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Europe Sustainable Technologies

Sector report

June 2007

How to play the green game

� Our ‘Sustainable Tech’ universe is made up of European companies that generate a significant portion of their business with products, services and moreover efficient technologies that better meet future demographic and environmental challenges.

� Strong growth in these sectors offers investment opportunities for the three main technological trends set to emerge: resources and energy efficiencies (doing more with less), clean production systems (less pollution), and partial substitution of organic-based renewable materials and resources for fossil-based carbon sources.

� Growing regulations across the globe support our bull case scenario. Europe is leading the way, while we believe the momentum in the US will emerge as from 2009. China or India are beginning to take action.

� Green technologies offer opportunities to investors seeking exposure to long-term trends. The sales growth of our European universe is expected to reach 10.2% p.a. out to 2009E, with a 24.3% EPS CAGR in 2006-2009E.

� Companies look fairly valued today on current levels, reflecting strong expectations in earnings growth. Average P/E multiples stand at 26x 2007E for our European universe, with higher multiples in wind power (P/E 54.4x 2007E) and solar power (P/E 34.7x 2007E), reflecting strong EPS CAGR in 2006-2009E of 113% for wind and 50% for solar.

� Our Sustainable Technologies Top Picks focus on companies offering the best investment visibility: Abengoa (biofuels, 1/Selected List), Alstom (energy efficiency/mass transport, 1/Selected List), Eurofins Scientific (environmental control, 2/Outperform), Hera (waste & water management, 2/Outperform), Neste Oil (biofuels, 1/Selected List), Schmack Biogas (biogas, 2/Outperform).

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Sustainable Technologies

CONTENTS

Investment recommendation

I— Drivers for sustainable growth............................................................................Page 06

We live in a world of limited resources .................................................................................................................................... P.06

Investment boom in technologies and infrastructure ..................................................................................................... P.12

Regulations are setting the agenda........................................................................................................................................... P.15

II— How de we play the green game? ...................................................................Page 19

Diversification across clean and green technologies...................................................................................................... P.19

Renewable energy................................................................................................................................................................................ P.24

Water management ............................................................................................................................................................................. P.42

Waste management ............................................................................................................................................................................ P.45

Asset bubble or sustainable growth?....................................................................................................................................... P.51

Investing with risk, a deeper look at renewable energy ................................................................................................ P.53

III— Company profiles .......................................................................................................Page 61

Abengoa ..............................................................................................................................................P.63 Alstom..................................................................................................................................................P.69 Eurofins Scientific................................................................................................................................P.75 Hera .....................................................................................................................................................P.81 Neste Oil ..............................................................................................................................................P.87 Schmack Biogas .................................................................................................................................P.93

CHEUVREUX’S SUSTAINABLE TECHNOLOGIES TEAM

Morgan Carval (Coord.) France +33 1 41 89 75 07 [email protected] Corinne Gagné (Author) France +33 1 41 89 73 07 [email protected] Philipp Bumm Germany +49 69 47 89 75 27 [email protected] Isabel Carballo Spain +34 91 432 75 52 [email protected] David Halldén Nordic +46 8 723 51 70 [email protected] Francesca Pezzoli Italy + 39 02 80 62 83 80 [email protected]

CHEUVREUX’S SRI TEAM

Stéphane Voisin France +33 1 41 89 74 69 [email protected] Erwan Crehalet (Author) France +33 1 41 89 75 18 [email protected] Cécile Lamotte France +33 1 41 89 74 96 [email protected]

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� Sector Top Picks

Abengoa EUR28.55 1/Selected List - Target: 37.5

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Abengoa has a leading position in traditional engineering whilst it is the first bioethanol producer in Europe and a global leader in technology development in solar thermo electrical energy. We expect the company to post EPS growth of 40% (07) and 17% (08) in spite of rising growth capex in renewable energy projects whose contribution will not be felt until 2009-10. Additionally it has recurrent FCF of over EUR250-300m p.a. and strong BS (no debt ex-project finance) which will allow Abengoa to continue to actively invest the cash flow from the core engineering business into higher-growth activities. Our EUR37.50 target price offers 30% upside potential.

Alstom EUR113.64 1/Selected List - Target: 135

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Alstom is now fully benefiting from its restructuring and the completion of its disposal program. 2008 margin targets are certain to be met. Alstom has resumed dividend payments after six years. The very good outlook in Power Generation markets in the short and long term could provide Alstom with exceptional long-term growth perspectives. We value the share at EUR135 at the end of 2007, including a speculative premium of EUR10. Lastly, Bouygues could continue to buy shares in the market.

Eurofins Scientific EUR61.00 2/Outperform - Target: 82


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Eurofins's margins are growing as a result of the group's increase in size and the decline in restructuring charges. We now integrate the sales growth prospects targeted by the company over 2008-2010, with in counterpart higher price paid for acquisitions and a slower increase in margins. As a reminder, Eurofins is aiming at an annual sales growth rate of 20% over 2008-2010, achieved by half organically, the other half with acquisitions. The company reiterates its view to actively participate in the consolidation of the sector, which will still take 5 to 10 years. Upside on exponential delta sales over margin expansion. Our target price of EUR82 is based on a DCF approach with a WACC assumption of 8.6%.

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HERA EUR3.33 2/Outperform - Target: 3.92


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We confirm our positive stance on HERA based on: (1) successful multi-utility business model; (2) double digit growth profile; (3) consolidation potential; (4) leadership fast growing special waste/WTE business. We believe that HERA enjoys high visibility over next years organic growth (we forecast 15% 2006-09 EBITDA CAGR) as it based on fully authorized plants, synergies from past deals and tariff hikes due by law. We believe that HERA is ready to take part to the consolidation process and we expect that in the next 12-18 months could merge with a listed player of similar size (ACEA or Iride) unlocking synergies and significant upside.

Neste Oil EUR27.46 1/Selected List - Target: 35.4

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We rate Neste Oil 1/Sl with EUR35.4 target. As the hydrocracker equipment for the current diesel project now is switched on, the next 2 quarters offer time to fine-tune full impact, leading to another USD4.6/bbl in ref-margin (on top of: a) underlying North Europe refining margin, and b) current USD4-6/bbl premium to the north Europe average), enabling wide cash distribution. Global deficit of diesel is set to rise from ~20m tons in 2006 to nearly +35m tons by 2010E, boding well for pricing. As a biodiesel front runner, it has a technology based on total feedstock flexibility, and Gross profit break-even not including tax-relief, unlike competition. Valuation is compelling (absolute & relative) and is supported by the increasing supply shortage.

Schmack Biogas EUR55.85 2/Outperform - Target: 80


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Already a leader in the young and rapidly growing biogas market, Schmack Biogas is poised to expand its position further. From 2005 to 2008E we look for revenue growth from EUR34m in 2005 to EUR249m in 2008E (CAGR: 94%) and EPS growth from EUR0.5 to EUR2.7 (CAGR: 75%). The company is a technology leader in biogas with more than 11 years experience and a unique database of more than 20,000 analysed biogas fermenter samples, giving customers an advantage in finding their optimal bacteria and feedstock mix for biogas production. The company now targets utilities and local municipal electricity providers as customers.

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INVESTMENT RECOMMENDATION

By 2050, three billion additional people and rising standards of living will sharply increase the demand for natural resources (energy, water, minerals, food, etc.). Rising greenhouse gas concentrations in the atmosphere will result in disturbances of global and regional climate conditions, increasing extreme weather events such as floods, droughts and storms, and intensifying pressure on ecosystems, economies and people.

Five core issues argue in favour of a surge for investments in environmental technologies and services, what we call the “sustainable evolution”: 1) population growth and urbanisation; 2) pressure on natural resources; 3) climate change; 4) concerns over peak oil and the security of energy supplies; and 5) local pollution. The IEA forecasts a cumulative investment in energy supply infrastructure of USD20tn over 2005-2030. In water, investment needs are estimated by the World Water Organisation at between USD200bn and USD1tn over the next 20 years. In Europe alone, EUR350bn in investments are needed by 2015 in order to comply with water regulations.

These investments are backed by increasing political support at the regional and international levels, with Europe leading the way. The unprecedented trend in regulations supports our bull case scenario in the area of energy efficiencies, promotion of renewable energies, clean transport and more stringent pollution standards. In our view, this regulatory momentum is set to continue until alternative technologies become competitive and governments achieve their emissions targets. The international momentum in this area should also be strong, for example, the recent G8 agreement on climate has set the scene for further negotiations.

Three major trends are likely to emerge and change the economic landscape of the production of goods and the industrial portion of the economy:

− Increased shift towards efficient systems: the lean way

− Development of energy generation from renewable sources: the clean way

− Substitution of organic carbon sources for fossil resources: the organic way

Existing and new technologies represent a key opportunity for investors. Our Sustainable Tech universe is made up of companies that generate a significant portion of their business in products and services that contribute to increasing the efficiency of production systems and reducing the environmental footprint of the economy.

Seven clusters that respond to these green themes have been identified: energy efficiencies, renewable energy, alternative energy and transportation systems, water management, waste management, biomass resources and eco-products and services. In Europe, 142 listed companies respond to these criteria, representing a total market capitalisation of EUR695bn, and 2006 sales of EUR325bn. The universe’s sales growth is expected to reach 10.2% p.a. out to 2009E, with a 24.3% EPS CAGR over 2006-2009E.

On valuation grounds, the sector looks fairly valued, with the European universe currently trading at 26x 2007E earnings. The highest multiples are found in the wind power (P/E 54.4x 2007E) and solar power sectors (P/E 34.7x 2007E). Current valuations reflect expectations of earnings growth, at 113% p.a. for wind and 50% p.a. for solar over the period 2006-2009E. Any further increase in regulatory incentives supporting these technologies could boost prices higher.

Risk is a key parameter for investing in green technologies. Systemic risks are probably the most important, as most of the future growth is linked to political support. We believe that the political momentum is strong for the near future, but investors seeking exposure to green technologies should pay close attention to regulatory changes, especially for companies with strong exposure to one or two markets.

How to play the green game? Our Sustainable Tech Top Picks list comprises the companies in the universe that offer the strongest share performance potential:

Abengoa (biofuels, 1/Selected List), Alstom (energy efficiency/mass transport, 1/Selected List), Eurofins Scientific (environmental control, 2/Outperform), Hera (waste & water management, 2/Outperform), Neste Oil (biofuels, 1/Selected List) and Schmack Biogas (biogas, 2/Outperform).

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I— DRIVERS FOR SUSTAINABLE GROWTH

By 2050, three billion additional people and rising standards of living will sharply increase the demand for natural resources (energy, water, minerals, food, etc.) thus placing considerable emphasis on ecosystems. Rising greenhouse gas concentrations in the atmosphere will result in climate disturbances on the global and regional levels, increasing extreme weather events like floods, drought and storms, and intensifying pressure on ecosystems, economies and people. This will undoubtedly change consumption habits and investment patterns, as securing energy and water supplies and the issue of climate change are currently at the top of regulators' agendas. Strong signals from regulators have already been sent to the market in the past few years (e.g. state subsidies, regulatory environmental standards) to redirect investments to technologies and services that promise to ensure sustainable economic growth. We are on the eve of what José Manuel Barroso, President of the European Commission, calls the “third industrial revolution”.

We live in a world of limited resources The human race has prospered from extremely favourable living conditions and grown at an exponential pace over the past century. With the current global population of six billion, the earth’s ecosystem is beginning to show its limits.

Major issues

In our opinion, four core issues argue in favour of growth in environmental solutions, what we call the sustainable evolution:

− Population growth and urbanisation

− Pressure on natural resources

− Climate change

− Security of energy supplies

− Local pollution

We believe these stresses are driving a boom in technology and infrastructure investments today and that the cycle will last longer than usual economic cycles, assuming the same pace of globalisation and no major international crisis.

These investments are backed by increasing political action, at the regional and international levels, with Europe leading the way. This regulatory support is "pushing" our bull case scenario for acyclical growth in sustainable technologies.

We define sustainable technologies as products and services that contribute to increase the efficiency of production systems and reducing the environmental footprint of the economy. We believe that three major trends will change the economic landscape of the production of goods and the industrial portion of the economy:

− Increased shift towards efficient systems: the lean way

− Development of energy generation from renewable sources: the clean way

− Substitution of organic carbon sources for fossil resources: the organic way

Demographics, income growth and climate change pose serious problems

Strong investment needs in green and efficient technologies

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Population growth and urbanisation

In the past century, the world population has tripled. By 2050, the UN forecasts that global population is expected to rise from 6.4bn at present to 9.1bn, and 61% of the population will live in urban areas. Population growth and urbanisation will bring about a major change in the demand for goods and services and place greater pressure on ecosystems and infrastructure.

GE has modelled the level of investment needed for a 1bn increase in world population by 2020: 3,000 additional aircraft, 1,000 new power plants, USD60bn in desalination equipment, etc.

The second demographic challenge of this century is the ageing of the population. As the population is expected to stabilise at around 11bn people, it will age at a higher rate. By 2050, the second-largest population group on the planet, after the Chinese, will be that of Chinese over 50 years of age.

World population growth

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Pressure on natural resources

With population growth and increasing per capita income, the pressure on ecosystems is likely to increase. After the recent bull market for industrial commodities, water and food supplies are also likely to come under pressure. Urbanisation will amplify this impact on a regional level.

According to UNEP-FI around 1.2 billion people currently live in regions with stressed water supplies, and 500 million live in regions that are approaching this situation. An additional 1.5 billion people do not have access to safe drinking water due to a lack of infrastructure investment. China has 7% of the global renewable water supply and 21% of world population, but 100 million people in China have difficulties gaining access to water and 320 million do not have access to safe drinking water.

The UN estimates that 2.3bn people will lack access to water by 2025. Rising demand for water can be attributed to population and economic growth (rising demand for energy, food, etc.). Agricultural withdrawals account for 66% of all water withdrawals and 85% of total water consumption. Due to inefficient irrigation, 60% of water is lost to evaporation. Water withdrawals will have to increase by 14% by 2030 in order to meet higher demand for food in developing countries.

More people, more wealth and more urbanisation…

…will put pressure on natural resources

Security of the water and food supplies is a key issue

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.

China water facts Future water demand trends in China A Rising Tide – China's wastewater discharge

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Food supplies are also set to come under pressure as per-capita income growth generally results in increased spending on manufactured food and meat. For example, the Centre of Strategic and International Studies estimates that it takes about 900 litres of water to produce one kilogramme of wheat, 1,900 litres for rice and 15,000 litres to produce one kilogramme of beef. With the surge in biofuel production, competition between food and fuel is also an issue on this agenda. Drought in Australia has pushed up the costs of certain food commodities worldwide.

Increasing meat consumption worldwide

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Climate change

Climate stabilisation is a tremendous challenge. A reduction of around 50-70 billion tonnes of CO2-equivalent p.a. compared to the “business-as-usual” (BAU) emissions trend is required by 2050 in order to stabilise global warming at 2°C in the long term. This cannot be achieved without concerted global action.

The transition to a "low carbon emissions economy" will require resolving the following equation:

CO2 emissions = Population x (GDP per capita) x (energy/unit GDP) x (CO2/unit energy)

Global population and economic wealth are expected to grow by 2050, meaning that achieving a 50 billion tonne reduction in CO2 emissions (vs. the BAU trend) by 2050 implies a radical cut in the energy and/or carbon intensity of our economies.

Meeting this challenge therefore implies a shift in investments from energy supply-side to demand-side and to low-carbon energy sources.

We thus believe that State energy strategies for meeting energy security and climate change goals will create incentives:

− To increase demand-side investments (energy efficiency of end-use equipment): Demand-side investment radically changes investment patterns, since instead of having huge investment from energy groups, investment in energy-efficient products will come from a myriad of individual consumers;

− To decrease the carbon intensity of the energy used: increased investment in renewable energies and all other CO2-free energy sources (nuclear, hydrogen, etc.).

The ultimate solution consists of operating carbon capture and storage technologies that trap carbon emissions under the ground.

Climate stabilisation pathways Required future emissions abatement

Source: Stern Review report Source: Stern Review report

We believe that political action to combat global warming is likely to happen as the assessed costs of the impact of climate change are much higher than the costs of taking action now through mitigation policies.

Addressing climate change is a major economic challenge…

…that implies a radical cut in the economy’s energy and carbon intensity

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Average global losses could total 1-5% of global GDP for a 4°C increase in mean global temperatures (source: IPCC WGII Fourth Assessment Report), whereas the macroeconomic cost of stabilisation at 535-590ppm CO2-eq. is assessed at 0.6% of GDP (IPCC WGII Fourth Assessment Report).

Climatologists forecast an inevitable increase in temperature of 2°C, and experts are now more certain that some weather events and extreme weather conditions will become more frequent, more widespread and more intense during the twenty-first century. We list below a set of phenomena that are likely to occur more frequently and their potential impact on natural resources and business areas.

Examples of major projected impact by sector

Phenomenon Likelihood Agriculture & Forestry

Water resources Industry / Settlement Human health

Higher average temperatures

Virtually certain

Warm spells and heat waves

Very likely

Heavy precipitation events

Very likely

Droughts Likely Intense tropical cyclone activity

Likely

Incidence of extremely high sea level

Likely

Stress on yields, insect outbreaks,

danger of wildfires, land degradation, damage to crops,

windthrow of trees, salinisation of irrigation water

Water supply impacted: water quality problems (contamination,

salinisation), decrease in resources derived

from snow melt. increased water

demand

Change in energy demand (less heating, more cooling), stress on

winter tourism, hydro power generation, withdrawal of risk coverage by private insurers,

disruption of settlements, commerce and transport

Water- and food-borne diseases,

heat-related-mortality, infectious,

respiratory and skin diseases

Source: IPCC (WGII, p.14), Cheuvreux

These general trends are likely to place additional stress on the availability of resources from forests and agriculture (biomass), with potential impact on wood- and agro-based sectors (Pulp & Paper, wood applications, food producers, biorefiners, etc.). Energy production is also exposed to climate-related risks (offshore oil extraction platforms, coastal generation capacities, hydro generation, etc.).

Peak oil, depletion of fossil resources and security of the energy supply

Relying mainly on oil, and to a lesser extent gas, to fuel economies appears to be an increasingly risky strategy. National authorities have begun to prepare their economies to use less oil, as the availability of this fossil resource is expected to peak in around 2020-2030, while competition between countries to secure their supplies is increasing.

− Risk of a production shortage in the mid-term: Although scientists tend to regularly postpone the projected date for the widely discussed "peak oil", the lack of certainty itself on the level of remaining geological resources is enough to spark concerns among political authorities. According to Total, production of conventional oil could top out at around 100 to 110 million barrels a day by 2020 or 2030. Production of extra-heavy crude oil, such as oil sands in Venezuela and Canada, will barely replace reserves at the same rate as output declines from older fields. Moreover, the exploitation of oil sands requires huge amounts of energy and water. Access to these resources is thus likely to cap the potential of non-conventional oil.

The effects of climate change are likely to disrupt the availability of natural resources

Oil dependency is no longer sustainable due to:

- Uncertainty on the amount of reserves

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− The supply and demand mismatch for oil and gas resources exacerbates the concerns over energy supply security of authorities in charge of energy strategies. Competition between countries to secure their supply is increasing (e.g. China's positioning in developing regions), and the current geopolitical situation reveals tensions with producing region (Middle East, Iran, Russia). For instance, the EU estimates that by 2030, it will be 90% dependent on imports for its oil needs and 80% for its gas needs. As it is very hard to forecast oil and gas prices in 2030, reducing demand is a key element for long-term competitiveness.

Potential oil production scenario Supply/demand mismatch

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jpbM

77%

10%

60%

15%

87%

64%

23%

90%

40%

85%

13%

36%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Oil cons. Oil res Gas cons. Gas res. Coal cons. Coal res.

3 largest energy markets (N.Am, EU, AP) Rest of the world

Source: French Petroleum Institute, 2006 Source: BP Statistical Review, 2005

Consequently, all oil-dependent sectors will have to adapt and find alternatives to this resource. The French Petroleum Institute forecasts, for instance, that the availability of fuel for road vehicles is likely to decline by 15% to 30% by 2015.

The main solutions entail:

− Reducing consumption through energy efficiency and demand-side management measures. Changing modes of transport and habits.

− Switching to other energy sources: gas, coal, renewable energies, hydrogen. Proven reserves of natural gas and coal (+ as-yet undiscovered sources) could replace oil for several decades. However, this option would require the new parameter of climate change to be addressed, as well as the need to limit greenhouse gas emissions in the atmosphere.

Oil-dependent sectors

Road transport (petrol, gas-oil)

39%

Airlines (jet fuel, kerosene)

5%

Other transport3%

Power, Heat, Industries (energy)

35%

Petrochemicals (fibres, plastics,

fertilizers, solvents)15%

Shipping3%

Source: French Petroleum Institute, 2006

- Supply security in a strained geopolitical environment

Oil-dependent sectors will have to adapt

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Local pollution

As from 2010, more than 50% of the earth’s population will live in urban areas. This high concentration will increase local pollution problems, which will need to be addressed using pollution control and waste management measures.

Cities consume 75% of the world's energy and produce 80% of its greenhouse gas emissions. Air quality is deteriorating in major cities, due to energy production and transport, and this poses a real public health threat and generates high negative externalities.

A recent study by the Stockholm Environment Institute of air pollution in major Asian cities found that WHO air quality standards were not met. According to the study, 537,000 people die prematurely each year due to air pollution.

Regional and local management of water, energy and transport, but also waste, raises real issues of sustainable and manageable urbanisation.

Investment boom in technologies and infrastructure

Infrastructure needs are considerable

Energy infrastructure

With a larger population and rising standards of living in emerging countries and ageing energy infrastructure in developed countries, we anticipate a huge market for energy infrastructures (both generation and distribution).

In its World Energy Outlook 2006, the IEA's reference scenario calls for cumulative investment in energy supply infrastructure of just over USD20tn over 2005-2030. This includes replacement of ageing infrastructure in developed countries (36%) and new capacities needed in emerging countries (52%).

Cumulative investments in energy, 2005-2030 Power T&D: growth drivers worldwide

Source: IEA Source: ABB

Increasing population density…

…leads to additional local pollution problems

Huge investment needs in energy infrastructure by 2030 (USD20 trillion)

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Other infrastructures

Investments needed for other infrastructure such as transportation, housing, water or telecoms equipment are also important worldwide.

For example, Water Intelligence estimates the global water market at around USD300bn to USD350bn p.a. In the US alone, the estimated investment needed to update infrastructure ranges from USD200bn to USD1tn over 20 years. Europe will need to invest EUR350bn by 2015 to comply with regulations. China's investments to improve water treatment and recycling should reach USD125bn. The entire industry is set to grow by 7% to 10% p.a. over the next five to seven years.

At present, with many governments running deficit budgets and given increased spending on healthcare, security, defence or education, there is a gap between investment needs and funding. One key trend is the privatisation of infrastructure assets. Governments also seek to maximise the IRR of projects. Infrastructure as an asset class is gaining momentum. Private investors see infrastructure as a low-risk, stable investment that generates long-term cash flows. The liquidity inflows currently observed are likely to advance this scenario and deliver the investments needed.

Innovation, the best options

Reducing dependence on hydrocarbon imports and curbing greenhouse gas emissions are two distinct objectives, but with a broad range of common solutions.

As shown in the chart below, energy efficiency options, such as building insulation or eco-lighting, are more profitable since energy cost savings offset the initial investment. There is a huge potential to be tapped all along the energy chain (production – distribution – consumption). According to ABB, 80% of primary energy consumption is wasted (heat).

Among alternative energies, nuclear power, biomass and wind power are the most cost-effective.

Other infrastructure will grow accordingly…

…with new financing solutions to reduce government deficits

Common solutions, but at different costs

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Global cost curve of greenhouse gas abatement measures

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Source: Vattenfall

More efficient systems are also likely to emerge in resource areas in order to recover and recycle more materials. We have seen this trend with the surge in material commodities, as the recycling of scrap metals has become economically sound. We believe that this is likely to be adopted rapidly in the water segment.

Renewable energies also present good opportunities for reducing pollution and greenhouse gas emissions, and represent a viable alternative to fossil-based power generation. For example, solar power is very expensive but represents strong opportunities in the mid-term as it is widely available across the globe and can generate electricity locally, thus reducing investment needs in expensive transmission networks.

Fossil fuels will remain a major energy source for world energy consumption over the coming decades. New oil fields and mineral deposits (coal) generally have a higher sulphur content, since low-sulphur reserves have been processed in priority. Sulphur in the atmosphere causes environmental (acid rain) and health damage (respiratory disease). This issue must be addressed by tighter environmental standards and desulphurisation technologies. Among these, we identify:

− Flue gas desulfurisation technologies for power plants;

− Hydrogen, which allows refineries to desulfurise fuels and crack heavy hydrocarbons.

Given the need to resolve water quality problems, water treatment technologies also have good market prospects.

No single solution, but rather a mix of technologies…

…with fossil energy still playing a key role

27 Gt CO2-eq. below EUR40/t (-46% vs. BAU) 7 Gt of negative and zero cost opportunities Fragmentation of opportunities

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A huge potential for reduction of fossil fuel consumption and mitigation of greenhouse gas emissions can be tapped using various technologies that are already available.

Key mitigation technologies and practices by sector

Sector Key mitigation technologies/practices currently available commercially Key mitigation technologies and practices expected to be marketed by 2030

Energy supply

Improved supply and distribution efficiency; fuel switching from coal to gas; nuclear power; renewable heat and power (hydro power, solar, wind, geothermal and bioenergy); combined heat and power; early applications of CCS (e.g. storage of CO2 removed from natural gas)

Carbon Capture and Storage (CCS) for gas, biomass and coal-fired electricity generating facilities; advanced nuclear power; advanced renewable energy, including tidal and waves energy, concentrating solar, and solar PV

Transport

More fuel-efficient vehicles; hybrid vehicles; cleaner diesel vehicles; biofuels; modal shifts from road transport to rail and public transport systems; non-motorised transport (cycling, walking); land use and transport planning

Second-generation biofuels; higher efficiency aircraft; advanced electric and hybrid vehicles with more powerful and reliable batteries

Buildings

Efficient lighting and use of daylight; more efficient electrical appliances and heating and cooling devices; improved cook stoves; improved insulation; passive and active solar design for heating and cooling; alternative refrigeration fluids, recovery and recycle of fluorinated gases

Integrated design of commercial buildings, including technologies such as intelligent meters that provide feedback and control; solar PV integrated into buildings

Industry

More efficient end-use electrical equipment; heat and power recovery; material recycling and substitution; control of non-CO2 gas emissions; a wide array of process-specific technologies

Advanced energy efficiency; CCS for cement, ammonia and iron manufacture; inert electrodes for aluminium manufacture

Agriculture

Improved crop and grazing land management to increase soil carbon storage; restoration of cultivated peaty soils and degraded lands; improved rice cultivation techniques and livestock and manure management to reduce CH4 emissions; improved nitrogen fertiliser application techniques to reduce N2O emissions; dedicated energy crops to replace fossil fuel use; improved energy efficiency

Improvements of crops yields

Forestry/ forests

Afforestation; reforestation; forest management; reduced deforestation; harvested wood product management; use of forestry products for bioenergy to replace fossil fuels

Tree species improvement to increase biomass productivity and carbon sequestration; improved remote sensing technologies for analysis of vegetation/soil carbon sequestration potential and mapping land use changes

Waste Landfill methane recovery; waste incineration with energy recovery; composting of organic waste; controlled waste water treatment; recycling and waste minimisation

Biocovers and biofilters to optimise CH4 oxidation

Source: IPCC

Regulations are setting the agenda Political intervention is key, as the market needs stable regulations and a legislative framework with stable price signals in order to redirect investments.

The Kyoto Protocol, an international driver

The United Nations Framework Convention on Climate Change (UNFCCC) includes the Kyoto Protocol, which sets binding limits on greenhouse gas emissions for signatory countries. The overall target is to reach an international agreement with an aim to limiting the increase in temperatures to 2°C. Under the Kyoto Protocol, developed countries (excluding the US and Australia) have accepted binding emissions reduction targets.

The system of rewarding UN-registered projects with carbon credits known as Clean Development Mechanisms (CDM), has proven to be an efficient incentive for boosting investments in renewable energies, energy efficiency, and industrial gas control. So far, projects corresponding to 25 GW of power capacity have been registered or are in the process of being registered. The post-2012 period remains uncertain, though, and the long-term existence of this global carbon market is not guaranteed.

Many technologies are already on the market

Regulation are necessary to redirect investments

The Kyoto Protocol: - A constraint for industrialised countries…

- An opportunity for developing countries via CDMs

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Regional drivers

Since 2005, authorities of the world’s largest economies have implemented a series of ambitious regulations aiming at reducing dependence on oil imports (and gas to a lesser extent) and reducing the carbon footprint of their economies. Supply security is at the top of every energy policy. While China and the US are primarily focusing on cutting their dependence on energy imports, the EU has placed the issue of climate change at the heart of its energy policy.

1 - China: Programme for sustainable growth

To address energy security and environmental issues, Chinese authorities have set ambitious objectives for the development of renewable energies, energy efficiency and pollution control. Key macro-regulations require: 15% of renewables in primary energy consumption by 2020 (vs. 7% currently), a 20% reduction in energy intensity (per GDP unit) by 2010, and a 10% decrease in pollutant discharges by 2010. In particular, China aims at reducing SO2 emissions by 23% by 2010. Supporting policies include feed-in tariffs systems, increased energy prices, stricter energy standards for buildings and industries, among other things. For further information on China's policies, please refer to our recent report entitled 'China Goes Green'.

2 - US: The predominant target is to reduce the nation's dependence on Middle East oil imports by 75% by 2025

The US “Twenty in Ten” objective aims at reinforcing the security of the energy supply by reducing gasoline consumption by 20% by 2017 (i.e. in ten years). President Bush has proposed increasing the supply of renewable and alternative fuels by setting a mandatory fuel standard requiring 35 billion gallons of such fuels in 2017 (five times higher than the 2012 target now in effect).

US policy is technology-oriented. Solid support is given to the development of biofuels and renewable energies for electricity production. The Energy Policy Act of 2005 offers federal tax credits for purchasing fuel-efficient hybrid electric vehicles and energy-efficient appliances and products, and authorises subsidies for renewable energies. For instance, the Act targets 7.5bn gallons in biofuels to be mixed with gasoline by 2012. From an environmental standpoint, the Act has been criticised because of the support given to domestic oil & gas E&P and to nuclear power.

Seven bills have been presented to Congress proposing mandatory caps on greenhouse gas emissions. We believe that a federal cap and trade system is likely to be implemented in the coming years. Four of the proposed bills target a reduction of GHG emissions of between 60% and 80% by 2050.

The US Environment Protection Agency recently issued two sets of final rules for reducing: 1) SO2 and NOx emissions from power plants in eastern and Midwestern states; and 2) mercury emissions from power plants.

3 - Focus on Europe: Climate change, energy security and high environmental standards

A series of ambitious objectives backed by recent Directives, with more to come, constitute a powerful legislative framework for the development of cleaner energy sources and for higher environmental standards.

The main target of the EU's energy policy is to reduce the demand for imported fossil fuel and to cut greenhouse gas emissions by at least 20% by 2020.

Programme for a sustainable growth in China: more renewables and energy efficiency

US policies seek energy security

A federal cap & trade system on GHG emissions is being discussed

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Investments in energy markets in Europe will be driven by the two following objectives:

− 12% by 2010, and a binding target of 20% by 2020 of primary energy consumption to come from renewable energy sources. This overall target is to be broken down into specific targets for sectors (power production, transport) and by country (depending on assessed potential, starting point, specific energy mix, etc.). Targets should be set for each renewable technology (wind power, solar PV, solar heating, biomass, etc.) The European Council has already agreed on a minimum binding target of 10% for biofuels by 2020.

− The action plan for energy efficiency aims at realising the potential energy savings of 20% by 2020. The European Commission has proposed several directives that have been adopted and are now in force. These concern broad areas that show significant potential for energy savings, including end-use efficiency and energy services, energy efficiency in buildings, eco-design, and energy labelling of domestic appliances…

Timetable for the 14 Directives on appliance and equipment labelling and minimum energy performance standards

Source: European Commission

National legislation enforces supporting policies, including tax breaks, tax credits, feed-in tariffs, green certificate systems, etc., to reach the various objectives.

The EU Emission Trading Scheme

Since 2005, Europe has the largest Emission Trading Scheme (cap and trade system), which covers more than 2 billion tonnes of CO2 and 7 major emitting sectors. A quoted CO2 price enables the external cost of consuming fossil hydrocarbons and coal to be materialised, and sends a price signal to the market.

Electricity prices in Europe now factor in the carbon component. From 40% to 90% of the CO2 price is integrated into wholesale electricity prices, depending on the “marginal”, or price-setting, technology (gas or coal) on various EU power markets. We expect CO2 prices in Europe to remain above EUR20/tCO2 as from 2008E.

20% of renewable energies in energy consumption by 2020

Energy consumption to be cut by 20% by 2020

The wider Emission Trading Scheme: 2bn tCO2 are regulated

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A set of Directives enforce high environmental standards and pollution control measures. For instance:

Water: the 2000 Water Framework Directive (WFD) aims at achieving high water quality for all bodies of water in the EU by 2015.

Air emissions: The new Large Combustion Plant Directive (2001/80/EC) set specific emissions limits for SO2, NOx and dust. The EC proposed changes to reinforce the Directive on environmental automotive fuel quality (amended by Directive 2003/17/EC), capping sulphur content, for instance.

Up to 2009

2009 is expected to be a key year for international negotiations on climate change, since the current US and Canadian administrations are set to have changed. Citizen-based support in developed countries to fight global warming should force politicians to undertake further measures.

Directives set tough environmental standards

We expect increased momentum from 2009

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II— HOW DE WE PLAY THE GREEN GAME?

Diversification across clean and green technologies

Introducing Cheuvreux's sector guide

We believe the long-term macro drivers represent an excellent opportunity to play the sustainability theme by investing in companies that are most exposed to this secular growth.

Much attention has been drawn to renewable energy stocks over the past few years. We favour a larger play on all environment-related sectors in order to diversify the risks and be able to define a top-down approach along with a bottom-up selection process.

We have created seven sub-segments of our European universe with a view to capturing one or two key drivers that strongly support the segment.

Our seven sectors are:

Cheuvreux's Sustainable Technologies sectors

Renewable energy

Energy efficiency

Alternative energy and

transportation

Biomass resources

Water management

Waste management

Eco-products and

services

Energy efficiency comprises products and services aimed at reducing the energy used by specific end-use devices and systems, typically without affecting the services provided. This includes efficient power generation and distribution, insulation products and efficient lighting systems.

Alternatives to mainstream production systems. Includes non-fossil, non-renewable sources of energy (hydrogen, fuel cells), decentralised power generation and power storage systems. In transportation, includes electric vehicles or mass transportation (railways).

We define the biomass resource segment as the activities that use biomass resources in a sustainable fashion to create energy and materials, and as a way to substitute fossil carbon sources. It includes biofuels, biomaterials and biomass energy.

Our water management sector includes all companies operating in water-related businesses, either for municipalities, residential/commercial or industrial/agricultural sectors. It includes water distribution, treatment and recycling in the service and equipment categories.

The waste management segment comprises companies providing services and products for waste collection, treatment, recycling, elimination and disposal.

Eco-products and services include all companies that provide services or products that can benefit the environment and that are not attached to the other sectors. It comprises engineering firms and companies providing products and services in pollution control and testing.

The renewable energy segment includes companies that provide products and services for the generation of energy from renewable sources, including hydro, solar, wind, tidal or marine, and geothermal.

Renewable energy

Energy efficiency

Alternative energy and

transportation

Biomass resources

Water management

Waste management

Eco-products and

services

Energy efficiency comprises products and services aimed at reducing the energy used by specific end-use devices and systems, typically without affecting the services provided. This includes efficient power generation and distribution, insulation products and efficient lighting systems.

Alternatives to mainstream production systems. Includes non-fossil, non-renewable sources of energy (hydrogen, fuel cells), decentralised power generation and power storage systems. In transportation, includes electric vehicles or mass transportation (railways).

We define the biomass resource segment as the activities that use biomass resources in a sustainable fashion to create energy and materials, and as a way to substitute fossil carbon sources. It includes biofuels, biomaterials and biomass energy.

Our water management sector includes all companies operating in water-related businesses, either for municipalities, residential/commercial or industrial/agricultural sectors. It includes water distribution, treatment and recycling in the service and equipment categories.

The waste management segment comprises companies providing services and products for waste collection, treatment, recycling, elimination and disposal.

Eco-products and services include all companies that provide services or products that can benefit the environment and that are not attached to the other sectors. It comprises engineering firms and companies providing products and services in pollution control and testing.

The renewable energy segment includes companies that provide products and services for the generation of energy from renewable sources, including hydro, solar, wind, tidal or marine, and geothermal.

Source: Cheuvreux

In Europe, we have identified 142 listed companies operating in the aforementioned segments. Two selection thresholds have been defined for companies to join the list:

− A market capitalisation of above EUR40m based on free float;

− 3-year forward revenues generated in the theme superior to 40% if market cap below EUR1bn or 25% if market cap is above EUR1bn.

In the following pages, we present each sector and sub-sector, including the value chain and its main drivers. The next section will present current valuation multiples.

Opportunities in al green technologies… …not just renewables

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Energy efficiency

Energy efficiency refers to products and services aimed at reducing the energy used by specific end-use devices and systems, typically without affecting the services provided.

Energy production and distribution systems are largely inefficient. Coal power generation is only 35% efficient, internal combustion engines are only 40% efficient and incandescent light bulbs are only 5% efficient. Most of the energy input is wasted, mainly in the form of heat. With most of the energy for power generation or transportation coming from fossil sources, oil prices and greenhouses gases are two key drivers for increased efficiency.

The main sources of power losses in the value chain are due to heat loss: conversion inefficiencies (power plants, transformer losses), T&D line losses (around 10%), power generation for manufacturing processes or energy loss in buildings, and power consumption by motors.

Estimated gross energy consumption by sector (EU) Energy efficiencies in power generation Significant losses along the energy value chain

Transport (e.g., pipelines,marine transport)

Primaryenergyproduction

Conversion efficiency(e.g., power plants)

Line losses - example U.S. 2005*

T&D losses = 239 mill. megawatthours= 6.1% of net power generationBased on average retail cost ofelectricity = $19.5 billion lost

Productionprocesses

Motor efficiency,

building systems

Fuel and technology Generation Efficiency Grams CO2 per kWh

Diesel generator 20% 1,320

Coal steam cycle 33% 1,000

Natural gas combined cycle 45% 410

Biogas digester and diesel generator (15% diesel pilot fuel)

18% 220

Biogas digester and combined heat and power cycle

85% na

Biomass steam cycle 22% 100

Biomass gasifier and gas turbine 35% 60

80% of energy lost between production and consumption

Source: ABB

Source: UNDP, Cheuvreux

Saving energy is the most cost-efficient way to reduce greenhouses gases, as well as energy costs. For example, in the US, power generation savings could reach 15% to 18% by 2010 and 30% by 2020 compared to the 2005 baseline. Europe has set a target of reducing energy consumption by 20% by 2020 vs. 2005. It estimates that this measure could save up to EUR60bn per year.

The International Energy Agency has run various scenarios for CO2 emissions out to 2030. Its alternative scenario, as shown in the following table, assumes a large reduction of CO2 due to energy efficiency gains. Potential gains are:

− 36% for reduction in demand-side fossil fuel efficiencies;

− 29% for demand-side electricity efficiency measures;

− 13% gains from improved efficiency and fuel switching in the power sector.

Our production systems are highly inefficient

Saving energy is the most cost-efficient solution to date

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Global reduction in CO2 under two scenarios Power usage by source in the EU (incl. power losses)

Sector Energy consumpt

ion (m toe) 2005

Energy consumpt

ion (m toe) 2020 (business as usual)

Energy saving

potential 2020

(m toe)

Full energy saving

potential 2020 (%)

Households (residential)

280 338 91 27%

Commercial buildings (Tertiary)

157 211 63 30%

Transport 332 405 105 26%

Manufacturing industry

297 382 95 25%

Source: IEA, World Energy Outlook 2006 Source: EU, Communication on Energy Efficiency 2006

Increasing efficiencies is currently the most economical way to contribute to greenhouse gas savings. Technologies already exist and are reliable, including: insulation, lighting, retrofitting power plants, increasing combined heat and power generation. Three drivers support the uptake of such technologies:

− Reducing dependence on imported sources of energy, e.g. implementing the EU Directives could save 40m toe p.a.;

− Reducing future investments needed in new generation and distribution infrastructure, as by 2030 520 GW of new capacity must be installed in the EU-15;

− With regards to reducing transport efficiencies, many technologies are already available

In power generation, the most efficient combined cycle gas turbines (CCGT) have a yield of around 45-60%, vs. 33% for coal-based generation. Increased use of combined heat and power (CHP) would boost efficiency to 80%. With coal to gain shares in the global energy mix, driven by its wider availability than other fossil fuels, so-called “clean coal” technologies (Integrated Gasification Combined Cycle, Supercritical boilers, etc.) will help improve the energy efficiency of coal-fired power plants, thus reducing their CO2 intensity at the same time.

Transport efficiency. Engines are not efficient: on average, 60% of the fuel consumed by an ordinary vehicle is lost due to engine inefficiency. Overall, with losses in the driveline and energy used while at a standstill or by accessories, just 15% of fuel is used to move the vehicle. Power is lost through heat, exhaust and friction, as shown in the following table. While diesel technologies are 15% more efficient than petrol engines, there is still significant leeway to increase efficiencies.

Helps to reduce the economy's dependence on imported oil

With strong opportunities in power generation…

…as well as transportation

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Energy breakdown in a petrol Internal combustion engine

Technologies to increase ICE efficiency

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− Flow management technologies can generate higher efficiencies in the transportation system, thus reducing traffic congestion and avoiding related emissions. It is estimated that in Europe, 10% of traffic is congested every day. Companies such as Tele Atlas or Tomtom, which sell personal navigation products, also contribute to increasing traffic efficiencies.

The three main drivers for energy efficiencies are:

− Oil and electricity prices: Industrials are more willing to reduce their consumption due to higher prices;

− Climate change: To reduce the economy's carbon footprint, energy efficiency is an effective and economical way;

− Regulations in Europe, the US and Asia to increase energy efficiency.

The four main sectors concerned are:

− The automotive industry: Needs to reduce the impact of transportation on the climate: engine technologies, more efficient tyres, better use of electronics systems;

− Power generation: Investment in T&D technologies, combined cycle gas turbines (CCGT) and combined heat and power generation (CHP);

− Buildings: Metering of energy use, advanced HVAC (heating, ventilation and air conditioning), insulation (roof, windows, etc.), enhanced electricity management via sensors, etc.;

− Lighting: Outdoor and public lighting, fluorescent lamps, LEDs.

The main sectors concerned are transportation, power generation, buildings and lighting

23

CHEUVREUX EUROPE


Energy efficiency

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Transport

10%

Industry

9%Non-energy

uses

3%

49%

0%0%

Transform-

at ion losses

33%

Households

16%

Tert iary

9%

Transport

19%

Industry

17%

Non-energy

uses

6%

Transform-

ation losses

33%

Source: Cheuvreux

24

CHEUVREUX EUROPE


Renewable energy

Substantial potential to be harvested

We define renewable energy as energy derived from resources that are regenerative or for all practical purposes cannot be depleted. For this reason, we do not include fossil fuels or nuclear power in this category. Energy derived from biomass is covered in the biomass resources section.

Humankind's traditional uses of wind, water, and solar energy are widespread in developed and developing countries, but the mass production of electricity using renewable energy sources has become more commonplace just recently, reflecting the major threats of climate change, exhaustion of fossil fuels, and the environmental, social and political risks of fossil fuels and nuclear power.

Substantial potential has yet to be exploited, as shown in the table below, as aside from hydro power, renewable energy sources are currently underused.

Global renewable energy resources

EJ* per year available

EJ per year used Energy used as a % of energy available

Hydro (>10 MW) 60 25 41.7% Hydro (<10 MW) 2 0.8 40.0% Wind 600 0.95 0.2% Biomass 250 9 3.6% Geothermal 5,000 2 0.0% Solar photovoltaic 1,600 0.2 0.0% Concentrating solar 50 0.03 0.1% Ocean (all sources) 7 < 1 N/S

*EJ = exajoule Source: IPCC WGII Fourth Assessment Report

Hydro power will remain the first harvested renewable energy

Renewable energy accounts for about 14% of the world's energy consumption, but the technical potential is large enough to cover many times current consumption and several times projected consumption for 2100. Renewable technologies such as geothermal and hydro power are often economically competitive without subsidies. Other technologies such as solar power are substantially more expensive, although future costs may shrink to a fraction of current levels. The main sources of currently produced renewable power is hydro power, which represented 84% of total renewable energy in 2005, but its share is gradually decreasing from 94% in 1995. The other sources – wind power, geothermal, solar, and tide and wave power – are currently small overall contributors to the global heat and electricity supply, but are the most rapidly increasing, albeit from a low base. Costs, as well as social and environmental barriers, are restricting this growth. Therefore, increased rates of deployment may require supportive government policies and measures.

Use of renewable energy is not new…

…but the potential is largely underexploited

Renewables account for 14% of the world's energy consumption Hydropower is the largest, representing 84% of total renewables

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Renewable energy markets grew robustly in 2005 to a power generation capacity of 890 MW. Large hydro power increased by an estimated 12-14 GW in 2005 to a capacity of 750 GW and small hydro increased by 5 GW to a total of 66 GW worldwide. Wind power was second in additional power capacity, with 11.5 GW added and an existing capacity up 24% at 59 GW. Grid-connected solar photovoltaic continued to be the fastest-growing power generation technology, with a 55% increase in cumulated installed capacity to 3.1 GW. Off-grid solar photovoltaic reached a capacity of 2.3 GW in 2005, up 15%. Geothermal power rose slowly to an installed capacity of 9.3 MW. Other renewable power generation (solar thermal and tidal power) amounted to 0.7 GW.

Geothermal heating and solar heating represented production of 116 GWh.

Excluding hydro power (large and small) and biomass, Germany is the leading producer of renewable energy due to its strong wind power capacity (93% of the world total). The US comes in second with a capacity of 12.8 MW. In 2005, it beat Germany and Spain for the first time in terms of new wind power capacity, after bringing 2.4 MW of capacity on stream. Spain is third, with a total capacity of 9.8 MW at the end of 2005.

Principal markets Power generation installed capacity

0

20

40

60

80

100

120

140

160

180

EU-25 China Germany US Spain India Japan

Without hydro Total RNW

0

100

200

300

400

500

600

700

800

Large Hydro Small Hydro Windturbines

Geothermal Solar PV Solar thermal Tidal

Source: EREC (Renewables Global Status Report) Source: EREC (Renewables Global Status Report)

An estimated USD38bn was invested in new renewable energy capacity worldwide in 2005, vs. total annual capital investment by the global energy industry of around USD300bn. Virtually all this increase was due to increased investment in solar PV and wind power. Of this USD38bn investment, wind power represented 37%, solar PV 26%, solar hot water 11% and small hydro power 11%. The countries with the largest share of annual investment were Germany, China, the US, Spain, Japan and India.

Despite the strong growth of other renewable energies, hydro power will remain the main harvested renewable energy.

Strong growth in renewable markets

Wind and solar power experiencing the highest growth Germany, the US and Spain are the largest wind power producers

USD38bn invested in new capacity in 2005

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CHEUVREUX EUROPE


Portion of each source in renewable electricity generation

Growth in electricity generation p.a. for each renewable source

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

100.0%

Hydro Biomass andwaste

Wind Geothermal Solar Tide and wave

2004 2015E 2030E

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

20.0%

Hydro Biomass andwaste

Wind Geothermal Solar Tide and wave

2004-2015E 2015E-2030E

Source: IEA Source: IEA

27

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Wind power

Source: Cheuvreux

Definition Strengths

Weaknesses

- Not competitive with traditional power sources - Intermittency of wind- Indirect GES emissions

- No base load electricity production - No storage

Value chain Equipment Installed capacity by region

Players

Market size 2003 2004 2005 2006 2007E 2008E

Installed capacity (GW) 39.4 47.6 59.1 74.2 91.0 109.1

% Change, y-o-y 26.8% 20.8% 24.1% 25.6% 22.6% 19.9%

Drivers

Cheuvreux coverage Rating Comments2 /Outperform

Séchilienne-Sidec 2/Outperform

3/Underperform

Vestas 3/UnderperformManufacturing of turbines and blades

Gamesa 4/Sell Manufacturing of turbines and blades

Price of electricity: Wind power benefits from fixed feed-in tariffs. Higher fuel prices and the integration of CO2 emission costs into electricity prices will make wind power increasingly attractive compared to other sources of power generation. Equipment shortage: The market is suffering from its success. With growth of around 30% p.a. over the past decade, manufacturers of wind turbine components have been struggling to keep up with demand. At present, the delay of delivery is around 12 months and could increase to 18 months, and prices are rising. However, most turbine and components manufacturers have begun to expand their production capacity, and at the same time, new facilities are appearing in the US, China and India. The current tight situation could be resolved by 2009. Raw materials prices: The increase in the price of steel has put strain on manufacturers.

Theolia

EDF - EN Production of electricity through renewable energy sources

Production of electricity through renewable energy sources

Production of electricity through fossils and renewable energy sources

Wind power is the conversion of wind energy into electricity by using wind turbines (the modern descendent of windmills). It is used in large-scale wind farms for national electricity grids as well as in small individual turbines for providing electricity to rural residences or grid-isolated locations. A wind turbine generally has three blades, a gearbox and a generator. The electricity provided will depend on the speed of the wind, the power of the turbine and the size of the blades. Today, most wind farms are onshore (land), but offshore farms are becoming more common.

Technology improvement: The power of wind turbines has increased at a very rapid pace over the past six years to an average capacity of 1.5 MW in 2006 vs. 0.76 MW in 2000, which helps increase turbine productivity. The downside is that only a few component suppliers can satisfy the demand for big machines. Increased efficiency will make wind power more competitive. Regulation and incentives: The lack of visibility on regulations in some countries (e.g. the US) leads to postponed investment in new installation or capacity. The Production Tax Credit (PTC) in the US has been renewed for the period 2005-2008, which has prompted manufacturers to prioritise the US market to the detriment of the European market. Reductions in incentives may also lead to a fall in investment in the sector, affecting business growth. This risk depends on each country, as each has its owns target and its own way to reach them. Some countries such as Spain reduce their incentives as they approach their targets.

- Plentiful - Renewable - Clean - Widely distributed

- Vestas- Gamesa- Nordex- Repower- Clipper Windpower- Gurit

Operators

- Air Energy -EDF EN - Greentech Energy - Novera Energy - Plambeck Neue Energien- Séchilienne-Sidec - Theolia

Germany27%

Spain16%

USA16%

India8%

Denmark4%

China4%

Italy3%

ROW15%France

2%

Portugal2%

UK3%

28

CHEUVREUX EUROPE


Market overview

Source: Cheuvreux

The value of new power plants installed in 2006 reached EUR18bn, equivalent to 15,000 MW in new capacity. While Europe continues to lead the market with a share of 65%, the US was the leader in new installed capacity for the second year in a row, bringing 2,500MW in new capacity on line in 2006. The Asian market also grew at a sharp pace of 53% in 2006. For 2007, experts forecast a rise in demand to nearly 20,000 MW, which would increase the pressure on manufacturers. By 2010, the cumulative capacity of wind energy installations is predicted to reach 149.5 GW, more than double the current installed capacity. The annual increase in installed capacity should reach 21 GW by this time, which implies average annual growth of 8.4%. Europe will continue to be the largest market, but its share in the global market will gradually decline to 44% of the annual market in 2010 vs. 51% in 2006. The US market will continue to grow rapidaly, with an average of 3.5 GW per year over the period 2007-2010. Uncertainty remains rearding the PTC, but it will probably be extended due tothe high-level commitment of an increasing number of states. The Asian market is expected to have the highest average annual growth (28.3%) by 2010. Despite the risk, we are relatively convinced that the wind energy market is sustainable.

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CHEUVREUX EUROPE


Solar power

Source: Cheuvreux


Weaknesses

- Not competitive in terms of price- Shortage in silicon- Indirect CO2 emissions - Doubts on the energy payback

Value chainWafer production

Geographical breakdown

Players - REC - Solarworld - ReneSola

Total installed cap. 2003 2004 2005 2006E 2007E 2010E

Installed capacity (MW) 594 815 1397 1883 2540 3420

35.3% 37.2% 71.4% 34.8% 34.9% N/A

Drivers / Outlook

Cheuvreux coverage Comments

Q-cells AG mêçÇìÅíáçå=çÑ=ãçåçJ~åÇ=éçäóÅêóëí~ääáåÉ=ëáäáÅçå=Ä~ëÉÇ=ëçä~ê=ÅÉääë

Wacker Chemie AG

Solarworld AG

Conergy AG aáëíêáÄìíçê=ëçä~ê=ÉèìáéãÉåí=~åÇ=çíÜÉê=êÉåÉï~ÄäÉë

- REC- Wacker - Solarvalue - Meyer Burger

- Centrosolar -Manz Automation - Romag Holding - Phoenix Sonnenstorm - Solar Fabrik - Roth& Rau - Q-Cells - Ersol Solar - Solon - Conergy- Sunways

- Aleo Solar - Solar Millenium

Technological improvement could increase the competitiveness of this energy source. The main expected improvement would involve the efficiency of the PV cell, the reduction of losses of silicon crystal during production, extending the lifetime of solar modules and the development of thin films.Regulation: The key risk for the industry is adverse changes in solar regulations on a global scale, but in particular in key markets such as Germany, Japan and the US. In Germany, regulations are up for review at the end of 2007. Although the extension of best-practice support schemes is needed to help the development of the solar market.

e

Silicon shortage: Silicon is the basic material needed for the production of more than 90% of the world market. Until recently it was essentielly produced for the semiconductor industry, while now one-third of global production of electronics-grade silison is used to produce solar cells. Hence several companies have begun to develop processes for producing solar-grade silicon (lower quality than electronics-grade), but this takes time. For the moment, the PV industry is therefore still competing with the semiconductor industry for the currently limited silicon available on the market. This situation should ease as from 2008.Price decrease: It is expected that the price of PV systems will continue to decline by an average of 5% p.a. when the shortage of silicon is over (as over the past 20 years).

1/Selected List

mêçÇìÅíáçå=çÑ=ÜóéÉêéìêÉ=éçäóëáäáÅçåI=ÅÜäçêçëáä~åÉë=~åÇ=éóêçÖÉåáÅ=ëáäáÅ~ë=Ñçê=íÜÉ=ëçä~ê=áåÇìëíêáÉë

Solar power is the use of technology to harness usable energy from solar radiation. Some technologies use solar energy direclty, including solar heating systems (solar thermal systems), while others use it to produce electricity (photovoltaic systems).Solar Thermal System: Solar radiation is concentrated and collected by a range of concentrating solar power (CST) technologies to provide heat that is then used to operate a conventional power cycle. The three most promising technologies are the parabolic trough, the solar tower and the parabolic dish. Photovoltaic (PV) Systems use solar cells to convert the sun's energy into electricity.

Solar cells are composed of semiconducting materials, essentially silicon, most commonly found in sand.The cells can be connected together to form "PV modules", and these can be arranged in arrays known as "solar PV arrays". PV cells are generally made from either thick crystalline silicon (93.5% of the production in 2005) or thin film using silicon or other materials. Thin film is expected to gain a much larger share of th PV market in the future due to its lower cost. The PV system can either be on the grid, i.e. connected to the local electricity network, or off-grid.

- A plentiful resource- Renewable- Space-saving installation- No GES emissions- Easily installed in remote or rural areas

% Change, y-o-y

cells and modulesSilicon prod. Integration

fåíÉÖê~íÉÇ=éÜçíçîçäí~≥Å=ã~åìÑ~ÅíìêÉê

Rating

4/Sell

2/Outperform

2/Outperform

OECD Pacific22%

Asia9%

Africa2%

Latin America

4%

OECD North America

8%

Middle East1%

OECD Europe54%

30

CHEUVREUX EUROPE


Hydro power

Market outlook

Water is currently the leading renewable energy source used by utilities to generate electricity. According to the IEA, less than one-third of economic hydro power has been exploited. Hydroelectric plants operate where suitable waterways are available. While many of the best of these sites have already been developed in OECD countries, there are still possibilities especially for small hydro or in developing countries. The IEA expects hydro power output to increase from 2,809 TWh in 2004 to 4,769 TWh by 2030, i.e. an average increase of 2% p.a. Most new hydro power capacity will be added in developing countries, where the remaining potential is the highest. In OECD countries, the best sites have already been exploited and environmental regulations curb new devlopments. Most of the growth in hydro power in the OECD will occur in Turkey and Canada. Some OECD countries will provide incentives for small and mini hydro projects.

Source: Cheuvreux


Weaknesses

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s~äìÉ=ÅÜ~áå Geographic breakdown (2004 EAI)

mä~óÉêë

j~êâÉí=ëáòÉ OMMO OMMP OMMQ OMMR OMNRb OMPMb

mêçÇìÅíáçå=EqtÜF O=SUP O=SVQ O=UPM O=VPV P=SVO Q=TQV

dêçïíÜ MKQB RKMB PKVB NKRB NKTB

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dêçïíÜ=áå=ÇÉã~åÇ=áë=ÜáÖÜI=~åÇ=çáä=~åÇ=å~íìê~ä=Ö~ë=éêáÅÉë=~äëç=ÉåÅçìê~ÖÉ=íÜÉ=ìëÉ=çÑ=êÉåÉï~ÄäÉë=áåÅäìÇáåÖ=ÜóÇêç=éçïÉêK

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Å~ääÉÇ=íÜÉ=ÜÉ~ÇK=qÜÉ=~ãçìåí=çÑ=éçíÉåíá~ä=ÉåÉêÖó=áå=ï~íÉê=áë=éêçéçêíáçå~ä=íç=íÜÉ=ÜÉ~ÇK=

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Åçããçå=íóéÉë=çÑ=ÜóÇêç=ëÅÜÉãÉë=ìëÉ=ï~íÉêDë=âáåÉíáÅ=ÉåÉêÖó=çê=ìåÇ~ããÉÇ=ëçìêÅÉë=

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Europe

20%

North America

23%

Asia & Oceania

24%

Central & South

America

21%

Eurasia

9%

Africa

3%

31

CHEUVREUX EUROPE


Other renewables

Source: Cheuvreux

Definition

j~êâÉí=ëáòÉ NVVM OMMQ OMNRb OMPMb mä~óÉê

mêçÇìÅíáçå=EqtÜF PT RT NMN NUS J=lÅÉ~å=mçïÉê=qÉÅÜåçäçÖó

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DriversAmong these sources of renewable energy, geothermal power is the most commonly used. It amounted to 56 TWh in 2004. The IEA expects production of electricity of up to 174 TWh in 2030, vs. 12 TWh for tide and wave power. Excluding geothermal, the developpement of these other sources of renewable energies will depend on further research and development to confirm that they are feasible on a large scale. It is difficult to estimate the future of these sources of energy for the time being.

Wave power uses the energy of ocean surface waves. It is determined by wave height, wave speed, wavelength, and water density. Portugal now has the world's first commercial wave farm, the Aguçadora Wave Park (2.25 MW), established in 2006. Tidal power captures energy from the tides in a vertical direction. Tides come in, raise water levels in a basin, and tides roll out. Around low tide, the water in the basin is discharged through a turbine. Tidal stream power captures energy from the flow of tides, usually using an underwater plant resembling a small wind turbine. Tidal stream power demonstration projects exist, but large-scale development requires additional capital. Both energy sources have a limited potential due to the rare sites allowing the recuperation of the tidal power. One of its advantages is that it is fully predictable.

Ocean thermal energy conversion (OTEC) uses the temperature difference between the warmer surface of the ocean and the colder lower recesses. To this end, it employs a cyclical heat engine. OTEC has not been field-tested on a large scale. It seems that this energy is harvested only in the intertropical regions.Deep lake water cooling, although not technically an energy generation method, can save a lot of energy in the summer. It uses submerged pipes as a heat sink for climate control systems. Lake-bottom water is a year-round local constant of about 4°C. Blue energy is the energy retrieved from the difference in the salt concentration between sea water and fresh water with the use of reverse electrodialysis (RED) (or osmosis) with ion-specific membranes. This technology has been confirmed under laboratory conditions.

Geothermal energy is energy obtained by tapping into the heat of the earth itself. Three types of power plants are used: dry steam, flash and binary. Dry steam plants take steam out of fractures in the ground and use it to directly drive a turbine that spins a generator. Flash plants take hot water, usually at temperatures over 200°C, out of the ground, and allow it to boil as it rises to the surface, then separates the steam phase and runs the steam through a turbine. In binary plants, the hot water flows through heat exchangers, boiling an organic fluid that spins the turbine. The condensed steam and remaining geothermal fluid from all three types of plants are injected back into the hot rock to pick up more heat. Thus geothermal energy is considered a sustainable source.

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CHEUVREUX EUROPE


Alternative energy and transportation systems

Alternative energy and transportation systems are by definition alternatives to mainstream systems. Companies in this field operate non-fossil, non-renewable sources of energy such as hydrogen-based energy, fuel cells, but also decentralised power generation and power storage systems. In the transportation field, alternative transport is defined as electric vehicles or mass transportation, mainly railways, which represent the cleanest alternative to traditional transportation.

Cluster one: alternative energy

Alternative energy is defined in reference to fossil/grid-connected energy. In our universe, this comprises all companies that offer other means of energy production, storage and distribution that are neither fossil-fuel based nor renewable.

This mainly concerns companies operating in the hydrogen sector, as a wager on the future of hydrogen-based energy systems, which offer a long-term option as a substitute for fossil energy.

Components of a decentralised energy system include:

− Distributed generation (renewable, CHP and micro-generation);

− Heat and power storage;

− Demand and flow management technologies on distribution networks;

− Transmission connected renewable and CHP.

Power generated by decentralised capacity (% of total power generation)

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50.0

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The IEA estimates that USD130bn in investments in transmission networks could be saved over the period 2001-2030, i.e. 8% of total investment in transmission networks worldwide, through the use of decentralised capacity.

Alternatives to mainstream production and transportation systems

Hydrogen, combined heat and power, and micro-generation are future power generation options

Decentralised power generation is growing strongly

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CHEUVREUX EUROPE


Another alternative energy segment comprises the storage business, the products of which offer real alternatives to grid-connected energy. We believe that decentralised energy generation is a key option for emerging markets, as it does not require huge investments in infrastructures. The only reliable way to generate decentralised energy is by developing efficient power storage systems. Coupled with renewable energy generation such as solar photovoltaic or wind, this represents a very interesting alternative.

Cluster two: alternative transportation

Efficient transport relates to the products and services that reduce the energy used for transporting people and products for an equivalent level of service.

Expected trend in CO2 from transport

Source: EU Green Paper on Transport

Trend in the modal split in passenger transport, 2000-2020

Bus & Coach9%

Rail way6%

Tram & Metro1%

Air8%

Passenger cars76%

Bus & Coach8%

Rail way6%

Tram & Metro1%

Air9%

Passenger cars76%

Air11%

Passenger cars77%

Bus & Coach6%

Rail way5%Tram & Metro

1%

Source: EU Green Paper on Transport

Energy storage is part of the solution

Alternative transport is also a good technology

2000

2010

2020

34

CHEUVREUX EUROPE


Currently, stricter regulations and a boom in R&D for next-generation engines are having an impact on the sector. Alternatives to ICE include electric, fuel cells and hybrid vehicles (see our report "Down the Road" for further information).

Electric-powered vehicles are not new. The main drawback for full-scale adoption lies in the battery systems. Despite huge progress with the most recent generations (Ni-Cd, Li-ion and Ni-MH for the future), batteries are still too heavy, too costly and not sufficiently durable. A major technological breakthrough is needed in batteries for full-scale development of electric and fuel cells vehicles. Electric vehicles offer a real advantage for short urban trips. One UK study has shown that the average speed in urban zones is around 18 miles per hour (29kph), the speed at which internal combustion engines are the least efficient. Electric vehicles do not emit pollutants, which is another advantage in urban centres. Batteries for vehicles: according to market studies, the vehicle battery systems market is expected to grow by 50% p.a. out to 2010.

Fuel cells use hydrogen as a source of energy to produce electricity for the vehicle powertrain and batteries. Experts estimate that fuel cell vehicles are 15 years away from reaching the mass market. Aside from technical challenges and costs, the hydrogen supply has several drawbacks, as it requires substantial sources of energy.

Hybrids: This technology refers to a vehicle using two different onboard power sources, typically an internal combustion engine associated with electric power. Depending on the traffic mix (city/highway), fuel consumption can be reduced by 20% compared to a standard petrol engine. The higher costs – currently around USD5,000 to USD7,000 per vehicle – make this technology a premium choice for ecologically-aware consumers, and the technology does not really offer positive environmental benefits compared to the best diesel cars in terms of average CO2 emissions.

Hybrid-type engines offer interesting solutions…

…as do fuel cells in the longer term

Hybrid and electric vehicles Batteries technologies

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Source: SAFT, French Petroleum Institute Source: SAFT

35

CHEUVREUX EUROPE


Alternative energy and transportation systems


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Source: Cheuvreux

36

CHEUVREUX EUROPE


Biomass resources

The sectors associated with biomass are generally broken down into agricultural products, energy, building products, etc., and looked at separately. We believe that there is now a strong opportunity to create a biomass resource sector that includes all these segments. We define the biomass resource sector as the activities involved in using biomass resources in a sustainable fashionable to produce energy and materials as a substitute for fossil carbon sources. As we move towards decreased dependence on fossil resources, we believe that organic resources will represent a growing substitute for their high carbon content, delivering fuels, power, chemicals and materials as well as food (see our report "Sustainable Chemicals"). We call this the “biomass revolution”.

Up to 20% of the earth's agricultural and forest land – i.e. 0.25ha per capita in 2020 – can be devoted to these new markets, which include clean energy, materials and molecules, without cutting into the food resources of the projected world population at that date.

Such targets would probably result in some tension on local resources and negative environmental impacts, particularly an increased risk of deforestation, even if in the long term the development of these industries and a better distribution of resources could compensate for the global increase in the price of agricultural resources resulting from the opportunity offered by the choice of energy.

The total market for biomass services and products will represent EUR180bn by 2012 in Europe alone, with double-digit growth. Investment in biomass industries must take account of the visibility/risk trade-off, characterised by a strong regulatory impetus and either high or low entry barriers depending on the industry involved.

Crops represent the primary source of bio-energy, both in terms of energy reserves and efficiency. Maintaining our focus on the sustainability / environment theme, we have identified three clusters:

− Biofuels: using biomass for transport;

− Bio-materials: using biomass for products as a substitute for fossil / non-renewable resources;

− Biomass energy: using biomass to generate energy via electricity and/or heat.

Producing energy from biomass

SLAI

RETA

MW

AR

NOI

TS

UB

MO

C

ESU

LA

NIF

Source: EUBIA

Biomass resources: the organic revolution

20% of the farm and forest land can be devoted to these new markets

The biomass market is set to reach EUR180bn by 2012

37

CHEUVREUX EUROPE


Biofuels

Biofuels are transport fuels derived from biological sources:

− Ethanol is easily obtained by fermenting sugar (from beet or cane), cereals (wheat, corn or barley) or fruit. Second-generation ethanol is an alcohol made from cellulosic materials, including grasses, trees, and various waste products from crops, wood processing facilities and municipal solid waste. The process is more complex than ethanol fermentation.

− Biodiesel (or vegetable oil methyl ester) is produced from oleaginous plants (e.g. rapeseed, soybean, palm oil and sunflowers). Biodiesel can be used either in its pure form or mixed with diesel. Synthetic Biodiesel, known by Neste Oil’s NextBTL brand, can also be derived from waste oil and animal fat.

For the moment, only ethanol and biodiesel made from food crops are on the market. Animal fat and waste oil can also be used in the current processes (see our report "Biofuels Challenges").

Oil supply and demand in Europe Bioethanol promotion worldwide

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Source: Biopetrol Industry Source: CropEnergies

We believe the overall substitution ratio — including second-generation biofuels — will be physically limited to about 18% — in energy content – of all fuels used in transportation. We estimate that substitution will realistically reach 3.8% by 2012 with 150 billion litres (around 120 million tonnes) produced, i.e. a total market worth EUR110bn.

In Europe, meeting the 2010 EU target (substitution ratio of 5.75%) will require more than 25 million tonnes to be produced, or 6x volumes in 2005. At current diesel and petrol prices, the European biofuel market would be worth EUR20bn. However, European biofuels are not yet competitive and need tax incentives.

Ethanol and biodiesel offer good alternatives…

…with promising technological developments to come

In Europe, the market should grow 6x from 2005 to 2010 to meet regulatory targets

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Biofuels


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0

50

100

150

200

250

300

350

1990 1995 2000 2005 2010E

0

20

40

60

80

100

120

140

160

Fuel oil (incl. diesel ) Petrol Petrol/Diesel ratio (%, rhs)

Source: Cheuvreux

39

CHEUVREUX EUROPE


Biomaterials and biomass energy

Biomaterials and biomass energy are the other two constituents of our biomass resource sector. The two main drivers are rising oil prices and the search for alternatives to fossil sources of carbon. In our view, biomass is the most likely replacement for oil over the next 10-20 years. It is the only source of renewable carbon on earth and offers a way to reduce dependence on energy imports.

Renewables back to the fore Oil versus soft commodities, 1998-2007

M

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Source: Shell 2004 Source: Bloomberg

Bio-based materials are products from organic matter used in the energy, agricultural, chemical or materials sectors. In the chemical or energy industries, biomaterials are usually used as a substitute for oil-based materials, as a hedge to increasing oil prices as well as negative environmental impacts. Biomaterials offer a real alternative to the oil refining value chain to reduce greenhouses gases and complement the transition to a low carbon economy or an organic economy versus a fossil economy.

Biomaterials include:

− Green / white chemistry, as we wrote in our report "Sustainable Chemicals", comprises all uses of biotechnology for industrial chemical production, via fermentation or biocatalysis, or starting with biomass raw materials (starch/sugar platform biorefineries, bioplastics, surfactants, enzymes, food ingredients, flavours, fine chemicals);

− Sustainable agro-based materials (mostly wood) involve a variety of players active in the transformation of wood products from sustainability-managed forests into products such as building materials. This comprises companies producing products from engineered wood derived from recycled wood residues. It may also include companies operating in agri-business.

Biomass energy comprises all companies directly involved in the transformation of biomass resources into power generation via heat or electricity. It includes the companies operating in biomass power generation, using wood or biomass products as feedstock for power generation, the companies operating in the biogas sector, using biodegradable materials under anaerobic conditions to yield biogas, a methane-rich gas that can be burned to generate electricity and/or heat. It also includes companies involved in the production of special crops to be used for energy applications, e.g. energy maize used for biogas.

The main driver is rising oil price

Biomaterials offer promising market developments

Green chemicals and materials are changing the industry

Biomass energy, including biogas, is a cost-effective and interesting local technology

40

CHEUVREUX EUROPE


Biomaterials and Biomass Energy


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Source: Cheuvreux

41

CHEUVREUX EUROPE


Water management Water is a vital commodity that does not have any substitute. For this reason, access to water is regarded as a basic human right.

Water resources are not spread evenly across the globe. Around 1.2 billion people live in stressed water regions and 500 million live in regions that are approaching this situation. An additional 1.5 billion more people do not have access to safe drinking water due to a lack of infrastructure investments. In China alone, 100 million people have difficulties accessing water and 320 million do not have access to safe drinking water resources. China has 7% of the world’s renewable water supply and 21% of world population.

Urbanisation and water stress Water and energy

Source: WBCSD Source: WBCSD

The water sector is quite diversified, comprising large infrastructure players such as Suez or Veolia Environnement, a very fragmented utility market that manages municipal water, and equipment manufacturers that provide systems for water management and products for water treatment.

Water services and water resources

Waterprojects

Services

Waterresources

Infrastructure

Management

Infrastructure

Management

Irrigation and drainageHydropowerUrban water and sanitationRural water and sanitationNavigation

Urban wastewaterUrban drainageFlood controlIndustrial wastewaterWatershed improvementsEcologicalFisheriesGeneral flood infrastructureMultipurpose facilities

Irrigation and drainageHydropowerUrban water and sanitationRural water and sanitationNavigation

Water resources managementEnvironmentWatershed managementWater resources management

in irrigation

Source: World Bank Water Strategy

Water is vital and does not have any substitute 1.2bn people live in stressed water regions

The water market is very large and fragmented

42

CHEUVREUX EUROPE


Drivers on the supply side include population growth, urbanisation and per-capita income growth. Higher quality and hygiene standards across the globe are also driving the water treatment market. Recent tap water contamination in China and other health-related food issues are underpinning stricter standards in the Chinese water value chain.

The strongest growth is seen by sub-sectors related to water treatment and key technologies that lessen the environmental impact and reduce investment costs. Typically, these can be divided into three categories:

− Increasing supplies: The desalination business is growing 15% p.a., and pumping, pipes and other equipment are also growing faster than the market. Frost & Sullivan estimates that the pump market will reach USD12.08bn in sales by 2012 (vs. USD8.73bn in 2005).

− Reduction in demand: Efficiency is cheaper than infrastructure improvements. 20% of water withdrawal is lost due to leakage. Agriculture uses 70% of water supplies, while irrigation systems are inefficient. Thus, experts believe that resource conservation and recycling will gain stronger momentum over the coming years. The UN considers that without improvements in water productivity, the amount of water used annually will increase by 60-90% by 2050.

− Treatment technologies: Chemical treatments are being replaced by membrane filtration, ultraviolet radiation, ion exchange and ozonation, as well as microbiological wastewater treatment. This segment has a CAGR of 10% and currently benefits from the strongest R&D capex in the industry.

One key drawback for the sector is the level of government spending for water infrastructure. As governments worldwide strive to reduce budget deficits, spending is focused on security, education, healthcare or defence. There is a clear gap between investment needs and the level of financing. We believe that innovative financing deals will help to narrow this gap, with increased privatisation of water management assets worldwide and increased concentration of water management companies. Public-Private Partnerships (PPP), Build Operate Transfer (BOT), along with institutional funds investing directly in infrastructure, represent new financing opportunities.

In the longer term, there will be increased competition for water resources from industries and agriculture. Food production is the largest water-consuming sector. Food and feed demand is set to double in the next 50 years to satisfy population and income growth. As per-capita income increases, people turn to manufactured food, including meat, which consumes more water per kilogramme.

In this water management cluster, we have not developed the bottled water market or the virtual water market, which relies more on the food production industry, in our view.

Advanced water treatment technologies are experiencing the strongest growth

Water recycling will be next growth segment

The sector also needs strong investments

43

CHEUVREUX EUROPE


Water management


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44

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Waste management This theme includes companies involved in all businesses of the waste management industry: collection, treatment, disposal and recycling of waste.

No stress on waste for the coming years

The total amount of waste generated is very difficult to estimate, but the OECD estimates almost 4 billion tonnes were generated by the 25 OECD member countries in 2004. The total amount of municipal waste generated will be 1.84 billion tonnes, an increase of around 7% on 2003, according to Research and Markets.

The amount of municipal waste generated in a country is related to the rate of urbanisation, the types and patterns of consumption, household revenue and lifestyles. While municipal waste is just one part of total waste generated, its management and treatment often absorbs more than one-third of the public sector’s financial efforts to abate and control pollution.

Waste is generated by many waste streams, notably manufacturing, construction/demolition, mining, quarrying and municipal waste. In general, industrial waste streams produce more waste (in terms of tonnage) than municipal waste, although they affect relatively small and specific sectors of society. In contrast, municipal waste has an impact on almost the entire world population.

We expect an increasing amount of waste generated due to population growth and the economic growth of developing countries, which implies increased consumption and production of manufactured goods, foods, energy and infrastructure.

Total waste generation in OECD countries (mid-1990s)

Projected trends in municipal waste generation, by region

Million tonnes

450

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350

300

250

200

150

100

50

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1995

2010

2020

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CanadaUnitedStates

andMexico

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Source: OECD * data for Australia is an expert estimate

Source: OECD Source: OECD

Waste generated in OECD countries represents 4bn tonnes per year

Many different waste stream are generated We expect strong growth in waste generation, associated with urbanisation and population growth

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Reduce, reuse, recycle

Waste management is a vital issue, particularly in relation to the environment. In addition to the pollution of the ground and waterways, gaseous emissions from waste disposal routes contribute to global warming. The costs associated with waste disposal can also be significant, particularly in densely-populated countries. The range of waste management strategies is as wide as waste is diverse. The basic steps are source reduction (educating, sorting, recycling, composting); collection and transport; treatment (incineration, chemical and biological treatments, etc.); and disposal (open dumps, sanitary landfills, deep-well geological disposals). Waste management can involve solid, liquid or gaseous substances with different methods and fields of expertise for each. The main categories of waste defined by the OECD are municipal waste, hazardous waste and nuclear waste.

Waste management practices differ for developed and developing nations, for urban and rural areas, and for residential, industrial and commercial producers. Waste management for non-hazardous residential and institutional waste in metropolitan areas is usually the responsibility of local government authorities, while management for non-hazardous commercial and industrial waste is usually the responsibility of the generator. Collection methods vary widely in different countries and regions. Many areas, especially those in less developed countries, do not have a formal waste-collection system in place. The graph below shows how municipal waste is handled in Europe, with wide divergences from one country to another.

Waste management choices in Europe

Source: OECD

Market size

The global market for waste management is sustained by the municipal waste output of the world's wealthiest nations, although it is also being fuelled by developing countries as they become wealthier and adopt many of the characteristics of well-developed countries. The European waste market is estimated at EUR110bn (Eurostaf), with varying trends by segment.

If not treated, waste generates pollution… …especially toxic waste

Waste treatment differs by country… …with increased regulatory pressure to stop landfills

The market is estimated at EUR110bn in Europe

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Waste management

Source: Cheuvreux


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47

CHEUVREUX EUROPE


Eco-products and services

Eco-products and services comprise all companies that provide goods and services related to the environment and enhanced sustainability.

We have defined three clusters: pollution control and testing technologies, services and engineering and CO2-related companies.

Pollution control and testing are technologies and services specialised in the identification of pollutants and other key metrics required by regulatory or company standards. The market for testing and quality assurance is growing rapidly, underpinned by an increasingly stringent regulatory environment and stricter norms.

Some key drivers are:

− Increased regulation. For example, the implementation of REACH in Europe will require a massive development of testing and controlling capacity. Another regulation in the electronics industry, the European Hazardous Substance in Electronics Directive will also require more control from companies to ensure that they meet compliance standards. Companies are likely to increase their control spending in order to reduce the potential impact of final products being pulled from the market, with the related costs and negative effect on reputation.

− Supply chains: As companies depend more on suppliers for key products and technologies, they need to strengthen their control and traceability for internal quality assurance and regulatory compliance.

− Consumer zero tolerance in the fields of life science and nutrition. Traceability is a key driver for the food industry. Recent scandals in pet food or toothpaste from China underscore this trend.

An example of companies involved in this area includes Johnson Mattey, a market leader in catalytic solutions to curb automotive emissions of pollutants. The automotive industry is concerned by car emissions and exhaust gas. According to the World Health Organisation, smaller or fine particles from vehicles are dangerous to human health because they penetrate deep into the lung and may reach the alveolar region. Stricter emissions standards are being implemented to reduce car emissions. In Europe, a harmonised standard is coming into force in 2009. Known as the EURO 5 norm, it requires stricter emissions standards and will require the biggest change for diesel manufacturers. With a strong focus on particle reduction, it is likely to present a strong market opportunity for manufacturers of filters and catalysts.

A focus on Carbon Capture and Storage (CCS) technologies

Coal presents less risks with regard to energy supply security and its share is set to grow in the global energy mix. Climate change policies are likely to support carbon capture and storage (CCS) applications in coal-fired power plants in order to avoid the adverse effect of CO2 emissions on global warming. The European Commission is considering making these technologies compulsory as from 2020, while the US Department of Energy's allocation method for tax credits should favour projects that capture and sequester CO2 emissions. Although there is still a debate on the technical possibility of injecting large amounts of carbon dioxide underground (on a large industrial scale), and on the associated health and environmental risks, several pilot projects are underway, and CCS is a promising solution in the fight against climate change. Current technological development implies that a broad commercialisation of these technologies is unlikely before 2020.

Regulations are the main drivers… …as is supply chain management

Carbon capture and storage, a future technology

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CCS technologies and development phases

CCS component

CCS technology Research phase

Demonstration phase

Economically feasible under

specific conditions

Mature market

Capture Post-combustion x Pre-combustion x Oxyfuel combustion x Industrial separation (natural gas processing,

ammonia production) x

Transportation Pipeline x Shipping x Geological storage

Enhanced oil recovery (EOR) x

Gas or oilfields x Saline formations x Enhanced coalbed methane recovery (ECBM) x Ocean storage Direct injection (dissolution type) x Direct injection (lake type) x Mineral carbonation

Natural silicate minerals x

Waste materials x Industrial uses of CO2

x

Source: IPCC

The second cluster represents companies involved in engineering and consulting. They play a pivotal role in the application of environmental regulations and technological development.

The market in environmental consulting is growing faster than other traditional segments such as infrastructure, facility management, land development, etc. We believe that this is likely to continue as the regulatory environment is strengthened.

CO2-related stocks are companies involved in CO2 reduction certificate origination and CO2 trading. These stocks are in the spotlight with the recent G8 agreement to make 'substantial cuts' in greenhouse gas emissions without setting numerical reduction targets.

These stocks are involved in reducing greenhouse gases' emissions in developing countries. These countries are set to be responsible for about 75% of additional CO2 emissions released in the atmosphere by 2030. In a so-called 'Plus Five' statement, China, India, Mexico, Brazil and South Africa have vowed to do their 'fair share' on climate change, meaning that they will take action as long as it does not threaten their economic growth. We highlighted in our recent report 'China Goes Green' that the Chinese government is already targeting a 20% reduction in energy intensity (toe per unit of GDP) by 2010, and has implemented a supporting policy for renewable energies: two measures that will eventually lead to CO2 emission reductions. Voluntary or intensity-based targets (per unit of GDP) could be a solution to greater commitment from developing countries within the UN framework.

Setting an overall reduction target will be the focal point of upcoming international talks on climate change, which will take place during the UN conference in Bali next December. This support is given to the idea of a post-2012 global carbon trading market, as the G8 agreement and the 'Plus Five' declaration contain an endorsement of emissions trading as an effective mechanism for reducing greenhouse gas emissions.

Engineering and consulting companies benefit from higher spending on green technologies

Opening of future international climate talks is positive for the industry

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Recommendation: This is fairly positive news for companies with portfolios of carbon credits and/or CDM/JI projects, including Agcert or Ecosecurities.



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J=fåÑê~ëíêìÅíêìÉ=áåîÉëíãÉåíë

qÜáë=áë=äáâÉäó=íç=ÄÉåÉÑáí=ÉåÖáåÉÉêáåÖ=Åçãé~åáÉë=íÜ~í=ïçêâ=çå=ä~êÖÉJëÅ~äÉ=éêçàÉÅíëI=~ë=ïÉää=~ë=áåíÉÖê~íáçå=çÑ=ÉåîáêçåãÉåí~ä=ÇÉëáÖå=~í=íÜÉ=É~êäó=ëí~ÖÉë=çÑ=

íÜÉ=éêçÅÉëëK


båÖáåÉÉêáåÖ `çåíêçä=C=qÉëí `lO=L=líÜÉê

J=fåÅêÉ~ëáåÖ=~ííÉåíáçå=íç=L=êÉÖìä~íáçåë=çå=Åäáã~íÉ=ÅÜ~åÖÉ=

~åÇ=ÉåîáêçåãÉåí~ä=áëëìÉë

J=fåîÉëíãÉåíë=áå=áåÑê~ëíêìÅíìêÉ


iáëíÉÇ=

éä~óÉêë

J=^b^=qÉÅÜåçäçÖáÉë

J=^êÅ~Çáë

J=dêçåíãáà

J=omp=dêçìé

J=`~í~äóíáÅ=pçäìíáçå

J=båîáêçååÉãÉåí=p^

J=bìêçÑáåë=pÅáÉåíáÑáÅ

J=fåíÉêíÉâ

J=gçÜåëçå=j~ííÜÉó

J=pdp

J=rãáÅçêÉ

J=rãïÉäíÄ~åâ=^d

J=bÅçëÉÅìêáíáÉë

J=^ÖÅÉêí

J=`äáã~íÉ=bñÅÜ~åÖÉ

J=qê~ÇáåÖ=bãáëëáçå

J=bÅçåÉêÖó=

fåíÉêå~íáçå~ä

bÅçJéêçÇìÅíë=~åÇ=ëÉêîáÅÉë=ÅçãéêáëÉ=Åçãé~åáÉë=íÜ~í=éêçîáÇÉ=éêçÇìÅíë=íç=êÉÇìÅÉ=

ÉåîáêçåãÉåí~ä=éçääìíáçåëI=áåÅäìÇáåÖ=Å~í~äóëíë=Ñçê=íÜÉ=~ìíçãçíáîÉ=áåÇìëíêóI=~áê=èì~äáíó=

Åçåíêçä=éêçÇìÅíëI=Äìí=~äëç=Åçãé~åáÉë=áåîçäîÉÇ=áå=íÜÉ=éêçîáëáçå=çÑ=ÉåÖáåÉÉêáåÖ=ëÉêîáÅÉë=

äáåâÉÇ=íç=íÜÉ=ÉåîáêçåãÉåí=~åÇ=ëìëí~áå~ÄäÉ=ÇÉîÉäçéãÉåíK=qÜÉ=ä~ííÉê=áåÅäìÇÉ=ÅçåëìäíáåÖ=

ëÉêîáÅÉë=~åÇ=ÇÉëáÖåI=Äìí=~äëç=íÜÉ=~ìÇáíáåÖI=ÅÉêíáÑáÅ~íáçå=~åÇ=ÅçåíêçääáåÖ=~ÅíáîáíáÉëK

iÉ~ÇÉê=áå=ÄáçäçÖáÅ~ä=~å~äóëáë

pdp PLråÇÉêéÉêÑçêã iÉ~ÇÉê=áå=ÅçåíêçäI=íÉëíI=~åÇ=ÅÉêíáÑáÅ~íáçå

bìêçÑáåë=pÅáÉåíáÑáÅ

Source: Cheuvreux

50

CHEUVREUX EUROPE


Asset bubble or sustainable growth?

Definition of a “bubble”

There is no single metric for a clear identification of a financial bubble. All past bubbles have responded to different drivers (e.g. tulip bulbs in Holland 17th century, the US 1929 stockmarket crash and the tech bubble of the early 2000s), but academics such as economist Robert Shiller have identified several common criteria. It is also common sense to believe that when the market begins talking about a bubble, it is already there.

The main criteria that best describe a bubble could be:

- The new paradigm: Investors thinking that there has been a fundamental change in the economy and that high expectations justify high prices. This was the case during the Internet bubble of the early 2000s.

- Departure from fundamental values over a long period of time. Prices do not reflect traditional/historical trends for a timeframe long enough for investors to believe that the trend has become natural. For example, by 2000, investor surveys showed that 71% of investors thought that the market was overvalued, but 70% also believed that it would continue to rise.

- Overconfidence of investors in their ability to exit the market at the right time and before everyone else. It is also common sense to say that you should be contrarians during a bubble, but you need deep pockets if the bubble lasts a long period of time.

- An overflow of liquidity. Investors are attracted by strong historical returns, especially in the retail segment.

Do we see a bubble?

In light of the abovementioned factors, we have tested for each criterion and clearly conclude that we are not currently in a bubble situation, but that many stocks are trading at a premium.

− New paradigm: partially true.

More and more investors are beginning to believe that climate change will bring about a radical shift in the economy, but we do not see the entire market being convinced yet.

− Departure from fundamental value: no, but sector trading at a premium.

The sector looks fairly valued at current valuations. High P/E multiples reflect strong expected growth in earnings rather than overvaluation. Our selected European universe is trading at 26x 2007E earnings, with higher values in wind (54.4x 2007E) and solar (34.7x 2007E). Both sectors anticipate strong EPS growth, respectively 113% CAGR 2006-2009E for our European wind universe and 50% CAGR 2006-2009E for solar.

There is no single definition of a bubble

Overconfidence, high valuations and novelty are the main characteristics

Prices are high at present, but we do not see a bubble for the time being

51

CHEUVREUX EUROPE


Sustainable Techs P/E and PEG ratios (2007E)

47.8

20.61

28.7

23

18.4 18.8

24.726

34.7

54.4

23.420.3

23.9

0

10

20

30

40

50

60

Alte

rnat

ive

Ener

gy &

Tra

...

Bio

fuel

sB

iom

ass

(oth

er)

Eco-

prod

ucts

& s

ervi

ces

Ener

gy E

ffici

ency

/ In

sula

ti..

Ener

gy E

ffici

ency

/ Po

wer

Ener

gy E

ffici

ency

/ Tr

ans.

..

Ren

ewab

le E

nerg

y / O

ther

..

Ren

ewab

le E

nerg

y / S

olar

Ren

ewab

le E

nerg

y / W

ind

Was

te m

anag

emen

t

Wat

er m

anag

emen

t / D

ist..

.

Wat

er m

anag

emen

t / E

q...

0

0.5

1

1.5

2

2.5P/E 07E PEG 07E

Source: JCF, Cheuvreux

Current valuations reflect the expectations in earning growth, at +28% p.a. for wind and 25.2% p.a. for solar for the period 2006-2009E. Any further increase in regulatory incentives supporting these technologies should drive prices on the upside.

Sustainable Techs Sales CAGR 06-09E and EPS CAGR 06-09E

81%76%

16%

46%

8%11%

15%10%

44%

79%

21%

6%10%

50%

-49%

36%

-33%

12%18%

23%

15%

50%

113%

46%

12%

19%

-60%

-40%

-20%

0%

20%

40%

60%

80%

100%

120%

140%

Altern

ative

Ene

rgy &

Tran

spor

tation

Biofue

ls

Biomas

s (oth

er)

Eco-p

rodu

cts &

servi

ces

ergy

Effic

iency

/ Ins

ulatio

n & Li

ghtin

g

Energ

y Effic

iency

/ Pow

er

Energ

y Effic

iency

/ Tr

ansp

ort

ewab

le Ene

rgy /

Oth

er &

Diversi

fied

Renew

able

Energ

y / S

olar

Renew

able

Energ

y / W

ind

Was

te man

agem

ent

Wat

er m

anag

emen

t / D

istrib

ution

Wat

er m

anag

emen

t / Eq

uipmen

t

Sales CAG06-09E EPS CAGR 06-09E

Source JCF, Cheuvreux:

The European sector is trading at a premium… …26x 2007E EPS on average The highest valuations are in wind and solar power… ..but the EPS growth of these segments is also higher

52

CHEUVREUX EUROPE


− Overconfidence: probably!

This might be the area where the risk is the highest at present. We need to keep in mind that most of the growth in these sectors is linked to public policy support via tax incentives, mandatory targets or regulatory standards. A large part of the renewable sector is not profitable without subsidies. Thus, the main risk lies in a setback in policy support. Given the current political debate on climate change and the upcoming 2008 US presidential election, we believe that the trends in policies to fight climate change and invest in energy security are likely to strengthen on a macro level. But investors need to assess specific situations, especially when companies are highly dependent on one or two key regulations. This might be an area where the market could be overconfident and not price risks accordingly. In the following section, we discuss where we believe the highest risks are.

Investing with risk, a deeper look at renewable energy Most renewable technologies are not yet profitable without state subsidies (feed-in tariffs), and therefore face a high regulatory risk of a reduction or elimination of national supporting policies. In our view, it is crucial to monitor which technologies still have enough potential to contribute significantly to achieving objectives.

The target of achieving 20% deployment of renewable energies in the EU energy mix should help to reduce annual CO2 emissions in a range of 600-900 million tonnes in 2020.

Country-related risk

A good example of this kind of risk is the change of national regulations or tax incentive schemes, which may hurt company profitability and share prices. As shown in the table below, the share price of Biopetrol Industries plummeted after a profit warning linked to a change in the tax system for biodiesel in Germany.

The main risk lies in the stability of support policies

53

CHEUVREUX EUROPE


Biopetrol Industry AG, share price trend

Daily Biopetrol Industries 01/12/2005 - 15/06/2007 (FFT)

Line; QB2I.DE;; 06/06/2007; 6.35

Price

EUR

.##

9

12

15

18

21

24

27

01 16 02 16 01 16 01 16 03 18 02 16 01 16 03 17 01 16 01 18 02 16 01 16 01 18 02 16 01 16 01 16 02 16 02 16 01

Dec 05 Jan 06 Feb 06 Mar 06 Apr 06 May 06 Jun 06 Jul 06 Aug 06 Sep 06 Oct 06 Nov 06 Dec 06 Jan 07 Feb 07 Mar 07 Apr 07 May 07

Draft law for

taxation of

biodiesel and

announce

mandatory

blending

targets

Law

passed

with 9

€/c tax

on

biodiesel

Profit

warning due

to lower sales

and reduced

margins

German

government

announce

plan to end

biodiesel tax

break

Daily Biopetrol Industries 01/12/2005 - 15/06/2007 (FFT)

Line; QB2I.DE;; 06/06/2007; 6.35

Price

EUR

.##

9

12

15

18

21

24

27

01 16 02 16 01 16 01 16 03 18 02 16 01 16 03 17 01 16 01 18 02 16 01 16 01 18 02 16 01 16 01 16 02 16 02 16 01

Dec 05 Jan 06 Feb 06 Mar 06 Apr 06 May 06 Jun 06 Jul 06 Aug 06 Sep 06 Oct 06 Nov 06 Dec 06 Jan 07 Feb 07 Mar 07 Apr 07 May 07

Draft law for

taxation of

biodiesel and

announce

mandatory

blending

targets

Law

passed

with 9

€/c tax

on

biodiesel

Profit

warning due

to lower sales

and reduced

margins

German

government

announce

plan to end

biodiesel tax

break

Source: Reuters, Cheuvreux

Operators in renewable energy markets face several risks depending on which countries they operate in:

− Administrative barriers significantly hamper the deployment of renewable energies and increase the execution risk. Procedures to obtain licences to operate may be delayed by the dissuasive administrative burden. This has dampened market potential, especially in France and Italy.

The main threats for the continuity of the supporting policies already in place:

− Oil prices: A decline in the currently high oil price would hamper the competitiveness of renewable technologies compared to fossil fuels. The European Commission has calculated that a decline in oil prices from USD78/bbl to USD48/bbl would lead to an additional average annual cost of approximately EUR7-8bn for EU Member States (financial burden of state subsidies).

− Approaching national targets: By the end of 2007, the European Commission will publish the breakdown of the overall 20% EU target by Member State. The main risk would be to see main markets nearing their allocated national targets before 2020, and before any agreement on further objectives. For instance, this situation led the Netherlands to (momentarily) halt subsidies to new projects in 2006.

Administrative barriers dampen market potential

Oil prices, assigned objectives and public support of nuclear power constitute the main risks, in our view

54

CHEUVREUX EUROPE


− New support for nuclear power: Nuclear energy is a good alternative to renewable energies in pursuit of the EU goals of reducing the demand for fossil fuels, as nuclear is CO2-free and the EU can rely on a secure supply. There are many signs of a nuclear renewal in Europe that could result in a trade-off of state subsidies for R&D research from renewable technologies to nuclear programmes. The burden sharing of the targeted 20% of RES in EU energy consumption will take into account each member state’s starting point, potential and energy mix. Thus, a high share of nuclear power in power generation is likely to hamper the development of renewable energies Conversely, ending subsidies to “dirty” energy sources like coal in Europe (Germany, Spain, etc.) would improve the competitiveness of renewable energies.

Focus on renewable energy sources (RES) in the power sector: short- and mid-term risks country risks

The European Commission has set specific targets for RES in gross electrical consumption to be achieved by 2010. The overall target for the EU is 21%, and the share of the burden by member state depends mainly on each State’s hydro capacities.

The chart below shows how far the main member states are from achieving their 2010 objectives. For our calculations, we have stripped normalised hydro generation out of national targets, as hydro potential is mostly tapped in Europe, and we have made forecasts on power generation levels in 2010. We propose below two indicators to help forecast changes in support policies.

− Short-term risk indicator: Distance to target. The chart below shows short-term risk of a change in the national support policy as a function of the progress already made towards achieving the objective.

Distance to 'renewable' targets by country: an indicator of short-term risk

M

NM

OM

PM

QM

RM

SM

TM

UM

VM

cê~åÅÉ

pé~áå

fí~äó r

h

pïÉÇÉå

mçêíìÖ~ä

^ìëíêá~

dÉêã~åó

kÉíÜÉêä~åÇë

áå=qt

Ü

MB

NMB

OMB

PMB

QMB

RMB

SMB

TMB

UMB

VMB

^ÇÇáíáçå~ä=DÖêÉÉåD=qtÜ=åÉÉÇÉÇ=íç=êÉ~ÅÜ=çÄàÉÅíáîÉ

qtÜ=éêçÇìÅÉÇ=Ñêçã=obpI=OMMR=EÉñÅäKÜóÇêçF

mêçÖêÉëë=íç=çÄàÉÅíáîÉ=OMNM=EBI=êÜëF

Short-term risk of downsizing the

support

Likely strengthening of supporting

policies

Source: Cheuvreux, Eurobserv'ER

Objectives are binding and expressed as a percentage of gross electricity output. Thus, although Spain is second in Europe with regard to power output produced from RES, the distance to the target is still significant because the annual growth of power consumption itself is high.

While the gap to achieving targets defines the short-term risk

55

CHEUVREUX EUROPE


− Long-term risk: structure of the energy mix. Potential for further development (post-2010) of RES in the power production for each country will mainly depend on assigned new targets for 2020. The EU Council has already decided that burden sharing will take into account the existing energy mix. Therefore, France, Sweden, and Austria have from this standpoint little potential for further RES development in power generation, as most of their energy mix is already “locked up” by other CO2-free sources: hydro and/or nuclear. The deal could change for Sweden, however, depending on the timetable of the nuclear phase-out.

The chart below presents the various energy mixes of the main EU power markets. Potential for the development of RES is the highest in Germany, Italy, the UK and the Netherlands, as renewable energies can meet the need of replacing a portion of fossil fuels in the energy mix. Whereas in France, Sweden and to a lesser extent Austria, the market for power capacities fuelled with RES is mostly limited to the need for additional capacity.

Structure of energy mix in power generation

MB

NMB

OMB

PMB

QMB

RMB

SMB

TMB

UMB

VMB

NMMB

Sweden France Austria Spain Portugal Germany UK Italy Netherlands

Share of nuclear in energy mix Share of hydro

Share of RES (excl. Hydro) - Achieved so far Distance to target (pct point)

Free room for further RES development (post 2010)

High potential for long-term

development

Energy mix already 'locked up' by other CO2-

free sources

Source: Cheuvreux, CERA, EurObserv'ER

The purpose of the following tracking table is to be able to forecast moves in supporting policies should they prove not sufficiently efficient (Italy, France) or if targets are achieved before the deadline (Netherlands).

A high share of nuclear and hydro tends to “lock up” the energy mix, hampering the long-term development of other renewables

56

CHEUVREUX EUROPE


Cheuvreux's monitoring distance to objectives

Market Power generation

2010E (TWh)

2010 target (renewables

as % of total power production)

Share 'locked' by

nuclear power, 2010E

2010 target, adjusted for hydro

Room left to RES (excl.

hydro) in energy mix

2010 target (in 'green'

TWh)

Achieved so far (2005)

Progress to 2010 target (achieved/ta

rget)

Portugal 49 39% 0% 17% 78% 8 3 42% Austria 61 78% 0% 12% 34% 8 3 45% Spain 372 29% 15% 21% 76% 76 24 32% Sweden 155 60% 47% 15% 8% 23 8 36% Italy 348 25% 0% 11% 86% 38 12 32% France 589 21% 77% 10% 12% 58 5 8% UK 410 10% 16% 8% 82% 34 12 36% Netherlands 101 9% 4% 9% 96% 9 7 78% Germany 689 13% 20% 8% 75% 58 40 68%

Source: Cheuvreux, EurObserv'er 2007

Our view on the French market’s potential: a catch-up effort, but limited prospects

Nuclear energy accounts for more than 78% of electricity produced in France and “locks up” a high share of power generation in France. Thus, reaching the target of 21% of renewable energy in electricity consumption by 2010 seems complicated. Moreover, to a certain extent, the lack of flexible generation capacities hinders the development of energy sources with intermittent supply on the power grid, which would put network stability at risk. These are likely to be important limiting factors for the development of wind and solar power connected to the grid in France, along with the aforementioned dissuasive administrative barriers. On the other hand, biomass in CHP applications and biofuels for transport are likely to be encouraged to an even greater extent in order reach 2020 objectives (yet to be specified).

Technology-related risk

Competition also exists between the various renewable technologies. All technologies are supported today, even though some are more mature (wind) than others (solar PV). The medium/long-term potential of each technology must be assessed in order to understand the risk of fading political support. Key indicators for risk assessment are:

1 - The medium/long-term potential of technologies

In our view, public support for technologies depends on how promising they are in the long run, i.e. to what extent each technology can answer global energy needs. The German Advisory Council on Global Change (WBGU) has defined five types of energy resource potential: 1) theoretical potential; 2) conversion potential; 3) technical potential; 4) economic potential; and 5) sustainable potential.

Technical potential expresses the physical upper limit of the energy available from a certain source, while technical potential integrates limits due to conversion efficiencies, technological, structural, ecological and legislative limits. In the table below, these potentials are expressed as a percentage of current global energy needs.

Sustainable potential integrates an evaluation of ecological and socio-economic issues as limiting factors (expressed in exajoules in the table below).

Catch-up of renewables in electricity production in France…

…but little post-2010 potential

Wind and solar technologies: highest long-term potential

57

CHEUVREUX EUROPE


Long-term potential of renewable technologies

Theoretical potential (EJ)

Technically accessible today

(EJ)

Sustainable potential (EJ)

Sustainability ratio (sust/technical)

(%)

Sustainability issues

Hydro power 1 0.15 12 80 Environmental impact of large dams Bioenergy (biomass)

20 0.4 100 250 Competition with other usages (paper, food), deforestation

Wind energy 200 0.5 140 280 Landscape preservation Solar energy 2,850 3.8 Unlimited >280 Geothermal 5 1 30 30 Ocean power 2 0.05 ?

Source: WBGU

Sustainability issues for hydro power and biomass clearly limit their long-term development. For instance, the Dutch government plans to ensure financial support only for biomass of certified origin in order to ensure that it does contribute to deforestation.

Solar and wind energy appear to be the most promising technologies for delivering clean energy in sufficient quantities to answer global energy needs.

2 - Potential of cost decreases and long-term competitiveness

Solar technologies are costly at present, but we expect these technologies to be well supported by feed-in tariffs given their high development potential (solar resources are virtually unlimited) and very good prospects in terms of a reduction in investment costs, which should make solar technologies competitive with fossil fuels in the long run.

Conversely, bioenergy applications are currently almost cost competitive with fossil fuels, but on the other hand have limited improvement prospects in investment costs, and access to biomass for energy applications faces competition from other uses, notably food (energy crops) and the paper industry (forest residues). Market distortion caused by subsidies that would put stress on agricultural resources for food would no doubt trigger a change in political support.

Average heating, transport and electricity costs, compared with fossil fuel energy prices (grey areas)

Future development of investment costs

M

RM

NMM

NRM

OMM

ORM

PMM

PRM

Heat pum

ps

Solar ther

mal h

eat.

Biom

ass heatin

g

Geotherm

al

Biofu

el 2ng g

en.

Biofu

el 1st

gen.

Solar PV

Tide &

Wave

Win

d offs

hore

Win

d onsh

ore

Hydro

Bioenerg

y

broLjtÜ

Heating

Transport

Power

NM

OM

PM

QM

RM

SM

TM

UM

VM

NMM

OMMM OMNM OMOM OMPM OMQM OMRM

áå=B

lÅÉ~å=ÉåÉêÖó `çåÅÉåíê~íÉÇ=ëçä~ê=íÜÉêã~ä ms

dÉçíÜÉêã~ä táåÇ _áçã~ëë=E`em=~ééäáÅ~íáçåëF

_áçã~ëë=EéçïÉê=éä~åíëF

Source: European Commission, Cheuvreux Source: EREC report, figures for OECD Europe

…while biomass energy and hydro face environmental limits

Wind power is almost competitive without subsidies

Encouraging cost reduction curve for solar technologies

58

CHEUVREUX EUROPE


Sustainable Techs Valuation Tables

Alternative energy and transportation

fpfk _äççãÄÉêÖ=`çÇÉ k~ãÉ pìÄJpÉÅíçê `ìêêÉåÅó mêáÅÉ j~êâÉí=`~é=Éå=€B=`Ü~åÖÉ=

vqa

B=`Ü~åÖÉ=

vlvbîLp~äÉë=MS bîLp~äÉë=MT bîLp~äÉë=MU bîLp~äÉë=MV

coMMMMNOMMTP ^f=cm=bèìáíó ^fo=ifnrfab===== eóÇêçÖÉå bro NUMKM ON=UPOKV MKM MKO OKP OKO OKM OKM

fqMMMPVTTRQM pqp=fj=bèìáíó ^kpîal=pqp===== j~ëë=íê~åëéçêí~íáçå bro NMKT N=MSUKM MKO MKP MKU MKV MKU MKT

^rMMMMMM`crS `cr=^r=bèìáíó `bo^jf`=crbi==== cìÉä=ÅÉääë ^ra NKM NUQKU JMKO MKS SNKO PNKP NMKP VKQ

d_MM_MPRNQOV `to=ik=bèìáíó `bobp=mltbo===== cìÉä=ÅÉääë d_m OOSKM NVUKP MKM JMKO N=NUVKT N=PMUKU NMOKN PTKV

coMMMMNORPTV qkr=cm=bèìáíó brolqrkkbi j~ëë=íê~åëéçêí~íáçå bro NKN O=VMOKR NKS NKS = VKP UKT UKO

d_MMMPQRONTP cdm=ik=bèìáíó cfopq=dolrm j~ëë=íê~åëéçêí~íáçå d_m SVOKM Q=QTPKN MKO MKT MKU MKV MKV MKU

d_MM_MNPMeQO fqj=ik=bèìáíó fqj=mltbo======= cìÉä=ÅÉääë d_m NOTKP NVMKM MKM JMKR = RPKP

abMMMSQUPMMN ifk=do=bèìáíó ifkab==== eóÇêçÖÉå bro UPKP NP=PUVKT MKN MKQ NKU NKU NKT NKR

rprTPNOVNMRR mvc=ik=bèìáíó mlivcrbi======== cìÉä=ÅÉääë d_m QQKR PUKN JMKN JMKR =

coMMNMOMUNSR p^cq=cm=bèìáíó p^cq============ mçïÉê=ëíçê~ÖÉ bro OVKM RPSKV MKN MKP NKQ NKQ NKP NKO

abMMMTRSURTU cP`=do=bèìáíó pc`============= cìÉä=ÅÉääë bro PNKT NTVKN MKN MKM =

d_MMMOTUTVVN q^k=ik=bèìáíó q^kcfbia bäÉÅíêáÅ=îÉÜáÅäÉë d_m NSUKP TOQKU OKM RKR PKS QKU PKO OKT

ibv=cm=bèìáíó fåÇìëíêá~äë c^sbibv j~ëë=íê~åëéçêí~íáçå bro RMKM SOSKR MKO MKR MKV MKV MKU

Source: JCF

Biomass / Biofuels


vqa

B=`Ü~åÖÉ=


bpMNMROMMQNS ^_d=pj=bèìáíó ^_bkdl^========= _áçÑìÉäë bro PMKP O=TPVKQ MKN MKR NKQ NKO NKN NKM

^qMMMM^MONTT aTf=do=bèìáíó _af=_flafbpbi=== _áçÑìÉäë bro QUKR NUQKP MKM = NKP NKN MKU MKS

èMMOPOORVPU _Of=do=bèìáíó _flmbqoli=fkarp= _áçÑìÉäë bro SKP OPOKT JMKP JMKT OKS NKO MKR

abMMM^Mi^rmN `bO=do=bèìáíó òlmbkbodfbp==== _áçÑìÉäë bro TKS SQTKT MKO = PKS PKS NKU NKO

d_MM_MOnkQMV all=ik=bèìáíó aN=lfip========= _áçÑìÉäë d_m NUMKR UQKO MKM JMKO QKV QKV MKT MKR

d_MM_NeqOPPQ dqi=ik=bèìáíó dqi=obplro`bp=== _áçÑìÉäë d_m NROKR RNKN JMKO JMKQ TKT MKV

cfMMMVMNPOVS kbpNs=ce=bèìáíó kbpqb=lfi======= _áçÑìÉäë bro OUKO T=OORKQ MKO MKN MKR MKT MKS MKS

abMMMmbqNNNN mqU=do=bèìáíó mbqolqb`======== _áçÑìÉäë bro TKR TVKO JMKR = OKT NKN MKT MKT

d_MM_NcpaMSP omi=ik=bèìáíó obk=mlt=C=ifdeq= _áçÑìÉäë d_m NOSKR NSMKO MKS = =

abMMM^MgiVtS s_h=do=bèìáíó sbo_fl=sbo=_flbk _áçÑìÉäë bro TKR QTOKR JMKR = NKT NKO MKV

Source: JCF

Biomass / Biomaterials and biomass energy


vqa

B=`Ü~åÖÉ=


abMMMTMTQMMT htp=do=bèìáíó htp=p^^q======== _áçã~ëë=båÉêÖó bro NNUKM TTUKU MKQ MKS = = =

pbMMMMPVMOVS kf_b_=pp=bèìáíó kf_b=fkarpqofbo= _áçã~ëë=båÉêÖó pbh NQOKM N=OUUKM MKO NKM OKO OKO NKV NKT

abMMMp_dpNNN p_N=do=bèìáíó pèj^`h=_fld^p=k _áçã~ëë=båÉêÖó bro SOKQ PPVKN MKO MKR OKV NKV NKS NKS

abMMMTNSOMMM pac=do=bèìáíó hHp=^d========== _áçã~íÉêá~äë bro NMTKM Q=QNPKT MKP MKT NKO NKR NKQ NKP

coMMMQNTTMQS jbqbu=cm=bnrfqv jbq^_lif`=bumi== _áçã~íÉêá~äë bro NMKT ONSKP = =

coMMMMMRQSVQ kou=cm=bèìáíó k^qrobu========= _áçã~íÉêá~äë bro RNKM NRNKO MKM MKM OKS OKQ OKN NKU

ahMMNMOTONOV kwvj_=a`=bèìáíó klslwvjbp=_===== _áçã~íÉêá~äë ahh RVQKM Q=POSKN MKO MKQ QKN QKR QKN PKS

abMMMSTSQTQV mcaQ=do=bèìáíó mcibfabobo=k==== _áçã~íÉêá~äë bro ORKM N=PPOKS MKO MKO NKN NKM MKV MKV

èMMNPOUPPSU motk=pt=bèìáíó mob`flrp=tllap== _áçã~íÉêá~äë èc NNVKR ONUKQ MKQ MKN =

mqpPmM^bMMMV plkf=mi=bèìáíó plk^b=fkarpqof^= _áçã~íÉêá~äë bro VKV N=PVMKO MKP MKS NKN NKM MKV

Source: JCF



vqa

B=`Ü~åÖÉ=


fbMM_MTSQSQT ^d`=ik=bèìáíó ^d`boq=fkqi===== `lO d_m QNKM NMOKM JMKT JMKU N=MSPKR QKS NKS

d_MMPPRRNNSU ìb=ik=bèìáíó ìfj^qb=buè^kdb `lO d_m N=UOTKR N=NNQKM OKR RKR =

d_MM_MtsTsMM b`d=ik=bèìáíó b`lkbodv=fkqi=== `lO d_m UMKR NMPKP MKM JMKO NMKN VKP VKM QKS

fbMM_MmoUuQS b`l=ik=bèìáíó b`lpb`=dom====== `lO d_m OVUKR QMTKV MKP MKS UPKT NPKV OKR NKQ

d_MM_MTPdPSP qob=ik=bèìáíó qoâfkd=bjfppflk `lO d_m NSRKR POVKR MKO MKP = = =

d_MMPNTVPVQR ^^q=ik=bèìáíó ^b^=qbèklildv== båÖáåÉÉêáåÖ d_m NOOKR ONPKT MKP MKO =

kiMMMMPRURRQ ô`â=k^=bèìáíó ô`âfp========= båÖáåÉÉêáåÖ bro SQKU N=PPTKM MKQ MKT NKO NKM MKV MKU

kiMMMMQQNTRS dolk`=k^=bèìáíó dolkqjfg======== båÖáåÉÉêáåÖ bro NPNKM RUNKU MKR NKM MKV MKU MKU MKT

d_MMMTRVQTSQ omp=ik=bèìáíó omp=dolrm======= båÖáåÉÉêáåÖ d_m PSSKP N=NMVKU MKQ MKU NKV OKR OKO OKM

abMMMRRTMUMU r_h=do=bèìáíó rjtbiq_^kh=^d=== líÜÉê bro NTKM VQKO MKM JMKN =

rprNQUPVNMNV `qp=ik=bèìáíó `^qîvqf`=pli=== mçääìíáçå=Åçåíêçä=C=íÉëíáåÖ d_m NPMKM NOOKQ MKM = =

coMMNMOTUTSO îqbs=cm=bèìáíó bksfolkkbjbkq=== mçääìíáçå=Åçåíêçä=C=íÉëíáåÖ bro QQKS UOKS MKN MKM =

coMMMMMPUORV boc=cm=bèìáíó brolcfkp=p`fbkq= mçääìíáçå=Åçåíêçä=C=íÉëíáåÖ bro SQKR UVRKN MKO MKO OKQ OKO NKV NKS

d_MMPNSPUPSP fqoh=ik=bèìáíó fkqboqbh mçääìíáçå=Åçåíêçä=C=íÉëíáåÖ d_m VOMKR O=NOPKT MKN MKP OKO OKN NKV NKT

d_MMMQTSQMTN gj^q=ik=bèìáíó glekplk=j^qqebv= mçääìíáçå=Åçåíêçä=C=íÉëíáåÖ d_m N=STNKM R=PVVKT MKO MKO MKS MKS MKS MKT

èMMMOQVTQRU pdpk=su=bèìáíó pdp=k=========== mçääìíáçå=Åçåíêçä=C=íÉëíáåÖ èc N=SMTKM T=SNMKP MKO MKP OKT OKU OKR OKN

_bMMMPSOSPTO rjf=__=bèìáíó rjf`lob========= mçääìíáçå=Åçåíêçä=C=íÉëíáåÖ bro NRUKU Q=NPMKV MKO MKQ MKR MKR MKR MKR

Source: JCF

59

CHEUVREUX EUROPE


Energy efficiency / Insulation and lighting


vqa

B=`Ü~åÖÉ=


d_MMMMTMPSMO _d_h=ik=bèìáíó _^ddbofadb=_of`h fåëìä~íáçå=éêçÇìÅíë d_m OPMKM NQMKN MKO MKR =

fbMMMQVOTVPV hpm=fa=bèìáíó hfkdpm^k=dolrm== fåëìä~íáçå=éêçÇìÅíë bro OOKQ P=UNOKP MKN MKS OKR OKO NKV NKU

ahMMNMONVNRP ol`h_=a`=bèìáíó ol`htlli=fkq=_== fåëìä~íáçå=éêçÇìÅíë ahh N=SQSKM Q=UTNKT MKV NKQ NKS OKS OKP NKV

coMMMMNORMMT pdl=cm=bèìáíó p^fkqJdl_^fk==== fåëìä~íáçå=éêçÇìÅíë bro UOKS PM=QRQKM MKP MKR MKU MKV MKV MKU

d_MMMUMORQNO pef=ik=bèìáíó pfd=mi`========= fåëìä~íáçå=éêçÇìÅíë d_m N=QNTKM O=RTOKU MKQ MKT MKU MKV MKU MKU

bpMNUONTMSNR ro^=pj=bèìáíó roîfq^========= fåëìä~íáçå=éêçÇìÅíë bro TKM N=PUQKR MKQ MKU NKN NKQ NKQ NKO

^qMMMMUPNTMS tfb=^s=bèìáíó tfbkbo_bodbo==== fåëìä~íáçå=éêçÇìÅíë bro RSKU Q=ONQKO MKP MKR OKM OKO OKM NKV

d_MMPPMRTTVQ af^=ik=bèìáíó afîfdeq======== iáÖÜíáåÖ d_m OMPKU VPKV JMKO MKM NKM MKV MKV MKU

^qMMMMUPTPMT w^d=^s=bèìáíó wrjql_bi======== iáÖÜíáåÖ bro OTKV N=OQSKQ MKO MKS NKM NKN NKM

Source: JCF

Energy efficiency / Power and electricity


vqa

B=`Ü~åÖÉ=


^qMMMMM^qb`V ^qb`=^s=bèìáíó ^Jqb`=fkarpqofbp mçïÉê=~åÇ=bäÉÅíêáÅáíó bro NUVKO N=OQUKS MKU = MKR MKS MKR MKQ

pbMMMMSVRUTS îc^=pp=bèìáíó îc^=i^sî====== mçïÉê=~åÇ=bäÉÅíêáÅáíó pbh QQPKM R=PMUKV MKQ NKM NKU OKN NKV NKT

coMMNMOOMQTR îl=cm=bèìáíó îpqlj========== mçïÉê=~åÇ=bäÉÅíêáÅáíó bro NNVKV NS=RTRKT MKO MKU NKM NKM MKV MKU

èMMMNRMPNVV _b^k=pt=bèìáíó _bifjl=eliafkd=k mçïÉê=~åÇ=bäÉÅíêáÅáíó èc N=PURKM RQRKM MKO MKR OKP OKR OKP OKN

d_MMMNVROMTR èia=ik=bèìáíó èilofab=dolrm== mçïÉê=~åÇ=bäÉÅíêáÅáíó d_m NSMKR RVSKV MKM MKS OKN NKU NKT NKS

coMMMMNONVTO pr=cm=bèìáíó pèkbfabo=bib`qo mçïÉê=~åÇ=bäÉÅíêáÅáíó bro NMUKQ OS=NTNKP MKP MKP NKR NKU NKT NKR

Source: JCF

Energy efficiency / Transportation


vqa

B=`Ü~åÖÉ=


abMMMRMTONMO _wi=do=bèìáíó _bor qê~åëéçêí~íáçå bro UNKU UNTKT MKM MKN =

d_MMMTPTMMTQ oàl=ik=bèìáíó of`ôal qê~åëéçêí~íáçå d_m PTOKR OTUKR MKN MKQ NKM NKM NKM

kiMMMMOPPVQU q^=k^=bèìáíó qbib=^qi^p====== qê~åëéçêí~íáçå bro NSKV N=RNQKV MKN JMKN QKT QKM PKN OKP

kiMMMMPUTMRU qljO=k^=bèìáíó qlj=qlj=kKsK===== qê~åëéçêí~íáçå bro PQKM P=UPQKV MKM MKM OKQ NKU NKR NKO

èMMOMSMVSUU fnm_=do=bèìáíó fn=mltbo qê~åëéçêí~íáçå bro OKM NQPKT MKN JMKN N=PRNKP PKM

Source: JCF

Renewable / Solar


vqa

B=`Ü~åÖÉ=


abMMM^MgjSPQ ^pN=do=bèìáíó îbl=pliô=k==== pçä~ê bro NNKV NRQKT MKT = MKS MKV MKT MKS

abMMMRNQURMS `Pl=do=bèìáíó `bkqolpliô===== pçä~ê bro VKN NOMKP MKM JMKR MKU MKS MKR MKR

abMMMSMQMMOR `dv=do=bèìáíó `lkbodv========= pçä~ê bro RSKR N=USQKR MKO MKN OKO NKT NKO MKV

abMMMSSOTRPO bpS=do=bèìáíó bopli=pliô=bkbo pçä~ê bro RTKU RSSKM MKP MKN PKR QKO OKO NKU

abMMM^MgnRrP = j^kw=^rqlj^qflk= pçä~ê bro SQKP OMVKQ NKT = NKT PKM OKN

èMMOTTMMURO j_qk=pt=bèìáíó jbvbo=_rodbo=k== pçä~ê èc NRMKN OSVKM NKS = NKR PKN OKP NKU

abMMM^M_srVP mpQ=do=bèìáíó melbkfu=plkkbkpq pçä~ê bro OMKM NONKR MKO JMKO MKS MKR MKQ MKP

abMMMRRRUSSO n`b=do=bèìáíó nJ`biip========= pçä~ê bro SOKM Q=USSKM MKU NKN QKR SKR QKR PKM

sddTRMM`NMSU pli^=ik=bèìáíó obkbpli^======== pçä~ê d_m RQNKR TVUKS MKP = VKS PKT OKN

klMMNMNNOSTR ob`=kl=bèìáíó obkbt^_ib=bkbodv pçä~ê klh NUVKR NN=RRTKN MKT NKM NNKV NPKP VKN RKS

d_MMPPSSRTOV olj=ik=bèìáíó olj^d=eliafkdp== pçä~ê d_m NVQKM NPMKN MKQ MKR PKQ QKT PKV

abMMM^Mg`wRN oUo=do=bèìáíó olqe=C=o^r====== pçä~ê bro UVKR OMRKV NKO NKR NKS NKT NKQ NKO

abMMMTMONMMU p^d=do=bèìáíó p^d=pliôpqolj== pçä~ê bro QKM RMKS MKQ JMKN =

abMMMTONUQMS pOj=do=bèìáíó pliô=jfiibkkfrj pçä~ê bro PRKP PQVKR NKM NKO NNKT VKR RKM OKO

abMMMSSNQTNO pcu=do=bèìáíó pliôJc^_ofh=^d pçä~ê bro NVKR NTPKP NKM MKT NKO NKR NKN

abMMM^M_RU_Q psT=do=bèìáíó pliôsîrb====== pçä~ê bro QNKT PRKN OKQ = =

abMMMRNMUQMN pts=do=bèìáíó pliôtloia====== pçä~ê bro SRKT P=SSTKO MKQ MKO QKV RKR QKN PKM

abMMMTQTNNVR pllN=do=bèìáíó plilk=========== pçä~ê bro QMKN PTQKT MKT MKM MKV NKM MKT MKS

abMMMTPPOOMT ptt=do=bèìáíó prkt^vp========= pçä~ê bro NMKN NNPKU MKQ JMKO MKR MKT MKT

abMMMtèUUUN tè=do=bèìáíó t^`hbo=èbjfb=== pçä~ê bro NRSKR U=NSNKV MKS MKT NKT OKP OKM NKU

Source: JCF

Renewable / Diversified


vqa

B=`Ü~åÖÉ=


fqMMMPNVUTVM ^`q=fj=bèìáíó ^`qbiflp======== aáîÉêëáÑáÉÇ bro VKN SNPKO MKN MKM RKM UKV NNKQ NOKU

fqMMMNORMVPO ebo=fj=bèìáíó ebo^============ aáîÉêëáÑáÉÇ bro PKQ P=QRNKV MKM MKQ NKV NKV NKU NKU

bpMNQQRUMMNU f_b=pj=bèìáíó f_boaoli^ aáîÉêëáÑáÉÇ bro QRKN RO=RPUKT MKQ MKU PKV QKS PKR PKP

fqMMMPMOTUNT foa=fj=bèìáíó fofab=========== aáîÉêëáÑáÉÇ bro OKU O=MOVKS MKN MKQ MKV NKP NKQ NKQ

coMMMMMSMQMO pbè=cm=bèìáíó pbèfifbkkb=pfab aáîÉêëáÑáÉÇ bro QUKR N=PPSKR MKO MKS UKS UKN TKV TKN

coMMNMOQRUMP jisbi=cm=bèìáíó sbi`^k=bkbodv=== eóÇêç bro OTKN NRQKQ MKP MKO =

^qMMMMTQSQMV sbo=^s=bèìáíó sbo_rka========= eóÇêç bro PUKV NO=MMNKP MKM MKN QKU QKM PKT PKR

rpSTQUTMPMUU lmq=ik=bèìáíó l`b^k=mltbo=qbè líÜÉê d_m TTMKM RUKR JMKN JMKN =

Source: JCF

60

CHEUVREUX EUROPE


Renewable / Wind


vqa

B=`Ü~åÖÉ=


_bMMMPUSRUOO = ^fo=bkbodv====== táåÇ bro OMKN TUKN = =

d_MM_MVeTwRS `tm=ik=bèìáíó ìfmmbo=tmo===== táåÇ d_m VNSKM N=QQSKQ MKR NKQ NQUKM PKQ OKM NKQ

coMMNMQMMNQP bbk=cm=bèìáíó bac=bkbod=klrs== táåÇ bro QPKU O=TNUKM MKN = TKV TKT VKU TKT

fqMMMMMTSNUV bko=fj=bèìáíó bkboqâ========= táåÇ bro QKP QMTKR MKO MKS NMKP NPKR NQKP TKQ

bpMNQPQNSNNR d^j=pj=bèìáíó d^jbp^========== táåÇ bro OTKT S=TPOKM MKP MKT OKQ OKS OKN NKV

ahMMNMOQMRNQ dbp=a`=bèìáíó dobbkqbè=bkbodv táåÇ ahh USKM PRTKS MKP MKR =

èMMMUMNOOPS dro=pt=bèìáíó drofq=f========= táåÇ èc N=QVPKM QPPKV MKQ NKP NKQ NKS NKP NKO

abMMM^MaSRRQ kauN=do=bèìáíó kloabu=hlks===== táåÇ bro OVKP N=UURKP NKN NKO NKR OKO NKS NKO

d_MM_NsuNoUN ksb=ik=bèìáíó klsbo^=bkbodv=== táåÇ d_m TOKR RUKS MKO MKO UKP

abMMM^Mg_mdO mkbP=do=bèìáíó mi^j_b`h=hlks=k= táåÇ bro PKR NPNKU MKS MKN =

abMMMSNTTMPP omt=do=bèìáíó obmltbo=pvpqbj=k táåÇ bro NPOKN N=MUNKM MKT OKM NKN NKR NKM MKV

coMMMMNUQUNQ qbl=cm=bèìáíó qeblif^========= táåÇ bro OVKP RQTKN NKQ NKQ OKM OKS OKP OKP

ahMMNMOSUSMS stp=a`=bèìáíó sbpq^p=tfka===== táåÇ ahh PURKR V=UMPKS MKS NKS NKR OKO NKV NKS

Source: JCF

Waste management


vqa

B=`Ü~åÖÉ=


d_MMMORMQROV qbd=ik=bèìáíó qbd=dolrm======= bèìáéãÉåí d_m NPSKM TSKP MKT MKV = SKR OKP NKU

klMMMRSSUVMR qlj=kl=bèìáíó qljo^=pvpqbjp=== bèìáéãÉåí klh ROKM N=NQRKS MKO JMKN OKM OKR OKN NKV

d_MM_MOeOcTS ^rd=ik=bèìáíó ^rdb^k========== pÉêîáÅÉ d_m NQTKU NQOKT MKN MKM PKU PKR OKV

coMMMMMPVOPO ^rob=cm=bèìáíó ^rob^=========== pÉêîáÅÉ bro NTKU ONPKQ MKP MKU PKR PKN OKQ NKV

d_MM_NOVmiTT _fcc=ik=bèìáíó _fcc^=========== pÉêîáÅÉ d_m PPMKM N=TMOKU MKN = NKV NKV NKT

coMMMMMPVMRV `cc=cm=bèìáíó `KcKcKob`vìfkdK pÉêîáÅÉ bro QTKP N=NONKN MKS MKT = MKR MKR

coMMNMONQMSQ dmb=cm=bèìáíó dolrmb=mfwwlokl= pÉêîáÅÉ bro PUKP NRPKN MKM MKM NKR NKR NKQ NKP

abMMMSOMVVMN fqp=do=bèìáíó fkqbopbole====== pÉêîáÅÉ bro QVKM QUOKN MKS MKS MKP MKQ MKP MKO

cfMMMVMNMURQ i^qNs=ce=bèìáíó i^ppfi^Cqfh^klg^ pÉêîáÅÉ bro OTKP N=MRNKU MKP MKS OKM OKM NKU NKT

coMMMMMPVNMV pèm=cm=bèìáíó pbèb=bksfolkkbj pÉêîáÅÉ bro NQOKS N=OPNKU MKM MKP PKO PKU PKQ PKN

d_MMMTVVROQP php=ik=bèìáíó pe^khp=dolrm==== pÉêîáÅÉ d_m OTOKP VQPKP MKO MKS NKS NKT NKS NKR

pbMMMMSRPOPM psfh=pp=bèìáíó pqrapsfh=^_===== pÉêîáÅÉ pbh OROKM OOOKP MKM MKN NKU NKS NKP

Source: JCF

Water management / distribution & treatment


vqa

B=`Ü~åÖÉ=


fqMMMNOMTMVU ^`b=fj=bèìáíó ^`b^============ aáëíêáÄìíáçå=L=qêÉ~íãÉåí bro NSKR P=RNSKM MKN MKS OKM OKN NKV OKM

bpMNQNPPM`NV ^dp=pj=bèìáíó ^dr^p=_ôk^=^=== aáëíêáÄìíáçå=L=qêÉ~íãÉåí bro OTKS Q=NPTKU MKM MKP NKV NKT NKR NKQ

d_MMPNTVUQQV ast=ik=bèìáíó abb=sîibv=dom== aáëíêáÄìíáçå=L=qêÉ~íãÉåí d_m N=NPMKM TSKV MKM MKN =

dopPRVPRPMMM bva^m=d^=bèìáíó ^qebkp=t^qboo== aáëíêáÄìíáçå=L=qêÉ~íãÉåí bro TKP TTRKP MKM MKN OKP OKP OKN

abMMMTTSMMMN ttd=do=bèìáíó dbipbkt^ppbo==== aáëíêáÄìíáçå=L=qêÉ~íãÉåí bro RSMKM N=VORKM MKO MKO =

d_MMMVUTTVQQ hbi=ik=bèìáíó hbia^=dolrm===== aáëíêáÄìíáçå=L=qêÉ~íãÉåí d_m N=MOOKM R=QMQKN MKN MKQ SKN SKS SKO TKO

d_MMPPMOVTQQ ktd=ik=bèìáíó kloqerj_of^k=t^qbo== aáëíêáÄìíáçå=L=qêÉ~íãÉåí d_m PQVKR O=STPKP MKN MKQ RKU RKU RKS RKQ

d_MM_NUsUSPM mkk=ik=bèìáíó mbkklk=dolrm==== aáëíêáÄìíáçå=L=qêÉ~íãÉåí d_m SSUKR P=RNMKV MKO MKR QKV QKV QKT QKM

d_MM_NceUgTO psq=ik=bèìáíó pbsbok=qobkq==== aáëíêáÄìíáçå=L=qêÉ~íãÉåí d_m N=RTMKM R=PVTKU MKN MKP QKP QKR QKQ QKO

rpUQQTQNNMUU irs=rp=bèìáíó plrqetbpq=tqo=== aáëíêáÄìíáçå=L=qêÉ~íãÉåí rpa NQKP U=PTUKU JMKN JMKN NKP NKO NKM NKM

d_MMMSQSOPPS rrL=ik=bèìáíó rkfqba=rqfifqfbp aáëíêáÄìíáçå=L=qêÉ~íãÉåí d_m TSVKM V=VROKO MKM MKO QKV QKU QKU QKR

coMMMMNOQNQN sfb=cm=bèìáíó sblif^=bksfolk== aáëíêáÄìíáçå=L=qêÉ~íãÉåí bro SPKN OR=VMQKT MKN MKQ NKP NKP NKO NKN

Source: JCF

Water management / equipment


vqa

B=`Ü~åÖÉ=


kiMMMMURORSQ ^î_=k^=bèìáíó ^î_boqp=fkarpqo bèìáéãÉåí bro ONKM O=NORKS MKP MKR NKR NKS NKQ NKO

^qMMMMTPTTMR _tq=^s=bèìáíó _tq=^d========== bèìáéãÉåí bro QUKV UTOKQ MKP MKU NKV OKO OKM NKT

^qMMMMQVVNRT `tq=^s=bèìáíó èofpq=t^qbo=qb` bèìáéãÉåí bro NQKO OROKR MKO MKN NKO NKN NKN

èMMPMNTMQMU db_k=pt=bèìáíó db_bofq=kN====== bèìáéãÉåí èc ONRKM R=QNQKV MKN MKS PKS PKS PKP PKN

d_MMMQQVVQUU eva=ik=bèìáíó evaol=fkqi====== bèìáéãÉåí d_m NVRKM QMKS MKO MKR =

d_MMMTRMSVRU olo=ik=bèìáíó olqloh=mi`====== bèìáéãÉåí d_m VPPKR N=NUTKV MKN MKP PKP PKP OKV OKP

d_MMMUPQTMQU pmu=ik=bèìáíó pmfoûJpô`l=bkd bèìáéãÉåí d_m N=MTTKR N=OMNKV MKN MKO OKM OKM NKU NKV

cfMMMVMMONRU rkoNs=ce=bèìáíó rmlklo========== bèìáéãÉåí bro PMKS O=OTSKN MKN MKQ NKU NKU NKT NKS

Source: JCF

61

CHEUVREUX EUROPE


III— COMPANY PROFILES

Abengoa .....................................................................................................................63

Alstom ........................................................................................................................69

Eurofins Scientific.......................................................................................................75

Hera ............................................................................................................................81

Neste Oil .....................................................................................................................87

Schmack Biogas.........................................................................................................93

62

CHEUVREUX EUROPE


63

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Abengoa (EUR28.77) Electrical Equipment - 8 June 2007

Rating: 1/Selected List - Target price: +30.3% EUR37.5 Fernando Alfaro, Isabel Carballo

To 31/12 (EUR) 2006 2007E 2008E 2009ESales (m) 2677.2 3445.9 3822.4 4220.3Net att. profit, rest. (m) 100.4 139.8 164.7 206.0Free Cash Flow (m) (413.7) (164.7) (34.9) 296.3EBITDA margin (%) 10.8 11.4 11.2 12.1Clean EPS 1.11 1.55 1.82 2.28

Reported EPS 1.11 1.55 1.82 2.28

P/E (x) 25.1 18.6 15.8 12.6Attrib. FCF yield (%) NS NS NS 9.8EV/EBITDA (x) 15.0 11.5 10.7 8.3EV/EBIT (x) 19.7 14.6 13.5 10.7

ROCE (%) 13.0 15.5 15.2 18.4ROE (%) 29.5 31.5 28.5 27.7P/BV (x) 6.7 5.2 4.1 3.2Net debt/EBITDA (x) 4.4 3.7 3.5 2.4

Net dividend 0.17 0.18 0.20 0.22Yield (%) 0.6 0.6 0.7 0.8

3.7

8.7

13.7

18.7

23.7

28.7

33.7

01/01 10/01 08/02 06/03 04/04 01/05 11/05 08/06 05/07

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Market capitalisation EUR 2603 m MADRID GEN 1633.86 1 month 3 months 12 months

No. of shares, adjusted 90.47 m Reuters ABG.MC Absolute perf. 2.8% -1.6% 63.8% Daily volume EUR 11.18 m Bloomberg ABG SM Relative perf. 1.5% -5.1% 19.6%

Shareholders: Inversion Corporativa 56.0%, Free float 44.0%

Bioethanol leader, strong core business

Company profile Valuation

Abengoa is a leading industrial engineering company which has been diversifying away from its traditional engineering business (49% EBITDA 2006) into bioenergy (19%), IT (14%) and environmental services (17%). Abengoa is the leading bioethanol producer in Europe and 5th in the US and it is the leader in technology development in solar thermo electrical energy.

By country, Spain accounts for 44% of group sales, LatAm 28%, the US and Canada represent 11% (thanks to the expanding bioenergy and IT businesses), whilst the remaining 18% is RoW. Abengoa’s IT business is carried out by Telvent (a Nasdaq-listed company), and its environmental services are managed by Befesa (listed on the Madrid General Index).

Significant free cash flow generation (ex growth capex of EUR300m in 06E) will continue to be invested in new renewable energy activities (mainly biofuels, solar and desalination plants). Abengoa finances most of its projects with non-recourse debt. Considering all the group's debt, Abengoa will end 2006 with a net debt of EUR1.2bn, or 4.5X EBITDA (which we believe will drop to 3.5X in 08E), although excluding project finance, the group has no debt.

Inversión Corporativa, a holding company mainly owned by four families (one of which is the Benjumea family), remains the major shareholder, with a 56% stake.

We obtain a target price of EUR37.50, which is 30% above current market prices. Our valuation is based on the following assumptions:

• Traditional engineering (37% of EV): EV of EUR1.9bn using a DCF with a weighted average WACC of 10% (WACC of 8.3% for the European activities & WACC of 11.7% for LatAm) and a blended terminal growth rate of 3%. The implicit EV/EBITDA 10X07 multiple represents a 25% discount to peers.

• Environmental services (23% of EV): EV of EUR1.1bn (10.7X07E EV/EBITDA) calculated by DCF (WACC 8.5%, g of 2.5%).

• Bioenergy (22% of EV): EV of EUR1.1bn. We include in our DCF 1.5bn litres of bioethanol capacity by end-07, applying a WACC of 8.2% and a growth rate of 2.5%.

• IT/Telvent (9% of EV): EV of EUR442m (10X07 EV/EBITDA) using a DCF (WACC 9.0%, g 2.5%).

• Solar (Equity of EUR365m): using a DCF to value the 31MW installed capacity and a multiple of EUR 0.9m/MW for its project pipeline (269MW).

The company is trading on a PE07E of 20X and an EV/EBITDA of 12X07E, or a 20% discount to the most comparable peers in the European engineering sector.

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Investment case SWOT analysis

We maintain our 1/Selected List rating for the following reasons:

1) Solid fundamentals: Abengoa has a leading position in traditional engineering, and is also the leading bioethanol producer in Europe and a global leader in technology development in solar thermal electrical energy.

2) Strong growth: In spite of rising growth capex in renewable energy projects, where the benefit will not be felt until 2009-10, this strong growth, together with expected EPS growth of around 40% (2007) and 18% (2008), makes Abengoa one of the fastest-growing companies in our universe.

3) Strong FCF and balance sheet, good redeployment strategy: Recurring FCF of over EUR250m p.a. and a strong balance sheet, with no debt other than project finance, will allow Abengoa to continue to actively invest the cash flow from the core engineering business into faster-growth activities.

4) Attractive valuation: Our EUR37.50 target price offers 30% upside potential. Abengoa trades at a 20% discount to its peers.

Strengths 1) 65 years of leadership in traditional engineering. 2) Leading bioethanol producer in Europe and fifth in US. 3) Technology (efficiency and R&D). 4) Good market positioning in all divisions.

Weaknesses 1) Bioethanol dependent on fuel prices (substitute product). 2) Exposure to agricultural and natural gas prices. 3) Cyclical nature of installation business. 4) Information transparency could be improved

Opportunities 1) Increased use of biofuels. 2) Developing the solar energy market. 3) Expand in desalination and industrial waste activities. 4) Increasing critical mass in US market (bioenergy, IT).

Threats 1) Increasing cereal costs in bioenergy division. 2) Decreasing ethanol prices. 3) Exposure to more volatile LatAm markets. 4) Changes in bioethanol tax incentives.

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Sales & ROCE Margin / Trends (%)

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Abengoa

FY to 31/12 (Euro m) 2001 2002 2003 2004 2005 2006 2007E 2008E 2009E

Profit & Loss Account

Sales 1,379.9 1,521.9 1,635.3 1,746.1 2,023.5 2,677.2 3,445.9 3,822.4 4,220.3

% Change 14.6% 10.3% 7.5% 6.8% 15.9% 32.3% 28.7% 10.9% 10.4%

Staff costs (225.5) (242.0) (243.3) (274.1) (325.9) (402.7) (372.0) (388.8) (406.3)

Other costs (988.0) (1,105.1) (1,206.8) (1,291.8) (1,481.2) (1,986.6) (2,680.4) (3,004.3) (3,303.0)

EBITDA 166.4 174.8 185.2 180.2 216.4 287.9 393.5 429.3 511.0

% Change 33.7% 5.0% 5.9% -2.7% 20.1% 33.0% 36.7% 9.1% 19.0%

Depreciation (49.5) (56.5) (70.3) (52.8) (52.9) (68.7) (82.1) (90.4) (112.9)

EBITA 116.9 118.3 114.9 127.4 163.5 219.2 311.4 338.9 398.1

% Change 39.2% 1.2% -2.9% 10.9% 28.3% 34.1% 42.1% 8.8% 17.5%

Goodwill amortisation before OP 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Goodwill amortisation [impairment test] 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Non recurring operational items 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

EBIT 116.9 118.3 114.9 127.4 163.5 219.2 311.4 338.9 398.1

Net financial items (51.8) (67.2) (31.6) (78.3) (58.8) (91.9) (112.3) (103.2) (98.1)

Non recurring financial items 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Other exceptional items 0.0 0.0 (1.7) 0.0 0.0 0.0 0.0 0.0 0.0

Tax (11.9) 21.4 (16.7) 7.5 (31.6) (13.3) (42.1) (50.8) (70.5)

Associates [contribution] 2.0 3.1 2.3 3.6 5.4 7.5 8.1 8.7 9.1

Discontinuing activities 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Goodwill amortisation (14.4) (16.7) (19.4) 0.0 0.0 0.0 0.0 0.0 0.0

Net profit [loss] before minorities 40.8 58.9 47.8 60.2 78.5 121.6 165.2 193.5 238.6

Dividend to preferred shares 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Minorities (0.6) (1.7) (0.8) (7.8) (12.5) (21.2) (25.4) (28.8) (32.6)

Net attributable profit [loss] 40.2 57.2 47.0 52.4 66.0 100.4 139.8 164.7 206.0

Restatement [impairment test] 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Adj. for exceptional items 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Net attrib. profit [loss], restated 54.6 73.9 66.4 52.4 66.0 100.4 139.8 164.7 206.0

% Change -10.9% 35.3% -10.1% -21.1% 26.0% 52.1% 39.2% 17.8% 25.1%

Cash Flow Statement

Cash flow 104.1 129.0 135.2 109.4 126.0 182.7 239.1 275.2 342.4

% Change 2.3% 23.9% 4.8% -19.1% 15.2% 45.0% 30.9% 15.1% 24.4%

Change in WCR (2.3) 319.1 (130.2) 48.9 165.5 251.1 100.7 53.4 52.4

Capex (82.0) (213.0) (85.0) (196.9) (504.8) (847.5) (504.5) (363.5) (98.5)

o/w Growth capex 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Net cash flow 19.8 235.1 (80.0) (38.6) (213.3) (413.7) (164.7) (34.9) 296.3

Financial investments 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Net buyback of treasury shares 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Disposals 50.0 0.0 51.0 92.0 88.6 0.0 0.0 0.0 0.0

Dividend paid (12.5) (12.7) (12.7) (12.7) (13.6) (14.9) (16.4) (18.1) (19.9)

Capital increase 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Other cash flow (184.5) 318.2 26.2 (12.3) (32.9) (370.7) 0.0 0.0 0.0

Dec. [inc.] in net debt (127.2) 540.6 (15.5) 28.4 (171.2) (799.3) (181.1) (53.0) 276.4

Balance Sheet

Shareholders' equity [group share] 316.9 310.8 330.8 304.1 395.1 390.1 513.4 660.1 846.2

Minority interests 46.2 40.8 47.1 109.1 131.1 151.0 176.4 205.2 237.9

Pension provisions 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Other provisions 117.6 140.4 215.1 108.6 98.6 237.8 237.8 237.8 237.8

Net debt [cash] 593.3 233.9 456.4 544.9 745.9 1,280.5 1,461.6 1,514.6 1,238.1

Gearing [%] 163.4 66.5 120.8 131.9 141.8 236.6 211.9 175.0 114.2

Capital invested 1,074.0 725.9 1,049.4 1,066.7 1,370.7 2,059.4 2,389.2 2,617.7 2,560.0

Goodwill 281.3 306.0 319.4 297.3 303.4 595.5 595.5 595.5 595.5

Intangible assets 94.9 132.7 103.9 334.1 589.6 807.4 807.4 807.4 807.4

Tangible assets 612.2 623.8 760.9 647.8 817.0 1,007.1 1,429.5 1,702.6 1,688.2

Financial assets 37.9 133.9 75.3 57.2 84.2 374.1 382.2 390.9 400.0

Associates 0.0 0.0 0.0 38.2 50.0 0.0 0.0 0.0 0.0

Working capital requirement 47.7 (470.5) (210.1) (308.0) (473.5) (724.6) (825.3) (878.7) (931.1)

WCR as a % of sales 3.5 (30.9) (12.8) (17.6) (23.4) (27.1) (24.0) (23.0) (22.1)

Capital employed 1,074.0 725.9 1,049.4 1,066.6 1,370.7 2,059.5 2,389.3 2,617.7 2,560.0

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Abengoa

FY to 31/12 (Euro) 2001 2002 2003 2004 2005 2006 2007E 2008E 2009E

Per Share Data (at 8/6/2007)

EPS before goodwill 0.60 0.82 0.73 0.58 0.73 1.11 1.55 1.82 2.28

% Change -10.9% 35.3% -10.2% -21.1% 26.1% 52.1% 39.2% 17.8% 25.1%

EPS, reported 0.44 0.63 0.52 0.58 0.73 1.11 1.55 1.82 2.28

% Change -26.9% 42.3% -17.7% 11.3% 26.1% 52.1% 39.2% 17.8% 25.1%

Goodwill per share 0.16 0.19 0.21 0.00 0.00 0.00 0.00 0.00 0.00

Dividend per share 0.14 0.14 0.14 0.14 0.15 0.17 0.18 0.20 0.22

Cash flow per share 1.15 1.43 1.49 1.21 1.39 2.02 2.64 3.04 3.79

% Change 2.3% 23.9% 4.8% -19.1% 15.2% 44.9% 30.9% 15.1% 24.4%

Book value per share 3.4 3.3 3.5 3.2 4.2 4.1 5.5 7.1 9.1

No. of shares, adjusted 90.470 90.470 90.470 90.470 90.470 90.470 90.470 90.470 90.470

Av. number of shares, adjusted 90.470 90.470 90.470 90.470 90.470 90.470 90.470 90.470 90.470

Treasury stock, adjusted 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000

Share Price [Adjusted]

Latest price 6.91 5.60 5.77 7.27 12.41 27.81 28.77 28.77 28.77

High 9.29 8.97 6.21 7.81 15.20 29.96 32.46 - -

Low 6.00 4.15 4.03 5.73 7.23 12.35 25.42 - -

Average price 7.82 6.91 5.12 7.01 10.65 20.75 29.76 - -

Market capitalisation 625.1 506.6 522.0 657.7 1,122.7 2,516.0 2,602.8 2,602.8 2,602.8

Enterprise value 1,228.0 755.1 986.9 1,262.7 2,030.9 4,326.5 4,538.2 4,573.1 4,254.1

Valuation

P/E 15.6 8.9 11.1 12.6 17.0 25.1 18.6 15.8 12.6

P/E before goodwill 11.5 6.9 7.9 12.6 17.0 25.1 18.6 15.8 12.6

P/CF 6.0 3.9 3.9 6.0 8.9 13.8 10.9 9.5 7.6

Attrib. FCF yield [%] 3.1 45.1 NS NS NS NS NS NS 9.8

P/BV 2.1 1.7 1.6 2.3 2.9 6.7 5.2 4.1 3.2

Enterprise value / Op CE 1.2 1.3 1.0 1.3 1.6 2.6 2.3 2.1 2.0

Yield [%] 2.0 2.5 2.4 1.9 1.2 0.6 0.6 0.7 0.8

EV/EBITDA, restated 7.4 4.3 5.3 7.0 9.4 15.0 11.5 10.7 8.3

EV/EBITA, restated 10.5 6.4 8.6 9.9 12.4 19.7 14.6 13.5 10.7

EV/Sales 0.89 0.50 0.60 0.72 1.00 1.6 1.3 1.2 1.0

EV/Debt-adjusted cash flow 8.5 3.2 6.2 5.9 10.8 14.3 12.4 11.5 9.2

Financial Ratios

Interest cover 2.3 1.8 3.6 1.6 2.8 2.4 2.8 3.3 4.1

Net debt/Cash flow 5.7 1.8 3.4 5.0 5.9 7.0 6.1 5.5 3.6

EBITDA margin [%] 12.1 11.5 11.3 10.3 10.7 10.8 11.4 11.2 12.1

EBITA margin [%] 8.5 7.8 7.0 7.3 8.1 8.2 9.0 8.9 9.4

Net margin [%] 3.0 3.9 2.9 3.4 3.9 4.5 4.8 5.1 5.7

Capital turn [Sales/ Op. CE] 1.3 2.6 1.7 1.8 1.6 1.6 1.7 1.7 2.0

Gearing [%] 163.4 66.5 120.8 131.9 141.8 236.6 211.9 175.0 114.2

Payout ratio [%] 31.5 22.1 26.9 24.2 20.6 15.3 11.6 11.0 9.7

Return [%]

Pre-tax RoCE 11.3 20.0 11.8 13.1 13.2 13.0 15.5 15.2 18.4

RoCE after tax 8.7 31.4 8.7 15.0 9.4 11.7 12.4 12.1 14.2

ROE [%] 13.5 20.3 15.3 18.9 18.2 29.5 31.5 28.5 27.7

Return on equity, restated 13.5 20.3 15.3 18.9 18.2 29.5 31.5 28.5 27.7

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Alstom (EUR112.97) Electrical Equipment - 8 June 2007

Rating: 1/Selected List - Target price: +19.5% EUR135 Alfred Glaser, Antoine Boivin-Champeaux

To 31/3 (EUR) - IFRS 2006/07 2007/08E 2008/09E 2009/10ESales (m) 14208.0 16333.4 18449.8 20313.3Net att. profit, rest. (m) 448.0 767.0 963.7 1165.5Free Cash Flow (m) 1045.0 936.0 865.3 1061.3EBITDA margin (%) 8.3 9.4 9.8 10.2Clean EPS 3.35 5.64 7.05 8.50

Reported EPS 3.29 5.64 7.09 8.57

P/E (x) 29.0 20.0 16.0 13.3Attrib. FCF yield (%) 8.1 6.0 5.6 6.8EV/EBITDA (x) 11.3 9.9 8.1 6.6EV/EBIT (x) 13.8 12.5 9.9 7.9

ROCE (%) 22.3 28.3 33.5 38.7ROE (%) 22.3 30.6 30.3 29.0P/BV (x) 6.2 5.7 4.5 3.6Net debt/EBITDA (x) 0.1 (0.4) (0.7) (1.0)


12.0

112.0

212.0

312.0

412.0

512.0

612.0

01/01 10/01 08/02 05/03 03/04 12/04 10/05 08/06 06/07

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Market capitalisation EUR 15366 m SBF250 4192.05 1 month 3 months 12 months

No. of shares, adjusted 136.018 m Reuters ALSO.PA Absolute perf. -1.6% 22.9% 81.5% Daily volume EUR 113.74 m Bloomberg ALO FP Relative perf. 0.9% 15.7% 42.8%

Shareholders : Free Float 74.7%, Bouygues 25.3%

Not the faintest sign of a slowdown


Alstom is one of the world leaders in power generation (62% of sales) and rail transport equipment and services (38% of sales), areas of business on which it refocused following financial difficulties encountered as from 2001.

Alstom's sales totalled EUR14.2bn in FY 2006-07, and the group generated an operating income of EUR957m.

60% of new orders came from Europe last year, 12% from Asia and 17% from North America.

The group is present in 70 countries and employs more than 65,000 people.

We value Alstom at EUR135 per share, including a speculative premium of EUR10.

Our DCF model fundamentally values the share at EUR125 with what we view as realistic average assumptions for the coming decades (i.e. 3.0% sales growth, an operating margin of 7.0% and a beta of 1.30).

We add to this fundamental valuation a speculative premium of EUR10: the possible combinations with Areva and / or Bouygues are very likely to generate additional value for Alstom's shareholders.

Compared to the other large Electrical Equipment manufacturers in Europe, Alstom is now trading at an average valuation discount of 1% despite its excellent visibility and strong earnings growth.

We currently expect average EPS growth of 36% over the next three years.

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The main factor in Alstom's story remains the ongoing 'super-cycle' in power generation, fuelling earnings and cash flow growth over the next few years. Alstom is one of the main beneficiaries of this trend due to its global footprint and strong technology portfolio, particularly in steam technology for coal and nuclear, hydro and environmental control systems. Its backlog has reached EUR32.3bn, or 2.3x last year's sales.

The problems of the past have been resolved by the CEO, Patrick Kron, and his team: the GT26 gas turbines are selling well, restructuring and disposals are complete and project management has improved tremendously.

Alstom is now able to fully benefit from the volume and price hikes in most of its markets: we expect operating income to grow by 82% over the next three years, and we forecast a 36% EPS CAGR.

Announcements of major contracts and some add-on acquisitions are likely to fuel the news flow.

The speculative appeal of Alstom, which is 25%-owned by Bouygues and thinking about potential combinations with Areva, might even increase given the changes in the political landscape in France.

Strengths − Positions among the world leaders in power

generation and rail transport.

− An impressive recovery after having come close to bankruptcy, thanks to drastic measures implemented by the CEO, Mr Kron.

Weaknesses − Market share below 15% in the large gas turbine

segment (GT26).

− Absence from certain segments (wind power and industrial gas turbines), that would offer very favourable market prospects.

Opportunities − Growth in services and environmental control

systems.

− Set to benefit from potential improvements in the transport business and markets.

− Design and implementation of a value-creating deal with Areva and Bouygues.

Threats − Risk of overpaying for acquisitions.

− Competition from emerging markets players.

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Alstom

FY to 31/3 (Euro m) 2002/03 2003/04 2004/05 2004/05 2005/06 2006/07 2007/08E 2008/09E 2009/10E


Sales 21,351.0 16,688.0 13,662.0 13,527.0 13,413.0 14,208.0 16,333.4 18,449.8 20,313.3

% Change -9.0% -21.8% -18.1% -1.0% -0.8% 5.9% 15.0% 13.0% 10.1%

Staff costs (4,167.5) (3,488.4) (2,601.4) (2,601.4) (2,437.7) (2,439.7) (2,658.3) (2,843.2) (2,959.8)

Other costs (15,970.5) (12,553.6) (10,192.6) (10,240.6) (9,907.3) (10,595.3) (12,144.1) (13,807.6) (15,281.5)

EBITDA 1,213.0 646.0 868.0 685.0 1,068.0 1,173.0 1,531.0 1,799.0 2,072.0

% Change -12.3% -46.7% 34.4% 55.9% 9.8% 30.5% 17.5% 15.2%

Depreciation (420.0) (346.0) (318.0) (318.0) (322.0) (216.0) (320.0) (330.0) (330.0)

EBITA 793.0 300.0 550.0 367.0 746.0 957.0 1,211.0 1,469.0 1,742.0

% Change -15.7% -62.2% 83.3% 103.3% 28.3% 26.5% 21.3% 18.6%




EBIT 793.0 300.0 550.0 367.0 746.0 957.0 1,211.0 1,469.0 1,742.0

Net financial items (270.0) (460.0) (346.0) (398.0) (222.0) (111.0) (26.0) 4.0 34.0


Other exceptional items (1,855.0) (1,111.0) (642.0) (433.0) (19.0) (230.0) (135.0) (135.0) (135.0)

Tax 263.0 (251.0) (203.0) (163.0) (125.0) (145.0) (273.0) (361.3) (459.5)

Associates [contribution] 3.0 0.0 0.0 0.0 (1.0) 0.0 0.0 0.0 0.0

Discontinuing activities 0.0 0.0 0.0 0.0 (198.0) (32.0) 0.0 0.0 0.0

Goodwill amortisation (351.0) (316.0) (223.0) 0.0 0.0 0.0 0.0 0.0 0.0

Net profit [loss] before minorities (1,417.0) (1,838.0) (864.0) (627.0) 181.0 439.0 777.0 976.7 1,181.5


Minorities (15.0) 2.0 (1.0) (1.0) (3.0) 9.0 (10.0) (13.0) (16.0)

Net attributable profit [loss] (1,432.0) (1,836.0) (865.0) (628.0) 178.0 448.0 767.0 963.7 1,165.5



Net attrib. profit [loss], restated (1,081.0) (1,520.0) (642.0) (628.0) 376.0 448.0 767.0 963.7 1,165.5

% Change NS -40.6% 57.8% 159.9% 19.1% 71.2% 25.6% 20.9%

Cash Flow Statement

Cash flow (1,087.0) (1,053.0) (91.0) 19.0 369.0 785.0 1,103.2 1,301.7 1,506.5

% Change NS 3.1% 91.4% NS 112.7% 40.5% 18.0% 15.7%

Change in WCR 550.0 (5.0) (36.0) (29.0) 363.0 540.0 132.8 (126.4) (125.2)

Capex (410.0) (254.0) (182.0) (213.0) (207.0) (280.0) (300.0) (310.0) (320.0)

o/w Growth capex 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Net cash flow (947.0) (1,312.0) (309.0) (223.0) 525.0 1,045.0 936.0 865.3 1,061.3

Financial investments 31.0 361.0 (320.0) (362.0) (13.0) (232.0) (150.0) 0.0 0.0


Disposals 38.0 1,454.0 301.0 301.0 257.0 1.0 0.0 0.0 0.0

Dividend paid (1.0) (3.0) (5.0) (5.0) (4.0) (6.0) (108.8) (186.3) (234.1)

Capital increase 622.0 1,024.0 2,022.0 2,022.0 6.0 0.0 0.0 0.0 0.0

Other cash flow (505.0) 131.0 (213.0) 637.0 (368.0) 722.0 0.0 0.0 0.0

Dec. [inc.] in net debt (762.0) 1,655.0 1,476.0 2,370.0 403.0 1,530.0 677.2 679.0 827.2

Balance Sheet

Shareholders' equity [group share] 805.0 29.0 1,182.0 1,515.0 1,782.0 2,229.0 2,887.0 3,664.2 4,595.4



Other provisions 3,631.0 3,489.0 3,156.0 2,322.0 2,120.0 2,061.0 2,067.2 2,062.2 2,057.2

Net debt [cash] 4,918.0 4,242.0 1,563.0 1,677.0 1,269.0 90.0 (587.2) (1,266.3) (2,093.6)

Gearing [%] NS NS 124.4 105.9 69.0 4.0 NS NS NS

Capital invested 10,421.0 8,670.0 6,801.0 6,406.0 6,021.0 4,934.0 4,931.0 5,037.1 5,152.0

Goodwill 4,440.0 3,424.0 3,194.0 3,417.0 3,323.0 3,510.0 3,660.0 3,660.0 3,660.0

Intangible assets 1,168.0 956.0 909.0 1,222.0 1,197.0 1,191.0 1,191.0 1,191.0 1,191.0

Tangible assets 2,331.0 1,569.0 1,468.0 1,707.0 1,361.0 1,370.0 1,350.0 1,330.0 1,320.0

Financial assets 1,294.0 1,217.0 1,264.0 1,290.0 1,250.0 617.0 617.0 617.0 617.0

Associates 245.0 160.0 118.0 118.0 99.0 34.0 34.0 34.0 34.0

Working capital requirement 943.0 1,344.0 (152.0) (1,348.0) (1,209.0) (1,788.0) (1,920.8) (1,794.5) (1,669.3)

WCR as a % of sales 4.4 8.1 (1.1) (10.0) (9.0) (12.6) (11.8) (9.7) (8.2)

Capital employed 10,421.0 8,670.0 6,801.0 6,406.0 6,021.0 4,934.0 4,931.2 5,037.5 5,152.7

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Alstom

FY to 31/3 (Euro) 2002/03 2003/04 2004/05 2004/05 2005/06 2006/07 2007/08E 2008/09E 2009/10E


EPS before goodwill (153.51) (51.00) (4.48) (4.38) 2.83 3.35 5.64 7.05 8.50

% Change NS 66.8% 91.2% 164.6% 18.3% 68.4% 25.1% 20.6%

EPS, reported (203.35) (69.50) (6.36) (4.62) 1.31 3.29 5.64 7.09 8.57

% Change NS 65.8% 90.9% 128.4% 151.6% 71.2% 25.6% 20.9%



Cash flow per share (154.36) (35.24) (0.52) 0.27 2.78 5.77 8.05 9.48 10.95

% Change NS 77.2% 98.5% NS 107.5% 39.6% 17.7% 15.5%






Latest price 77.93 32.30 22.40 22.40 48.62 97.15 112.97 112.97 112.97

High 250.08 94.66 - 64.85 50.30 103.00 121.44 - -

Low 53.32 15.91 - 12.40 22.00 48.73 84.55 - -

Average price 158.28 47.01 - 30.24 33.28 71.36 101.36 - -

Market capitalisation 548.8 853.2 3,590.9 3,046.8 9,412.4 13,214.1 15,366.0 15,366.0 15,366.0

Enterprise value 5,669.3 5,248.7 5,288.9 4,843.8 10,798.9 13,218.9 15,167.6 14,488.5 13,677.0

Valuation

P/E NS NS NS NS 17.2 29.0 20.0 16.0 13.3

P/E before goodwill NS NS NS NS 17.2 29.0 20.0 16.0 13.3

P/CF NS NS NS 84.3 17.5 16.8 14.0 11.9 10.3

Attrib. FCF yield [%] NS NS NS NS 5.6 8.1 6.0 5.6 6.8

P/BV 0.7 NS 2.6 2.0 3.7 6.2 5.7 4.5 3.6


Yield [%] 0.0 0.0 0.0 0.0 0.0 0.8 1.2 1.5 1.8



EV/Sales 0.27 0.32 0.39 0.36 0.81 0.9 0.9 0.8 0.7

EV/Debt-adjusted cash flow (6.5) (8.9) 20.7 11.6 21.6 15.5 13.3 11.0 9.1

Financial Ratios

Interest cover 2.9 0.7 1.6 0.9 3.4 8.6 NS NS NS

Net debt/Cash flow NS NS NS NS 3.4 0.1 NS NS NS

EBITDA margin [%] 5.7 3.9 6.4 5.1 8.0 8.3 9.4 9.8 10.2

EBITA margin [%] 3.7 1.8 4.0 2.7 5.6 6.7 7.4 8.0 8.6

Net margin [%] NS NS NS NS 1.3 3.1 4.8 5.3 5.8


Gearing [%] NS NS 124.4 105.9 69.0 4.0 NS NS NS

Payout ratio [%] 0.0 0.0 0.0 0.0 0.0 24.3 24.3 24.3 24.3

Return [%]

Pre-tax RoCE 8.9 4.1 10.1 7.3 16.0 22.3 28.3 33.5 38.7

RoCE after tax 7.2 4.1 10.1 7.3 9.5 16.8 20.9 24.4 27.9

ROE [%] NS NS NS NS 10.5 22.3 30.6 30.3 29.0

Return on equity, restated NS NS NS NS 23.6 22.3 30.6 30.3 29.0

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Eurofins Scientific (EUR61.50) Healthcare Providers & Services - 8 June 2007

Rating: 2/Outperform - Target price: +33.3% EUR82 Laurent Flamme, Vivien De Coincy

To 31/12 (EUR) - IFRS 2006 2007E 2008E 2009ESales (m) 368.0 468.0 555.8 666.3Net att. profit, rest. (m) 17.5 20.8 32.6 47.3Free Cash Flow (m) 4.5 5.8 22.4 35.4EBITDA margin (%) 15.5 14.6 16.6 18.0Clean EPS 1.26 1.50 2.35 3.41

Reported EPS 1.26 1.50 2.35 3.41




5.9

15.9

25.9

35.9

45.9

55.9

65.9

01/01 10/01 08/02 06/03 03/04 01/05 10/05 08/06 06/07

mêáÅÉ mêáÅÉLp_cORM

Market capitalisation EUR 853 m SBF250 4192.05 1 month 3 months 12 months

No. of shares, adjusted 13.877 m Reuters EUFI.PA Absolute perf. -11.0% -4.9% 24.2% Daily volume EUR 1.29 m Bloomberg ERF FP Relative perf. -8.8% -10.5% -2.2%

Shareholders : Free Float 49.4%, Martin Family 48.6%, Management And Employees 2.0%

New resources lend credence to growth ambitions


Founded in 1987, Eurofins Scientific is a key player in food, environmental and pharmaceutical analysis, a market estimated be worth more than EUR10bn.

In a fragmented and often captive bio-analysis market, Eurofins Scientific launched an aggressive external growth programme in 1997 to acquire market share and technologies. Over the period 2002-2004, the company structured its network of laboratories around a international framework of Competence Centres. This relatively calm period in terms of changes in the consolidation scope resulted in margins reaching record highs.

Eurofins Scientific resumed its active external growth strategy at end 2004 and stepped up the pace sharply in 2006 (around EUR50m in full-year sales acquired in 2005 and close to EUR100m in 2006). The group also created five new subsidiaries. These moves once again temporarily put pressure on margins.

Given its relatively larger scale, Eurofins Scientific enjoys a better position than purely financial players or small rivals with respect to participating in an optimal manner in consolidation of the sector and becoming a leader in a more concentrated market.

A DCF approach values Eurofins Scientific at EUR82, with a WACC of 8.6%, which assumes a cost of capital of 9.7%.

This method is appropriate for the company, which is now generating cash flow on a very steady and solid basis.

The current share price implies a WACC of 9.75% (implicit cost of capital of 10.9%). We believe that this is too high in light of the critical mass achieved, demonstrated expertise in integrating entities acquired and the group's ability to generate an operating margin at cruising speed of at least ca. 15% based on a stabilised consolidation scope.

Based on the assumption of a market risk premium of 4%, Eurofins Scientific's implicit beta works out at 1.66 vs. 0.8 to 1.0 for players in in vitro diagnostics, one of the most similar segments (barely 0.8 for pharmaceuticals over the long term and 0.5 to 0.7 at present).

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Following the sharp acceleration in external growth in 2006, we believe that the acquisitions strategy will continue, but at a much slower pace as of 2007.

A return to a more active external growth is expected in 2008. Eurofins Scientific is targeting an annual sales growth rate of 20% over 2008-2010, 50% of which achieved organically, the other 50% with acquisitions. The extra financial resources from the perpetual bond issued in May for EUR100m lend credence to these sales growth prospects.

Management has demonstrated its ability to handle changes in the consolidation scope and deliver margins, notably in 2004 and 2005 and there is a genuine rationale for bringing margins up to group standards within two to thee years after integration.

In our view, the share is attractive on account of its strong sales and net profit growth prospects. After increases of 58% and 41% respectively in 2006, we expect CAGR in sales of 21% and net profit of 35% over the period 2007E-2010E.

Strengths

Critical mass, enabling it to accept large contracts. Organisation in Competence Centres with a range of 15,000 tests and acknowledged expertise.

Weaknesses

The pharmaceutical segment includes several rivals that are much bigger than Eurofins Scientific.

Opportunities

The still fragmented bio-analysis market, in which Eurofins Scientific can participate in an optimal manner in consolidation and become one of the unassailable leaders. Increasingly strict norms and quality control.

Threats

Ever-increasing transaction multiples for external growth targets.

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Eurofins Scientific IFRS

FY to 31/12 (Euro m) 2002 2003 2004 2004 2005 2006 2007E 2008E 2009E


Sales 161.6 168.7 175.5 175.5 233.1 368.0 468.0 555.8 666.3

% Change 27.2% 4.4% 4.0% 0.0% 32.8% 57.9% 27.2% 18.8% 19.9%

Staff costs (80.5) (80.9) (82.7) (82.7) (107.4) (169.5) (214.8) (251.2) (299.9)

Other costs (63.7) (64.4) (67.0) (67.0) (83.3) (141.5) (184.8) (212.3) (246.5)

EBITDA 17.4 23.4 25.8 25.8 42.5 57.0 68.3 92.3 119.9

% Change 54.0% 34.5% 10.2% 64.6% 34.3% 19.9% 35.0% 30.0%

Depreciation (9.2) (10.3) (10.8) (10.8) (12.7) (19.7) (23.7) (28.5) (33.4)

EBITA 8.2 13.1 15.0 15.0 29.7 37.3 44.6 63.8 86.5

% Change 115.8% 59.8% 14.5% 98.3% 25.5% 19.6% 42.9% 35.7%

Goodwill amortisation before OP 0.0 0.0 (0.8) (0.8) 0.0 0.0 0.0 0.0 0.0



EBIT 8.2 13.1 14.2 14.2 29.7 37.3 44.6 63.8 86.5



Other exceptional items 0.0 (4.8) 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Tax (1.9) (2.6) (4.1) (4.1) (9.7) (11.6) (13.0) (18.8) (25.5)

Associates [contribution] 0.0 0.0 (0.1) (0.1) (2.4) 0.1 0.0 0.0 0.0


Goodwill amortisation (3.4) (0.9) 0.0 0.0 0.0 0.0 0.0 0.0 0.0



Minorities 0.0 (0.1) 0.0 0.0 (1.4) (1.8) (0.9) 0.0 0.0





% Change NS -28.6% NS 42.6% 41.3% 18.6% 57.1% 45.1%

Cash Flow Statement

Cash flow 12.8 13.1 20.6 20.6 30.6 37.5 45.4 61.1 80.8

% Change 60.0% 2.3% 57.1% 48.9% 22.3% 21.1% 34.7% 32.2%

Change in WCR (1.3) 0.1 3.1 3.1 (4.5) (7.3) (11.5) (5.4) (7.4)

Capex (10.4) (12.6) (11.9) (11.9) (20.0) (25.7) (28.1) (33.3) (38.0)

o/w Growth capex 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Net cash flow 1.1 0.6 11.8 11.8 6.1 4.5 5.8 22.4 35.4

Financial investments (7.9) 2.8 (8.0) (8.0) (46.2) (59.9) (23.6) (74.0) (48.0)


Disposals 1.0 0.3 0.2 0.2 8.9 1.3 0.0 0.0 0.0

Dividend paid 0.0 0.0 0.0 0.0 (0.0) 0.0 (1.4) (2.1) (3.3)


Other cash flow 1.6 2.8 (0.1) (0.1) 0.2 (0.8) 0.0 0.0 0.0

Dec. [inc.] in net debt (4.1) 6.6 4.0 4.0 (30.2) (54.0) (19.1) (53.7) (15.9)

Balance Sheet

Shareholders' equity [group share] 52.9 53.9 65.9 65.9 79.6 98.9 118.3 148.8 192.9

Minority interests 0.0 (0.2) 0.2 0.2 2.8 3.7 4.6 4.6 4.6



Net debt [cash] 49.6 43.1 32.9 32.9 69.5 159.5 178.6 232.3 248.2

Gearing [%] 93.8 80.3 49.8 49.8 84.3 155.4 145.3 151.4 125.6

Capital invested 105.4 111.3 116.0 116.0 166.9 281.5 320.9 405.2 465.2

Goodwill 51.1 54.8 57.5 57.5 89.3 157.1 180.7 254.7 302.7


Tangible assets 35.8 39.6 41.2 41.2 46.6 71.4 75.8 80.6 85.2


Associates 0.0 0.0 1.2 1.2 0.7 1.6 1.6 1.6 1.6

Working capital requirement 13.3 12.9 9.2 9.2 16.6 20.4 31.8 37.2 44.6

WCR as a % of sales 8.2 7.6 5.3 5.3 7.1 5.5 6.8 6.7 6.7

Capital employed 105.4 111.6 116.0 116.0 166.9 281.5 320.9 405.2 465.2

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Eurofins Scientific IFRS

FY to 31/12 (Euro) 2002 2003 2004 2004 2005 2006 2007E 2008E 2009E



% Change NS -28.6% NS 40.0% 39.3% 18.5% 57.2% 45.1%

EPS, reported 0.01 0.12 0.58 0.58 0.91 1.26 1.50 2.35 3.41

% Change 105.5% NS NS 55.1% 39.3% 18.5% 57.2% 45.1%




% Change 59.6% 2.4% 54.0% 46.3% 20.5% 21.1% 34.7% 32.2%






Latest price 11.30 10.35 16.83 16.83 37.70 54.10 61.50 61.50 61.50

High 19.85 14.25 17.20 17.20 40.00 59.00 75.00 - -

Low 6.35 9.11 10.02 10.02 16.95 38.10 51.80 - -

Average price 12.90 11.09 13.40 13.40 27.62 49.78 62.10 - -

Market capitalisation 148.8 136.3 221.1 226.2 516.5 746.2 853.4 853.4 853.4

Enterprise value 200.7 181.3 256.4 261.4 588.9 910.5 1,035.3 1,089.2 1,105.2

Valuation

P/E NS 85.2 28.8 28.8 41.6 42.9 41.1 26.2 18.0

P/E before goodwill 42.5 54.5 26.0 26.0 41.6 42.9 41.1 26.2 18.0

P/CF 11.6 10.4 11.0 11.0 16.8 20.0 18.8 14.0 10.6

Attrib. FCF yield [%] 0.7 0.4 5.4 5.2 1.2 0.6 0.7 2.6 4.1

P/BV 2.8 2.5 3.4 3.4 6.5 7.7 7.3 5.9 4.5


Yield [%] 0.0 0.0 0.0 0.0 0.0 0.2 0.2 0.4 0.6



EV/Sales 1.24 1.08 1.46 1.49 2.53 2.5 2.2 2.0 1.7

EV/Debt-adjusted cash flow 13.8 12.4 11.6 11.8 17.2 22.0 20.1 15.8 12.3

Financial Ratios

Interest cover 3.0 4.4 6.6 6.6 4.8 5.9 4.5 5.1 6.3


EBITDA margin [%] 10.8 13.9 14.7 14.7 18.2 15.5 14.6 16.6 18.0

EBITA margin [%] 5.1 7.8 8.5 8.5 12.8 10.1 9.5 11.5 13.0

Net margin [%] 0.1 1.0 4.5 4.5 5.9 5.3 4.6 5.9 7.1


Gearing [%] 93.8 80.3 49.8 49.8 84.3 155.4 145.3 151.4 125.6

Payout ratio [%] 0.0 0.0 0.0 0.0 0.0 7.9 10.0 10.0 10.0

Return [%]

Pre-tax RoCE 8.0 12.0 13.6 13.6 19.0 14.2 14.8 16.5 19.4

RoCE after tax 5.2 6.0 8.9 8.9 11.1 8.9 9.2 10.5 12.6

ROE [%] 0.2 3.0 12.7 12.7 16.9 19.4 19.2 24.6 28.0


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HERA (EUR3.28) Gas Utilities - 8 June 2007

Rating: 2/Outperform - Target price: +19.4% EUR3.92 Francesca Pezzoli

To 31/12 (EUR) - IFRS 2006 2007E 2008E 2009ESales (m) 2312.0 2452.2 2629.5 2770.5Net att. profit, rest. (m) 89.8 115.8 171.8 208.4Free Cash Flow (m) 48.5 (21.6) 36.5 208.1EBITDA margin (%) 18.5 19.0 22.2 23.5Clean EPS 0.09 0.11 0.17 0.21

Reported EPS 0.09 0.11 0.17 0.21

P/E (x) 37.3 28.8 19.4 16.0Attrib. FCF yield (%) 1.4 NS 1.1 6.0EV/EBITDA (x) 11.1 10.1 8.2 7.2EV/EBIT (x) 20.5 17.7 13.0 11.0



1.1

1.6

2.1

2.6

3.1

3.6

06/03 12/03 06/04 12/04 06/05 12/05 06/06 12/06

mêáÅÉ mêáÅÉL_`f

Market capitalisation EUR 3339 m BCI 2043.32 1 month 3 months 12 months

No. of shares, adjusted 1016.752 m Reuters HRA.MI Absolute perf. -1.1% 6.6% 30.4% Daily volume EUR 14.17 m Bloomberg HER IM Relative perf. 2.5% 3.6% 8.5%

Shareholders : E. Romagna Municipalities 59.0%, Free Float 41.0%

High visibility and sector consolidation


HERA is one of the biggest national managers of local public services (leader in waste management, with over 4m tons treated in 2006 and after ACEA, it is the second most important player in the water business, with 2.5m clients served). In 2006, sales totalled EUR2.3bn, with EUR427m EBITDA (o/w 27% from gas, 36% from waste/WTE, 25% from water, 6% from electricity and 6% from other services).

HERA was founded in November 2002 through the merger of 11 local utilities, based in the wealthy Emilia-Romagna region. It currently manages corporate activities and local operating companies in Bologna, Rimini, Imola, Forli', Ravenna, Ferrara and Modena.

HERA has a safe financial structure with an expected net debt/EBITDA of 2.7x at the end of 2007.

It aims to spur growth by: (1) raising electricity sales from 5.5TWh in 2005 to 9.2TWh in 2009; (2) by increasing production at its 4 new WTE and 3 CCGT plants; and (3) consolidating smaller local utilities.

HERA is 59%-owned by local municipalities. Free float stands at 41%.

We set a new TP of EUR3.92 (from EUR3.75 share) based on a stand-alone valuation for HERA of EUR3.7/share + EUR0.22/share, representing the weighted average of our consolidation scenarios.

DCF

We used a 6.2% WACC and 1% terminal growth rate, which in our view accurately reflect the low risk underlying HERA's business model. With a terminal value corresponding to 8.7x EV/EBITDA we derive a EUR3.72 fair value (after a 3% deduction for minorities).

SOP

We valued the business units separately, using a mix of DCF, RAB and multiples to reflect the specific issues of each business, reaching a fair value of EUR3.68/share.

Multiples

HERA appears expensive based on 2007-08 multiples figures, but seems cheaper on 2009 (P/E at 16.3x vs. 16.2x for peers and 7.3x EV/EBITDA vs. 7.9x for peers). We think that HERA deserves to trade at a premium, given its strong growth profile and higher visibility on key growth drivers.

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We stick to our 2/Outperform rating based on:

− Superior growth compared to other Italian local utilities, with a double digit growth profile (we estimate 15% 2006-09 EBITDA CAGR and 32% EPS CAGR).

− High visibility for the next three years as growth should be driven by the fully authorised plants, the upcoming tariff increase and extraction of synergies (leveraging on HERA's strong track record).

− Investment in the highly profitable WTE business (IRR>13%) and leading position in the special waste business (which we consider very promising).

Strong commitment and skill in delivering external growth could led to a major deal with a listed player in the next 12-18 months.

Strengths 1 - Strong track record for acquisitions and synergies

exploitation 2 - Balanced portfolio of regulated and unregulated

businesses 3 - Strong market positions in liberalised businesses

Weaknesses 1 - Limited electricity generation 2 - Limited upstream gas procurement 3 - Still low water and urban waste tariffs

Opportunities 1 - Further acquisition opportunities 2 - Expansion in special waste business 3 - Upstream integration in gas and electricity

Threats 1 - Mounting competition at the gas business 2 - Acquisitions may lead to dilution

Expiration of some gas concessions in 2010

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84

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HERA IFRS

FY to 31/12 (Euro m) 2002 2003 2004 2004 2005 2006 2007E 2008E 2009E


Sales 1,133.3 1,331.3 1,639.0 1,492.6 2,100.5 2,312.0 2,452.2 2,629.5 2,770.5

% Change 3.2% 17.5% 23.1% -8.9% 40.7% 10.1% 6.1% 7.2% 5.4%

Staff costs (189.4) (192.4) (216.0) (216.0) (228.0) (297.0) (301.0) (305.0) (309.0)

Other costs (751.9) (896.4) (1,122.8) (984.0) (1,486.1) (1,588.0) (1,684.2) (1,739.6) (1,809.5)

EBITDA 192.0 242.5 300.2 292.6 386.4 427.0 467.0 584.9 652.0

% Change 6.4% 26.3% 23.8% 32.1% 10.5% 9.4% 25.2% 11.5%

Depreciation (112.1) (125.9) (155.8) (115.3) (170.7) (196.1) (201.1) (216.7) (222.3)

EBITA 79.9 116.6 144.4 178.3 215.7 230.9 265.9 368.2 429.7

% Change -6.0% 45.9% 23.8% 21.0% 7.0% 15.2% 38.5% 16.7%

Goodwill amortisation before OP (2.3) (3.8) 0.0 0.0 0.0 0.0 0.0 0.0 0.0



EBIT 77.6 112.8 144.4 177.3 231.2 230.9 265.9 368.2 429.7



Other exceptional items 12.1 (3.0) (3.8) 0.0 0.0 0.0 0.0 0.0 0.0

Tax (38.7) (35.6) (55.1) (61.1) (80.5) (79.0) (84.0) (121.3) (146.3)



Goodwill amortisation 0.0 0.0 0.0 1.0 0.0 0.0 0.0 0.0 0.0



Minorities (3.5) (3.6) (5.3) (3.0) (7.4) (10.1) (10.1) (10.1) (11.0)



Adj. for exceptional items (5.9) 1.8 0.0 0.0 0.0 0.0 0.0 0.0 0.0


% Change -20.2% 86.1% 3.1% 18.6% -11.4% 29.0% 48.4% 21.3%

Cash Flow Statement

Cash flow 151.0 182.7 223.8 253.5 279.5 298.0 329.0 400.6 443.7

% Change 12.4% 21.0% 22.5% 10.3% 6.6% 10.4% 21.8% 10.8%

Change in WCR 43.1 (55.4) 9.7 9.7 (208.9) 70.5 10.0 (3.5) (2.8)

Capex (181.6) (210.6) (220.3) (220.3) (324.3) (320.0) (360.6) (360.6) (232.8)

o/w Growth capex 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Net cash flow 12.5 (83.3) 13.2 42.9 (253.7) 48.5 (21.6) 36.5 208.1

Financial investments (5.6) (111.5) 0.0 0.0 (108.3) (184.0) (5.0) (5.0) (5.0)


Disposals 30.4 24.7 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Dividend paid (18.2) (27.5) (42.0) (42.0) (50.4) (71.2) (81.5) (93.7) (107.8)


Other cash flow (111.5) 0.0 (38.2) (38.2) 0.0 7.0 0.0 0.0 0.0

Dec. [inc.] in net debt (92.4) (190.9) (67.0) (37.3) (412.4) (199.7) (108.1) (62.2) 95.3

Balance Sheet

Shareholders' equity [group share] 841.7 870.3 868.0 1,035.9 1,459.6 1,476.0 1,510.4 1,588.5 1,689.1




Net debt [cash] 253.4 444.3 561.3 561.0 973.4 1,173.1 1,281.1 1,343.4 1,248.0

Gearing [%] 29.3 49.7 62.8 52.7 65.3 77.4 82.6 82.4 72.1

Capital invested 1,276.0 1,556.1 1,694.6 1,787.1 2,684.4 3,102.1 3,253.9 3,403.8 3,418.6

Goodwill 100.4 96.6 0.0 1.0 0.0 0.0 0.0 0.0 0.0


Tangible assets 774.4 909.8 1,167.3 1,185.3 1,915.0 2,181.1 2,352.9 2,509.2 2,531.2


Associates 0.0 0.0 0.0 1.0 0.0 0.0 0.0 0.0 0.0


WCR as a % of sales 6.5 9.7 3.5 4.3 8.8 7.3 6.4 6.1 5.9

Capital employed 1,276.0 1,556.1 1,779.1 1,789.6 2,685.0 3,102.1 3,253.9 3,403.7 3,418.6

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HERA IFRS

FY to 31/12 (Euro) 2002 2003 2004 2004 2005 2006 2007E 2008E 2009E



% Change -19.1% 81.6% -1.4% -2.0% -12.0% 29.5% 48.2% 21.3%

EPS, reported 0.04 0.06 0.07 0.10 0.10 0.09 0.11 0.17 0.21

% Change -6.7% 47.6% 9.7% -2.9% -12.0% 29.5% 48.2% 21.3%

Goodwill per share 0.00 0.01 0.00 (0.00) 0.00 0.00 0.00 0.00 0.00



% Change 12.3% 19.8% 15.7% -8.9% 6.5% 10.6% 21.6% 10.7%






Latest price - 1.24 2.12 2.12 2.26 3.29 3.28 3.28 3.28

High - 1.39 2.18 2.18 2.49 3.42 3.48 - -

Low - 1.16 1.23 1.23 2.00 2.16 2.86 - -

Average price - 1.24 1.74 1.74 2.25 2.68 3.27 - -

Market capitalisation 1,518.0 983.6 1,780.6 1,780.6 2,295.7 3,348.2 3,339.0 3,339.0 3,339.0

Enterprise value 1,958.9 1,410.8 2,397.0 2,415.8 3,441.0 4,737.8 4,716.8 4,782.6 4,726.6

Valuation

P/E NS 19.2 31.3 20.6 22.6 37.3 28.8 19.4 16.0

P/E before goodwill NS 17.9 31.3 20.8 22.6 37.3 28.8 19.4 16.0

P/CF NS 5.4 8.0 7.0 8.2 11.2 10.1 8.3 7.5

Attrib. FCF yield [%] 0.7 NS 0.7 2.3 NS 1.4 NS 1.1 6.0

P/BV NS 1.2 2.2 1.8 1.7 2.4 2.4 2.3 2.1

Enterprise value / Op CE NS 1.0 1.5 1.5 1.3 1.6 1.5 1.5 1.4

Yield [%] - 4.3 2.8 2.8 3.1 2.4 2.8 3.2 3.7

EV/EBITDA, restated NS 5.8 8.0 8.2 8.9 11.1 10.1 8.2 7.2

EV/EBITA, restated NS 12.1 16.6 13.5 16.0 20.5 17.7 13.0 11.0

EV/Sales NS 1.06 1.46 1.62 1.64 2.0 1.9 1.8 1.7

EV/Debt-adjusted cash flow NS 6.9 9.9 8.7 11.1 14.2 12.7 10.6 9.5

Financial Ratios

Interest cover 5.6 5.5 6.2 6.7 5.5 4.4 4.7 5.7 6.7


EBITDA margin [%] 16.9 18.2 18.3 19.7 18.4 18.5 19.0 22.2 23.5

EBITA margin [%] 7.1 8.8 8.8 11.9 10.3 10.0 10.8 14.0 15.5

Net margin [%] 3.2 4.0 3.8 6.0 5.2 4.3 5.1 6.9 7.9


Gearing [%] 29.3 49.7 62.8 52.7 65.3 77.4 82.6 82.4 72.1

Payout ratio [%] 0.0 84.9 88.7 58.3 70.2 90.6 80.8 62.7 59.5

Return [%]

Pre-tax RoCE 6.5 8.3 9.0 11.1 8.3 7.8 8.5 11.2 13.0

RoCE after tax 3.2 5.0 4.8 6.6 4.8 4.3 5.1 6.7 7.8

ROE [%] 4.0 5.9 6.8 8.7 7.2 6.3 8.0 11.4 13.1


86

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87

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Neste Oil (EUR27.42) Integrated Oil & Gas - 8 June 2007

Rating: 1/Selected List - Target price: +29.1% EUR35.4 David Hallden

To 31/12 (EUR) 2006E 2007E 2008E 2009ESales (m) 11988.0 12708.0 12848.5 13101.4Net att. profit, rest. (m) 618.9 781.7 840.0 946.1Free Cash Flow (m) 387.3 413.6 479.3 585.6EBITDA margin (%) 8.5 9.8 10.3 11.0Clean EPS 2.35 2.96 3.18 3.59

Reported EPS 2.41 3.05 3.28 3.69


ROCE (%) 34.0 37.2 35.7 35.6ROE (%) 36.7 36.0 31.0 28.5P/BV (x) 3.3 3.1 2.5 2.0Net debt/EBITDA (x) 0.6 0.3 0.1 (0.1)


14.0

16.0

18.0

20.0

22.0

24.0

26.0

28.0

30.0

32.0

34.0

04/05 07/05 10/05 02/06 05/06 08/06 11/06 02/07 06/07

mêáÅÉ mêáÅÉLag=pqluu

Market capitalisation EUR 7030 m DJ STOXX 385.09 1 month 3 months 12 months

No. of shares, adjusted 256.4 m Reuters NES1V.HE Absolute perf. 1.5% 6.8% 15.5% Daily volume EUR 60.38 m Bloomberg NES1V FH Relative perf. 2.7% 1.6% -8.2%

Shareholders : Government Of Finland 50.1%

Key spreads still ahead of estimates


Neste Oil is an independent northern European oil refining and marketing company. It focuses on high quality traffic fuels and other high value-added petroleum products with reduced environmental impact. The company has about 4,300 employees and comprises four divisions: Oil Refining, Components, Oil Retail and Shipping. Its activities cover the production, refining and marketing of oil, Shipping and Engineering services. Its main products are gasoline, diesel fuels, aviation fuels, marine fuels, heating oils, heavy fuel oils, base oils, lubricants, traffic fuel components, solvents, LPGs and bitumen. Most of the oil products are sold in the domestic market. In 2005 exports of oil products amounted to +5 million tonnes, of which gasoline accounted for ~3 million tonnes and diesel fuels nearly 2 million tonnes. The Nordic countries and North America are its largest export markets.

Summary: we have derived a current fair value of EUR35.4, based on equal weights on four basic methodologies:

SOTP: Our assumptions for the SOTP are based on peer multiples, excluding the refining division where we have attached a 5% premium, for reasons explained in the Peer valuation section. All in all, we arrive at fair value per share of EUR35.8/share.

DCF & Economic profit: both these methodologies illustrate that there is upside to EUR34.7-35.0 per share. While we would not rely solely on these methodologies to derive a target price, they offer good support to the peer valuation.

Peer valuation: In the peer comparison we find EUR36.1 per share. With strong EPS growth expected in FY-07E, with peers at 5–15% EPS decline, support from Hydrocracker and Biodiesel investments etc, a premium to peers is warranted.

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Biodiesel anyone?

As one of the early developers of Biodiesel technology, Neste has managed to secure two Joint Ventures with leading Integrated Oil companies (Total and OMV) for 2nd generation Biodiesel production, based on what we believe to be ~200 thousand tonnes/year production facilities. We also believe that creating a partnership for a large size green-field Biodiesel plant in Malaysia is highly likely.

It also has a production facility being built at Porvoo, Finland, which will provide a run-rate of 170 thousand tonnes, when it is fully operational by next summer. For FY-07E-08E we believe the company could spend some EUR+300m/y on biodiesel projects. At present however, the only announced budget is the EUR100m for the Porvoo facility, but we believe it could spend another EUR+75m for each JV so far announced, as well as any new JVs during the year.

Refining margins due for a quantum leap in 2007: With the Hydrocracker project as well as Biodiesel facility both operational by summer FY-07E, refining margins are set to expand significantly. Hydrocracker alone could add US$~4.5/bbl. Meanwhile, its premium on North Europe margins remain at US$2-4/bbl, depending on Brent/Ural- and Diesel/Fuel oil spreads.

Strengths: A) Complexity of the refinery is among the highest in Europe, and is advancing further. This complexity implies higher-end tilted product slate, as well as greater exposure to cheap Ural grade. B) Gatekeeper of Russian crude, and as such benefits at least US$0.5/bbl from superior logistics. C) Financial stability. D) Superior Biodiesel technology.

Weaknesses: Total distillation capacity in the lower quartile in Europe.

Opportunities: A) One of the single most attractive acquisition targets in the Nordic region. With the Finnish elections in March 2007, scaling down of ownership could open the door. B) "The diesel project" will enable an expanding refining margin, to levels approaching the best in Europe, thanks to exposure to Diesel and Ural crude. C) JVs/partners on Biodiesel which could bring scale to Biodiesel quickly.

Threats: A) Collapsing Diesel/Fuel oil spread, implying diminishing company-specific product slate margin, over North Europe, resulting in reduced company-specific premium. B) Collapsing Brent/Ural spread, implying diminishing discount of Ural crude, over Brent crude, which would lead to lower company specific benefits.

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Neste Oil

FY to 31/12 (Euro m) 2001 2002 2003 2004 2005 2006E 2007E 2008E 2009E


Sales 0.0 7,299.0 7,307.0 7,909.0 9,974.4 11,988.0 12,708.0 12,848.5 13,101.4

% Change 0.1% 8.2% 26.1% 20.2% 6.0% 1.1% 2.0%

Staff costs 0.0 (221.0) (211.0) (214.0) (225.0) (225.0) (225.0) (225.0) (225.0)

Other costs 0.0 (5,934.0) (6,131.0) (6,439.0) (8,802.8) (10,744.4) (11,243.5) (11,300.6) (11,429.7)

EBITDA 0.0 1,144.0 965.0 1,256.0 946.6 1,018.6 1,239.5 1,322.9 1,446.7

% Change -15.6% 30.2% -24.6% 7.6% 21.7% 6.7% 9.4%

Depreciation 0.0 (268.0) (135.0) (118.0) (156.0) (161.0) (172.0) (176.0) (180.0)

EBITA 0.0 876.0 830.0 1,138.0 790.6 857.6 1,067.5 1,146.9 1,266.7

% Change -5.3% 37.1% -30.5% 8.5% 24.5% 7.4% 10.4%




EBIT 0.0 876.0 830.0 1,138.0 790.6 857.6 1,067.5 1,146.9 1,266.7

Net financial items 0.0 (3.0) 11.0 (14.0) (8.0) (24.0) (24.0) (24.0) (6.0)


Other exceptional items 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0



Minorities 0.0 (2.0) (2.0) (2.0) 0.0 0.0 0.0 0.0 0.0

Profit before tax [Nordic] 0.0 874.0 854.0 1,158.0 822.6 838.6 1,063.5 1,142.9 1,280.7

% Change -2.3% 35.6% -29.0% 1.9% 26.8% 7.5% 12.1%

Tax 0.0 (141.0) (120.0) (150.0) (153.0) (219.7) (281.8) (302.9) (334.6)


% Change -9.6% 93.6% 22.6% -7.6% 26.3% 7.5% 12.6%



Net attrib. profit [loss], restated * 0.0 312.0 282.0 618.2 669.6 618.9 781.7 840.0 946.1

% Change -9.6% 119.2% 8.3% -7.6% 26.3% 7.5% 12.6%

Cash Flow Statement

Cash flow 0.0 577.6 402.6 668.4 785.6 774.9 933.7 996.0 1,106.1

% Change -30.3% 66.0% 17.5% -1.4% 20.5% 6.7% 11.1%

Change in WCR 0.0 (582.0) 114.0 99.0 24.0 132.4 (12.1) (4.7) (8.5)

Capex 0.0 (252.0) (202.0) (310.0) (664.0) (520.0) (508.0) (512.0) (512.0)

o/w Growth capex 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Net cash flow 0.0 (256.4) 314.6 457.4 145.6 387.3 413.6 479.3 585.6

Financial investments 0.0 0.0 (2.0) (3.0) 265.0 0.0 0.0 0.0 0.0


Disposals 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Dividend paid 0.0 0.0 0.0 0.0 0.0 (205.1) (217.9) (269.2) (282.0)


Other cash flow 0.0 12.0 72.0 (18.0) 0.0 0.0 0.0 0.0 0.0

Dec. [inc.] in net debt 0.0 (244.4) 384.6 436.4 410.6 182.2 195.7 210.1 303.6

Balance Sheet

Shareholders' equity [group share] 0.0 2,114.0 1,375.0 993.0 1,582.6 1,996.4 2,560.1 3,130.9 3,795.0




Net debt [cash] 0.0 497.0 233.0 901.0 785.0 602.8 407.2 197.1 (106.5)

Gearing [%] NS 23.5 16.9 90.3 49.6 30.2 15.9 6.3 NS

Capital invested 0.0 2,683.0 1,674.0 1,925.0 2,394.6 2,626.2 2,994.3 3,355.0 3,715.5

Goodwill 0.0 33.0 29.0 30.0 50.0 50.0 50.0 50.0 50.0


Tangible assets 0.0 2,181.0 1,214.0 1,555.0 2,056.0 2,415.0 2,751.0 3,087.0 3,419.0


Associates 0.0 125.0 130.0 140.0 126.0 131.0 151.0 171.0 191.0

Working capital requirement 0.0 344.0 301.0 155.0 129.0 (3.4) 8.7 13.4 21.8

WCR as a % of sales 0.0 4.7 4.1 2.0 1.3 (0.0) 0.1 0.1 0.2

Capital employed 0.0 2,683.0 1,674.0 1,925.0 2,424.0 2,655.6 3,023.7 3,384.4 3,744.8

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Neste Oil

FY to 31/12 (Euro) 2001 2002 2003 2004 2005 2006E 2007E 2008E 2009E



% Change -9.6% 119.2% 5.3% -7.6% 26.3% 7.5% 12.6%

EPS, reported 0.00 1.22 1.10 2.13 2.61 2.41 3.05 3.28 3.69

% Change -9.6% 93.5% 22.7% -7.6% 26.3% 7.4% 12.6%




% Change -30.3% 66.1% 14.2% -1.4% 20.5% 6.7% 11.0%






Latest price - - - 25.42 23.88 23.03 27.42 27.42 27.42

High - - - - 32.19 29.95 29.18 - -

Low - - - - 16.17 21.00 21.65 - -

Average price - - - - 23.35 25.55 25.37 - -

Market capitalisation - - - - 6,122.8 5,904.9 7,030.5 7,030.5 7,030.5

Enterprise value - - - - 6,920.8 6,520.7 7,450.7 7,240.6 6,937.0

Valuation

P/E NS NS NS 10.5 9.4 9.8 9.3 8.6 7.6

P/E before goodwill NS NS NS 10.5 9.4 9.8 9.3 8.6 7.6

P/CF NS NS NS 9.8 8.0 7.8 7.7 7.3 6.5

Attrib. FCF yield [%] - - - - 2.4 6.6 5.9 6.8 8.3

P/BV NS NS NS 6.6 4.4 3.3 3.1 2.5 2.0

Enterprise value / Op CE NS NS NS 0.5 3.0 2.6 2.1 1.8 1.5

Yield [%] - 0.0 0.0 0.0 3.4 3.7 3.8 4.0 4.4

EV/EBITDA, restated NS NS NS 0.7 7.3 6.4 6.0 5.5 4.8

EV/EBITA, restated NS NS NS 0.8 8.8 7.6 7.0 6.3 5.5

EV/Sales NS NS NS 0.11 0.69 0.5 0.6 0.6 0.5

EV/Debt-adjusted cash flow NS NS NS 1.3 8.7 8.2 7.8 7.1 6.2

Financial Ratios

Interest cover NS NS NS NS NS NS NS NS NS

Net debt/Cash flow NS 0.9 0.6 1.3 1.0 0.8 0.4 0.2 NS

EBITDA margin [%] NS 15.7 13.2 15.9 9.5 8.5 9.8 10.3 11.0

EBITA margin [%] NS 12.0 11.4 14.4 7.9 7.2 8.4 8.9 9.7

Net margin [%] NS 4.3 3.9 6.9 6.7 5.2 6.2 6.5 7.2

Capital turn [Sales/ Op. CE] NS 2.9 4.7 4.4 4.3 4.7 4.4 4.0 3.7

Gearing [%] NS 23.5 16.9 90.3 49.6 30.2 15.9 6.3 NS

Payout ratio [%] 0.0 0.0 0.0 0.0 30.6 35.2 34.4 33.6 32.5

Return [%]

Pre-tax RoCE NS 34.2 53.8 63.8 34.4 34.0 37.2 35.7 35.6

RoCE after tax NS 23.6 37.7 50.0 28.0 25.1 27.3 26.2 26.3

ROE [%] NS 15.9 22.9 75.8 53.7 36.7 36.0 31.0 28.5

Return on equity, restated NS 15.9 22.9 90.4 53.7 36.7 36.0 31.0 28.5

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Schmack Biogas (EUR56.00) Electrical Equipment - 8 June 2007

Rating: 2/Outperform - Target price: +42.9% EUR80 Philipp Bumm

To 31/12 (EUR) 2006 2007E 2008E 2009ESales (m) 90.0 175.9 249.5 351.7Net att. profit, rest. (m) 1.3 6.9 14.8 21.0Free Cash Flow (m) 4.9 (13.4) (32.1) (28.9)EBITDA margin (%) 5.6 7.7 11.2 12.3Clean EPS 0.26 1.27 2.72 3.87

Reported EPS 0.26 1.27 2.72 3.87

P/E (x) NS 44.1 20.6 14.5Attrib. FCF yield (%) 1.8 NS NS NSEV/EBITDA (x) 52.5 21.2 11.3 8.0EV/EBIT (x) 61.1 23.6 13.3 9.7

ROCE (%) 11.5 20.5 21.4 20.9ROE (%) 3.4 10.0 18.5 21.5P/BV (x) 6.7 4.2 3.5 2.8Net debt/EBITDA (x) (1.4) (1.7) 0.3 0.9


29.0

34.0

39.0

44.0

49.0

54.0

59.0

64.0

69.0

74.0

05/06 07/06 08/06 10/06 11/06 01/07 03/07 04/07 06/07

mêáÅÉ mêáÅÉLpa^u

Market capitalisation EUR 304 m SDAX 6240.4 1 month 3 months 12 months

No. of shares, adjusted 5.434 m Reuters SB1Gn.DE Absolute perf. -15.1% -4.2% 49.6% Daily volume EUR 1.74 m Bloomberg SB1 GR Relative perf. -12.9% -9.7% 9.8%

Shareholders : Freefloat 78.9%, Schmack Family 13.4%, Abel Family 7.7%

Replacing natural gas


Schmack Biogas is a leading player in the biogas market. It offers its customers (50% farmers, and increasingly also utilities, such as E.ON) turnkey biogas systems and a wide range of after-sales support. Until now the company has sold more than 150 biogas systems and has a track record spanning 11 years. Schmack Biogas began to run biogas systems itself in H2-06. With the acquisition of its competitor Hese Umwelt and equipment manufacturers, Schmack Biogas is on the way to becoming fully integrated.

Our DCF-based target price stands at EUR80. We anticipate revenue growth from EUR34m in 2005 to EUR249m in 2008E (CAGR: 94%) and EPS growth from EUR0.5 to EUR2.7 in the same period (CAGR: 75%). Although, the company is trading at a PE 07E of 49x, its ongoing strong revenue growth and improving margins lead us to a PE 08E of 23x and a P/E 09E of 16x. Keeping in mind the earnings CAGR05-08E of 75% we believe the stock's current valuation does not fully reflect the company's growth potential.

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We expect the biogas market to expand by 30-40% per year until at least 2010, as subsidies, waning oil and gas reserves and uncertainties regarding imported gas supplies boost demand for biogas. As biogas is about five times more efficient than bioethanol, we also predict further growth in the biogas market after 2010E.

German utilities (including E.ON) are now planning to invest in biogas systems, with the aim of reducing their dependence on gas imports, since 35% of Germany's demand is currently met by supplies from Russia.

As the technological leader, Schmack Biogas should benefit from the rising demand for biogas systems. We expect it to further increase the number of utility companies it has as customers and/or JV partners.

Strengths: Technological market leader, with over 10 years experience in this young industry. Unique database with more than 20,000 samples from microbiological systems.

Strong relationship with E.ON, a major customer and partner. First JV with a utility company already announced.

Weaknesses: Without subsidies, biogas production is not currently profitable.

Opportunities: Biogas represents a serious substitute for natural gas.

Threats: The profitability of a biogas system depends heavily on the feedstock costs.

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− Biogas generates 55-65% lower carbon emissions than petrol or mineral diesel

− Substitute for natural gas

− Increasing demand for biogas supports the agricultural sector as a whole

− Biogas production is CO2 neutral

− Biogas reduces demand for natural gas imports

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Schmack Biogas

FY to 31/12 (Euro m) 2002 2003 2004 2005 2006 2007E 2008E 2009E


Sales 0.0 0.0 9.5 16.4 34.1 90.0 175.9 249.5 351.7

% Change 72.6% 107.9% 163.9% 95.4% 41.8% 41.0%

Staff costs 0.0 0.0 0.0 (2.0) (2.8) (1.8) (6.5) (9.4) (12.7)

Other costs 0.0 0.0 (10.3) (14.9) (28.2) (83.2) (155.8) (212.2) (295.7)

EBITDA 0.0 0.0 (0.8) (0.5) 3.1 5.0 13.6 27.9 43.3

% Change 37.5% NS 61.3% 172.0% 105.1% 55.2%

Depreciation 0.0 0.0 0.0 0.0 (0.3) (0.7) (1.4) (4.2) (7.5)

EBITA 0.0 0.0 (0.8) (0.5) 2.8 4.3 12.2 23.7 35.8

% Change 37.5% NS 53.6% 183.7% 94.3% 51.1%




EBIT 0.0 0.0 (0.8) (0.5) 2.8 4.3 12.2 23.7 35.8

Net financial items 0.0 0.0 0.0 (0.4) (0.1) 0.1 (0.7) (1.2) (4.0)


Other exceptional items 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Tax 0.0 0.0 0.0 0.0 (0.2) (3.1) (4.4) (7.4) (10.5)



Goodwill amortisation 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Net profit [loss] before minorities 0.0 0.0 (0.8) (0.9) 2.5 1.3 7.1 15.0 21.2


Minorities 0.0 0.0 0.0 0.0 0.0 0.0 (0.2) (0.2) (0.2)

Net attributable profit [loss] 0.0 0.0 (0.8) (0.9) 2.5 1.3 6.9 14.8 21.0



Net attrib. profit [loss], restated 0.0 0.0 (0.8) (0.9) 2.5 1.3 6.9 14.8 21.0

% Change -12.5% NS -48.0% NS 114.5% 41.9%

Cash Flow Statement

Cash flow 0.0 0.0 (0.8) (0.5) 2.9 2.1 8.5 19.2 28.7

% Change 37.5% NS -27.6% NS 125.9% 49.5%

Change in WCR 0.0 0.0 0.0 0.0 1.5 (0.3) 1.6 0.1 4.0

Capex 0.0 0.0 0.0 0.0 0.0 3.1 (23.5) (51.4) (61.6)

o/w Growth capex 0.0 0.0 0.1 0.3 0.5 4.5 (22.3) (47.4) (54.3)

Net cash flow 0.0 0.0 (0.8) (0.5) 4.4 4.9 (13.4) (32.1) (28.9)

Financial investments 0.0 0.0 0.8 0.4 1.4 36.2 26.2 0.0 0.0


Disposals 0.0 0.0 0.0 (1.9) (1.0) (38.8) 0.0 0.0 0.0

Dividend paid 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0


Other cash flow 0.0 0.0 0.0 (1.9) (1.0) (38.8) 0.0 0.0 0.0

Dec. [inc.] in net debt 0.0 0.0 0.0 (3.9) 3.8 (36.5) 39.0 (32.1) (28.9)

Balance Sheet

Shareholders' equity [group share] 0.0 0.0 0.0 (0.5) 3.4 39.3 72.4 87.3 108.3




Net debt [cash] 0.0 0.0 0.0 1.2 (2.3) (7.2) (23.6) 7.8 40.5

Gearing [%] NS NS NS NS NS NS NS 8.7 36.7

Capital invested 0.0 0.0 0.0 3.0 3.3 39.8 62.1 113.3 173.9

Goodwill 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0


Tangible assets 0.0 0.0 0.0 1.1 1.3 9.9 32.1 79.3 133.4


Associates 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0


WCR as a % of sales 0.0 0.0 0.0 9.1 3.5 3.1 1.6 2.8 3.8

Capital employed 0.0 0.0 0.0 3.0 3.2 39.7 62.0 113.3 173.9

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Schmack Biogas

FY to 31/12 (Euro) 2002 2003 2004 2005 2006 2007E 2008E 2009E



% Change -48.0% NS 114.5% 41.9%

EPS, reported 0.00 0.00 0.00 0.00 0.51 0.26 1.27 2.72 3.87

% Change -48.0% NS 114.5% 41.9%




% Change -27.6% NS 125.9% 49.5%






Latest price - - - - - 53.44 56.00 56.00 56.00

High - - - - - 58.95 76.20 - -

Low - - - - - 31.40 43.89 - -

Average price - - - - - 38.59 61.29 - -

Market capitalisation - - - - - 264.0 304.3 304.3 304.3

Enterprise value - - - - - 262.7 288.5 316.1 347.5

Valuation

P/E NS NS NS NS NS NS 44.1 20.6 14.5

P/E before goodwill NS NS NS NS NS NS 44.1 20.6 14.5

P/CF NS NS NS NS NS NS 35.8 15.8 10.6

Attrib. FCF yield [%] - - - - - 1.8 NS NS NS

P/BV NS NS NS NS NS 6.7 4.2 3.5 2.8

Enterprise value / Op CE NS NS NS NS NS 7.0 5.9 3.4 2.4

Yield [%] - 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

EV/EBITDA, restated NS NS NS NS NS 52.5 21.2 11.3 8.0

EV/EBITA, restated NS NS NS NS NS 61.1 23.6 13.3 9.7

EV/Sales NS NS NS NS NS 2.9 1.6 1.3 1.0

EV/Debt-adjusted cash flow NS NS NS NS NS NS 31.4 15.6 11.0

Financial Ratios

Interest cover NS NS NS NS NS NS 17.4 19.8 9.0

Net debt/Cash flow NS NS NS NS NS NS NS 0.4 1.4

EBITDA margin [%] NS NS NS NS 9.1 5.6 7.7 11.2 12.3

EBITA margin [%] NS NS NS NS 8.2 4.8 6.9 9.5 10.2

Net margin [%] NS NS NS NS 7.3 1.4 4.0 6.0 6.0

Capital turn [Sales/ Op. CE] NS NS NS 5.5 11.8 2.4 3.0 2.3 2.1

Gearing [%] NS NS NS NS NS NS NS 8.7 36.7

Payout ratio [%] 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Return [%]

Pre-tax RoCE NS NS NS NS 96.6 11.5 20.5 21.4 20.9

RoCE after tax NS NS NS NS 89.8 3.4 12.7 14.3 14.0

ROE [%] NS NS NS NS NS 3.4 10.0 18.5 21.5

Return on equity, restated NS NS NS NS NS 3.4 10.0 18.5 21.5

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