EPS 0.02 0.01 0.02 0.02 1.77 4.15 6.97 Restated EPS 0.02 0.01 0.02 0.02 1.77 4.15 6.97 % change -% -39.2% 39.7% 20.6% -% 134% 68.1% EPS bef. GDW 0.02 0.01 0.02 0.02 1.77 4.15 6.97 BVPS 2.33 2.34 2.37 2.40 4.90 10.57 19.02 Operating cash flows 0.04 0.04 0.03 0.04 1.87 4.27 7.13 FCF (0.02) 0.03 0.02 (0.01) 1.80 3.78 6.07 Net dividend 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Source: Company Data; Bryan, Garnier & Co ests.

Company description Artprice is the world leader in Art market databases for artwork listings and indices, with more than 27 million index data and trading prices for over 500,000 artists.

Groupe Serveur32.73%

Treas. Shares0.84%

Management0.06%

Free Float66.37%

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Table of contents 1. Investment Case ........................................................................................................................................... 6

2. Creating a key position ............................................................................................................................... 7

2.1. Acquisition of main Art market publishing houses over the past 16 years… ...... 7

2.2. …providing the most comprehensive data base in the global Art market ........... 7

2.3. …flashback to standardisation and dematerialisation moves undertaken by the group 8

2.4. Development of structuring partnership agreements ............................................ 10

2.4.1. Partnership agreement with Google since 2003... ....................................................... 10 2.4.2. …followed by new agreements at end-2012 with Google and in early 2013 with Baidu (the leader in search portals in mandarin) ............................................................................. 10

2.5. The leader in information on the Art market destined for all major press agencies, but not only... .............................................................................................................. 11

2.5.1. Information activities… ................................................................................................... 12 2.5.2. …leading to market transparency ................................................................................... 12

2.6. Other partnership agreements ................................................................................... 13

2.6.1. Data concession and affiliation ....................................................................................... 13 2.6.2. Axa Art/Artprice partnership at the service of collectors (since 2007) ................... 13 2.6.3. Interpol/Artprice partnership (2011) ............................................................................ 13 2.6.4. Other partnerships (2012/2013) ..................................................................................... 14

2.7. Development of the largest fixed-price Standardised Marketplace ..................... 14

2.8. The electronic Standardised Marketplace for auction brokerage ......................... 16

2.8.1. Presentation of the Standardised Marketplace for auctions ...................................... 16 2.8.2. Artprice: A Low cost services in art auctions ............................................................... 16 2.8.3. A protective legal positioning for Artprice, its clients and shareholders ................. 18 2.8.4. Settlement/delivery secured by a trusted third party .................................................. 18

2.9. Protected DNS, providing a genuine hidden war chest ........................................ 19

3. The Art market at a turning point ......................................................................................................... 20

3.1. Acceleration in globalisation of the Art market ...................................................... 20

3.2. A multitude of museums arising in Asia .................................................................. 24

3.3. A shift in the market and its players ......................................................................... 25

3.3.1. Internet: a revolution underway with three billion users already connected... ....... 25 3.3.2. ...stimulated by new technologies and development of tablets and smartphones...26 3.3.3. ... education of operators .................................................................................................. 27 3.3.4. …amplified by a change in the buyer profile ............................................................... 27 3.3.5. … and the decline in transaction costs .......................................................................... 29

3.4. A more efficient market .............................................................................................. 30

3.5. Analogy with financial markets .................................................................................. 31

4. Who are Artprice's rivals? ....................................................................................................................... 32

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4.1. Sotheby’s and Christie’s: a duopoly facing a new landscape ................................. 32

4.2. Artnet is not a real rival for Artprice ........................................................................ 34

5. Artprice’s potential and growth vectors ............................................................................................... 37

5.1. Growth in Asia ............................................................................................................. 37

5.1.1. Art Stage Singapore, a major partnership ...................................................................... 37 5.1.2. Artron: A historic agreement for the Art market and Art market information ..... 37

5.2. Launch of a 4G mobile kiosk..................................................................................... 39

5.2.1. 4G kiosk in the West offers Artprice the chance to turn a profit on its client base40 5.2.2. 4G kiosk Asia: another source of growth ..................................................................... 41

5.3. Over EUR40m of revenue potential from the 4G kiosk in Asia and the West in 2016 43

5.4. The fixed-price Standardised Marketplace could bring in EUR17m in additional revenues in 2016.......................................................................................................................... 44

5.5. Standardised Marketplace for auctions could bring in EUR9.5m in additional revenues by 2016 ......................................................................................................................... 48

5.5.1. Development slowed by administrative formalities and regulators dragging their heels 48 5.5.2. Low number of auction sales in the end ....................................................................... 50 5.5.3. Hong Kong as a fresh source of growth and a solution to delays with online auctions 50

5.6. Launch of an online catalogue service ...................................................................... 54

5.7. Database subscriptions................................................................................................ 55

5.8. Other potential developments ................................................................................... 57

5.8.1. Launch of an art social network...................................................................................... 57 5.8.2. Business with insurers ....................................................................................................... 58

6. Significant potential to improve margins ............................................................................................. 59

7. Fair Value ................................................................................................................................................... 62

7.1. Discounted Cash Flow (DCF) ................................................................................... 62

7.2. Expected return method with a target exit P/E (n+2) .......................................... 63

7.3. Sum of the parts ........................................................................................................... 65

7.4. Summary of valuation methods ................................................................................. 67

Glossary ............................................................................................................................................................ 68

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1. Investment Case

The reason for writing now Based on our meetings with management, we understand that the group is gradually set to switch from a virtually free-of-charge services mode to a pay-mode and is to launch a number of pay-services by mid-2014: 4G art information kiosk available on mobile handsets, subscriptions for auction houses for digital catalogue versions etc. In addition, the group's investments in Asia should step up development of the Standardised Marketplace for auctions (Place de Marché Normalisée aux enchères).

Valuation Our valuation of the company stems from the weighted average of three valuation methods: 1/ DCF (EUR44.8 per share), 50% weighting, 2/ target P/E n+2 of 12x and a yield target of 20% (EUR43.9), 25% weighting 3/ sum-of-the-parts (EUR41.1), 25% weighting, and points to a Fair Value of EUR43.6 per share and EUR280.3m for the company. Our two alternative scenarios point to a Fair Value range per share of between EUR34.4 (low-end scenario) and EUR59.9 (high-end).

Catalysts Management is seeking partnership agreements with telecoms operators in order to launch a mobile information access service made possible with the future development of 4G and 4G LTE networks...

Difference with consensus We are aware that it is difficult to make precise estimates for the group's development potential. However, there is no reason not to try. The aim of this report is to provide a reference base for investors including various assumptions and scenarios in order for them to form an opinion depending on their own assumptions in view of the specific nature of the Art market.

Risks to our investment case Our forecasts are based on development projects that are still mostly in the teething stages such that our figures are subject to execution risk concerning these developments (4G kiosk, digital catalogue subscription, launch of Standardised Marketplace in Asia). In addition, we believe the group remains exposed to significant lobbying capacity within the profession, which is refusing to adopt internet services.

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2. Creating a key position 2.1. Acquisition of main Art market publishing

houses over the past 16 years… Over the past 16 years, via his company Artprice, Thierry Ehrmann has acquired virtually all of the editorial funds, manuscripts and catalogues in Europe, the US and recently in Asia. The group's purchases have totalled more than EUR30m and concern both publishing houses, art publishing lists and auction catalogues.

• Art Price annual (1987/1997)

• Guide Enrique Mayer (1962/1987)

• Dictionary of Art Sales from 1700-1900 by Dr H. Mireur

• Sound View Press: US leader since 1988, 50 databases in the US

• Editions Franck Van Wilder (since 1970)

• Swiss company Xylogic (a unique IT services company producing indices and econometric data for the Art market since 1987 and software packages for auction houses)

• Bayer data bank (Anglo-US Art market from ́1700 to 1913)

• Caplan monograms and signatures (US, since 1972)

• The Argus of Collection books and manuscripts (France, since 1983)

• 270,000 catalogues and manuscripts from the 17th century to the present

2.2. …providing the most comprehensive data base in the global Art market

These purchases have primarily focused on the period from 1700 to 1990 as of which manuscripts and catalogues retrace transactions and descriptions etc. and have enabled the group to standardise the Art market by ensuring the traceability of works as well as a perfect attribution to the artist's biography. Artprice therefore boasts a database with 108 million images and engravings of artworks from 1700 to the present day, all commented on by art historians, researchers and editors specialised in the Art market.

At present, the company affirms that it has the largest data bank in the Art market with: • 511,319 artists that already have an auction listing

• 910,000 biographies of already listed and/or non-listed artists (but who already have an impact on the Art market, including the 511,319 artists already listed)

• 27 million indices and detailed adjudication results

• 108 million artworks in high-definition images

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In order to make the creation of a rival database more difficult, the group has made sure it has acquired listed books in a redundant manner in order to capture the market. This strategy was also aimed at crossing information and improving the quality of the group's database.

In addition to the history, Artprice is constantly rounding out its data banks using 4,500 auction houses. Using this data, Artprice publishes trends in the Art market in the world each year on a continuous basis. This information is used by the main agencies and 6,300 press titles throughout the world. Within a few years, Artprice has become the most comprehensive source of information in the global Art market, resembling a kind of Bloomberg or Reuters in the Art world, and this has enabled it to standardise the market, in a first step towards dematerialisation. At this level, note the precious role of beneficiaries, experts and living artists in helping to round out and maintain information on artists up-to-date. The group benefits from their scrupulous monitoring to guarantee the most detailed information on the artists from which they descend. In particular, Artprice, which has a database in catalogues raisonnés, which is an essential factor for certifying the authenticity of an artist's work, providing a precious service to beneficiaries, experts and owners (collectors, galleries etc.) since they know that via Artprice they not only have direct access to the authentication of their works, but also a reliable traceability of art owners. In return, these beneficiaries, experts and living artists provide Artprice with any new information or corrections necessary and play a kind of guard-dog role in this reliability.

Another specific feature is that Artprice is one of the rare players to maintain an up-to-date database of unsold works using 18 criteria to justify why the work has not been sold (court requisitions, sequestration ordered by..., refusal of sale by beneficiaries due to collaboration of two artists on the piece with one of the beneficiaries' families opposing the sale etc.). This factor is a spanner in the works for sellers who can no longer try and resell a work without risking being reproached for the real motive, since an unsold work is not forgotten so quickly by collectors and others and in the case of a resale, this can lead to significant discounts. However, before the database of unsold works was established, especially by Artprice, this type of key information was not available to the public and clearly enabled those in the know to benefit from the situation. Here again, Artprice is the only player to own its IT white rooms, all of its servers with storage capacity of more than 1,200 Teraoctets (1.2 Petaoctet), as well as to control the publishing and production of all of its databases under Linux (171 databases, biography, index, catalogues raisonnées, galleries etc.). In this field, Artprice benefits from the know-how of its key shareholder, the Serveur Group, which has been one of the European leaders in professional databases on point-to-point networks and internet since 1987 (pioneer in France in internet databases: source Time Magazine).

2.3. …flashback to standardisation and dematerialisation moves undertaken by the group

When the group was created, management noted the lack of standardisation in the Art market and set about trying to resolve this in order to obtain a clear hold on the market. Standardising the Art market as defined by Artprice enables a buyer and a seller that do not know each other (and who can therefore be at opposite ends of the world) to buy and/or sell a work and to ensure that they are indeed talking about the same piece of work with no shadow of a doubt.

Within a few years, Artprice has become the most comprehensive source of information for the global Art market

Artprice is one of the rare players to maintain an up-to-date database of unsold works

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Prior to the standardisation of the market, Artprice began dematerialising the works listed in catalogues and manuscripts that it bought in order to perfectly define a precise segmentation by field (name of artist, date of work, price, format, media, support etc.) for each work. As such, Artprice attributed to each artist and each work a unique and universal identity (ID). By analogy with the equities markets, Artprice created a SICOVAM code for each artist and a SIRET code for each work enabling it to dematerialise the artworks. In this respect, Artprice automatically provided itself a monopoly in the market dematerialisation since the company states that numerous intellectual property rights protect this standardisation. As such, any similar standardisation would be considered a counterfeit. This standardisation goes beyond the simple definition of a few categories. As an example, each artist in the listing must be automatically "batched" (standardised) with works at Artprice. The documents and attestations must be certified either at a town hall, or by a solicitor or bailiff and a physical copy of these documents is held at Artprice. As such, a number of expert fields must be fulfilled imperatively. The Artprice databases serve as a reference integrity field. Note that the standardisation of the market undertaken by the group implies being certain that the work in question is the same one with no doubt whatsoever. The research algorithms developed thanks to the database and its references help block or eliminate any source of error (price coherency, date of creation etc.) thanks to the use of trackers. In all, Artprice's standardisation is an intersection between all of the fields input into the base resulting in a single outcome, meaning that it is certain that the work being considered is the same one for all concerned. Finally, this standardisation is matched in six languages, thanks to extremely precise linguistic correspondence tables.

In order to standardise the market, Artprice therefore undertook the most comprehensive inventory possible of artworks (paintings, sculptures, engravings, lithographs, installations, photographs and videos) and biographies of hundreds of thousands of artists dating from the 4th century BC to the present day. This process also required the specific attention of making the correct piece of work in the inventory correspond to hundreds of others with the same name. As such, Artprice believes it has a legal monopoly in terms of the standardisation of the Art market including artist ID, work ID, catalogue raisonnée ID, estimate/econometrics ID etc., without abusing a dominant position. Indeed, given the lack of serious rivals boasting similar rights in terms of intellectual property, over the past 16 years, Artprice has created a de facto monopoly. If another player would like to rival this standardisation, they would first have to acquire the data and then manage to standardise in a different way. However, since 1996, the semantics and arborescence of Artprice's databases are fully protected particularly in terms of Suit Generis rights and various rights concerning intellectual property (software patents, software rights, copyright, derivative rights etc.). Finally, on the internet, in terms of access to information, the group has a genuine leadership premium, which it has bolstered via agreements with Google since 2003 and recently via the Chinese search engine Baidu (as discussed in the following section).

Over 16 years of work, Artprice has become the global leader in information concerning the Art market with 2.072 million subscribers (for which Artprice has a physical and/or banking trace) and more than 4,500 auction houses, 3,200 of which are connected to a secure intranet (source: Artprice). According to the group, this process represents more than a million hours of work by historians, researchers and editors specialised in the Art market in order to document and write about all of the artworks stemming from these manuscripts and catalogues. As such, Artprice affirms it has the largest database of information on the Art market in the world, enabling works of art to be traced throughout the centuries. Reuters, the AFP and all major international press titles, regularly confirm its status as the global leader in Art market information. In addition, via ArtMarket Insight, Artprice is the only press agency (primary information provider) to be able to provide macro-economic data,

Artprice created a SICOVAM code for each artist and a SIRET code for each work

To standardise the market, Artprice has undertaken the most comprehensive inventory possible of art works

Artprice affirms that it has the largest Art market information database in the world, enabling works of art to be traced throughout the centuries

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listings and indices via the repeat sales method and more than 100 reference indices enabling more than 6,300 media sources to access the Art market each year via objective and comprehensive figures.

In return, every year, this supply of free information (except specific studies) generates thousands of written or audiovisual press articles on the Art market with Artprice copyright, which the group considers guarantees a minimum of EUR7-9m in advertising equivalent. This explains the very low marketing costs in the group's P&L account, whereas for internet, this line item is traditionally extremely high, accounting for millions of euros.

Note importantly that the updating of databases and the dematerialisation of art work is the object of a genuine process registered with the Programme Protection Agency (Agence de la Protection des Programmes, APP), which is scrupulously respected by the group's employees and which helps to ensure the seriousness and lasting nature of the group's business as well as the ongoing process to standardise the Art market. This standardisation enables Artprice to receive in proprietary electronic mode more than 72% of the data stemming from 4,500 auction houses via its secured intranet, thereby saving itself wages for some 90-120 staff for inputting data, as noted in the group's AMF reference document during the 2000s.

2.4. Development of structuring partnership agreements

2.4.1. Partnership agreement with Google since 2003... Since 2003, Artprice has been a contractual partner of the Google News Archive Search service and in this respect produces exclusive databases in six languages for Google. Via this service, internet users instantaneously arrive at the unique information searched for among the tens of millions of Artprice data. Among others, this selection includes the Wall Street Journal, the New York Times and the Financial Times and therefore bolsters Artprice's role as the global leader in information on the Art market.

2.4.2. …followed by new agreements at end-2012 with Google and in early 2013 with Baidu (the leader in search portals in mandarin)

Since the end of 2012 for Google and early January for Baidu (the Chinese search engine chosen for the entire Asia-Pacific region), Artprice has started to place on the internet a very large share of the structure of its databases and the standardisation of the Art market in freeware mode (proprietary IT licence distributed free of charge albeit without providing users certain liberties in usage). Note that all of Artprice's industrial processes forming its databases are registered and patented, especially by the APP (Agence de Protection des Programmes). Since early 2013, these partnerships correspond to the availability of around 210 million standardised data on the online Art market, without taking a toll on the group's sales and earnings. This stage corresponds to a considerable increase in the group's presence on search engines and should automatically result in a massive improvement in natural referencing that should direct internet users to the different Artprice services, its Standardised fixed-price and auction Marketplace. Further out, this natural referencing policy should allow the group to be present in 50% of search engine requests concerning the global Art market, and provide it an outstanding positioning for expanding its pay businesses at a lower cost.

These partnerships also help continue to win new clients, with their behaviour logs, and to strengthen the de facto indispensible nature of Artprice's standardisation. Note that Artprice indicates that it owns

Standardisation enables Artprice to receive in proprietary electronic mode more than 72% of data from 4,500 auction houses via its secured intranet

Partnerships corresponding to around 210 million standardised data made available on the online Art market free of charge

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an extremely comprehensive client file with more than 18bn logs, perfectly compliant with European and US authority regulations. This provides it an exceptional level of knowledge of its clients (works owned, interest for certain artists etc.) via data mining as of 2002 and now using "big data". Well before the current interest in big data, note that Artprice set up its system as of 2009. The March 2013 issue of monthly French magazine "Enjeux les Echos" ran the title "Data: la nouvelle ruée vers l’or" (Data: The new gold rush), with data representing the largest source of wealth over the next 20 years for both companies and states.

Note that this work to make IT databases available on Google and Baidu has resulted in a 360% hike in the number of requests since the end of January. The number of requests has increased so much, that it could resemble a computer attack such as a Distributed Denial of Service attack (DDoS). However, Artprice has so far encountered no specific problems and estimates it has gained more than a year's lead in its target to colour the information available on the internet using its databases in the art field via these partnerships. Management believes that this stage will be key in bolstering the market standardisation and should also considerably extend the group's field of influence, for which the limits look genuinely very large (handling of new clients, users, registration of behaviour logs etc.). Via its agreements, Artprice has become a kind of "Google or Baidu for art".

2.5. The leader in information on the Art market destined for all major press agencies, but not only...

Whereas information on the Art market has always been in the hands of professionals and insiders, Artprice has helped spread its knowledge to everyone interested. As we have seen, since its creation, Artprice has multiplied the tools and information items necessary (sales results, market trends, index and artist listings, auction house rankings etc.) for collectors, art lovers and institutional players, while practicing accessible prices for the general public (EUR100 or below per year). As such, in recent years, the group's main business has been information on the Art market, distributed via artprice.com as well as via other media sources. Artprice is defined as the global leader in information on the Art market by all the major press agencies (Reuters, AFP, Bloomberg, AP) as well as by the artistic and economic press throughout the world. In addition, since 18th January 2012, the company has launched the Standardised Marketplace for online auctions, in addition to its fixed price Standardised Marketplace (launched in January 2005).

Artprice has helped spread its knowledge to all those looking for information

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2.5.1. Information activities… The information e-business includes:

• The database of adjudication results: sales of requests on internet. • The database of detailed schedules for future internet sales (including a detailed active

monitoring of future sales using the Auction Preview Service). • Econometric, graphic and market index analysis (listings and indices of artists for a decision-

making aid, updated prices of works (Artprice Indicator), a simple low-cost and personalised estimation service (Artpricing).

• Fine art announcements on the Standardised Marketplace at fixed prices and for auction. • The Standardised Marketplace in furniture and decorative arts: Artprice Decorative Arts • The Standardised Marketplace in Design. • The e-pub for the Art market: Artprice Intelligence Links. • Consultation of several tens of millions of artwork images sold at public auctions: Artprice

Images. • Search engine by batch and artist referenced in the Artprice data base: Artprice Eng ine. • Art market Confidence Index: Real-time Art market confidence index, present in main

financial screens. • My Art Collection: Free- and confidential management service for a portfolio of art works. • Free services on iPhone, iPad and Androïd. • Artprice social networks: Access to group products and services on social networks

(Twitter, Facebook, Delicious, Digg, Linkedin, Viadeo, Hotmail, Google, Yahoo, AOL, MySpace, WordPress, Baïdu).

Furthermore, strengthened by its databases, the group publishes a number of studies and research documents in seven languages.

Fig. 1: Art market publication, branded or co-branded by Artprice

Source: Artprice

2.5.2. …leading to market transparency Based on the development and distribution of information on the Art market, Artprice has undermined the historical economic equation in this market by making it more transparent and therefore more efficient. Indeed, when an opaque market is impacted by information, it grows more significantly with the increase in economic players intervening thanks to this multitude of information, guaranteeing them better market transparency. In contrast, brokerage margins tend to fall with the decline in opacity. As such, Artprice questions the model developed by certain professionals in the Art market, whose colossal margins have now been unveiled.

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2.6. Other partnership agreements

2.6.1. Data concession and affiliation Apart from the information relay partnerships set up with the Google and Baidu search engines, Artprice has established partnerships in various fields such as:

1/ data concession (under licence or copyright) to professional operators and artwork publishers for specific requests.

2/ delivery of data in digital or analogue format/affiliations (started in April 2002), the system for which is based on re-routing (link from the affiliated site to Artprice). This rerouting is the object of reversion agreements agreements between Artprice and its partners every month. The referral fees correspond to a percentage of internet consultation revenues generated by visitors re-routed from the partner site, once its account reaches EUR75 excluding VAT, according to the following grid:

Fig. 2: Reversion agreement with partners Tranche of monthly revenues before VAT Referral rate before VAT Monthly referral fee

EUR0-1,000 20% Up to EUR200

EUR1,000-5,000 30% Up to EUR1,500

EUR5,000-15,000 40% Up to EUR6,000

EUR15,000 and beyond 50% More than EUR7,500

Source: Artprice

Note that this affiliation agreement could provide an affiliate the opportunity to benefit from the Artprice database and various services and to compete with it, although this has not actually occurred. According to the legal and accounting documents communicated by the company, in December 2012, only two franchises among 4,959 had benefited from reversion payments of a very low amount. This tends to prove that Artprice has no rival in its businesses. However, since the majority of Artprice services are free of charge, they leave no place for rivals to develop themselves, even as an affiliate. This critical mass of sites in the Art market is in our view, no longer a selection of samples but a genuinely comprehensive market study, undertaken over 11 years. In the first years, Artprice did make considerable referral payments to a number of affiliates but these have rapidly disappeared. In addition, the affiliation contracts are written, certified and signed and their wording is substantial and very comprehensive (contrary to a link exchange contract which is primarily undertaken by email but does not constitute legal proof).

2.6.2. Axa Art/Artprice partnership at the service of collectors (since 2007)

Since January 2007, Axa Art and Artprice have had a partnership agreement by which Artprice systematically offers Axa Art services (insurance, claims management etc. as the global leader in artwork insurance), on its marketplace and in its database. In return, AXA Art offers its clients "discovery" access to the Artprice platform. Reversion payments are being envisaged with a number of insurance groups for their role as business providers.

2.6.3. Interpol/Artprice partnership (2011) In 2011, Artprice joined forces with Interpol Monde, such that the Interpol logo and the hypertext link to Interpol's Stolen Art Works database appears on all of the key pages of Artprice's database and primarily on the Standardised Marketplace. This measure enables Artprice clients in particular to check whether the work presented is not the object of legal proceedings. This partnership increases

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the level of security and confidence in the digital economy as well as in the physical economy in view of the fight against money laundering and traffic of artworks. Similarly, Artprice works on a daily basis with 72 criminal investigation departments in different countries that are subscribed and connected in real time to the Artprice agreement. These various partnerships are communicated to clients with no ambiguity whatsoever, thereby providing a huge source of confidence in Artprice's digital economy. This did not exist in the classic economy in place before the advent of the digital economy.

2.6.4. Other partnerships (2012/2013) Artprice recently signed structuring partnerships over a long period in Asia, with the Art Stage fair in Singapore (the leading art fair in the country) and Arton (the Chinese conglomerate managing all of the Art market process and services chain) that we discuss in a later section, but which are set to provide a cornerstone in the group's development in the world's most dynamic market at present.

2.7. Development of the largest fixed-price Standardised Marketplace

Since 2005, Artprice has offered a fixed-price auction market. This Standardised Marketplace boasts a community of 2.072 million members (My Artprice portal) and more than 4,959 contractually affiliated sites to buy and sell works listed in the group's database (dematerialised and standardised). This marketplace benefits from the Artprice Knowledge behaviour analysis service providing information to collectors and institutions.... once a work responding to their historical requests or natural taste comes up on the marketplace.

The placing and consulting of classified adverts is free of charge (since 2011) and the adverts are valid for 30 days. Previously, placing a classified advertisement was a fee-paying service (EUR19 for one month and more expensive before that). However, with a view to conquering the market, the group regularly transforms its services from a pay-mode to a free-of-charge mode.

Fig. 3: Fixed-price Standardised Marketplace: specific nature of adverts:

Specific nature of adverts At a fixed price

Duration (within two working days) 30 days

Cost of placing advert and consulting it Free

Sellers/Buyers May contact each other by stating their details in the advert

Commission fee Buyer/Seller None

Source: Artprice

The fixed-price Standardised Marketplace has few legal constraints and is constantly increasing in size year after year to now boast considerable volumes. Indeed, since 2005, the amount of offers has risen from EUR1.3bn to EUR7.2bn and the rate of completed transactions stands at around 30%. Note that according to the 2005 Business Report of the Conseil des Ventes Volontaires (CVV) on furniture at public auctions, the Artprice offer stood at EUR1.3bn in artworks, thereby corroborating the figures announced by Artprice at the time. These substantial volumes compared with global transactions in 2011 of USD11.57bn in revenues from auction sales.

Note that public auctions only represent the visible part of the iceberg. Market professionals jointly estimate that public sales represent around 20% of all global transactions. This implies that the global Art market is estimated at more than USD55bn, thereby making Artprice's Standardised Marketplace the leading fixed-price market in the world. The Marketplace is an extremely important source for the

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development of the online auction sales business launched recently by the group, the terms of which we discuss further on. After eight years, the annual flow of artworks now stands at EUR7.2bn, of which around one-third of the works are sold and on which Artprice is not currently remunerated. In addition, since its launch, the group has incurred no legal proceedings, thereby testifying to the smooth functioning of this "fixing" market. As such, as is often the case, Artprice has protected its Standardised Marketplace model in terms of intellectual property and systematically undertakes proceedings against counterfeit and/or disloyal competition by a third party whose behaviour infringes on this model.

Fig. 4: Change in offers on fixed-price Standardised Marketplace (EURbn)

Source: Artprice, Bryan Garnier estimate

1.3

2.7

4.3

5.45.9

6.36.3

7.2

0.4 0.81.3

1.6 1.8 1.9 1.92.1

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

2005 2006 2007 2008 2009 2010 2011 2012

Offers posted on Artprice's fixed-price Standardised Marketplace (EURbn)

Estimated transaction volumes for offers posted on the fixed-price Standardised Marketplace (EURbn)

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2.8. The electronic Standardised Marketplace for auction brokerage

2.8.1. Presentation of the Standardised Marketplace for auctions Based on the experience acquired with the fixed-price Standardised Marketplace (client files, behaviour logs, dematerialisation and standardisation of the Art market on the internet etc.), in 2012(1), the group launched a Standardised Marketplace for online auctions. This marketplace offers art lovers, collectors, traders and gallery owners the possibility of taking part in auctions for a choice of several thousands of artworks put up for sale from all over the world. As an example, on the first day the auction service opened, Artprice already presented 5,000 lots and now has 2,500 lots.

Apart from the fact that buyers bid upwards throughout the duration of the auction, the main difference with the fixed-price Standardised Marketplace lies in the fact that the auction is determined by the seller and not by the fact that several buyers are in competition. In addition, the anonymity of the buyer and the seller is preserved until the payment stage, which takes place via a trusted third party. The intervention of this third party guarantees the security of the transaction in the settlement/delivery operation.

Fig. 5: Comparison of fixed-price and auction Standardised Marketplaces

Characteristics of the offer Fixed-price Online auctions

Duration of the offer (within two

working days)

30 days Throughout the duration of the auction

(determined by the seller)

Cost of placing offer and consulting it Free Free

Sellers/Buyers Can contact by taking their details on the

advert

Anonymity of both parties is preserved until

the settlement of the transaction handled by a

trusted third party

Source: Artprice1

2.8.2. Artprice: A Low cost services in art auctions

This online auctions service represents a fresh attack on Art market intermediaries. After having introduced transparency in terms of prices, Artprice is now attacking brokerage margins. Indeed, whereas buyer/seller costs generally stand at more than 30% (the Conseil des Ventes Volontaires

1 A little historical reminder: The transposition, into domestic law, of the community directive 2006/123/CE on services (on 20th July 2011) including the notion of online operator for electronic auction sales, prompted the end to the French monopoly for auctioneers. Until then, the law of 10th July 2000 considered that auction brokerage operations undertaken remotely and electronically constituted, for cultural goods uniquely (hence artworks) a public auction. Having no approval, the professional was to abstain since this transaction method was expressly forbidden to them. As such, Artprice, in its quality as a new operator in auction brokerage undertaken remotely and electronically (in compliance with Article 5 of the law no. 2011-850 of 20th July 2011 on the liberalisation of voluntary sales of furniture at public auction) opened in Standardised Marketplace for auctions on 18th January 2012.

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estimates them at 36-37.5%), Artprice proposes reduced and digressive fees depending on revenues from the sale, of between 5 and 9%, well below the average levels of online auction houses. This aggressive strategy is enabled by internet and could considerably change the Art market economy and prompt a shift just a significant as the arrival of online brokers for the stockmarket, which conquered a 16% market share within the space of 16 months (between January 1999 and April 2000, their market share widened from 8% to 24%) in the stockmarket transactions market in Paris.

Fig. 6: Amount of commission fees and costs as a percentage of auction sales

Amount generated by auction Artprice Currently paid by physical players

from USD 0 - 7,500 9% >25%

from USD 7,500.01 - 15,000 7% >25%

> USD 15,000 5% >25%

Source: Artprice, Bryan Garnier estimates

Fig. 7: Commission fees and costs as a percentage of auction amount at Sotheby’s and Christie’s

Amount generated by auction Sotheby’s Amount generated by action

Christie’s

from USD 0 - 75,000 25% from USD 0 - 50,000 25%

from USD 75,001 to 1,5000 -,000 20% from USD 50,001 -

1,000,000

20%

> USD1,500,001 12% > USD 1,000,001 12%

Source: Art Media Agency

In comparison, the prices implemented by Artprice are very low compared with its main rivals. Indeed, Artprice has developed a virtually free-of-charge strategy in order to win over the lion's share of the market. As such, whereas Artprice's rivals generally make buyers pay commission fees, Artprice does not make them pay any fees. At rival groups, online adverts by sellers are generally paid for (fixed costs of EUR30/50), whereas at Artprice, they are free. Finally, in the Artprice pricing model, selling prices are fully shouldered by the seller and remain well below rival levels. Note also that once a buyer is in possession of their work, further expenses must be shouldered. The three main ones are transport, insurance and eventual conservation costs, which are far from negligible in amount.

As such, albeit with some delay (given the age of traditional players and a lack of desire to use computers), the internet constitutes a major factor in the transformation of the Art market, as in other sectors of the economy. Under the impetus of Artprice and other players, auction houses are to be directly affected. Artprice considers that in this unavoidable development, the group has assets to offer auction houses an IT services service and help them in their full migration to the internet. Artprice boasts a file of 2.072 million client contacts who are collectors and art professionals as well as extremely powerful IT infrastructure (independent machine rooms managed internally, virtually unlimited bandwidth, storage capacity of 900 To). Finally, Artprice's target is not to become a simple online broker but to process as a white label for numerous auction houses, given the standardisation

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that the group has implemented. By analogy with the stockmarket, Artprice is aiming to become the alter ego to the NYSEEuronext in art on a global level.

2.8.3. A protective legal positioning for Artprice, its clients and shareholders

To resume succinctly, the sale of art objects can legally be carried out via three types of intermediaries:

• Auction houses (Sotheby’s, Christie’s, Acturial …): the seller abandons the rights to its work in favour of the auction house (third party). The auction house becomes the de facto owner of the work and has all powers to undertake a sale.

• Online auction houses (Sothebys.com, christies.com/christieslive Artnet, Liveauctioneers…): the seller gives full ownership to the auction house which uses the internet to sell the work to its client, although the auction houses shoulders the civil liability and penal aspects of the work sold.

• Online auction brokerage operators (Artprice): the seller chooses among the best offers. The operator is freed from its civil and penal responsibilities and is never called as a guarantee. In the case of Artprice, the legal risk is indeed transferred to a trusted third party. Note that in this segment, risk kills the business. However, under the framework of a listed company in the regulated market such as Artprice, the absence of risk is a requirement for shareholders.

2.8.4. Settlement/delivery secured by a trusted third party In the case of the Artprice Standardised Marketplace for auctions, settlement/delivery is operated by the intermediary of a trusted third party who acts in full independence relative to Artprice. The trusted third party provides the guarantee to the two parties in the auction transaction of an effective settlement in total security (payment and delivery). Artprice has chosen two trusted third parties, that are globally recognised: 1/ Escrow 2/ Transpact. According to management, other banking groups are currently being selected in Asia, primarily in continental China and Hong Kong, in order to respond to the Chinese government watchdog.

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Fig. 8: Settlement, delivery/ role of trusted third party

Source: Bryan Garnier, based on terms indicated by Artprice

For the moment, the development of the electronic Standardised Marketplace for auctions has incurred delays due to administrative and legal restrictions imposed by French regulations and the Conseil des Ventes Volontaires. Further on, we discuss the measures taken by the company in order to get round these problems and resume normal development in this business.

2.9. Protected DNS, providing a genuine hidden war chest

Apart from the factors mentioned above which tend to prove that Artprice has developed a genuinely key position in the Art market, the group has 1,800 Domain Name Server (DNS) keys in the market which help directly send searches to Artprice's databases. All of these DNS correspond to key titles in nine languages encompassing precise semantics in the Art market. These DNS keys were protected during the early 1990s and are not valued in the company. However, they clearly harbour significant value since they are considered as global generics such as: artmarket.com, artistsearch.com, auctionprice.com, catalogue-raisonne.com… and have obvious valuations. Artprice has also received purchase requests for some of them (artmarket.com > USD2.1m, artistsearch.com > USD0.45m, auctionprice.com > USD0.45m and artdatabank.com >USD 0.45m). While Artprice has refused to sell these DNS keys which help surround internet users and rivals and are a fundamental factor in establishing the group as a key player via the net in the Art market, it should be recognised that these factors provide a clear source of value for Artprice. As an indication, every day throughout the world more than 7,000 DNS are sold for more than USD10,000 (source: sedo.com).

The group has 1,800 Domain Name Server (DNS) keys

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3. The Art market at a turning point 3.1. Acceleration in globalisation of the Art market Whereas the Art market was historically concentrated on Europe and the US, growth has gained significant momentum in BRICS countries (Brazil, Russia, India, China and South Africa). The structure of the Art market has radically changed over the past few years, with the emergence of China (Beijing and Hong Kong), Indonesia and Singapore where sales volumes in auctions grew by 49%, 22% and 39% respectively in 2011 (the 2012 report confirmed this shift).

This trend reflects the emergence of new ultra-rich collectors and momentum in investment funds for Art. As such, over a short period of time, Asia has become a key market and has a concentration of upscale clients. Since 1997, the number of millionaires has increased more quickly in Asia-Pacific than in North America and in Europe to now stand at the top of the ranking (3.37m millionaires vs. 3.34m in North America and 3.2m in Europe, according to Cap Gemini Merrill Lynch). In 2005, China had slightly more than 300,000 millionaires under the age of 50 whereas this number has now risen to 1 million.

Fig. 9: No. of rich individuals with more than USD 1 million in liquid assets

Population of the richest country by individuals (in thousands, 2006)

Source: Cap Gemini Merrill Lynch Global Wealth Management Advisor Surveys

Growth in the number of wealthy if not super rich people is a huge source of potential for the Art market over the medium term. Indeed, when a person becomes rich, a number of stages of consumer spending are crossed: 1/ firstly the person buys ostentatious or luxury items (watches, luxury cars etc.), then 2/ they buy property, before becoming attracted to 3/ works of art, which, as in the US since the 1980s, is an obligatory move in order to prove one's social status. The population of rich people in Europe and the US has mostly reached this late stage in the process. In contrast, in BRICS countries, the population of millionaires is only very partially interested in the Art market. This population therefore represents a massive source of growth over the medium term.

2920

1477

798485 389 345 248 206 200 161 158 120

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In addition, the highest prices in artwork auctions are currently found in Asia. Apart from volume growth, the Asian market is characterised by a far higher unit price for transactions than in the rest of the world. Indeed, in 2011, 13.5% of the works sold in Asia went for prices of more than USD100,000 vs. just 2.5% of works sold in the rest of the world. In contrast, only 52% of works sold in Asia carried price tags below USD10,000 vs. 85% in the rest of the world.

Fig. 10: Public sales of fine art in 2011, lots sold by price range (USD)

Asia Rest of world

Less than USD 5,000 38.4% 75.3%

USD 5,000 - 10,000 13.4% 9.2%

USD 10,000 - 100 000 34.7% 13.0%

USD 100,000 - 1 million 12.1% 2.2%

More than USD 1 million 1.4% 0.3%

Asia Rest of world

< USD 10,000 52% 85%

> USD 10,000 48% 16%

Source: Artprice

Similarly, the emergence of the Chinese market can be illustrated by the 774 millionaire auctions registered in 2011 in China vs. 426 in the US and 377 in the UK. In all, over the past decade, China has hoisted itself from the no. 9 spot in the world to the no. 1 position in fine art auctions (paintings, sculptures, drawings, prints and photographs signed by artists). The most impressive aspect is the change in its global market share (fine art), which has risen from 1% to 41% in 2011, to the detriment of the West.

Fig. 11: Geographical breakdown of revenues from fine art sales in 2012 (%)

Source: Artprice

In this context, whereas China was virtually inexistent in 2005, within the space of a few years, the country has become the engine behind the market. Chinese auction houses that were not in the

1% 1% 2% 4% 5% 7% 7%17%

33%41% 41%42%42% 46% 43% 46% 42% 36%

28%

30%24% 27%

15%28%

27% 28% 27% 30% 36%21%

19% 19% 18%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Switzerland (2%->1%)

Germany (3%->2%)

Italy (3%->1%)

France (9%->4%)

Others (26%->6%)

UK (15%->18%)

USA (42%->27%)

China + Hong Kong (1%->41%)

The Asian market is characterised by a far higher unit price on transactions than in the rest of the world

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rankings 10 years ago are now at the top end of the scale, to the extent that they are now hot on the heels of the two majors, Sotheby’s and Christie’s. Naturally, the two heavyweights have also lost some of their market share in favour of Chinese auction houses such as Poly and China Guardian. Furthermore, the Chinese auction houses that did not exist 20 years ago are also aiming to conquer the market and are competing with the market heavyweights on their own territory in London and New York. Indeed, 11 out of the top 20 auction houses in Art and Collectors Items in 2011 were Chinese. As an example, Poly, which did not exist eight years ago, now ranks no. 3 with USD1.36bn in revenues from sales just behind Christie’s and Sotheby’s which were created in 1766 and 1744 respectively. Poly clearly benefits from the support of the Chinese government and the fact that the major foreign auction houses cannot operate directly in continental China, except for in Hong Kong.

Fig. 12: Top 20 auctions operators for Art and Collectors' Items 2011, ranking by revenues from public sales (with costs in EURm)

Operator Country 2011 Operator Country 2009

Christie's UK 3 547 Christie's Uk 2111

Sotheby's EU 3 500 Sotheby's EU 1627

Beijing Poly International Auction China China 1 365 Heritage Auction Galleries EU 496

China Guardian Auctions Co., Ltd. China 1 248 Bonham's UK 286

Bonham's UK 614 China Guardian Auctions Co., Ltd. China 285

Heritage Auction Galleries EU 595 Beijing Poly International Auction China China 256

Beijing Hanhai Auction Co., Ltd. China 535 Beijing Hanhai Auction Co., Ltd. China 155

Beijing Council International China China 461 RM Auctions Canada 142

Xiling Yinshe Auction Co., Ltd China 296 Beijing Council International China China 117

Beijing JiuGe Auctions Co., Ltd. China 254 Dorotheum Austria 113

Phillips de Pury & Company EU 236 China Trade Shengjia China 105

Sungari International Auction China 214 Xiling Yinshe Auction Co., Ltd China 97

Macau Chung Shun International China 202 Beijing CNS China 92

Duo Yun Xuan Auctions Co.Ltd. China 147 Mecum Auction EU 74

RM Auctions Canada 145 ARTCURIAL - BRIEST - POULAIN _ F. TAJAN France 70

Dorotheum Austria 144 Gooding & Company EU 65

Beijing RongBao Auction Co.,Ltd. China 139 Phillips de Pury & Company EU 61

Mecum Auction EU 130 Changfeng Auctions China 56

ARTCURIAL - BRIEST - POULAIN _ F. TAJAN France 127 Beijing ChengXuan Auctions China 55

Beijing ChengXuan Auctions China 126 Antiquorum Switzerland 46

Total 14 023 6 309

Source: CVV, NOEO Conseil

China's systematic policy to repatriate Chinese antiques and artworks has contributed to the higher ranking of Chinese artists. Among the traditional elite of Warhol, Picasso, Dali etc, we now find Qi Baishi, Zhang Daqian and Ai Weiwei etc. The rise of Asian artists is all the more remarkable in that western players barely participate at all in the trend whereas in the opposite situation, Asian buyers and especially Chinese, compete widely in animating the market of western artists. Admittedly, the Chinese state greatly encourages Chinese nouveaux riche buyers to repatriate artworks stemming from the country.

The market is bubbling in Asia where market places such as Hong Kong, Singapore, Taiwan, Beijing, and Shanghai are just behind New York, Paris, London and Rome. As such, China's museum ambitions are colossal. Growth in free ports is also impressive starting with Hong Kong and

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Singapore. As an example, in 2010 the Singapore state opened an ultramodern free port on the edge of the international airport, and its revenues are rising by 15% a year.

In addition, Asia is setting up free ports housing artworks and other luxury objects (jewellery, cars, furniture, wines etc). These are privileged areas of confidential negotiation and above all, tax-free (excluding customs duty and VAT, the works are only taxed when they leave the free zone, generally according to the rate prevailing in the country of destination, such that an item can be sold several times within a port and only be taxed once it leaves). These art safes equipped with very elaborate surveillance systems (more elaborate than in major museums and capable of storing very large formats), are often developed with the aid of state authorities aiming to develop the Art market in their territory in view of the ecosystem they are developing.

These "treasure bunkers" are clearly appealing for collectors, gallery owners, private foundations and museums and favour the enrichment of the states and regions, which find themselves hosts to international fairs attracting the world's most privileged players. There is no doubt that the installation of a free port in Singapore and the future opening of one in Beijing (in the international airport), of an unrivalled size, are simply paving the way to expansion in the Art market in Asia.

There is no doubt either that by being present in Singapore, (via the infrastructure necessary to ensure the annual continuity of an art fair from one year to the next) and in China, Artprice should benefit from this further out, especially via its recent partnerships. Note that this trend is also driving the Art market towards digital services (faster inventory, mobility within a free port using a tablet etc.). Artprice should also benefit via its machine room installations in Hong Kong (see part 1.11).

Fig. 13: Free ports (global data in fine art) Town Size Existing/projected Fair nearby

Geneva 30,000 m2 Existing Art Geneve Art Basel Art Zurich

Luxembourg 20,000m2 Being built (end 2014/2015) Art Geneve Art Basel Art Zurich

Singapore 30,000 m2 Existing Art Stage Singapour

Hong Kong 80,000 m2 Underway Art Basel Hong Kong

Beijing 83,000 m2 Being built (2014e) Art Beijing

Source: Press, le Monde, Les Echos, Connaissance des Arts, Le quotidien…

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3.2. A multitude of museums arising in Asia Museum projects and construction works are gaining momentum in Asia, especially in China. In 2011, the vice-president of the Chinese Society of Museums stated in the New York Times that China had built 395 museums. Indeed, according to official figures, China, which opened its first museum in 1905 had around 300 museums in 1990, 2,310 in 2008 and should have 3,000 in 2015. Similarly as an indication, after the renovation of the Art Palace in Shanghai (64,000m2 in exhibition space out of 210,000m2) and the launch of the Power station of Art (40,000m2), Shanghai alone intends to open around 20 museums by 2015, which clearly reflects the country's aim to develop its museum business. In Hong Kong, after the success of the Hong Kong Art Fair, a major museum project is being considered (West Kowloon Cultural District or M+) which should have 15,000m2 in exhibition space and 14,000 m2 in reserves (out of 60,000m2 in cultural space: artists workshop, library, cultural space etc.).

The Chinese government intends to fill these various museums with art works, either directly, or by prompting its citizens, which should in coming years contribute to making China the market leader since these museums need to be equipped with works of art. Within a few years Chine has created the second largest museum in the world with a surface area of 192,000m2, slightly less than the Louvre, which has 210,000m2 (but more than all other museums in the world). Singapore, which also harbours major ambitions in the cultural field has seen the number of museums in the country double in the space of eight years from 18 to 56. The Singapore state would like to make the city a top-notch international platform and makes its museums biennial events and other fairs, globally recognised cultural institutions. In order to do so, the government is providing the means investing SPD365m (EUR225m) since 2011, over five years. Finally, after welcoming international art galleries, in autumn 2013, an art centre and around 10 artists workshops destined to welcome international artists are to open their doors at the Gillmann Barracks site (source: Le journal des Arts, March 2013).

Fig. 14: Main existing and projected museums in Asia Museum City Country No. of visitors (m) Surface area

Musée du Louvre Paris France 10 210,000 m2

British Museum London RU 6 75,000

Metropolitan Museum of Art New York EU 5 180,000 m2

Tate Modern London RU 5 12,000 m2

National Gallery London RU 5 46,370 m2

National Gallery of Art Washington EU 5

Museum of Modern Art (MoMA) New York EU 3 11,600 m2

Centre Pompidou Paris France 3 90,000 m2

National Museum of Korea Seoull Korea 3 137,200 m2

Musée d’Orsay Paris France 3 57,400 m2

Ermitage Museum Saint-Petersburg 3 108,000 m2

Project ASIA City Surface area The National Art Gallery (opening in 2015) Singapore 60,000 m2

Art Palace Shanghai China 192,000m2

M+ (opening in 2017) Hong Kong 15,000m2

Source: Internet des musées, press articles

Given the extremely rapid development of the Art market in China, a significant number of fake pieces are in circulation, thereby making Artprice's services extremely relevant in the field of work authentication (listing of works).

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3.3. A shift in the market and its players

3.3.1. Internet: a revolution underway with three billion users already connected...

Here again, globalisation and momentum in emerging powers is obvious. As such, between 2010 and 2011, the percentage of households equipped with an internet connection increased by 14% with China concentrating 23% of the planet's internet users. Similarly, the share of emerging markets in the total number of internet users throughout the world rose from 44% in 2006 to 62% in 2011. The International Telecommunications Union (ITU) estimates that by 2015, 40% of emerging markets households could have internet access. The report by the UN and the ITU also notes that momentum in accessibly priced smartphones and tablets in major emerging markets (such as BRICS) could have a significant impact on: 1/ the number of mobile broadband subscriptions and 2/ the number of internet users.

Fig. 15: Global ICT developments, 2001 -2011

Source: ITU World Telecommunication / ICT Indicators database

The development of communication technologies and especially the internet, combined with the emergence of new, younger and wealthier players on the one hand and the entrance of BRICS countries precipitating the globalisation of the Art market on the other, is also accelerating the amount of purchases made online. The internet is a genuine catalyst behind this globalisation since it facilitates access to information (results of auctions, artist rankings, history and traceability of a work etc.), the location of works and also relations between parties. As such, it is necessarily set to accelerate their transactions in the near future. Note that in terms of traceability, Artprice offers a vital procedure for players in the sector given its standardisation of the Art market.

In all, with a current population of more than 2.7 billion internet users (source: UN), or more than one-third of the global population, and the advent of new tools (smartphones and tablets etc.) capable of providing users genuine mobility to consult market data in real time, follow an auction or place an order while remaining anonymous, the old system of physical auction house sales is likely to be replaced, increasingly rapidly, by online sales. A certain number of sales companies (Heffel, Saffronart, Christie’s and Sotheby’s) have already developed their online transaction platforms, which have been running for several years now.

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3.3.2. ...stimulated by new technologies and development of tablets and smartphones...

In addition, this shift in the market towards online auctions is likely to be accelerated by new technologies with the increase in bandwidth capacity and the proliferation of tablets and smartphones. Gartner estimates that sales of convergent handsets (smartphones and tablets) are likely to have totalled 821 million in 2012 and should exceed the one billion mark as of 2013. A recent IDC study estimates that combined unit sales of tablets, smartphones, desktop and laptop computers totalled 1.2 billion in 2012, and forecasts this level to exceed 2.25 billion in 2017. In addition to a more fun aspect compared with personal computers, momentum in tablet sales also stems from the multiplication in the number of offers and a decline in prices. Growth in the tablet market, so far widely dominated by the Ipad, is clearly set to boost sales. As such, IDC expects tablet sales to exceed personal computer sales in 2013 and laptop sales in 2014. Asia, the US and Europe now have access to 4G tablets (> 7 inches) as of EUR150. In addition, for 2013, ICD expects sales volumes of 860 million 3G/4G/LTE smartphones. Including tablets, laptops and personal computers, 1.4 billion new internet users are expected to be connected in 2013.

Fig. 16: Global internet device sales data

Source: Gartner, IDC, Strategy Analytics, company filings, BI intelligence estimates

However, momentum in convergent devices provides unprecedented technical solutions for the Art market, especially in terms of tablets. Indeed, the mobility these provide is vital to the development of this increasingly globalised market. With just a few clicks, buyers have access to estimates and the history of a work, wherever they may be. These devices are also prompting an unprecedented acceleration in the learning curve for new entrants and are vital tools for professionals in the business. These changes are essential for a group like Artprice, which is set to see its addressable client base multiply in number in coming years in view of the information available in its database.

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In addition to this is the possibility for the group to considerably enhance its behaviour pattern database, which is a genuine war chest as is often the case for internet companies. By rounding out information in its client files (detailed knowledge of client tastes for a particular work, artist or period etc.) the group can increase by as much the possibility of completing a sale later on during an online auction.

3.3.3. ... education of operators Buyers in the western Art market average 45-75 in age and have a high standard of living (wealth tax profiles). In this category of people, a significant number remain anti-IT and this has clearly hampered the development of Artprice and online transactions. The arrival of smartphones and tablets has a key role in attracting these non-users to the internet. Indeed, smartphones have played an educational role, which has naturally spread to tablets. Tablets function in the same way as telephones while offering a far better quality of image given their larger size. Thanks to tablets, the population of historical buyers and players interested in the Art market via internet should increase considerably.

We believe that the market is in the throes of a revolution. Contrary to a time when the Art market belonged to an intellectual elite, globalisation and access to data via new digital technologies is a means of massively extending the base of potential players beyond the privileged few making up the historical client base. The globalisation of this market is set to involve online transactions enabling a cut in the cost of these transactions. Indeed, in 2012, Christie’s registered a record for an online sale thanks to its Christie’s Live service for an Edward Hopper painting that went for USD9.6m.

3.3.4. …amplified by a change in the buyer profile The profile of art buyers is rapidly changing. Thierry Ehrmann estimates that in the Fine Art market alone, over 15 years, the average age of buyers has dropped from 52 to 34.5 while the price tags on 52% of the works sold do not exceed EUR1500. For example, art photography, which is now recognised throughout the world as a major Art form has rocketed by 459% over 10 years and has helped reduced the entry cost to the Art market. For buyers, internet is the ideal channel for this type of purchase and accounts for the majority of transactions in the market. Furthermore, Asia-Pacific presents a high concentration of millionaires in the 31-45 year range at 38% vs. just 8% in the US and 15% in Europe, a fact which tends to prove that the dynamic nature of this region for the Art market is set to last and also be amplified.

Fig. 17: Breakdown by age of HNWI (%)

28%

28%

22%38%

15%8%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Asia-Pacific (excl Japan) Europe North America

< 31 years

31-45 years

46-55 years

56-65 years

66-75 years

>75 years

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Source: Cap Gemini Merrill Lynch Global Wealth Management Advisor Surveys

The ever-younger profile of buyers is automatically set to increase development in online transactions in coming years. A PwC study on more than 11,000 internet buyers in 11 countries (figures stemming from data gathered from 11,067 web-buyers in 11 countries - Germany, Brazil, Canada, China, France, Great Britain, the Netherlands, Russia, Switzerland, Turkey, the US), highlights the fact that the younger a population is (and therefore more equipped in high tech terms), the more internet consumption is developed (especially on smartphones and tablets). As an example, agency IDC estimates that in emerging markets, consumers opt firstly for a mobile phone, then for a tablet, before buying a personal computer, which also reflects a change in consumer methods to favour more mobility.

Fig. 18: Percentage of regular online buyers by device (at least once a month)

Source: PwC

As such, some 7-10% of global fine arts sales are currently carried out on the internet. According to Emmanuel de Chaunac, who works with Steven Murphy, the global CEO of Christie's, this amount is set to more than double in coming years (source: Figaro). Similarly, the Chairman of Christie's recently indicated in French financial daily, Les Echos that "the future of the EUR800-10,000 middle market was on the net". In its various reports on the Art market, Artprice points out that on a global scale, this market represents 81% of overall transactions. This market segment corresponds perfectly to the fixed price and auction Standardised Marketplace developed by Artprice in which the compression of costs is the most spectacular.

In 15 years, the landscape has changed considerably. Whereas an auction room was an indispensable asset for an auction house as a key place for negotiations between buyers and sellers, these assets are now increasingly relegated to liability status given the extent to which they generate incompressible costs (taxes, maintenance costs, staff costs, eventual rental costs etc.) for the auction company. However, since the dematerialisation of sales prompted by telephone negotiations (during the 1980s) and now accelerated further by the internet, auction rooms can now be assimilated to expensive television platforms where a tiny portion of actual transactions are undertaken. Here again, the similarity with the stockmarket is obvious, with the maintenance of floor trading at the start of the dematerialisation of stockmarket transactions having rapidly been sidelined given the extent to which digital trading marginalised the floor, before being eliminated altogether. New younger buyers and the new technologies available to players are accelerating the transformation underway. While a city centre auction room is clearly an asset in terms of image, the era of market dematerialisation means that the costs of these property assets are no longer necessary especially since telephone and internet transactions guarantee the buyer's anonymity. Elsewhere, over the past 18 months, a change in

45%

69% 73% 76% 76%87%

7%

20% 19%10%

15%

39%

7%15% 19%

11% 14%

36%

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

100%

France Brazil USA Germany UK China

Computer

Tablets

Smartphone

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behaviour has been noted at the major auction companies, which are no longer primarily highlighting their age and experience but increasingly their internet know-how. As such, it is no illusion to believe that internet channels could rapidly substitute auction rooms for auction companies, and only a few prestigious sales rooms are likely to remain. Meanwhile, the internet currently offers more qualities than physical sales: anonymity, quality of image and information compared with a sales catalogue, reduced costs etc.

In Les Echos of January 2011, the former chairman of the National Syndicate of Auction Houses (French Syndicat National des Maisons de Ventes - SYMEV), estimated that if all auctioneers could have the Hôtel de la Marine building made available to them, they could be incited to join forces for major events (this chairman considered the project a good alternative to the Drouot Montaigne auction rooms if it were to close, since the permanent location is very costly and generates hefty deficits). Similarly in 2012, when Drouot Montaigne closed, Arnaud Cornette de Saint Cyr set up for a week in the Hôtel Salomon Rothschild in order to undertake prestigious operations. This is proof that temporary sales operations in prestigious locations are possible without having to use costly and inflexible locations.

Finally, whereas for works worth significant amounts, auction rooms remain a favoured place for transactions, it is clear that in this field too internet users are no longer inactive:

• USD3.3m paid by an internet user for a Chinese bronze and USD 1.4m for a diamond necklace (Christie's Live records)

• More than EUR1m paid by internet for a Texan collector for Femme debout, la tête nue, a pencil on paper work by Georges Seurat (1882) (Christie’s 13th December).

In addition, certain players manage to materialise substantial auctions directly on their online auctions:

• Andy Warhol serigraphy in July 2011 at USD1.4m (Artnet, July 2011)

3.3.5. … and the decline in transaction costs This shows that the trend is becoming widespread as clients become younger, more international and more apt to undertake auctions via the internet. The trend could naturally lead to a vital decline in transaction costs as was also the case on financial markets when the development of online brokers prompted a significant decline in transaction costs relative to classic banking networks. Indeed, until now auction houses were able to have high structural costs given their high brokerage fees (> 30%), made possible by the market organisation and its low level of transparency. However, international expansion and online auctions are set to reduce this commission fee to 5-9% given the decline in structural and representation costs.

This is not the only factor however since the Art market also obeys a notion of passion and the addition of qualified buyers automatically prompts an increase in auction prices, contrary to plenty of other sales where a floor or psychological price threshold is rapidly reached. As such, the decline in transaction costs should provide more room to manoeuvre for buyers, either to buy works (which is automatically the case in the psychology of online buyers), or to buy more expensively, by favouring outbidding by collectors.

In all, the mass market in art is carved out for internet and the mentalities and functioning methods of new buyers are fundamentally different. The ego fights between global millionaires in prestige sales is gradually set to become virtual. Artemundi Global Fund began the polemic by stating that "traditional auction houses belong to a past with no internet or computers. They were clearly important places

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where buyers and sellers met, but this has ended". The future could prove him right. The lack of auction rooms in Asia, which has become the leading market in the world and the rising appeal of the nouveaux riche for mobile purchase solutions is set to accelerate this trend.

3.4. A more efficient market While a number of players predict the end to physical auction houses, we do not go that far. However, the end to physical auction rooms belonging to auction houses does seem a very real prospect. As such, their transformation (globalisation, decline in commission fees, new type of art collectors) should accelerate considerably in coming years, or even allow new players to enter the scene (as is the case with the development of Chinese auction houses, which are rapidly climbing up the rankings), in a move that was not previously possible given the extent to which the major auction houses boasted a monopoly via the organisation of prestigious sales.

In addition, like many other market places, the trend towards a more efficient circuit seems natural since it enables:

• Rapid execution • Lower execution costs • Increased liquidity • The search for market prices in real time • The creation of critical mass in terms of players • Transparent and instantaneous information on all prices and indices • A more transparent market

Furthermore, the possibility of tracing and authenticating the piece of work is vital. Artprice's database helps break the asymmetry of information that is unavoidable between professionals and novices. As such, if all these factors are united, plenty of players in this market agree in saying that the gradual process to transfer to internet operations can only amplify. Note also that online sales are a means of saving time. Indeed, taking part in a physical sale requires availability of at least four hours (without counting any eventual travel time), which is far from the case during an online sale, which offers the advantages of instantaneous communication from any location, with the possibility of viewing the sale and the objects. It also enables a mass offering which can be targeted. Finally, it guarantees anonymity, which is also important, and which is far from the case in auction rooms. This leaves only the problem of guarantees to be solved.

However, online selling has other advantages. Indeed, despite the plunge in costs and under secure payment conditions, the timeframe between the sale of the object and payment of the amount due is massively reduced. Auction houses can take several months before effectively paying the seller (sometimes six months to one year). Finally, given its anonymity, online selling offers an alternative and discreet circuit to art dealers for running off certain pieces without being forced to grant a significant discount to traditional clients or colleagues, by addressing a global client base that is not exclusively local. Note that since 1980, sales by telephone have clearly contributed to the market pedagogy. At present, International Auctioneer indicates that 82% of sales are undertaken by telephone and/or internet. Internet is therefore merely a continuation of dematerialised orders in the early 1980s, with online catalogues in addition, in which photographs of artworks have a far better definition than those printed in a sales catalogue. For example, on Artprice, clients can view a work with a zoom capable of showing the signature on full screen, a feat which no printed sales catalogue can currently boast.

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3.5. Analogy with financial markets The development of the auctions market for artworks has a number of analogies with the development of financial markets, especially in its functioning method with auction houses (brokers), artist listing indices, market trends, as well as speculation and bubble phenomena. In our view, one real difference in the Art market lay in the asymmetry of information. Major players in the market have far more information than occasional buyers. Artprice or other companies are a means of rebalancing the situation in view of the information that they provide. The fact that unsold works do not appear in sales results was only known to initiated players and was not common knowledge. Artprice regularly publishes lists of unsold works and a full traceability of works and provides a response to this tendency to distort information.

The arrival of internet and the dematerialisation of works that it necessitates could be assimilated to the dematerialisation of securities and loans to bearers in the mid 1980s. Similarly, until the end of the 1980s the Paris stockmarket was an open outcry market with brokers transmitting their orders and a "booker" establishing the equilibrium price for the securities in order for the transactions to take place, a bit like in an auction room. Since then, the Paris stockmarket has been fully computerised and uses the CAC software (Cotations Assistées en Continu - continuous assisted listings), which enabled the switchover to the digital era of the stockmarket. However, a large majority of players agree that the dematerialisation of the Art market is underway with the emergence of internet transactions which take place every day. As such, momentum in artwork transactions via the internet could result in a similar fate for physical auction houses as that of the former Paris bourse, the Palais Brongniart, which has since been turned into a seminar and events hall.

In addition to internet auctions, we are currently also witnessing a genuine phase of dematerialisation in the offering. A rising number of galleries present their best clients with 3D exhibitions while certain art fairs exhibit virtually via the internet.

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4. Who are Artprice's rivals? 4.1. Sotheby’s and Christie’s: a duopoly facing a new

landscape As an online electronic brokerage operator, Artprice competes with Sotheby’s and Christie’s. This competition concerns two radically different economies. On the one hand, two historical global leaders in the Art market, which developed over time as the major western fortunes were established over the past 250 years. Their business model was developed on the basis of significant commission fees (more than 30%). On the other hand, internet players, a segment in which Artprice has a specific role as global leader in market information, and recently electronic auction broker operator (in compliance with Article 5 of the law no. 2011-850 of 20 July 2011 on the liberalisation of voluntary sales of furniture at public auctions).

The emergence of digital services in the Art market is a genuine challenge for historical players. Indeed, it primarily contributes to the transparency of market prices and the matching of supply and demand, thereby undermining the very fundamentals that justified the enormous margins pocketed by all intermediaries in this market. In addition to the emergence of rivals on the internet, the historical leaders are faced with momentum from Asian players who are developing in parallel with the rising wealth and creation of Asian fortunes.

Fig. 19: Main data and multiples for Sotheby’s USDm 2009 2010 2011 2012 2013e 2014e

Revenues 485 774 832 768 821 894

EBITDA 75 290 289 232 291 318

EBIT 53 274 271 214 258 290

NP -7 161 171 108 151 176

P/E 22.1 15.6 13,6

Price/Book 2.5 2.2 1,8

Capitalisation/Sales 3.4 2.9 2.6

Source: Sotheby’s, Thomson Reuters

Fig. 20: Total sales volumes at Sotheby’s and Christie’s (USDbn) 2007 2008 2009 2010 2011 2012

Sotheby’s 6.2 4.0 2.8 4.8 5.8 5.4

% of total 49.6% 44.0% 45.9% 49.0% 50.4% 46.2%

Christie’s 6.3 5.1 3.3 5.0 5.7 6.3

% of total 50.4% 56.0% 54.1% 51.0% 49.6% 53.8%

Total 12.5 9.1 6.1 9.8 11.5 11.7

Source: Sotheby’s, Christie’s

The group's management believes that Artprice has a particularly important asset relative to rivals. Indeed, its IT databases are standardised and the arborescence developed for their elaboration is particularly different from an electronic commerce since its creation was aimed solely at switching to digital transactions based on the financial markets system by dematerialising artworks and offering fixing (fixed price) and continuous (auctions) marketplaces. Sotheby’s and Christie’s do not currently offer unified IT services and in order to reach the same level, a lot of time and money is going to be

The emergence of digital services in the Art market is a genuine challenge for historical players

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needed. Although the duopoly boasts considerable financial means, Artprice already has a substantial lead with its behaviour logs (18bn logs owned), qualified client files, databases and references with search engines, offering all of the qualities required for new markets and their wealthy classes to rapidly do business and at a lower cost. In addition, it is easier to set off with an efficient free-of-charge business adapted to the net economy than convert a high margin model that is ageing and culturally distanced from the digital stance. Under this framework, we understand the low level of development of internet activities at the main auction houses and this leaves an opportunity open for net players.

In addition, during certain sales organised by Sotheby’s and Christie’s, it is not rare to see the two major players consult Artprice's database in order to obtain information for their sales catalogues. Since the two groups do not conserve these data, they are clearly obliged to find them from a player who provides them, namely Artprice. Thierry Ehrmann said: "80% of global auction houses create their catalogues using our standardised data in our secured intranet, thereby enabling considerable savings in terms of staff for collecting data at Artprice. In 2000, the group had 108 staff but currently has just 36. Furthermore, we have primacy of all information". Similarly, Artprice is the only company to offer electronic data based on the repeat sales method2

Note nevertheless that the majors have rapidly changed stance in the past two years. Indeed, whereas Sotheby’s and Christie’s seemed totally hermetic and circumspect to opening their doors to the virtual Art market, it would appear that the landscape has changed since 2011. In addition, Sothebys.com and Christies.com have enjoyed significant growth levels. The two groups' respective management teams are beginning to take their future development seriously. In 2012, Christie's online sales attracted 39% of new buyers, while works from the Andy Warhol Foundation are to be exhibited throughout the world and offered for sale both via traditional auctions and private online sales this year, thereby testifying to the fact that online sales are already a significant distribution channel for the group's management.

on a very wide scale of artists (27 million indices). In addition, Artprice pointed out that relative to the best databases on the market, it has more than 300,000 listed artists who exist nowhere else, thereby obliging auction houses, galleries and buyers to connect as a client given the lack of alternative.

Admittedly, major art collectors are set to remain in existence for some time yet, faithful to the old model based on one-to-one meetings between dealers in sales rooms at prestigious auctions. However, like stockbrokers on the trading floor, the digital landscape is in the throes of change. The market and their auction rooms and players are set to witness the same fate as the financial markets, with the exception maybe of certain niche markets (as in certain financial markets).

2 Repeat sales: a method, which consists of following an artwork over the years in order to work on a homogenous market. For example, a work is identified in 1850 and Artprice sees it switch from auction house to auction house over the decades and the group is quite certain that it is the same piece of work. As such, the group knows its listing and the yield year after year and for this reason Artprice is the only company in the world to have an irreproachable econometric method for all artworks. Other players mostly use arithmetical averages and use the peer comparison method, although this causes errors since their studies concern a market that is very diverse.

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4.2. Artnet is not a real rival for Artprice Like Artprice, Artnet offers its subscribers information on the Art market with access to the most comprehensive database possible for the results of auctions, market analysis (but with no real econometrics, and without comprehensive index data), annual reports on changes in the Art market, rankings of various international auction houses, and other types of information such as auction records etc. Artnet is also present in online sales and launched its services in this niche more rapidly than Artprice. On this point, Artnet did not adopt the same status as Artprice and this is the major difference between the two online market places. Indeed, Artprice is an electronic auctions broker operator, which means that it is in no way attracted to the transaction. Meanwhile, Artnet is an online auctioneer and as such, is subject to the thirty-year guarantee and all the consequences that this implies, especially in terms of eventual disputes and the physical storage of works during the transaction. For obvious reasons, in terms of the lasting nature of its structure (any court case during a sale could be fatal for an online operator and the measures to be implemented are extremely costly), Artprice has taken no risks in the interest of its shareholders. The real difference at Artnet is clearly its network of galleries enabling art dealers and galleries to create a website on Artnet's online platform and to operate it. Here again, Artnet's position is associated with accompanying its art gallery clients by providing a tailor-made service, far from Artprice's standardised approach. This positioning also comes at a cost with Artnet employee 114 staff at end-2011, triple the amount at Artprice (36 staff at end-2011). However, Artnet's strategy to host major accounts could prove limited in view of the transformation hitting the market. Artnet has an ageing client base, while the market client base is becoming ever younger and much faster at assimilating new technologies, meaning that it could have increasingly less need for a traditional service.

Fig. 21: Artnet's database is far less comprehensive than Artprice's

Company Creation Listing Database N° of Pictures

N°. of works referenced

No. of artists listed

Online auctions

Artnet 1989 Frankfurt Results of auctions at more than 500 international auction houses

since 1985

n/a 4 million 188,000 yes

Artprice 1987 Paris Results of auctions at more than 4,500 international auction

houses since1700

108m pictures 27 million 511,319* yes

Source: Companies * o/w 910,000 listed or not (but having an impact on the Art market)

From a financial perspective, Artnet is currently in a tricky situation with the company's cash having dropped from EUR50m when it was floated to EUR2.1m in 2011. Management notably implemented a costly international development strategy (setting up in New York). The lack of wisdom in this strategy has been reflected in the group's valuation (less than EUR18m in market capitalisation) and the disinterest of investors in view of weak volumes (only EUR10,000 a day) as shown in the following table. In addition, note that Artnet is in a non-regulated market (equivalent to a free market) whereas Artprice is in the SBF120.

Artnet did not adopt the same status as Artprice, and this is a huge difference between the two online markets

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Fig. 22: Comparison in stockmarket trading volumes between Artprice vs Artnet (EURm)

2011 2012 2013 Total

4 months 4 months 12 months 12 months 3 months 3 months 19 months 19 months

Low High Low High Low High Low High

ARTNET (1) 0.7 1. 0 9.0 11.9 0.6 0.7 10.3 13.6

ARTPRICE (2) 196.4 217.8 974.5 1 108.8 93.8 99.1 1 264.7 1 425.7

(2)/(1) 266x 214x 108x 93x 168x 137x 122x 105x

Source: NYSE Euronext, Onvista.de

Artnet has higher revenues but lower earnings and shareholders' equity.

As shown in the tables below, Artnet has revenues three times as high as Artprice. In contrast, given its far higher cost base (headcount three times higher than Artprice), Artnet reported an overall EUR0.8m loss vs. the overall profit of EUR1.3m reported by Artprice despite having switched to a cost-free mode for its various services during the period. The importance of costs is a genuine problem for Artnet, which was obliged to close its Paris offices and sell off its magazine business in New York, which contributed massively to its reputation with upscale galleries.

Fig. 23: Artnet and Artprice financial data (EURm) Artnet (EURm) 2008 2009 2010 2011 Total cumulated

Sales 12.3 12.2 13.7 13.3 51.5

EBITDA 0.5 0.4 0.8 0.5 2.2

EBIT 0.1 -0.3 0.0 -0.1 -0.3

Net profit -0.5 -0.5 0.2 0.0 -0.8

Assets 7.6 6.6 7.1 7.4

Cash 2.9 2.2 2.7 2.1

Equity 4.2 3.7 4.3 4.8

Artprice (EURm) 2008 2009 2010 2011 Total Sales 5.7 4.7 5.2 5.2 20.8

EBITDA 0.8 0.4 0.2 0.2 1.6

EBIT 0.9 0.0 0.0 0.0 0.9

Net profit 1.0 0.0 0.2 0.1 1.3

Assets 14.2 14.4 14.9 15.0

Cash 0.4 0.4 0.2 0.1

Equity 12.6 12.9 13.1 13.2

Source: Companies

Last summer, Hans Neuendorf, former Artnet CEO, and Jacob Pabst who took over from his father as chairman of the group, rejected a hostile takeover bid of EUR6.4 per share (vs. EUR3.13 at present) from Luxembourg investment fund, Redline Capital, chaired by the Russian billionaire Vladimir Evtushenkov. Mr Evtushenkov indicated to numerous media sources that he intended to undertake proceedings with various jurisdictions. In view of Artnet's legal problems, its deteriorated cash position and chronic losses, the group looks badly positioned to make the most of opportunities in the Art market thrown up by internet. Furthermore, Artnet apparently now only has 1,700 pay galleries out of its initial 2,200 while the group's online auctions incurred around EUR0.8m in losses out of the EUR1.4m in sales generated over 9M 2012. The problem is that the company now needs the financial means to make the necessary investments in its future growth, but that management rejected the takeover opportunity. In the current backdrop, a capital increase that would provide the group the means to return to the arena looks pretty difficult. As such, according to the Redline spokesperson interviewed by the Art Média Agency on 15th August 2012), Mr Pabst is in a position

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where he must do everything to balance the company's accounts as soon as possible, even if this means sacrificing fairly important activities (such as the Artnet magazine which has been sold off).

In contrast, since its flotation Artprice has maintained an economic policy that has enabled it to make all its investments without calling on the market (contrary to internet companies) and without contracting any debt. In parallel, it has maintained an extremely low price policy in order to take control of the market.

Beyond these worrying factors concerning the viability of Artnet, Artprice has already mentioned that it has been called on three times to takeover its peer. Artprice's management sees no interest in this operation in view of the deteriorating business and the risks run by Artnet in legal terms. Furthermore, Thierry Ehrmann estimates that Artnet is not protected by patent on a global level. As such, Arnet has apparently had its brand name taken over 18 times in 21 countries (and not the smallest ones according to (Thierry Ehrmann). This immediately implies conflicts in terms of intellectual property with other Artnet owners, who are in their right in view of the company's lack of vigilance. Finally, note that following an interview with Artprice by Boursica, Thierry Ehrmann confirmed that Artnet is guilty of counterfeit and/or disloyal competition relative to Artprice and continues to make these infractions today, despite the official complaints that Artnet cannot ignore (source: Artprice/AMF reference document).

Even though in the field of auctions, Artnet's prices are higher than Artprice's, note however that unlike Artprice, Artnet has already had a millionaire auction, namely for the Andy Warhol serigraphy in July 2011, sold for USD1.4m (Artnet, July 2011).

In our view, Artnet's value added has stemmed from its very upscale positioning, but this offers no client renewals today. Furthermore, the development of Artnet is penalised by its prices, which are far higher than Artprice's. This was justified as long as Artprice, unlike Artnet, had no database with images, which is vital for identifying an artwork. From the time Artprice reached an agreement (30th August 2007) with the 43 copyright companies in 47 different countries and switched to an image mode, Artnet should have reduced its prices in order to avoid a deterioration in its client base.

Fig. 24: Comparison overview of both company's prices Artprice Artnet

Art report free EUR35EUR per copy

Gallery EUR119/year EUR250-850/day

Warning Free EUR14.5-30/month

Price data base (day) EUR20/day EUR24.5-34,5/day (limited no. of requests)

Price data base (year) EUR99 to EUR538.2/ year (unlimited request) EUR326-1597/year (limited no. of requests)

Auction fees for seller 5-9% 15%

Auction fees for buyer free 10%

Auction announcement free USD25

Estimate service USD/EUR49 per work

Source: company websites

As an indication, note that a limited number of requests in an internet fee-paying subscription system is often badly viewed by clients.

Outside this duopoly and Artnet, the market is brimming with a multitude of companies that we do not discuss in detail here given their low weight in the market.

Artnet's value added lies in its very upscale positioning, but which offers no client renewals

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5. Artprice’s potential and growth vectors 5.1. Growth in Asia

5.1.1. Art Stage Singapore, a major partnership Artprice signed a long-term partnership (>5 years) at the end of 2012 with Art Stage Singapore, one of Asia’s largest contemporary art fairs. The two partners started to jointly produce and publish educational material shortly after signing the alliance and will soon follow up with digital data flows destined for large Asian collectors. The two partners also plan to pool their client files in order to create an online chain of value added for the period between two Art Stage Singapore events.

During the last Art Stage Singapore fair this January, Art Stage Singapore and Artprice worked together on publishing Art market analyses and setting up digital data flows in order to provide value added to Asian art collectors. This collaboration is to involve the two partners cross-analysing the data collected and sharing files so as to enable them to train and familiarise Asian decision-makers, by providing them with all the types of information they need to make their decisions. The agreement also provides for Artprice to assist Art Stage between its annual events.

Art Stage Singapore’s revenues have been rising constantly from year to year on the back of growing interest from large Asian collectors. Art Stage is one of Asia’s leading fine art fairs along with the Hong Kong and Shanghai events. Note that Lorenzo Rudolf, who founded Art Stage Singapore and signed the partnership with Artprice, is also the architect of the successful Art Stage Basel event and the Shanghai contemporary art fair (SH Contemporary, launched in 2008).

5.1.2. Artron: A historic agreement for the Art market and Art market information

In line with recent developments in China, Artprice has signed a significant partnership with Artron, China’s leading Art market operator. Artron’s main activities (catalogue publishing, information and exhaustive databases on the Chinese Art market) fit perfectly with Artprice’s. Like Artprice in the West, Artron supplies a comprehensive range of services (information, press services, collector education, art indices, auctions, etc.) to museums, collectors and other parties in China and internationally. Artron commands a virtual monopoly as regards the compilation of data, the publication of data in electronic form and catalogue publishing. The main Anglo-US and European auction houses operating in mainland China are obliged in practice to print their sales catalogues with Artron’s help, which complicates their western approach in the Chinese market.

The partnership is appealing for Artprice on a number of counts as it enables it to:

• Consolidate all of its Chinese auction house operations in one single partnership. • Enhance its Chinese market database (already highly exhaustive with 27 million pages in

Mandarin for the last four years). • Increase the number of artworks concerned by the dematerialisation process. • Distribute this information to all press agencies (6,300 press titles) throughout the world and

to its members.

From Artron’s point of view, the partnership fits with the Chinese government’s stated desire to tighten its grip on the world market so that China remains the world leader on an enduring basis. It also provides access to all transactions carried out in western countries so as to facilitate the repatriation of work by Chinese artists to China.

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The first collaboration between the two groups involved publishing a world report – “A Dialogue between East and West” – compiling Art market trends in China and the West and which appeared in March 2013, i.e. just two months after the partners signed their agreement. The report provides a view of the Chinese Art market that is comparable with the data traditionally supplied by Artprice. This should provide a considerable boost to Artprice’s profile in Asia, bearing in mind that 1.8 million copies of the report were sent to Asia.

The partnership was the culmination of several years of negotiations and prompted Artron to send millions of data items that are to be sorted via the protected standardisation of Artprice’s databases. It should give rise to a statistical and econometric Art market analysis tool that is more in line with international standards. Artron will also be able to share client files with Artprice, thereby paving the way for the two parties to generate significant revenue growth over time. Artron and Artprice plan to work together to enhance their areas of excellence (databases, economic analyses, Standardised Marketplace, econometrics) and provide an accurate and sincere image of the Asian and western Art markets, while trying to assess trends. The historic objective of both Artprice and AMMA - Art market Monitor of Artron- has been to create global and non-competitive synergies as regards the analysis of Art market information and the production of data appropriate to what is now a bipolar Art market.

We have not specifically identified the additional revenues generated by these two partnerships. However, they will help expand revenues in all Artprice’s divisions (Standardised Marketplaces 4G kiosk activities, databases, etc.) as shown in the following sections of this chapter.

The task of leveraging these partnerships should be facilitated by the strong appetite for electronic auctions in Asia, where, unlike in Europe and the US, traditional auction rooms are virtually non-existent. The partnerships should also free Artprice from the regulatory constraints in France that hinder the development of a cheaper and more efficient alternative. Note that Artprice is reported to have lost three sales of around EUR1m (EUR850,000, EUR700,000 and EUR1.4m), due to the overly cumbersome rules imposed by France’s auctions regulator, the CVV, and the consequent risk of legal problems. On this basis, setting up an operation in Hong Kong would really be the icing on the cake. Hong Kong as a whole can be considered as an open-sky, free port in terms of taxation and formalities. In particular, it is much easier to move artworks into and out of Hong Kong, and, unlike in China, there is no tax on imports and exports, or even on the capital gains recorded on transactions. Hong Kong primarily acts as a hub for large collectors (Japan, Korea, Taiwan, China, Singapore, Indonesia, India). In addition, the port of Hong Kong possesses the entire infrastructure needed to store, hold and transport artworks. The goal of any industrial company is to get closer to its core market.

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5.2. Launch of a 4G mobile kiosk 4G network development should pave the way for new sources of low-cost monetisation for Artprice as of 2014. 4G is the first technology to have been specifically developed for data on mobile internet. According to an article in French financial daily Les Echos of 4th April 2013, forecasts point to mobile data usage expanding by around 80% over the next five years. Up until now, networks have been built to carry voice. The advent of 4G means that data is to be placed right at the heart of the infrastructure. 4G is set to increase loading speeds by seven times relative to 3G and reduce latency by a factor of five.

The roll-out of 4G and 4G LTE mobile networks (already operational in Asia and New York) and 4G LTE-advanced networks should enable Artprice to develop a subscription-based information kiosk service as of 2014. The monthly subscription fee is likely to be between EUR3 (for the mass market) and EUR9 (for professionals). The service should be facilitated by the desire of telecom operators to monetise their costly 4G investments by promoting these types of services for which they collect the associated subscription fees. This type of micro-payment is a means of reaching a mass market of several million clients in a very short space of time and is likely to be of particular appeal to mobile phone operators. Mobile phone operators are perfectly accustomed to taking these kinds of micro-payments from their clients and then passing on between 75 and 80% of the associated revenues to content suppliers (we are expecting 70% of revenues to be passed on and estimate the cost of being referenced by operators and marketing expenses at 12%).

For Artprice, 4G, 4G LTE and 5G should not only offer the technology needed to access information that can be used anywhere (smartphones and tablets), but also ensure a fluid supply of information content for subscribers, which was impossible with 2G and 3G. On this point, this type of mobile internet service is perfectly suited to the nomadic and wealthy nature of Artprice’s clients. It already accounted for 35% of consultations by Artprice clients in 2012, while the expansion of the 4G kiosk service is likely to raise this percentage to 80%. Note that Artprice’s parent company, Serveur, has been Europe’s leading provider of fee-based professional databanks on the télétel kiosk since 1985 and that it was already on internet at this time.

Artprice has clearly anticipated this opportunity by re-developing all of its databases and network infrastructure so as to respond to three major challenges: 1/ software bricks 2/ micro-payment and, 3/ the switch to IPv6. The switch to IPv6 is advocated by internet service providers (like Verizon US) for use with the 4G LTE network. This is because 4G networks – also referred to as LTE (Long Term Evolution) or LTE-advanced – should allow Artprice to undertake a variety of pricing acts that were impossible with 2G or 3G. For example, once the 4G kiosk is functioning with telecoms operators, the plan is to price services by the minute, by Mo, or in terms of an automatic monthly debit (via a phone subscription). However, this will require software bricks from Artprice’s databanks to be hosted in major international telecom operators’ machine rooms (although the essential part will obviously remain locked on Artprice’s servers).

With this in mind, Artprice is examining proposals from operators such as Verizon New York, Colt, AT&T, BT, Vodafone, T-Mobile, Telefonica (Singapore Telecommunication and China Mobile for Asia). Artprice has confirmed to us that some of these operators have been longstanding suppliers. Asia also offers highly sizeable potential in light of the strong demand from the population targeted by these services (demand for mobile internet services, sharp rise in the number of millionaires, etc.). In the interests of managerial coherency, Artprice’s policy is to sign fee-based 4G agreements with a maximum of 20 operators of global standing.

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In order to draw up sales projections for this activity and after discussions with Artprice’s management, we have based our estimates on only the 2,072,000 subscribers the group had at the end of 2012 (primarily in western countries). Of this subscriber base, 0.4 million were professionals (any person making a tax declaration to the tax authorities in their country), with the rest being individuals (mass market).

5.2.1. 4G kiosk in the West offers Artprice the chance to turn a profit on its client base

We have retained a number of assumptions regarding the categories of population targeted in the West.

To this end, we have estimated growth in Artprice’s total number of clients and then applied anticipated 4G kiosk take-up rates, while distinguishing between professional and individual customers.

For professionals:

• 5% growth in the number of professional clients in 2103. We then expect this population’s growth rate to accelerate once the 4G kiosk service is launched in mid-2014. The fact that a professional must normally be at least as well informed as their client, this could oblige the professional to subscribe to this type of service. On this basis, and taking into account partnerships in Asia, we see the professional client base expanding by 15% in 2014 (to 0.5m), 30% in 2015 (to 0.8m) and 25% in 2016 (to 0.9m).

• Taking into account the whole of this population, we estimate that the percentage of professional clients subscribing to the service could rise from 8% when the service is launched in 2014, to 18% in 2015 and 35% in 2016.

• A monthly subscription fee of EUR9.

Based on these various assumptions, we are forecasting EUR2.1m in 4G kiosk revenues from professionals in 2014, rising to EUR12.2m in 2015 and EUR29.7m in 2016.

For individuals:

• 13% growth in the number of individual clients to 1.7 million in 2103, with the rate of expansion in this population then accelerating to 34% (to 2.3m) in 2014 when the service is launched in mid-2014, then running at 17% (to 2.7m) in 2015 and 14% (to 3.1m) in 2016.

• We expect the percentage of individual clients subscribing to the service to rise from 5% in 2014 when the service is launched, to 13% in 2015 and 20% in 2016.

• A monthly subscription fee of EUR3.

Based on these various assumptions, we are forecasting EUR2.1m in 4G kiosk revenues from individuals in 2014, rising to EUR12.7m in 2015 and EUR22.3m in 2016.

All in all, the launch of the service in mid-2014 should generate revenues of EUR4.2m in 2014, EUR24.9m in 2015 and EUR52m in 2016. Note that these estimates do not factor in the sums retained by operators. The following table shows 4G kiosk revenue estimates for western countries:

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Fig. 25: Prospective 4G kiosk revenues 2012-2016 in the West (EURm)

2012e 2013e 2014e (1) 2015e 2016e

Professional clients (millions) 0.4 0.4 0.5 0.6 0.8

Change 5% 15% 30% 25%

Percentage of professionals subscribed to 4G kiosk 8% 18% 35%

Subscription price (EUR/m) 9.0 9.0 9.0

Professional revenues (1) (EURm) 2.1 12.2 29.7 Change ns Ns 485% 143%

Individual clients (millions) 1.6 1.7 2.3 2.7 3.1

Change 13% 34% 17% 14%

Percentage of individuals subscribed to 4G kiosk 5% 13% 20%

Subscription price (EUR/m) 3.0 3.0 3.0

Individual revenues (2) (EURm) 2.1 12.7 22.3 Change Ns 507% 75%

Total revenues (1)+(2) (EURm) 4.2 24.9 52.0 Change Ns 496% 108%

Source: Bryan Garnier estimates (1) digital subscription starts in June 2014

Note that slightly more than 20 million people in Europe (excluding Switzerland) and the US currently subscribe to an art magazine (survey based on the number of readers in North America and Europe stated on honour by the 10 leading art magazines per country, source: OJD Tarifmedia), the annual average cost of which is USD70. This population includes just under one million art professionals (dealers, gallery owners, experts, auction houses, brokers, etc.). Our estimate of subscribers to Artprice’s 4G kiosk service in the West in 2016 equates to fewer than 20% of the 20 million people currently subscribing to an art magazine, while the number of subscribers taking out a new 4G subscription in 2016 accounts to just 4.5% of this same 20 million.

5.2.2. 4G kiosk Asia: another source of growth As in western countries, Artprice management expects to launch a 4G kiosk service accessible via mobile (through partnerships with one or several mobile operators) in Asia in mid-2014. The 4G network rollout, which is more advanced in the areas targeted (Singapore, Hong Kong and Beijing/Shanghai) than in the West, suggests the subscription fee to access Artprice’s databanks via smartphone or tablet should be similar to that mentioned for the West, i.e. EUR3/EUR10 per month. This should enable Artprice to monetise its databanks, promote the launch of its Standardised Marketplace and other potential services, while also compiling a file of clients liable to boost revenues from future actions (via the in-depth knowledge obtained by incrementing behavioural logs for these new clients).

Note that the Asia-Pacific region now has close to 4 million millionaires, or more than the roughly 3.3 million living in North America (source: Capgemini and RBC Wealth Management). Although most of these people still have no idea about art, they are starting to appreciate art for its investment value and the image of social advancement it conveys. In addition, investing in works of art dovetails with the kind of patriotic policy pursued by certain countries (particularly China), which are keen to see pieces return home and thereby attract more visitors to the museums currently being built.

As in the West, Artprice plans to expand in partnership with local telecoms operators, with whom it is currently in negotiations to develop 4G kiosk information services on its databases.

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As a result, we have estimated prospective revenues from 4G kiosk business by dividing the population between professionals and individuals. Based on our discussions with management, Artprice currently has 0.01 million professional subscribers and 0.07 million individual subscribers in Asia. We have applied the following assumptions for the two categories of population targeted in Asia:

For professionals:

• A doubling in the number of professional clients to 0.02 million in 2013. We then assume this population increases five fold following launch of the 4G kiosk service in mid-2014 and fuelled by its expansion in Asia (with a assistance from its partners) to 0.1 million at end-2014. The number of professional clients should then expand further to 0.2 million in 2015 and 0.4 million in 2016.

• We expect the percentage of individual clients subscribing to the service to rise from 5% in 2014 when the service is launched, to 18% in 2015 and 30% in 2016.

• A monthly subscription fee of EUR9.

Based on these various assumptions, we are predicting EUR0.3m in 4G kiosk revenues from professionals in 2014, rising to EUR3.9m in 2015 and EUR13.0m in 2016.

For individuals:

• A near doubling in the number of individual clients to 0.13 million in 2013. We then assume this population increases by 54% following the launch of the 4G kiosk service in mid-2014 to 0.2 million at end-2014. Note in this respect that Atrprice said that it sent copies of the Artron/Artprice report to 1.8 million people in Asia. The number of individual clients should then expand further, by 125% to 0.45 million in 2015 and by 78% to 0.8 million in 2016.

• Likewise, we have assumed that the percentage of individual clients subscribing to the service is 5% in 2014 when the service is launched, 13% in 2015 and 20% in 2016.

• A monthly subscription fee of EUR3.

Based on these various assumptions, we are forecasting EUR0.2m in 4G kiosk sales from individuals in 2014, rising to EUR2.1m in 2015 and EUR5.8m in 2016.

In all, the launch of the service in mid-2014 should generate revenues of EUR0.5m in 2014, EUR6m in 2015 and EUR18.7m in 2016. As in western countries, these estimates do not factor in the sums retained by telecoms operators. The following table shows our estimates for the 4G kiosk subscription service in Asia:

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Fig. 26: Prospective 4G kiosk revenues 2012-2016 in Asia (EURm)

2012e 2013e 2014e (1) 2015e 2016e

Professional clients (millions) 0.01 0.02 0.10 0.20 0.40

Change 100% 400% 100% 100%

Percentage of professionals subscribed to 4G kiosk 5% 18%

Subscription price (EUR/m) 9.0 9.0 9.0

Professional revenues (1) (EURm) 0.3 3.9 13.0 Change n/a 1340% 233%

Individual clients (millions) 0.07 0.13 0.20 0.45 0.80

Change 86% 54% 125% 78%

Percentage of individuals subscribed to 4G kiosk 5% 13% 20%

Subscription price (EUR/m) 3.0 3.0 3.0

Individual revenues (2) (EURm) 0.2 2.1 5.8 Change ns 1070% 174%

Total revenues (1)+(2) (EURm) 0.5 6.0 18.7 Change ns 1232% 212%

Source: Bryan Garnier estimates (1) digital subscription starts in June 2014

5.3. Over EUR40m of revenue potential from the 4G kiosk in Asia and the West in 2016

The forecasts we have prepared after discussions with Artprice’s management suggest this activity could exert real growth leverage over time. Assuming the ongoing discussions with telecoms operators come to fruition and Artprice manages to launch its 4G kiosk information services, we estimate the ensuing revenues at EUR2.7m in 2014 (based on a mid-2014 launch), EUR17.9m in 2015 and EUR41m in 2016. These figures take into account the 30% of revenues retained by the telecoms operator and a further 12% deduction for marketing and for being listed with operators. Note that our 2016 projections only assume 5.1 million clients in Asia and the West in 2016, versus the 10 million predicted by Artprice, and that only 1.17 million subscribers sign up for the kiosk service by 2016.

Fig. 27: Prospective 4G kiosk revenues 2012-2016 in Asia and the West (EURm)

EURm 2012e 2013e 2014e (1) 2015e 2016e

Total revenues West (EURm) 0.0 0.0 4.2 24.9 52.0 Change n/a n/a 496% 108%

Total revenues Asia (EURm) 0.0 0.0 0.5 6.0 18.7 Change n/a n/a 1232% 212%

Total 4G kiosk business 0.0 0.0 4.6 30.9 70.7

Change n/a n/a 567% 129%

Marketing and operator listing 12% 12% 12%

Rate or revenues retained by telecoms operators 30% 30% 30%

Total revenues after retained (EURm) 2.7 17.9 41.0 Variation n/a n/a 567% 129%

Source: Bryan Garnier estimates (1) digital subscription starts in June 2014

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We have used the above estimates to draw up two other scenarios: a low-end one based on a revenue growth sequence that is 20% lower than the median scenario detailed above, and a high-end scenario based on a revenue growth sequence that is 15% higher than the median scenario.

Fig. 28: Prospective 4G kiosk revenues under the three scenarios (EURm)

2012e 2013e 2014e (1) 2015e 2016e

Low-end kiosk (-20%) 2.2 14.4 32.8

Median scenario 2.7 17.9 41.0 High-end kiosk (+15%) 3.1 20.6 47.2

Source: Bryan Garnier estimates (1) digital subscription starts in June 2014

5.4. The fixed-price Standardised Marketplace could bring in EUR17m in additional revenues in 2016

Artprice has developed a number of recognised activities in the Art world and is the world’s leading provider of Art market information by some margin. However, in order to gain market share, Artprice took the strategic decision to offer some of its services free to clients and members. This strategy has been extremely successful and has made the group a reference in most art-related areas. However, after offering free services for three years, management believes it is now time to start charging for these services and to reap the benefits of the investments made over the last few years. Following our discussions with management, we have drawn up a number of assumptions designed to forecast the potential contribution to revenues from these services. We are nevertheless aware of the difficulty in compiling such forecasts, given that most of the revenues concerned do not exist as yet. As a result, we have prepared several scenarios and used a median scenario as our core one.

Artprice has notably developed a fixed-price Standardised Marketplace sales service online. This service involves the seller using small classified-type advertisements to sell their artwork. The service is currently free: Artprice does not charge for the advertisement and does not receive any commission on transactions resulting from the service. At the outset, the Standardised Marketplace was a pay-service, but the switch to a free model in 2011 has considerably accelerated its development.

According to our talks with management, this fixed-price Standardised Marketplace is not set to remain totally free. Artprice plans to apply a small fee when works are posted for sale, which we have estimated as follows:

• EUR10 for works on sale for < EUR5,700. (USD 7,500)

• EUR20 for works on sale for between EUR5,700 and EUR11,500 (USD7,500 to USD15,000).

• EUR30 for works on sale for > EUR11,500 (USD15,000).

• The pay-service takes effect in mid-2014.

Excluding the impact of introducing the pay service, we have assumed a 4% increase in the fixed-price Standardised Marketplace per year. This figure nevertheless needs to be adjusted for the introduction of the fixed fee charged when the work is displayed for sale. We estimate the introduction of the fee could have a negative impact of 10%, which we have spread equally over 2014

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and 2015, given that the pay-service is likely to begin in mid-2014. Growth in the number of works displayed is also likely to be affected in 2016 and 2017 by the ramp-up of the electronic auction Standardised Marketplace. We have assumed that half the increase in auction sales from one year to another is achieved to the detriment of the fixed-price Standardised Marketplace, thereby prompting us to deduct half of the growth in works sold from our estimates.

We have started with the data furnished by Artprice for 2012. On this basis and according to our assumptions, we expect the total number of works posted for sale to rise from 733,200(1) in 2012 to 771,262 in 2016. After applying fixed fees of EUR10, EUR20 and EUR30 depending on the price of the work, we estimate revenues at EUR8.5m in 2014 (assuming fees are introduced in mid-year) and EUR16.9m in 2015, followed by a 3% increase to EUR17.4m in 2016.

(1) the total number of works declared by Artprice includes those that sellers are liable to put up for sale one or more times a year

Fig. 29: Prospective fixed-price Standardised Marketplace revenues, based on our median (retained) scenario (EURm)

2012 2013e 2014e (1) 2015e 2016e

Fixed-price No. of woks >EUR11,500 135,360 140,774 139,367 137,973 141,503

Chg. excl. impact of pay service and development of auctions 4.0% 4.0% 4.0% 4.0%

Impact of switch to pay service -5.0% -5.0%

Average price of works (EUR) 17,000 17,680 18,387 19,123 19,888

Change 4.0% 4.0% 4.0% 4.0%

Overall value of works displayed (EURbn) 2,301 2 489 2,563 2,638 2,814

Fixed fee for displaying work (EUR) 0.0 0.0 30.0 30.0 30.0

Revenues from works >EUR11,500 (EURm) 0.00 0.00 2.09 4.14 4.25

No. of works EUR5,700-11,500 259 440 269 818 267 119 264 448 272 303

Chg. excl. impact of pay service and development of auctions 4.0% 4.0% 4.0% 4.0%

Impact of switch to pay service -5.0% -5.0%

Average price of works (EUR) 9 000 9 360 9 734 10 124 10 529

Change 4.0% 4.0% 4.0% 4.0%

Overall value of works displayed (EURbn) 2 335 2 525 2 600 2 677 2 867

Fixed fee for displaying work (EUR) 0.0 0.0 20.0 20.0 20.0

Revenues from work from EUR5,700 -11,500 0.00 0.00 2.67 5.29 5.45

No. of works <EUR5,700 733 200 762 528 754 903 747 354 771 262

Chg. excl. impact of pay service and development of auctions 4.0% 4.0% 4.0% 4.0%

Impact of switch to pay service -5.0% -5.0%

Average price of works (EUR) 3 500 3 640 3 786 3 937 4 095

Change 4.0% 4.0% 4.0% 4.0%

Overall value of works displayed (EURbn) 2 566 2 776 2 858 2 942 3 158

Fixed fee for displaying work (EUR) 0.0 0.0 10.0 10.0 10.0

Revenues from works <EUR5,700 0.00 0.00 3.77 7.47 7.71

Total offering displayed (EURm) 7 202 7 790 8 021 8 258 8 839 Total revenues (EURm) 0.00 0.00 8.54 16.90 17.40 Change ns 98% 3%

Source: Bryan Garnier estimates (1) pay-service introduced in June 2014

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In addition to switching to a low-fee model, Artprice is likely to increase the information available to online buyers. The objective is to better qualify the client file and especially to gather data that could be useful for developing the electronic Standardised Marketplace for auctions (development of this service has so far been hindered by the quantity of information needing to be provided in order to comply with highly demanding regulations). The aim is to pre-complete or eliminate several of the stages entailed in the electronic auction process.

The table above assumes the relative failure of the electronic auction Standardised Marketplace. However, if the auction Standardised Marketplace were to expand fast, a similar payment system would then be put in place for the fixed-price Standardised Marketplace. This would have an extremely strong impact on the revenues generated by the fixed-price service. This case represents our high-end scenario, the assumptions for which are as follows:

- Assuming the Standardised Marketplace for auctions is a success, Artprice is liable to move gradually towards variable fees for the fixed-price Standardised Marketplace, so as to align the two. Our scenario reproduces the previous scenario’s assumptions for 2014 (fixed fee), then applies a fee equivalent to 1% of the price of the pieces posted for sale in 2015 and 2% in 2016. Note that we have assumed that in the event the work is not sold, the owner would not forego the sum paid to Artprice, as Artprice would allow the seller to re-submit the work for sale free of charge via the fixed-price Standardised Marketplace for a defined period or, if the owner opted to then sell it through the Standardised Marketplace for auctions, to deduct the amount already paid to Artprice from the auction transaction fee.

- This pricing mechanism change is liable to slash the number of pieces posted for sale on the Standardised Marketplace by 60% in 2015 and then by 40% on the second increase in prices in 2016. In addition, we have also reduced the number of works posted for sale by half the increase in works posted for sale on the auction Standardised Marketplace. In all, the number of works posted for sale under this scenario would be close to 194,000 in 2016 versus around 762,000 estimated for 2013, i.e. around a quarter of the 2013 total.

Despite the plunge in volumes on the fixed-price Standardised Marketplace, the revenues generated by this new pricing mechanism could climb sharply to EUR36.7m in 2015 and EUR44.3m in 2016.

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Fig. 30: Prospective fixed-price Standardised Marketplace revenues, based on our high-end (non-retained) scenario (EURm)

2012 2013e 2014e (1) 2015e 2016e

Fixed-price Standardised Marketplace No. of works >EUR11,500 135 360 140 774 139 367 61 321 34 825

Chg. excl. impact of pay service and development of auctions 4,0% 4,0% 4,0% 4,0%

Impact of switch to pay service -5,0% -60,0% -40,0%

Average price of pieces (EUR) 17 000 17 680 18 387 19 123 19 888

Change 4,0% 4,0% 4,0% 4,0%

Overall value of works displayed (EURbn) 2 301 2 489 2 563 1 173 693

Fixed fee for displaying work (EUR) 0,0 0,0 30,0 1,0% 2,0%

Revenues from works >EUR11,500 (EURm) 0,00 0,00 2,09 11,73 13,85

No. of works EUR5,700-11,500 259 440 269 818 267 119 117 533 69 169

Chg. excl. impact of pay service and development of auctions 4,0% 4,0% 4,0% 4,0%

Impact of switch to pay service -5,0% -60,0% -40,0%

Average price of works (EUR) 9 000 9 360 9 734 10 124 10 529

Change 4,0% 4,0% 4,0% 4,0%

Overall value of works displayed (EURbn) 2 335 2 525 2 600 1 190 728

Fixed fee for displaying work (EUR) 0,0 0,0 20,0 1,0% 2,0%

Revenues from work from EUR5,700 -11,500 0,00 0,00 2,67 11,90 14,57

No. of works <EUR5,700 733 200 762 528 754 903 332 157 193 768

Chg. excl. impact of pay service and development of auctions 4,0% 4,0% 4,0% 4,0%

Impact of switch to pay service -5,0% -60,0% -40,0%

Average price of works (EUR) 3 500 3 640 3 786 3 937 4 095

Change 4,0% 4,0% 4,0% 4,0%

Overall value of works displayed (EURbn) 2 566 2 776 2 858 1 308 793

Fixed fee for displaying work (EUR) 0,0 0,0 10,0 1,0% 2,0%

Revenues from work from <EUR5,700 0,00 0,00 3,77 13,08 15,85

Total offering displayed (EURm) 7 202 7 790 8 021 3 670 2 213

Total revenues (EURm) 0,00 0,00 8,54 36,70 44,27

Change Ns 330% 21%

Source: Bryan Garnier estimates (1) pay-service introduced in June 2014

In the interest of symmetry, we have also imagined a low-end scenario. This scenario assumes that the negative impact from ending the free model could be 10% higher than that retained for our median scenario. As a result, our low-end scenario incorporates an additional negative impact of 15% over 2014 and 2015. On this basis, the negative impact relative to the median scenario averages EUR6m a year as from 2015.

The table below summarises the respective revenue contributions from the three scenarios. Note that revenues in the high-end scenario are significantly higher, reflecting the switch from symbolic pricing to significant pricing. The benefit is only partly negated by the ensuing plunge in volumes (-60% then -40%). We have not retained this high-end scenario as it would equate to a change of business model.

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Fig. 31: Prospective fixed-price Standardised Marketplace revenues for each of the three scenarios (EURm)

2012e 2013e 2014e (1) 2015e 2016e

Low-end scenario 0,0 0,0 6,8 11,0 11,0

Median scenario (retained) 0,0 0,0 8,5 16,9 17,4 High-end scenario 0,0 0,0 8,5 36,7 (2) 44,3 (2)

Source: Bryan Garnier estmates (1) pay-service introduced in June 2014

(2) New pricing equivalent to 1% of the value of works posted for sale in 2015, rising to 2% in 2016

Artprice has leveraged its in-depth knowledge of its clients derived from behaviour logs in order to set up a market-watch service to alert them to upcoming sales. Clients are notified by e-mail as soon as Artprice has knowledge of an upcoming sale involving an artist or a work that fits with the client’s selection.

All of these services are currently free and are indispensable tools for amateurs, collectors, galleries and other clients. As a result, the switch to a pay-model, without necessarily being expensive, would undoubtedly generate additional revenues. Out of caution, however, we have not included these potential revenues in our forecasts for the fixed-price Standardised Marketplace. Note that Artprice sends out tens of millions alerts each year.

5.5. Standardised Marketplace for auctions could bring in EUR9.5m in additional revenues by 2016

2012 witnessed the launch of the electronic auction Standardised Marketplace. After a great start in terms of the number of works posted for sale on the site, the number of transactions proved disappointing, due to heavy administrative formalities and the action taken by France’s auctions regulator the CVV.

5.5.1. Development slowed by administrative formalities and regulators dragging their heels

The first point to note is that development of the electronic auction Standardised Marketplace was slowed considerably by the attitude of France’s auctions regulator, the CVV, and the French government, both of whom have dragged their heels in adjusting the rules and regulations concerning online auctions for artworks, unlike in many other countries.

On 12 December 2006 (2006/123/EC), the European Community approved a bill paving the way for online auctions. The French government then had three years to transpose the European Directive into French law. However, under pressure from auctioneers and other art-market professionals advantaged by the existing cartel, the French government did not transpose the directive until 18 months after the authorised deadline. The Directive might still not have been transposed into French law if the European Community had not officially threatened to impose a hefty fine on France. In view of the hostility and the lobbying power of vested interests in the art world, Artprice’s main strategic error over the last few years was not to have immediately relocated its business to a “free country that respected European law”. Artprice’s attitude can be compared to a plant that stubbornly persists in growing in a garden tended by a gardener overly fond of weedkiller. But, then again, what doesn’t kill you, probably makes you stronger in the end…

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Likewise, just before the launch of the electronic auction Standardised Marketplace, the CVV asked Artprice to indicate to the public in a clear and unequivocal manner on its website that it was acting as a broker for off-site auctions conducted electronically (article 5 of France’s Law n° 2011-850 of 20 July), which it did in early January 2012, in all the languages available on its site.

Then, in January 2012, the CVV claimed in a press conference that Artprice was subject to an assignment. Artprice contested this claim to the extent that CVV was then obliged to admit that the company was not subject to any legal proceedings, assignment or formal notice of proceedings (see the Company’s reference note).

More recently, during an interview with the French financial daily Les Echos on 25th March 2013, CVV chairman Catherine Chadelat set out her priorities for regulating art auctions. In order to protect traditional auction houses, she singled out the threat caused by competition from companies – particularly on internet - that claim to conduct auctions without submitting to the associated legal obligations. She then cited the action taken by the CVV against the “online giant” Net Artprice as an example of the organisation’s determination to dispel all confusion in this area. This was an implicit avowal of Artprice’s unique and dominant position in the market. Once again, a year after the auction Standardised Marketplace was launched, Artprice was again moved to issue a press release denying that it was involved in any legal proceedings or dispute or the subject of a simple notification procedure with the CVV. Mrs Chadelat also said that the CVV intended to: 1/ set up an operational unit to oversee online sales, and 2/ use all legal avenues open to it (including summary judgements) each time it deemed auction terms to be abusive. These repeated attacks would seem to confirm that Artprice’s business strategy is disturbing traditional players.

The CVV has systematically acted against online firms in France. This “rear-guard” action has frequently resulted in judgements going against the CVV3

In all, it appears fairly clear to an outside observer that after 450 years of monopoly (dating from 1535), France’s auctioneers have built up considerable lobbying power over the various authorities in France and have done everything to slow the pace of change in the French market, to the detriment of both online firms and the French Art market as a whole. Since the 1970s, for example, France’s share of the global Fine Art market has sunk constantly from around 55% to just 3% in 2012. We see this decline as the result of a strategy of immobility engendered by an inappropriate regulatory framework that has enabled London then New York and, for the last few years, China, to take market share away from France.

.

3 The CVV launched proceedings against Ebay to force it to apply for a licence to organise online auctions in France. In the first hearing, the verdict went

against CVV, as the lack of auction mandate meant that the sale could not be qualified as an auction. Neither could it be qualified as broking of cultural

goods. The CVV then appealed and, in the Court of Appeal’s verdict of 25th May 2012 n°10.13925, the CVV’s appeal was rejected with the Appeal Court

confirming all aspects of the verdict previously rendered by the Paris High Court. Likewise, the civil chamber of the Court of Cassation (the highest court of

appeal) rendered a verdict on 19th February 2013 (n°11-23.287) concerning a dispute pitting the CVV against Auto Contact Group, which favoured the latter

by indicating that its activities could not be considered as online auctions.

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Fig. 32: France’s share of the Fine Art market (%)

Source: Artprice

5.5.2. Low number of auction sales in the end Against this backdrop, the group observed that although the auction conclusion rate was significant (slightly above 20%), the percentage of bids accepted and genuinely completed was extremely low. This was because over 95% of buyers pulled out during the inscription process, which has 27 stages and takes over 45 minutes. The complexity of the process is largely due to the specific constraints imposed by French regulations.

During the launch of the online auction service, for example, the group quickly came up against linguistic barriers. Note that payments for works sold on the online auction service are handled by two escrow service providers, Escrow and Transpact, which are responsible for 1/ sequestering the sum paid by the buyer, and 2/ releasing the said sum to the seller. These two crucial phases of the transaction entail around 20 stages that are only provided by the two escrow service providers in English. The cumbersome nature of the process (27 stages in total) together with the linguistic barrier (only available in English), acted as a sizeable turn-off for part of Artprice’s client base. Note also that Transpact (which accepts payments in euros, sterling and dollars) was chosen in addition to Escrow in order to overcome the first obstacle encountered by the client base, namely the obligation to pay in dollars only. Indeed, without any translation of these 27 stages (especially those of a legal and technical nature) Artprice remains dependent on these escrow service providers. They alone are capable of providing information both for technical reasons (knowledge of operational methods, programme lines, etc.) and in order to act totally independently from Artprice. Artprice also recently said that for the time being it was unable to provide some of the main languages (French, German, Italian, Spanish and Chinese) used by its clients on its databanks.

5.5.3. Hong Kong as a fresh source of growth and a solution to delays with online auctions

In order to find a simpler solution to all of these problems, Artprice told us that it had begun the process of setting up the online auction activity in Hong Kong and China. This would have the advantage of providing a multi-lingual system that would be a lot more flexible, like the fixed-price Standardised Marketplace. Hong Kong not only serves as a hub for Asia and a gateway to China, but Artprice has just developed a strategic partnership there with Artron. Hong Kong also offers the advantage of more flexible and less risky legislation than continental China. It therefore provides an ideal base for Artprice to launch an Asian Standardised Marketplace, in accordance with both Chinese banking law and Asian uses and customs, bearing in mind that all of Artprice’s databases have been in Mandarin for several years now. In this respect, Artprice has embarked on work geared to setting up a

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machine room in Hong Kong or signing a hosting deal with telecoms operators and is currently negotiating agreements with banking intermediaries like Bank of China4

Other players are pursuing similar development strategies in Hong Kong. In an interview with French financial daily, Les Echos on 8th March 2013, the chairman of Sotheby’s France said that Hong Kong accounted for around 15% of the group’s sales and that the group had signed an agreement with a Chinese operator, GeHua, enabling it to undertake auctions in continental China. He also underlined that this development was of strategic importance in a market offering strong demand, whereas Europe was in a phase of slower growth.

, HSBC, etc.

Note in this respect that management gained unanimous approval from an EGM to extend Artprice’s corporate purpose and open offices and white rooms in Asia. This should enable Artprice to drop some of the 27 stages considered compulsory by the French regulator (and which represent a real hindrance to expanding the online auction service) and streamline the process to a maximum of 10 purely conventional stages and thereby make it easier for buyers on the auction Standardised Marketplace.

Our discussions with management suggest that the online auction Standardised Marketplace should be up and running in Asia in mid-2014. In order to gauge this activity’s growth potential, we have applied the following assumptions:

• A 25% slide in the number of artworks posted on the online auction Standardised Marketplace in 2013, due to the currently excessive administrative and regulatory formalities. However, once the Hong Kong platform is in operation, the number of works posted should rise substantially, by 20% in 2014, 40% in 2015 and 45% in 2016. On this basis, the total number of artworks posted for auction should amount to close to 69,000 in 2016, i.e. less than double the amount in 2012 which can be considered disappointing. This volume only accounts for 8% of that on the fixed price Standardised Marketplace, and does not represent a great success. Our best-case scenario, underpinned by more bullish assumptions, is presented below. Note, however, that the number of pieces posted is not the decisive factor for increasing commission revenues.

• A higher rate of accepted bids effectively completed. This is the key point for the auction service to work efficiently. In 2012, for example, over 95% of buyers abandoned the process during the transaction validation and payment stage. We believe the new organisation in Hong Kong should have the effect of cutting this “wastage” from 95% to 60% in 2014, 20% in 2015 and 5% in 2006 and further. We have applied these assumptions for each category of artwork. Note that the wastage rate should decline automatically, bearing in mind that the process of participating in new auctions should become much easier once the buyer’s data has been registered.

4 Bank of China Limited: One of the four large state-owned commercial banks of the People’s Republic of China. It was founded in 1912 in order to replace the Ta Ching Government Bank, China’s oldest bank. It is the world’s eight-largest bank in terms of market capitalisation and the second-largest lender in China. Previously wholly-owned by China’s central government via the Central Huijin Investment Company and the National Council for the Social Security Fund, it was part-floated on the stock market in 2006.

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• A higher number of auctions ending in a sale. With the cumbersome administrative formalities at present deterring a large number of buyers, the percentage of works put up for auction and effectively sold is significantly lower than for the fixed-price Standardised Marketplace. As from 2014, however, we expect this percentage to gradually improve to almost the same level as for the fixed-price Standardised Marketplace, i.e. 28% in 2016.

Based on these assumptions and after EUR0.056m in revenues in 2012, we are estimating EUR0.04m in revenues in 2013, then a faster rate of increase to EUR1.8m in 2014 (assuming the service starts in mid-2014), EUR5.7m in 2015 and EUR9.5m in 2016. Note that our 2016 assumptions nevertheless represent something of a middling success, as they are based on only EUR142m of transactions versus over EUR2bn for the fixed-price Standardised Marketplace in 2012. These figures look reasonable in the sense that if all concluded auctions had effectively resulted in a sale (i.e. a 0% wastage rate), 2012 revenues would have amounted to EUR7m. In addition, Artprice has scope to develop a themed auction service, the ultimate aim being to create an auction event as major auction houses do.

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Fig. 33: Prospective auction Standardised Marketplace revenues for the median scenario (EURm)

2012e 2013e 2014e 2015e 2016e

Auction Standardised Marketplace No. of works > EUR 11,500 7 016 5 262 6 315 8 841 12 819

Change -25.0% 20.0% 40.0% 45.0%

Average price of works (EUR) 17 000 17 680 18 387 19 123 19 888

Change 4.0% 4.0% 4.0% 4.0%

Offers displayed in the >EUR11,500 segment (EURm) 119.3 93.0 116.1 169.1 254.9

Rate of auctions ending in a sale 20% 20% 25% 27% 28%

Rate of auctions accepted and settled 1.5% 1.5% 40.0% 80.0% 85.0%

Remuneration rate received 5% 5% 5% 5% 5%

Remuneration received (EURm) 0.02 0.01 0.58 1.83 3.03

No. of works (EUR5,700/11,500) 9 606 7 204 8 645 12 103 17 550

Change -25.0% 20.0% 40.0% 45.0%

Average price of works (EUR) 9 000 9 360 9 734 10 124 10 529

Change 4.0% 4.0% 4.0% 4.0%

Offers displayed in EUR5,700-11,500 segment (EURm) 86.5 67.4 84.2 122.5 184.8

Rate of auctions ending in a sale 20% 20% 25% 27% 28%

Rate of auctions accepted and settled 1.5% 1.5% 40.0% 80.0% 85.0%

Remuneration rate received 7% 7% 7% 7% 7%

Remuneration received (EURm) 0.02 0.01 0.59 1.85 3.08

No. of works (<EUR5,700) 21 114 15 836 19 003 26 604 38 576

Change -25.0% 20.0% 40.0% 45.0%

Average price of works (EUR) 3 500 3 640 3 786 3 937 4 095

Change 4.0% 4.0% 4.0% 4.0%

Offers displayed in <EUR5,700 segment (EURm) 73.9 57.6 71.9 104.7 157.9

Rate of auctions ending in a sale 20% 20% 25% 27% 28%

Rate of auctions accepted and settled 1.5% 1.5% 40.0% 80.0% 85.0%

Remuneration rate received 9% 9% 9% 9% 9%

Remuneration received (EURm) 0.02 0.02 0.65 2.04 3.38

No. of works 37 737 28 302 33 963 47 548 68 945

Average price of works (en EUR) 7 410 7 707 8 015 8 335 8 669

Offers displayed (EURm) 279.6 218.1 272.2 396.3 597.7

Rate of auctions accepted 20% 20% 25% 27% 28%

Rate of accepted auctions abandoned 1.5% 1.5% 40.0% 80.0% 85.0%

Remuneration received (EURm) 0.056 0.04 1.82 5.71 9.50

Source: Bryan Garnier estimates (1) new pricing launched in June 2014

As with the fixed-price Standardised Marketplace, we have also drawn up a low-end and a high-end scenario. The main difference in the assumptions applied to our low-end scenario compared to those for our median scenario is a 15% lower rate of increase in the number of pieces posted for sale on the auction platform, i.e. 5% growth in 2014, 25% in 2015 and 30% in 2016 (cumulative effect). On this basis, commission fees received in 2016 (2016 revenues), should amount to EUR6.65m versus EUR9.5m in the median case, i.e. 30% less.

We have applied a different logic to our high-end scenario. In this scenario, prices for the fixed-price Standardised Marketplace rise concomitantly and the cost-difference between the two services

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narrows, thereby facilitating the transfer of some fixed-price clients to the auction service. In addition, we have assumed that the fixed-price service loses three-quarters of the art works posted on it, i.e. close to 570,000 pieces. We have therefore increased the growth in the number of artworks posted on the auction platform relative to our median scenario by 60% in 2015 and 25% in 2016. Although these rates of increase might appear sizeable, it is important to note that they apply to a very low starting point. For example, the number of additional pieces in 2015 and in 2016 is only 20,000 and 46,000, respectively, whereas in the same two years, the fixed-price service loses 415,000 and 572,000 pieces, respectively relative to the median scenario. In the high-end scenario and in the two years in question, we have assumed that only the equivalent of 5% and 8%, respectively, of the pieces lost by the fixed-price service switch to the auction platform. Note that we have made no adjustments relative to the median scenario for the percentage of auctions ending in a sale or for the percentage of auctions effectively completed (the inverse of the wastage rate). In all, the table below shows the estimated revenues resulting from our three scenarios. The lower and upper ends of the range for each year are as follows: EUR1.6m and EUR1.8m for 2014, EUR4.5m and EUR8.2m for 2015 and EUR6.7m and EUR16.9m for 2016.

Fig. 34: Prospective online auction Standardised Marketplace revenues for the three scenarios (EURm)

2012e 2013e 2014e (1) 2015e 2016e

Low-end scenario auctions 0.1 0.0 1.6 4.5 6.7

Median scenario 0.1 0.0 1.8 5.7 9.5 High-end scenario auctions 0.1 0.0 1.8 8.2 16.9

Source: Bryan Garnier estimates (1) new pricing launched in June 2014,

Looking beyond Artprice’s own sales figures, another source of growth potential concerns its ability to convince a number of auction houses and galleries to take up its online auction service. In this case, Artprice would work for the auction house/gallery on an unbranded basis, thus meaning that its service would be streamlined to that of an IT service provider for online auctions. It is fairly easy to appreciate the appeal for auctions houses/galleries to switch to this method, in the sense that it avoids them having to make hefty investments in their own infrastructure (machine rooms, development cost, maintenance). For this activity, Artprice considers that it would initially receive 2.5% of the value of the art work sold from the auction house/gallery concerned in exchange for its IT services. Out of prudence, we have not factored in this activity into our forecasts. However, if the Asian roll-out goes smoothly, it would seem logical for some auction houses/galleries with which Artprice already works on a daily basis to be interested.

5.6. Launch of an online catalogue service Artprice currently uses its data banks to supply 3,200 auction houses with the information they need to prepare their sales catalogues. Whereas most of these catalogues are currently distributed in printed form, the next few years are likely to see certain clients switch from hard-copy to digitalised catalogues for cost-saving and efficiency reasons. In light of this development, Artprice is likely to offer a subscription service to assist with preparing and distributing digital catalogues. According to our discussions with management, a subscription fee of around EUR200 per month (or EUR2,400 a year) would seem to be a realistic assumption in exchange for Artprice preparing customised catalogues based on its databases. This service could be launched in mid-2014. Artprice could also use its client file to make its behaviour logs available to auction houses subscribing to the digital catalogue service,

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with the aim of improving success rates and the sums raised from sales. Note, however, that we have not factored in this additional service into our forecasts.

On this basis, and according to our discussions with management, we have applied the following assumptions:

• The digital subscription service is launched in mid-2014,

• The monthly subscription fee is EUR200.

For 2014, we are assuming 12% of Artprice’s 3,200 auction-house clients switch to the digital service launched in June of that year, followed by 30% in 2015 and 50% in 2016. Note that our assumptions are based on the number of auction-house clients remaining constant during the period, even though it is reasonable to suppose certain non-client auction houses are attracted to the service in view of its advantages. On this basis, our revenue estimates work out to EUR0.5m in 2014, EUR2.3m in 2015 and EUR3.8m in 2016, as detailed in the table below.

Fig. 35: Prospective revenues from digital catalogue subscription service 2012-2016 (EURm)

2012e 2013e 2014e (1) 2015e 2016e

Number of auction houses 4500 4500 4500 4500 4500

o/w Artprice clients 3200 3200 3200 3200 3200

Change 0% 0% 0% 0%

Subscription (EUR/m) 0 0 200 200 200

Conversion rate of auction house clients to service (%) 0% 0% 12% 30% 50%

Total revenues from digital catalogues (EURm) 0.0 0.0 0.5 2.3 3.8 Variation n:a n/a 400% 67%

Source: Bryan Garnier estimates (1) digital service launched in June 2014

We have used the above estimates to draw up three scenarios. Our low-end scenario is based on a revenue sequence 15% below that for the median scenario shown above, while the high-end scenario is based on a sales sequence 15% higher than that for the median scenario.

Fig. 36: Prospective digital catalogue revenues for the three scenarios (EURm)

2012e 2013e 2014e (1) 2015e 2016e

Low-end scenario digital catalogues (-15%) 0.4 2.0 3.3

Median scenario 0.5 2.3 3.8 High-end scenario digital catalogues (+15%) 0.5 2.6 4.4

Source: Bryan Garnier estimates (1) digital service launched in June 2014

5.7. Database subscriptions Despite the developments described in earlier parts of this report, Artprice should continue to charge subscription fees for accessing its art data banks both to existing and future clients, with priority assigned to online services. We have nevertheless factored in a decline in the client base paying for this type of subscription (the percentage of paying clients falling from 5% of total clients in 2012 to 3.6% in 2016) once the kiosk subscription is launched in 2014. We have used the client projections detailed in the information kiosk section and drawn up revenues estimates for this service for the

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2012-2016 period. We have also factored in average revenues of EUR48 a year for 2012 and kept this level constant throughout the period. Based on these assumptions, we see revenues from databank subscriptions declining by 2.5% to EUR4.7m in 2012, then rising by 5.5% to EUR4.9m in 2013, 15.0% to EUR5.7m in 2014, 9.5% to EUR6.2m in 2015 ad 8.0% to EUR6.7m in 2016.

Fig. 37: Prospective database subscription revenues in the West (EURm)

2012e 2013e 2014e 2015e 2016e

Professional clients / West (millions) 0.4 0.4 0.5 0.6 0.8

Individual clients / West (millions) 1.6 1.7 2.3 2.7 3.1

Total western clients in all group business 1.95 2.2 2.8 3.3 3.9

Change 11.0% 30.0% 19.0% 16.0%

Clients paying for database (millions) 0.09 0.10 0.12 0.13 0.14

Change 5.5% 15.0% 9.5% 8.0%

% of overall clients / West 5.0% 4.8% 4.2% 3.9% 3.6%

Revenues database West (W) 4.7 4.9 5.7 6.2 6.7 Change -2.5% 5.5% 15.0% 9.5% 8.0%

Source: Bryan Garnier estimates

The group’s expansion in Asia should lead to a minor increase in revenues from the database subscription service, even though we have assumed that the kiosk service delivers the bulk of databank revenues in Asia. We have also used our client projections drawn up for the Asian kiosk service. As in the West, we have assumed the percentage of database subscription clients relative to the projected client population in Asia declines from 5% in 2012 to 1.6% in 2016. Lastly, we are applying the same average revenue per client of EUR48 a year.

Based on these assumptions, we see databank subscription revenues in Asia declining 2.5% to EUR0.19m in 2012, then climbing by 43.8% to EUR0.3m in 2013, 50% to EUR0.4m in 2014, 58.7% to EUR0.7min 2015 and 42.3% to EUR0.9m in 2016.

Fig. 38: Prospective databank subscription revenues in Asia (EURm)

2012e 2013e 2014e 2015e 2016e

Professional clients / Asia (millions) 0.0 0.0 0.1 0.2 0.4

Individual clients Asia (millions) 0.1 0.1 0.2 0.5 0.8

Total clients Asia all group businesses 0.1 0.2 0.3 0.7 1.2

Change 87.5% 100.0% 116.7% 84.6%

Clients subscribed to database (millions) 0.004 0.006 0.009 0.014 0.019

Change 43.8% 50.0% 58.3% 42.3%

% of total clients / Asia 5.0% 3.8% 2.9% 2.1% 1.6%

Database revenues Asia (A) 0.19 0.3 0.4 0.7 0.9 Change 43.8% 50.0% 58.3% 42.3%

Source: Bryan Garnier estimates

In all, we are anticipating database subscription revenues of EUR4.9m in 2012, EUR5.2m in 2013 (+7.0%), EUR6.1m in 2014 (+16.9%), EUR6.9m in 2015 (+12.8%) and EUR7.6m in 2012 (+11.3%). The following table summarises our database subscription revenue estimates for the West and Asia:

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Fig. 39: Prospective database subscription revenues in the West and Asia (EURm)

2012e 2013e 2014e 2015e 2016e

Database revenues West (W) 4.7 4.9 5.7 6.2 6.7 Change 5.5% 15.0% 9.5% 8.0%

Database revenues Asia (A) 0.2 0.3 0.4 0.7 0.9 Change 43.8% 50.0% 58.3% 42.3%

Total revenues West + Asia (W +A) 4.9 5.2 6.1 6.9 7.6 Change 7.0% 16.9% 12.8% 11.3%

Source: Bryan Garnier estimates

As for other activities, we have drawn up a low-end, a median and a high-end scenario. Our low-end scenario is based on a subscription revenue sequence 15% below that for the median scenario, while the high-end scenario is based on a sales sequence 15% higher than that for the median scenario. We have applied these adjustments as from 2014 and the resulting revenue sequences are shown in the table below:

Fig. 40: Prospective database subscription revenues for the three scenarios (EURm)

2012e 2013e 2014e 2015e 2016e

Low-end scenario database subscription (-15%) 4.9 5.2 5.2 5.8 6.5

Median scenario 4.9 5.2 6.1 6.9 7.7 High-end scenario database subscription (+15%) 4.9 5.2 7.0 7.9 8.8

Source: Bryan Garnier estimates

5.8. Other potential developments

5.8.1. Launch of an art social network Artprice is gearing up to launch its own social network shortly (following 18 months of incubations and beta-testing with market makers). The network has been constructed with the help of sociologists and network professionals and will run under the name Artprice Inside. Unlike social networks like Facebook, professionals and Artprice members will appear under their real names. Artprice Inside will also be linked to the fixed-price and auction Standardised Marketplaces. Artprice has said that the first batteries of tests have yielded excellent results and that all exchanges have validated the project. According to Artprice, Artprice Inside should provide a platform for issuing new ideas, create a pool of experts, act as a centre of expertise, foster debate on the Art market and facilitate the emergence of new concepts. We see the launch of a proprietary social network as an additional vector for incrementing Artprice’s client data and behaviour logs, while also offering a new purchasing channel for its members. We expect it to be all the more efficient for the fact that the user population will already be accustomed to the way social networks work.

Artprice has invested sizeable sums and worked in tandem with top social-network experts to build a social network in which members appear under their real names and are scored according to a multitude of calculations based on data mining techniques and behaviour logs for Artprice’s two million members. Artprice’s goal is to build a “linkedin” for art. Various art experts, market makers, art-market journalists and institutions will hold online seminars that will ensure Artprice an audience and provide an unprecedented information tool for specialists. Note that over the last two years, Artprice has generated over 70,000 tweets on Twitter, both by itself and through its contributors, and in some 20 languages, without having suffered the slightest incident of any type whatsoever.

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5.8.2. Business with insurers In addition to the partnerships forged with Axa Art, the dematerialisation and standardisation of the Art market as promoted by Artprice enables insurers like Axa or Hiscox to write insurance policies remotely. Certain collectors (art consumers or “beginners” in Axa’s terminology, young collectors aged 30-45), who represent a population of over 120 million people and who own interesting collections, but which are not important enough to require the intervention of an expert, can be insured remotely thanks to information provided by Artprice’s databanks. Artprice’s indices can also be used to revalue their collections in real time. For these policies and services, Artprice stands to receive a referral fee once the policy is signed, as well as a commission fee for revaluations.

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6. Significant potential to improve margins

We have set out our 2012-16 earnings estimates below. Based on forecasts established on a business by business basis, we estimate the group's revenues at EUR5.3m for 2012 and EUR5.6m for 2013, up 6%, driven primarily by the database subscription business and statistical or market studies on request for clients, newspapers, private banks etc. Including the launch of the kiosk activities, the digital catalogues, the switch to a pay-service for the fixed-price Standardised Marketplace and the start of the electronic auction Standardised Marketplace from Asia in mid-2014, our 2014 sales estimate for our median scenario is considerably higher at EUR20m. For 2015, taking account of a full year of pay services and the acceleration in businesses developed with the collection of new clients subscribed to the kiosk service, and the development of the Standardised Marketplace for auctions, our sales estimate stands at EUR50.1m, 2.5x ahead of the 2014 level, while that for 2016 is EUR79.8m, up 59% vs 2015. The table below sets out our sales estimates for our median scenario for the 2012-2016 period:

Fig. 41: Overview of 2012-2016 sales estimates (EURm) 2012 2013e 2014e 2015e 2016e 4G kiosk business 0.0 0.0 2.7 17.9 41.0 Change ns ns 567% 129% Digital catalogue (auction houses) 0.0 0.0 0.5 2.3 3.8 Change ns ns 400% 67% Database revenues 4.9 5.2 6.1 6.9 7.7 Change 7.0% 16.9% 12.8% 11.3% Revenues from indices and other services 0.4 0.4 0.4 0.4 0.4 Change 1% 1% 1% 1.0% Fixed-price Standardised Marketplace 0.0 0.0 8.5 16.9 17.4 Change ns ns 98% 3% Standardised Market for auctions 0.1 0.0 1.8 5.7 9.5 Change ns ns 214% 66% Total revenues 5.3 5.6 20.0 50.1 79.8 Change 6% 254% 151% 59%

Source: Bryan Garnier estimates

Below we have also set out our sales estimates for each of our three scenarios. Revenues in our low-end scenario stand at EUR5.3m for 2012, EUR5.6m for 2013, EUR16.5m for 2014, EUR38m for 2015 and EUR60.6m for 2016. On these figures, 2016 revenues are almost 24% lower than in our median scenario. In our high-end scenario, we estimate sales at EUR5.3m for 2012, EUR5.6m for 2013, followed by EUR21.4m for 2014, EUR76.4m for 2015 and EUR121.9m for 2016. This scenario is clearly favoured by the convergence of the Standardised Marketplaces as of 2015, with their remuneration method highly beneficial to top-line growth. In this scenario, 2016 revenues are 50% higher than in our median scenario.

Fig. 42: Overview of sales estimates in our three scenarios (EURm)

2012e 2013e 2014e 2015e 2016e Low end scenario 5.3 5.6 16.5 38.0 60.6 Difference vs. median scenario 0.0% 0.0% -17.5% -24.2% -24.0% Median scenario 5.3 5.6 20.0 50.1 79.8 High-end scenario 5.3 5.6 21.4 76.4 121.9 Difference vs. median scenario 0.0% 0.0% 6.9% 52.5% 52.8%

Source: Bryan Garnier estimates

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Note that for a better readability, our revenue scenarios are presented net of marketing/referencing costs incurred by operators in the 4G kiosk business. In our assumptions, we have estimated levies of 42% corresponding to referral fees and marketing and referencing costs. As such, over the period, we do not expect an increase in costs proportional to that in revenues. Indeed, database management costs are generally fixed and at a very optimised level, thereby enabling the group to distribute information virtually free of charge for a number of years. In addition, the investments necessary for the group's development in Hong Kong should not consumer large amounts of cash either. The unit cost of a hosting server in Asia stands at EUR15-20,000. As of 2014, we have increased the amount of depreciation/amortisation in order to take account of investments in additional IT equipment (servers etc.), although this line item is set to vary from EUR0.1m in 2012 to EUR1.0m in 2016. On this basis, we expect operating costs to rise by 2.6% in 2012 to EUR5.2m, 5.8% in 2013 to EUR5.5m, 32.7% in 2014 to EUR7.3m, 41% in 2015 to EUR10.3m and 26.2% in 2016 to EUR13m. Given these factors and the group's low cost structure combined with our sales growth forecasts, operating profitability is therefore set to increase considerably.

Based on the median revenues scenario presented previously, EBIT is therefore set to stand at EUR0.1m in 2012, EUR0.1m in 2013, EUR12.7m in 2014, EUR39.8m in 2015 and EUR66.8m in 2016. Finally, in view of the tax loss carry forward of EUR9m, the group should pay no tax in 2012 and 2013, followed by 10.5% in 2014 and 33.33% thereafter. In view of these items, our net profit estimates stand at EUR0.1m for 2012, EUR0.2m for 2013, EUR11.4m for 2014, EUR26.6m for 2015 and EUR44.8m for 2016.

Fig. 43: Overview of 2012e-2016e earnings forecasts (EURm) 2012e 2013e 2014e 2015e 2016e Revenues 5.3 5.6 20.0 50.1 79.8 Change 1.7% 6.3% 254.1% 150.8% 59.2%

Personnel expenses -1.6 -1.7 -2.4 -4.1 -5.3

Change 2.8% 6.3% 41.2% 70.8% 29.3%

External expenses -3.4 -3.5 -3.8 -4.6 -5.6

Change 1.8% 4.5% 8.6% 21.1% 21.7%

Taxes -0.1 -0.1 -0.3 -0.5 -0.7

Depreciation, amortisation, provisions -0.1 -0.1 -0.6 -0.8 -1.0

Change 30.4% 83.3% 454.5% 32.8% 24.7%

Other operating income/expense -0.1 -0.1 -0.2 -0.3 -0.4

Total operating costs -5.2 -5.5 -7.3 -10.3 -13.0 Change 2.6% 5.8% 32.7% 41.0% 26.2%

Operating profit from business 0.1 0.1 12.7 39.8 66.8 Change -31.5% 34.2% ns 214.1% 67.7%

Underlying operating profit ́ 0.1 0.1 12.7 39.8 66.8 Change -185.5% 34.2% ns 214.1% 67.7%

Other operating income/expense -0.1 -0.1 -0.1 -0.1 -0.1

EBIT 0.0 0.0 12.6 39.7 66.7 Income from cash and cash equivalents 0.0 0.0 0.0 0.1 0.4

Other financial income/expense 0.2 0.1 0.1 0.1 0.1

Pre-tax underlying profit 0.1 0.2 12.7 40.0 67.2

Corporate tax 0.0 0.0 -1.3 -13.3 -22.4

Tax rate 0.0% 0.0% 10.5% 33.3% 33.3%

Net profit 0.1 0.2 11.4 26.6 44.8 Change 39.8% 20.9% ns 134.3% 68.1%

Source: Bryan Garnier estimates

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In view of our two alternative revenue scenarios, the following table sets out our three different net profit scenarios. Net profit is the same in all three scenarios for 2012 and 2013 and then ranges from EUR9m to EUR12.3m for 2014, from EUR18.5m to EUR44.2m for 2015, and from EUR31.9m to EUR73m for 2016.

Fig. 44: Overview of net profit estimates in our three scenarios (EURm)

2012e 2013e 2014e 2015e 2016e

Low-end scenario 0,1 0,2 9,0 18,5 31,9

Difference vs. median scenario 0,0% 0,0% -20,5% -30,4% -28,7%

Median scenario 0,1 0,2 11,4 26,6 44,8 High-end scenario 0,1 0,2 12,3 44,2 73,0

Difference vs. median scenario 0,0% 0,0% 8,1% 65,9% 63,0%

Source: Bryan Garnier estimates

Note that for the moment, the group does not generate earnings and that these net profit forecasts are based on a number of assumptions, starting with the switch from a virtually free-of-charge services model to a fee-paying model as announced to us by the group's chairman as being the most coherent assumption. The switch to a pay model is based particular on charging a fixed fee for users to post offers on the fixed-price Standardised Marketplace (mid-2014), the effective undertaking of transactions on the online auction Standardised Marketplace (mid-2014). In addition, the group has told us that it is in negotiations with telephony operators for the launch of a 4G information kiosk for mobile usage for electronic databases in western countries and in Asia, and the possibility of an online subscription service for auction houses to create digital sales catalogues. Note also that so far, no agreements with telephony operators have been signed. While we believe in the likelihood of these various stages materialising, there is absolutely no certainty in terms of their actual success.

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7. Fair Value 7.1. Discounted Cash Flow (DCF) The Discounted Cash Flow (DCF) method values the company by assessing the present value of its future cash flow streams. In addition to our detailed earnings forecasts for 2012-2016, the table below shows our cash flow projections out to 2022. The cost of capital, which we have also applied as the discount rate, is 15.5% (10-year OAT rate of 3.3%, based on the average retained by Bryan Garnier).

In order to calculate free cash-flow we have:

Used our detailed earnings forecasts for 2013-2016.

Assumed revenues grow over 2017 and 2022 by 28.5%, 9%, 6%, 3%, 2% and 1%, respectively.

Raised operating margin gradually to 84.6% in 2017, then lowered it gradually to 75% in 2022 (see table below). Although these margins might seem very high, it is important to remember that internet businesses have high fixed costs and that we have deducted the 42% of kiosk revenues retained by telecoms operators directly from the revenues line. Had we not chosen this accounting option, the 2017 operating margin would have worked out to 55% instead of 84.6%;

Applied a 33.3% normal average tax rate as from 2015.

Estimated capex at EUR3.1-3.8m a year over 2017-2022.

Fig. 45: Artprice earnings forecasts for 2013-2016 (EURm) EURm 2013e 2014e 2015e 2016e 2017e 2018e 2019e 2020e 2021e 2022e

Revenues 5.6 20.0 50.1 79.8 102.5 111.7 118.4 122.0 124.4 125.7 Change 6.3% 254.1% 150.8% 59.2% 28.5% 9.0% 6.0% 3.0% 2.0% 1.0%

EBIT 0.1 12.7 39.8 66.8 86.7 92.7 95.9 96.4 95.8 94.3 EBIT/sales 2.0% 63.3% 79.4% 83.7% 84.6% 83.0% 81.0% 79.0% 77.0% 75.0%

Corporate tax 0.0 1.3 13.3 22.3 29.1 30.9 32.0 32.1 31.9 31.4

Tax rate (%) 0.0% 10.3% 33.3% 33.3% 33.3% 33.3% 33.3% 33.3% 33.3% 33.3%

Depreciation, amortisation and provisions 0.1 0.6 0.8 1.0 1.2 1.8 1.9 2.0 2.0 2.0

(as a % of sales) 1.9% 3.1% 1.6% 1.6% 1.6% 1.6% 1.6% 1.6% 1.6% 1.6%

Operating cash flows 0.22 11.96 27.33 45.47 58.80 63.64 65.87 66.22 65.89 64.87 Capex 0.0 -0.1 -1.5 -2.5 -3.1 -3.3 -3.5 -3.7 -3.7 -3.8 (as a % of sales) -0.5% -0.4% -3.0% -3.0% -3.0% -3.0% -3.0% -3.0% -3.0% -3.0%

Change in WCR 0.3 0.3 1.7 4.3 3.3 1.3 1.0 0.5 0.4 0.2 WCR 5.3 5.7 7.3 11.6 14.9 16.3 17.3 17.8 18.1 18.3

(as a % of sales) 93.9% 28.3% 14.6% 14.6% 14.6% 14.6% 14.6% 14.6% 14.6% 14.6%

Free cash flow -0.1 11.5 24.2 38.6 52.4 58.9 61.4 62.1 61.8 60.9 Discounted free cash flow flow -0.1 9.1 16.5 22.8 26.8 26.1 23.5 20.6 17.7 15.1

Source: Bryan Garnier estimates

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Fig. 46: DCF valuation Growth in free cash flow to infinity 1.5%

End value 441.7

Discounted end value 109.7

Sum of discounted free cash flows 177.9

Theoretical net debt 13 after dilution -0.2

No. of shares (in millions) 6.424

Enterprise value (EURm) 287.8 Per share value (EUR) 44.8

Source: Bryan Garnier estimates

Based on the above assumptions, a growth rate to infinity of 1.5% and a discount rate of 15.5%, our DCF method yields a Fair Value for Artprice of EUR287.7m (EUR44.8 per share). Note that the sensitivity of the valuation to a one percentage-point variation in the discount rate is around 10%. This means that one of the key elements with this method is the discount rate used (15.5% in this case). If we were simply to change the discount rate from 15.5% to 17.5%, Fair Value would work out to EUR37.8 per share, and if we were to change the discount rate to 13.5%, Fair Value would amount to EUR54.3 per share.

Fig. 47: Sensitivity table (EUR) Growth rate to infinity

Discount rate 0.5% 1.0% 1.5% 2.0% 2.5%

13.5% 52.3 53.2 54.3 55.4 56.7

14.5% 47.6 48.3 49.2 50.1 51.0

15.5% 43.5 44.1 44.8 45.5 46.3

16.5% 40.0 40.5 41.1 41.6 42.3

17.5% 36.9 37.3 37.8 38.3 38.8

Source: Bryan Garnier estimates

Using a perpetual growth rate of 1.5% and a discount rate of 15.5%, our DCF method produces a Fair Value of EUR44.8 based on our median scenario. If we apply the same assumptions to our low-end and high-end scenarios, Fair Value works out to EUR211.4m (EUR32.9 per share) and EUR402m (EUR62.6 per share), respectively.

7.2. Expected return method with a target exit P/E (n+2)

With a peer comparison approach made difficult by the company’s specific characteristics, we have used a valuation approach based on the logic applied by investors. Traditional investors more often than not project two years ahead. From a starting point at end-2012, for example, investors seek to define a target price by looking at 2014 prospective earnings and then applying a P/E or an EV/EBIT that they consider to be normal. In Artprice’s case and in view of the company’s specific characteristics (no interest expenses, low depreciation/amortisation, no significant cash reserves at present, etc.), we will be reasoning in terms of P/E and not EV/EBIT. We have employed this approach by taking different P/E assumptions for n+2, ranging from 10x to 14x, and then applied them to the earnings obtained under our various scenarios, for 2015 (scenario retained), 2016 (presented in a second table) and lastly for 2014 (in a third table).

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Under this approach where the investor reasons two years ahead, the investor applies what they consider to be a normal P/E at the end of 2013 in order to obtain a target price. As we are currently in the fourth month of 2013, we have divided this target price by the expected return over the eight months retained by the investor. We have then used a range of expected returns from 15% to 25%. The table below shows the target prices produced by this approach for the three scenarios presented in the report (low-end, median, high-end). Therefore, if we apply a target P/E n+2 of 12x and an expected return of 20%, we arrive at the following Fair Values based on our 2015 earnings forecasts: EUR30.6 per share for the low-end scenario, EUR43.9 for the median scenario (which we are retaining) and EUR72.8 for the high-end scenario. The median per-share Fair Value of EUR43.9 works out to an overall fair value of EUR282.1m. We are also applying a moderate 25% weighting to this approach.

Fig. 48: Target price based on 2015 earnings forecasts and

assumptions regarding P/E n+2 and the rate of return expected by the investor (EUR)

Low-end scenario

Assumption for P/E n+2 10x 11x 12x 13x 14x

Expected return by investor 1: 15% 26.2 28.9 31.5 34.1 36.7

Expected return by investor 2: 20% 25.5 28.0 30.6 33.1 35.6

Expected return by investor 3: 25% 24.7 27.2 29.7 32.2 34.6

Median scenario Assumption for P/E n+2 10x 11x 12x 13x 14x

Expected return by investor 1: 15% 37.7 41.5 45.2 49.0 52.8

Expected return by investor 2: 20% 36.6 40.2 43.9 47.6 51.2

Expected return by investor 3: 25% 35.5 39.1 42.7 46.2 49.8

High-end scenario Assumption for P/E n+2 10x 11x 12x 13x 14x

Expected return by investor 1: 15% 62.5 68.8 75.0 81.3 87.6

Expected return by investor 2: 20% 60.7 66.8 72.8 78.9 85.0

Expected return by investor 3: 25% 59.0 64.9 70.8 76.7 82.5

Source: Bryan Garnier estimates As an indication, in the following table, we have applied the same methodology to prospective 2016 earnings. The resulting target prices are on average over 50% higher than those in the table above, a situation that reflects the rapid earnings growth stemming from the scenarios described in Chapter 5 of this report and based on our discussions with management. If we take the median scenario and a P/E n+2 of 12x and an expected rate of return of 20%, and apply the same assumptions as for the table based on 2015 forecasts, Artprice’s Fair Value would work out to EUR72.1 per share versus EUR45.2 in the median scenario (EUR51.4 in the low-end scenario and EUR117.6 in the high-end scenario). Note that we have added a year of discounting, given that the investor will not make 2016 earnings projections until end-2014.

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Fig. 49: Target price based on 2016 earnings forecasts and assumptions regarding P/E n+2 and the rate of return expected by the investor (EUR)

Low-end scenario

Assumption for P/E n+2 10x 11x 12x 13x 14x

Expected return by investor 1: 15% 44.6 49.0 53.5 58.0 62.4

Expected return by investor 2: 20% 42.8 47.1 51.4 55.7 60.0

Expected return by investor 3: 25% 41.1 45.2 49.4 53.5 57.6

Median scenario

Assumption for P/E n+2 10x 11x 12x 13x 14x

Expected return by investor 1: 15% 62.5 68.8 75.0 81.3 87.6

Expected return by investor 2: 20% 60.1 66.1 72.1 78.1 84.2

Expected return by investor 3: 25% 57.7 63.5 69.2 75.0 80.8

High-end scenario

Assumption for P/E n+2 10x 11x 12x 13x 14x

Expected return by investor 1: 15% 101.9 112.1 122.3 132.5 142.7

Expected return by investor 2: 20% 98.0 107.8 117.6 127.4 137.2

Expected return by investor 3: 25% 94.1 103.5 112.9 122.3 131.7

Source: Bryan Garnier estimates Again as an indication, and conversely, in case assumptions of strong revenue growth are not believed, we have looked at prospective 2014 earnings. The following table shows the various target prices stemming from the different P/E assumptions retained previously (no discounting). On this basis, Artprice’s Fair Value would work out to between EUR14.1 and EUR26.8 per share, although we believe that adopting this method would be to deny the company’s potential for growth. Fig. 50: Target price based on 2014 earnings forecasts and

assumptions regarding P/E n+2 and the rate of return expected by the investor (EUR)

Low-end scenario

Assumption for P/E n+2 10x 11x 12x 13x 14x

Irrespective of return expected by investor 14.1 15.5 16.9 18.3 19.7

Median scenario

Assumption for P/E n+2 10x 11x 12x 13x 14x

Irrespective of return expected by investor 17.7 19.5 21.2 23.0 24.8

High-end scenario Assumption for P/E n+2 10x 11x 12x 13x 14x

Irrespective of return expected by investor 19.1 21.1 23.0 24.9 26.8

Source: Bryan Garnier estimates

7.3. Sum of the parts The disadvantage of the previous two methodologies (DCF and exit P/Es for the investor based on expected returns) is that they rely on earnings forecasts, which are by nature uncertain. Indeed, it was this very disadvantage that prompted us to draw up various scenarios. As a result, we thought it would be interesting to analyse the value of all of Artprice’s assets, so as to undertake a sum-of-the-parts type valuation based on the asset valuations that management has declared to us.

The main components included in this approach are as follows:

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1/ DNS: Artprice owns 1,800 Domain Name Servers (DNS, underpinning online communications and searches). 1,200 of these are considered strategic and all contrive to restrict the growth of competitors and drum up traffic for the Artprice site. One example is the Artmarket.com DNS for which the value communicated to us by the company is USD2.2m. In all, the company estimates that its portfolio of DNS was worth EUR18m (low-end estimate) as at year-end 2012. For our part, we are applying a valuation of EUR12m, or the equivalent of EUR10,000 per strategic DNS.

2/ The collection of sales catalogues: In order to construct its data banks and hinder the development of competitors, Artprice purchased 270,000 sales catalogues and manuscripts dating from the 18th century to the present day (a unique collection worldwide). According to Artprice, the market value of these catalogues and manuscripts, which include some very rare examples and sometimes several copies, amounts to EUR27m. For our part, we are applying a figure of EUR20m.

3/ Databases: Artprice’s databases are not only rich and exhaustive (and more so since the recent partnership with Artron in China), but are also patent-protected and permit a dematerialised approach to art. Artprice’s management estimates that the value of these data banks with their patents and similar protections (regularly updated), amounts to around EUR30m (low-end estimate, based on IFRS). For our part, we are applying a figure of EUR25m

4/ The client file: Knowing your clients and their tastes is crucial to gauging the possibility of making a sale in the art world. In recognition of this, Artprice keeps a record of all the requests made by clients in its database. This gives it exceptional knowledge of market participants. According to Artprice, client files are worth between USD225 (EUR172) and USD1,200 (EUR1,380) per client for the company’s auction clients. For our part, we are retaining a figure of USD130 (EUR100) for each of the company’s 2,072,000 clients, on the basis of which we arrive at a figure of EUR207.2m for the whole client file. We took an amount of USD100 or 40% below the low-end estimate, given that Artprice does not really turn a profit on its clients at the moment. However, if the Standardised Marketplace and 4G kiosk services expand according to our assumptions, then the value of the company’s clients should increase in light of the sharp rise in revenues that would be generated per client. For the purposes of illustration, the median scenario that we have retained points to around 5 million clients in 2016 along with a much-enriched base of behaviour logs (18 billion behaviour logs currently announced by the company), thus providing sizeable leverage for Artprice’s valuation.

In all, the sum total of all these assets yields a Fair Value of EUR264m or EUR41.1 per share, as shown in the table below. However, this sum-of-the-parts approach is not our preferred one, as it reflects the dismantling of the company. We have therefore applied a modest weighting of 25% for this approach.

Fig. 51: Sum-of-the-parts valuation (EUR) Assets not valued Description Valuation

DNS 1200 strategiec DNS EUR12m

Collection of sales catalogues and

manuscripts

270,000 copies from the 17th century to present day EUR20m

Patent-protected databases 108 million pictures … EUR25m

Client file 2,072 m clients (valued at EUR100/client) EUR207m

Total EUR264m

No. of shares (millions) 6,424

Total EUR41.1

Source: Bryan Garnier estimates based on Artprice information

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7.4. Summary of valuation methods The weighted average of the three valuation methods retained (based on our median scenario) equates to a Fair Value for Artprice of EUR280.3m, or EUR43.6 per share. Note that the weighted average of the same three methods would produce a Fair Value of EUR220.8m (EUR34.4 per share) if applied to our low-end scenario and one of EUR385.1m (EUR59.9 per share) if applied to our high-end scenario.

Fig. 52: Summary of retained valuation methods Method Target Upside 2013 P/E 2014 P/E 2015 P/E Weighting

DCF EUR44.8 67% n/a 25.3 10.8 50%

Expected returns EUR43.9 64% n/a 24.8 10.6 25%

SOTP EUR41.1 53% n/a 23.2 9.9 25%

Average EUR43.6 63% n/a 24.7 10.5 100%

Source: Bryan Garnier estimates

Looking beyond these valuation aspects and bearing in mind that data is becoming a crucial element for web firms, Artprice’s data banks would make it an attractive takeover target for a firm pursuing a big data strategy.

On this basis, Artprice could appeal to numerous companies, such as:

• A major art world investor keen to benefit from and control the observation post provided by Artprice.

• An auction house looking to step up its conversion to digital. • An Asian player looking to speed up its expansion outside Asia. • An internet player with a strategy centred on data. • A major online auctions player who is not currently active in the fine art segment.

A deal of this sort would probably involve a significant premium being paid to shareholders, although we are not able to define the size of it given that it would depend on the buyer’s business strategy.

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Glossary

ADAGP (Auteurs Dans les Arts Graphiques et Plastiques): This copyright management company currently boasts the most representative repertoire of visual arts in the world. More than 95,000 artists who are direct members or members of its 43 foreign sister companies have entrusted management of their copyright to the company.

Art market Trends and Le marché de l’art contemporain: Publication by Artprice of Art market trends for the main agencies and 6,300 press titles throughout the world, thereby providing the group a reputation in the art world and a guarantee in terms of communication.

Artists-index.com (June 2012): A large share of the group's database structure and standardisation of the Art market was placed online in freeware mode (proprietary IT licence distributed free of charge albeit without providing users certain freedom of use), for institutionals, universities, museums, foundations, libraries, legal and customs services, copyright companies (such as ADAGP), insurers, encyclopaedia bases (such as Wikipedia), internet directories and of course, auction houses, galleries and associations of experts.

Catalogue raisonné (painter, jeweller or sculptor): A monograph of an artist giving a comprehensive list of an artist's works and their location and mentioning their owners, if they agree. Generally, this work includes a general presentation of the artist (life, works) and important dates. It is a means of indentifying an artwork and must be submitted to a buyer when a work is sold. Domain Name Server (DNS): A DNS designates name servers at the basis of communication on the internet. It is a key item in the internet web and in particular, enables users to redirect to sites chosen by the owner. Artprice owns more than 1,800 DNS.

Conseil des Ventes Volontaires (CVV): Regulatory authority for operators of voluntary sales of furniture at public auction. In the interest of consumers, sellers and buyers, the authority supervises the correct functioning of the voluntary public auctions markets.

My Art Collection (January 2009 http://web.artprice.com/portfolio/log in.aspx): A free and confidential management service for artwork portfolios, for all art collectors and amateurs throughout the world with a regular revaluation of their artworks much like a share portfolio.

PMN: Place de Marché Normalisée (Standardised Marketplace), the object of numerous registrations in terms of intellectual property (fixed-price Standardised Marketplace, electronic auctions Standardised Marketplace)

Free port: A free port enables artworks to be stored and transported under the best conditions possible pending a change in ownership. It is also a privileged and confidential negotiating zone that is tax-free (excluding customs and excise and VAT).

Symev: Syndicat national des maisons de ventes - French national syndicate of auction houses, assembling the majority of French auction houses including online auction houses.

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Bryan Garnier&Co has concluded a Corporate research contract with the issuer concerning one or more of its financial instruments.

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The present research note is destined for investors qualified as professionals and any usage by non-professional individuals engages only themselves.

This note only be understood once a prior reading has been undertaken of risk factors included in the Artprice reference document posted online on the AMF website, " www.actusnews.com Diffuseur Professionnel d'Information Réglementée autorisé par l’AMF" as well as of Artprice regulated information on interim and full-year accounts containing themselves the risk factors present on the AMF site.

It is not and must not be taken as an offer or a solicitation for a sales or purchase offer or a subscription to an investment whatsoever.

The information contained in this document stems from carefully selected public sources. Despite the undertaking of all diligence required to ensure that this information is exact at the time of publication, no guarantee is given concerning their exact, exhaustive and sincere nature.

Past performances do not guarantee future performances.

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A copy of the Bryan Garnier & Co Limited conflicts policy in relation to the production of research is available at www.bryangarnier.com

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Important information Bryan Garnier & Co, registered in France no. 452 605 512 is a MiFID branch of Bryan Garnier & Co Limited (a UK company registered under the number 03034095) and is authorised and regulated by the Financial Services Authority and the Autorité des Marchés Financiers (AMF). Registered address: 26 avenue des Champs Elysées, Paris 75008. This has been prepared solely for informational purposes, and is intended only for use by the designated recipient(s). This information was obtained from sources we believe to be reliable, but its accuracy is not guaranteed. All information is subject to change without notice. This does not constitute a solicitation or offer to buy or sell securities or any other instruments, or a recommendation with respect to any security or instrument mentioned herein. This is not a confirmation of terms of any transaction. No representations are made herein with respect to availability, pricing, or performance. Additional information available on request. This document should only be read by those persons to whom it is addressed and is not intended to be relied upon by any person without subsequent written confirmation of its contents. If you have received this e-mail message in error, please destroy it and delete it from your computer. Any form of reproduction, dissemination, copying, disclosure, modification, distribution and/or publication of this E-mail message is strictly prohibited. Please note that any views or opinions presented in this email are solely those of the author and do not necessarily represent those of Bryan Garnier. Finally, the recipient should check this email and any attachments for the presence of viruses. Bryan Garnier accepts no liability for any damage caused by any virus transmitted by this email.