Europcar Groupe S.A. Auto Rental Trade Idea: Swap out of the FRNs due 2013 into the 9.75% Sr. Sec. Notes due 2017

Transcription

1 Europcar Groupe S.A. Auto Rental Trade Idea: Swap out of the FRNs due 2013 into the 9.75% Sr. Sec. Notes due 2017 Due to a more conservative economic outlook for 2012 (our economists have recently lowered Euro area GDP estimates to -0.5%, down from 1.6%) and our view that investors will be much more selective in buying new high yield issues, we recommend investors look at a swapping out of the EUROCA sr. sub. FRNs into the EUROCA 9.75% sr. sec. notes due We think this trade makes sense given upside/downside scenarios (especially given the higher coupon and, in our view, materially higher recovery for the 2017 notes versus the 2013s). We believe investors will continue to be cautious on companies with significant maturities due within 2y-3y. In Europcar s case, the company has ~ 775mn of refinancing (or ~ 578mn of cash maturities, using the 153mn in outstandings under the senior revolver) to complete prior to June 2013 (the senior revolving credit facilities due end of May 2013, and the 2013 Sr. Sub. Secured FRNs due 15 May 2013). We are not suggesting that the market will remain closed during H 2013, but we did want to explore Europcar's credit profile in the case the company was forced to pay a materially higher interest rate on any new bonds, as well as the revolver. We note that at present, JPM's Euro HY Split B index is trading at a YTW of 14.5%. Even if Europcar were to roll over 425mn of bonds at better levels than what is being suggested by the marketplace, our estimates for 2012 cash flows would be extremely limited at the corporate level. For example, using our base case for the refinancing of the FRNs and the revolver, we estimate an additional 21mn- 26mn of interest costs (depending on revolver drawings), virtually eliminating the benefit Europcar will receive from improved swap terms. We have included our base case, stress case and bull case scenario analysis starting on page 3. We are assuming in this instance that the 2012 fleet financing is settled prior to the financing of the bonds/revolver. In all three of these cases the main driver of the difference between them is financing costs, as Europcar has proven quite adept in managing operations in upside/downside scenarios by de(re)fleeting and managing overheads. We note that in our bull case scenario, where the FRNs are refinanced by June 2012, we could, for example, expect ~22pts return on the FRNs (including coupon), versus a 26pts return on the 2017s (11% yield at 30 June 2012, including coupon). European Credit - Autos, Chemicals, and General Industrials Stephanie A Renegar AC Danielle Ward (44-20) danielle.x.ward@jpmorgan.com High Yield Strategy Daniel Lamy AC (44-20) daniel.lamy@jpmorgan.com J.P. Morgan Securities Ltd. EUROCA Bond Prices, open 26 Sept Europcar FRNs due 2013: Bid Price: 79pts Europcar 9.375% Notes: Bid Price: 59pts Europcar 9.75% Notes: Offer Price: 77pts As of this writing, we are lowering our rating on the EUROCA FRNs to Underweight from Neutral. We maintain our Neutral rating on the 9.75% senior secured notes due 2017 and our Underweight rating on the 9.375% sr. sub. notes due See page 8 for analyst certification and important disclosures. J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.

2 Trade Mechanics Below we show details of the trade, which can be structured either by switching out of the FRN (for investors that own this bond), or by going outright short. At present we believe the FRNs are available in repo and do not trade special. Note that after bid-offer costs are taken into account, an investor putting on this trade receives cash upfront, and generates positive carry of close to 5% (depending on where 3m Euribor fixes for each coupon date). Table 1: Trade Details Issuer B/S Notional Coupon Maturity Price Accrued Z-Spread/DM Upfront cost Annual carry EC Finance B 5.0mm 9.75% 01-Aug ,928, ,500 Europcar Groupe S 5.0mm 3mE+3.5% 15-May ,977, ,750 TOTAL - 49, ,750 Source: J.P. Morgan. Bid-offer costs taken into account. Carry assumes current coupon on the FRNs but does not include pull-to-par. Over the next six months: In an upside scenario (where Europcar receives equity capital, or the market reopens, quickly, at lower costs than expected) we think that there still is material upside in the 2017s, even versus the 2013s. Our view on this is based on limited capacity to put in more debt down at the SPVs (other than the greater advance rates received by Europcar in the instance of an SPV notes' rating) as well as our opinion that the 2017s are also trading at a level where it is apparent there are near-term refinancing concerns at the Corporate level. In addition, given the relatively short maturity, the principal upside (albeit potentially faster) for the FRNs is par, whereas the 2017s have further upside in the instance the business case for Europcar improves substantially. The worst case for the 2017s in a bull case for the FRNs is that the FRNs get refinanced more quickly than expected, but the outlook for Europcar post this refinancing continues to deteriorate (we view this as unlikely given the lower likelihood investors will be willing to roll into new FRNs at economic levels, especially if prospects for recovery are lower given there will most likely be more collateral needed/higher costs associated with additional fleet financing and the revolver). As stated on page 1, we note that in our bull case scenario, where the FRNs are refinanced by June 2012 at somewhat economic levels, we could, for example, expect ~22pts return on the FRNs (including coupon), versus a 26pts return on the 2017s (11% yield at 30 June 2012, including coupon). Base Case: Our base case is that Europcar's operations are in line with a slower economy and the company continues to cut costs, but re-financings done for more subordinated parts of high yield corporate capital structures continue to be done at quite expensive levels. In this case, we believe that hope for a refinancing for the 2013s will not be abandoned, but that that new investors in Europcar will look to be in the senior secured notes (closer to the vehicle assets, which due to the fact that the bulk of Europcar's car purchases are on buyback, have more transparent value than the security/guarantee package offered to the FRNs (the 2nd lien claim on the shares of ECI, senior sub. guarantees from certain operating subsidiaries)). Bear Case: In the instance where the 2013 bonds/bank debt cannot get refinanced at all/close to economic levels, we believe that the 2017 notes offer investors more downside protection. In addition, investors will also benefit ~1.5y from a 2

3 higher coupon on the 2017s, versus the 2013 FRNs. In this case, we would also view the recovery on the 2018s to be extremely limited. Investment Rationale: Fundamental View Higher financing costs (in the form of higher cash interest costs and capital intensity) continue to erode value for more subordinated parts of Europcar s capital structure: In our view, Europcar s operations are extremely flexible during down cycles, and the company has proven in difficult environments to have access to the capital markets. However, this access has come at a cost, and our current forecasts on Europcar reveal that higher spreads paid for the recent senior secured notes (due 2017), the refinancing of the 2014 notes (8.125%, to 9.375% bonds due 2018), the recent SARF (spreads rose, and advance rates have fallen dramatically since the original loans made in 2006) have limited the upside for Corporate EBITDA. For example, Europcar's revenues and Consolidated EBITDA have fallen by ~7% since 2007, but Corporate EBITDA has fallen by ~25%, primarily due to the higher cost of funding. Even PF for the 2012 swap package, Corporate EBITDA has fallen by 3% versus 3Q10, despite 4% higher revenues. We are concerned that this phenomenon will continue as overall high yield spreads remain high and expectations for growth are subdued. Bondholders, in our view, benefit from the additional security provided to the 2017 notes, while refinancing concerns could pressure the 2013 notes in the coming months. Europcar s 2017 notes are secured by a loan that was made to SPVs which purchase vehicles for Europcar's operations (most of the vehicles purchased by these companies are on manufacturer buyback agreements). The 2017s also benefit from a senior guarantee from ECI (Europcar International), which has ownership of Europcar's operating companies. The FRNs have a 2nd lien share pledge of ECI (after the 2013 revolver), and senior subordinated guarantees of certain German and UK subsidiaries of ECI (but not by ECI itself). In our view, just the cushion provided by assets at the Securitifleet companies provide some comfort to bondholders in a downside scenario (given manufacturers continued to honor repurchase agreements even in times of distress, and the SPV's collateral is not co-mingled with assets at the Corporate level from where the revolver, the FRNs, and the fixed-rate notes are issued). 3

4 Table 2: Europcar: Case Studies Base Case m Bear Case, Refinancing Questionable m Bull Case (Operating- Related Only) m PF 2012e PF 2012e PF 2012e Corporate EBITDA 132 Corporate EBITDA 102 Corporate EBITDA 167 Corporate Cash Interest Costs, at 12% for new bond 84 Corporate Interest Costs, at 14% for new bond 94 Corporate Interest Costs, at 9.5% for new bond 73 Cash Taxes 13 Cash Taxes 0 Cash Taxes 11 Non-Fleet Capex 23 Non-Fleet Capex 20 Non-Fleet Capex 23 Corp Cash Flow to Bonds, pre non-fleet w/c 12 Corp Cash Flow to Bonds, pre non-fleet w/c -11 Corp Cash Flow to Bonds, pre non-fleet w/c 60 Corporate Cash post paying 12% Coupon 184 Corporate Cash Post Paying 14% 154 Corporate Cash post paying 9.5% Coupon 219 Net Corp. Debt/EBITDA (PF for financing) 4.8x Net Corp. Debt/EBITDA (PF for financing) 6.6x Net Corp. Debt/EBITDA (PF for financing) 3.2x Net Corp. Debt+ Revolver/EBITDA (PF for financing) 6.0x Net Corp. Debt+ Revolver/EBITDA (PF for financing) 8.0x Net Corp. Debt+ Revolver/EBITDA (PF for financing) 4.5x Net Corp. Debt/EBITDA through bonds (PF for financing) 3.1x Source: J.P. Morgan estimates, Company data. Net Corp. Debt/EBITDA through bonds (PF for financing) 4.3x Net Corp. Debt/EBITDA through bonds (PF for financing) 2.3x 4

5 Table 3: 2013 Maturity Summary Europcar Maturities due 2013 Maturity Coupon Outstanding ( m) Senior Revolving Credit Facility 31-May-2013 E +350bp Senior Subordinated FRNs 15-May-2013 E+ 350bp Total Due Source: Company reports.2011 and 2012 Outlook and Estimates Available ( m) Issuer Security Guarantees Europcar International S.A.S.U. Europcar Groupe SA Security includes trademarks, EGSA's subsidiaries' shares, receivables under buyback agreements w/the car manufacturers held by the operating companies, VAT receivables/bank accounts, and certain other business assets. 1st lien on shares of ECI. No overlap in security from SARF/2017s and the assets securing the revolver. 2nd lien on ECI shares Guarantees have been granted by EGSA, ECI, Europcar Holding SAS, Europcar France SAS, Parcoto Services SARL, Europcar Intl S.A. & Co. ohg, Europcar Autovermietung GmbH, Europcar IB S.A., Europcar S.A., Europcar Italia SpA and Eurocpar UK Ltd. Current Use of Proceeds Financing for fleet purchases, working capital/gcp, interest payments, repayment of inter-company loans Banks Involved BNP Paribas, Credit Agricole, DB, Soc Gen Other Notes Average outstandings ~ 166mn during 1H11. Covenant: ratio of cash flow to debt service cannot be < 1.1x. Borrowings by EGSA are limited to 50mn. Certain German & UK Subsidiaries. Each Subsidiary Guarantee is an unsecured senior subordinated guarantee, ranking junior to any Senior Debt of Subsidiary Guarantors. x x x 5

6 Table 4: Europcar Financial Summary m PF PF PF PF PF PF PF PF PF Q2011 2Q2011 3Q2011e 2011e 2012e 2013e Income Statement Revenues Revenues at Constant FX Y/Y Change -11.5% 6.6% 1.0% 0.4% 1.3% 0.5% 1.9% 3.8% Fleet holding costs Fleet, rental and revenue related costs Personnel costs Network and Headquarters and overheads Depreciation, amortization and impairment Other income/(expense) Adjusted Operating Profits Other non recurring Net financing Costs EBT Adjusted Operating Profits Interest Expense included in Operating Lease Rents Underlying Operating Profit Adjusted Operating Profit Margins 12.0% 11.5% 12.3% -0.2% 12.3% 21.1% 12.0% 13.2% 14.5% EBITDA Reconciliations EBIT Fleet depreciation Non Fleet D&A Other adjustments (non-recurring) Adjusted Consolidated EBITDA Adjusted Consolidated EBITDA Margins 33.5% 33.0% 33.6% 23.1% 33.8% 41.8% 33.8% 34.6% 36.0% Less: Fleet D&A, operating lease rents, fleet financing Adjusted Corporate EBITDA Adjusted Corporate EBITDA Margin 5.7% 5.7% 6.4% -7.6% 6.1% 14.9% 5.3% 6.5% 7.4% Operating Metrics Utlisation 71.60% 73.70% 73.60% RPD RPD yoy variation 3.4% 3.70% Avg. Fleet Holding Costs (euros/unit/month) Securitifleet Total Asset Value Source: J.P. Morgan estimates, Company data. 6

7 Table 5: Europcar Financial Summary, continued m PF PF PF PF PF PF PF PF PF Q2011 2Q2011 3Q2011e 2011e 2012e 2013e Cash Flow Adjusted Corporate EBITDA Non cash items in EBITDA Interest Expenses (Non-Fleet) Interest Income Cash Tax FFO Net fleet capex Changes in Other Working Capital Non fleet Capex & other investment (net of disp) FCF Increase (decrease in net debt) Balance Sheet Senior Asset Financing Loan Vanguard Asset Financing Revolver /Other fleet lines HY Bonds Total Fleet - Drawdown Senior Sub Secured FRN % Senior Sub Unsecured/new senior uns notes Revolver Other Deferred Issuance Costs Total Corporate Total Consolidated Operating Leases Cash & Equivalent Average Net Debt Ratios Total Net Debt (+ operating leases, less HY Notes)/Adjusted Consolidated EBITDA 3.5x 3.4x 3.3x 3.2x 3.2x 3.1x Total Net Debt (+ operating leases)/adjusted Consolidated EBITDA 4.7x 4.7x 4.5x 4.4x 4.4x 4.2x Corporate Net Debt/Corporate EBITDA (JPMe) 6.2x 7.4x 4.7x 6.1x 4.8x 4.0x Adjusted Consolidated EBITDA/Total Financing Costs (incl. operating lease rents) 3.0x 2.8x 2.4x 2.6x 3.0x 3.4x Source: J.P. Morgan estimates, Company data. 7

8 Analyst Certification: The research analyst(s) denoted by an AC on the cover of this report certifies (or, where multiple research analysts are primarily responsible for this report, the research analyst denoted by an AC on the cover or within the document individually certifies, with respect to each security or issuer that the research analyst covers in this research) that: (1) all of the views expressed in this report accurately reflect his or her personal views about any and all of the subject securities or issuers; and (2) no part of any of the research analyst's compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the research analyst(s) in this report. Important Disclosures Market Maker/ Liquidity Provider: J.P. Morgan Securities Ltd. and/or an affiliate is a market maker and/or liquidity provider in Europcar Groupe S.A.. Other Significant Financial Interests:J.P. Morgan owns a position of 1 million USD or more in the debt securities of Europcar Groupe S.A.. Europcar Groupe S.A. - J.P. Morgan Recommendation History Date Rating Instrument 24 Jan 11 Neutral 9.375% May 11 Underweight 9.375% 2018 Recommendation changes made by J.P. Morgan Credit Research Analysts in the subject company over the past 12 months (or, if no recommendation changes were made in that period, the most recent change). Explanation of Credit Research Ratings: Ratings System: J.P. Morgan uses the following sector/issuer portfolio weightings: Overweight (over the next three months, the recommended risk position is expected to outperform the relevant index, sector, or benchmark), Neutral (over the next three months, the recommended risk position is expected to perform in line with the relevant index, sector, or benchmark), and Underweight (over the next three months, the recommended risk position is expected to underperform the relevant index, sector, or benchmark). J.P. Morgan's Emerging Market research uses a rating of Marketweight, which is equivalent to a Neutral rating. Valuation & Methodology: In J.P. Morgan's credit research, we assign a rating to each issuer (Overweight, Underweight or Neutral) based on our credit view of the issuer and the relative value of its securities, taking into account the ratings assigned to the issuer by credit rating agencies and the market prices for the issuer's securities. Our credit view of an issuer is based upon our opinion as to whether the issuer will be able service its debt obligations when they become due and payable. We assess this by analyzing, among other things, the issuer's credit position using standard credit ratios such as cash flow to debt and fixed charge coverage (including and excluding capital investment). We also analyze the issuer's ability to generate cash flow by reviewing standard operational measures for comparable companies in the sector, such as revenue and earnings growth rates, margins, and the composition of the issuer's balance sheet relative to the operational leverage in its business. J.P. Morgan Credit Research Ratings Distribution, as of June 30, 2011 Overweight Neutral Underweight EMEA Credit Research Universe 30% 49% 21% IB clients* 53% 63% 49% Represents Ratings on the most liquid bond or 5-year CDS for all companies under coverage. *Percentage of investment banking clients in each rating category. Analysts' Compensation: The research analysts responsible for the preparation of this report receive compensation based upon various factors, including the quality and accuracy of research, client feedback, competitive factors, and overall firm revenues, which include revenues from, among other business units, Institutional Equities, Fixed Income, and Investment Banking. Other Disclosures J.P. Morgan ("JPM") is the global brand name for J.P. Morgan Securities LLC ("JPMS") and its affiliates worldwide. J.P. Morgan Cazenove is a marketing name for the U.K. investment banking businesses and EMEA cash equities and equity research businesses of JPMorgan Chase & Co. and its subsidiaries. QIB Only 8

9 Options related research: If the information contained herein regards options related research, such information is available only to persons who have received the proper option risk disclosure documents. For a copy of the Option Clearing Corporation's Characteristics and Risks of Standardized Options, please contact your J.P. Morgan Representative or visit the OCC's website at Legal Entities Disclosures U.S.: JPMS is a member of NYSE, FINRA,SIPC and the NFA. JPMorgan Chase Bank, N.A. is a member of FDIC and is authorized and regulated in the UK by the Financial Services Authority. U.K.: J.P. Morgan Securities Ltd. (JPMSL) is a member of the London Stock Exchange and is authorized and regulated by the Financial Services Authority. Registered in England & Wales No Registered Office 125 London Wall, London EC2Y 5AJ. South Africa: J.P. Morgan Equities Limited is a member of the Johannesburg Securities Exchange and is regulated by the FSB. Hong Kong: J.P. Morgan Securities (Asia Pacific) Limited (CE number AAJ321) is regulated by the Hong Kong Monetary Authority and the Securities and Futures Commission in Hong Kong. Korea: J.P. Morgan Securities (Far East) Ltd, Seoul Branch, is regulated by the Korea Financial Supervisory Service. Australia: J.P. Morgan Australia Limited (ABN /AFS Licence No: ) is regulated by ASIC and J.P. Morgan Securities Australia Limited (ABN /AFS Licence No: ) is a Market Participant with the ASX and regulated by ASIC. Taiwan: J.P.Morgan Securities (Taiwan) Limited is a participant of the Taiwan Stock Exchange (company-type) and regulated by the Taiwan Securities and Futures Bureau. India: J.P. Morgan India Private Limited, having its registered office at J.P. Morgan Tower, Off. C.S.T. Road, Kalina, Santacruz East, Mumbai , is a member of the National Stock Exchange of India Limited (SEBI Registration Number - INB /INF /INE ) and Bombay Stock Exchange Limited (SEBI Registration Number - INB /INF ) and is regulated by Securities and Exchange Board of India. Thailand: JPMorgan Securities (Thailand) Limited is a member of the Stock Exchange of Thailand and is regulated by the Ministry of Finance and the Securities and Exchange Commission. Indonesia: PT J.P. Morgan Securities Indonesia is a member of the Indonesia Stock Exchange and is regulated by the BAPEPAM LK. Philippines: J.P. Morgan Securities Philippines Inc. is a member of the Philippine Stock Exchange and is regulated by the Securities and Exchange Commission. Brazil: Banco J.P. Morgan S.A. is regulated by the Comissao de Valores Mobiliarios (CVM) and by the Central Bank of Brazil. Mexico: J.P. Morgan Casa de Bolsa, S.A. de C.V., J.P. Morgan Grupo Financiero is a member of the Mexican Stock Exchange and authorized to act as a broker dealer by the National Banking and Securities Exchange Commission. Singapore: This material is issued and distributed in Singapore by J.P. Morgan Securities Singapore Private Limited (JPMSS) [MICA (P) 025/01/2011 and Co. Reg. No.: R] which is a member of the Singapore Exchange Securities Trading Limited and is regulated by the Monetary Authority of Singapore (MAS) and/or JPMorgan Chase Bank, N.A., Singapore branch (JPMCB Singapore) which is regulated by the MAS. Malaysia: This material is issued and distributed in Malaysia by JPMorgan Securities (Malaysia) Sdn Bhd (18146-X) which is a Participating Organization of Bursa Malaysia Berhad and a holder of Capital Markets Services License issued by the Securities Commission in Malaysia. Pakistan: J. P. Morgan Pakistan Broking (Pvt.) Ltd is a member of the Karachi Stock Exchange and regulated by the Securities and Exchange Commission of Pakistan. Saudi Arabia: J.P. Morgan Saudi Arabia Ltd. is authorized by the Capital Market Authority of the Kingdom of Saudi Arabia (CMA) to carry out dealing as an agent, arranging, advising and custody, with respect to securities business under licence number and its registered address is at 8th Floor, Al-Faisaliyah Tower, King Fahad Road, P.O. Box 51907, Riyadh 11553, Kingdom of Saudi Arabia. Dubai: JPMorgan Chase Bank, N.A., Dubai Branch is regulated by the Dubai Financial Services Authority (DFSA) and its registered address is Dubai International Financial Centre - Building 3, Level 7, PO Box , Dubai, UAE. Country and Region Specific Disclosures U.K. and European Economic Area (EEA): Unless specified to the contrary, issued and approved for distribution in the U.K. and the EEA by JPMSL. Investment research issued by JPMSL has been prepared in accordance with JPMSL's policies for managing conflicts of interest arising as a result of publication and distribution of investment research. Many European regulators require a firm to establish, implement and maintain such a policy. This report has been issued in the U.K. only to persons of a kind described in Article 19 (5), 38, 47 and 49 of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (all such persons being referred to as "relevant persons"). This document must not be acted on or relied on by persons who are not relevant persons. Any investment or investment activity to which this document relates is only available to relevant persons and will be engaged in only with relevant persons. In other EEA countries, the report has been issued to persons regarded as professional investors (or equivalent) in their home jurisdiction. Australia: This material is issued and distributed by JPMSAL in Australia to "wholesale clients" only. JPMSAL does not issue or distribute this material to "retail clients". The recipient of this material must not distribute it to any third party or outside Australia without the prior written consent of JPMSAL. For the purposes of this paragraph the terms "wholesale client" and "retail client" have the meanings given to them in section 761G of the Corporations Act Germany: This material is distributed in Germany by J.P. Morgan Securities Ltd., Frankfurt Branch and J.P.Morgan Chase Bank, N.A., Frankfurt Branch which are regulated by the Bundesanstalt für Finanzdienstleistungsaufsicht. Hong Kong: The 1% ownership disclosure as of the previous month end satisfies the requirements under Paragraph 16.5(a) of the Hong Kong Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission. (For research published within the first ten days of the month, the disclosure may be based on the month end data from two months prior.) J.P. Morgan Broking (Hong Kong) Limited is the liquidity provider/market maker for derivative warrants, callable bull bear contracts and stock options listed on the Stock Exchange of Hong Kong Limited. An updated list can be found on HKEx website: Japan: There is a risk that a loss may occur due to a change in the price of the shares in the case of share trading, and that a loss may occur due to the exchange rate in the case of foreign share trading. In the case of share trading, JPMorgan Securities Japan Co., Ltd., will be receiving a brokerage fee and consumption tax (shouhizei) calculated by multiplying the executed price by the commission rate which was individually agreed between JPMorgan Securities Japan Co., Ltd., and the customer in advance. Financial Instruments Firms: JPMorgan Securities Japan Co., Ltd., Kanto Local Finance Bureau (kinsho) No. 82 Participating Association / Japan Securities Dealers Association, The Financial Futures Association of Japan. Korea: This report may have been edited or contributed to from time to time by affiliates of J.P. Morgan Securities (Far East) Ltd, Seoul Branch. Singapore: JPMSS and/or its affiliates may have a holding in any of the securities discussed in this report; for securities where the holding is 1% or greater, the specific holding is disclosed in the Important Disclosures section above. India: For private circulation only, not for sale. Pakistan: For private circulation only, not for sale. New Zealand: This material is issued and distributed by JPMSAL in New Zealand only to persons whose principal business is the investment of money or who, in the course of and for the purposes of their business, habitually invest money. JPMSAL does not issue or distribute this material to members of "the public" as determined in accordance with section 3 of the Securities Act The recipient of this material must not distribute it to any third party or outside New Zealand without the prior written consent of JPMSAL. Canada: The information contained herein is not, and under no circumstances is to be construed as, a prospectus, an advertisement, a public offering, an offer to sell securities described herein, or solicitation of an offer to buy securities described herein, in Canada or any province or territory thereof. Any offer or sale of the securities described herein in Canada will be made only under an exemption from the requirements to file a prospectus with the relevant Canadian securities regulators and only by a dealer properly registered under applicable securities laws or, alternatively, pursuant to an exemption from the dealer registration requirement in the relevant province or territory of Canada in which such offer or sale is made. The information contained herein is under no circumstances to be construed as investment advice in any province or territory of Canada and is 9

10 not tailored to the needs of the recipient. To the extent that the information contained herein references securities of an issuer incorporated, formed or created under the laws of Canada or a province or territory of Canada, any trades in such securities must be conducted through a dealer registered in Canada. No securities commission or similar regulatory authority in Canada has reviewed or in any way passed judgment upon these materials, the information contained herein or the merits of the securities described herein, and any representation to the contrary is an offence. Dubai: This report has been issued to persons regarded as professional clients as defined under the DFSA rules. General: Additional information is available upon request. Information has been obtained from sources believed to be reliable but JPMorgan Chase & Co. or its affiliates and/or subsidiaries (collectively J.P. Morgan) do not warrant its completeness or accuracy except with respect to any disclosures relative to JPMS and/or its affiliates and the analyst's involvement with the issuer that is the subject of the research. All pricing is as of the close of market for the securities discussed, unless otherwise stated. Opinions and estimates constitute our judgment as of the date of this material and are subject to change without notice. Past performance is not indicative of future results. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The opinions and recommendations herein do not take into account individual client circumstances, objectives, or needs and are not intended as recommendations of particular securities, financial instruments or strategies to particular clients. The recipient of this report must make its own independent decisions regarding any securities or financial instruments mentioned herein. JPMS distributes in the U.S. research published by non-u.s. affiliates and accepts responsibility for its contents. Periodic updates may be provided on companies/industries based on company specific developments or announcements, market conditions or any other publicly available information. Clients should contact analysts and execute transactions through a J.P. Morgan subsidiary or affiliate in their home jurisdiction unless governing law permits otherwise. "Other Disclosures" last revised June 13, Copyright 2011 JPMorgan Chase & Co. All rights reserved. This report or any portion hereof may not be reprinted, sold or redistributed without the written consent of J.P. Morgan. #$J&098$#*P 10