EQUITY 12 August 2016

Transcription

1 EQUITY 12 August 2016 Electric Utilities Rating downgrade Go to SG website Best to wait and see for now Hold (from Buy) Price 10/08/16 PLN m target PLN13.5 Upside to TP 0.4% 12m f'cast div PLN m TSR 0.4% Main changes since last report Target (PLN) 13.5 (34.5) EPS 16e (PLN) (1.27) -128% EPS 17e (PLN) (1.81) -82.8% EPS 18e (PLN) (2.10) -82.9% new vs (old) na: unchanged Preferred stock IBE SM, RWE GR, ENG SM, ELE SM Least preferred stock CNA LN, SSE LN SG strategy team sector weighting Underweight Share price performance Aug Oct Dec Feb Apr Jun Perf. (%) 1m 3m 12m YTD Share Rel. index* Rel. sector** * MSCI World ($) ** MSCI World Utilities ($) Price RIC PEPP.WA, Bloom PEP PW 52-week range EV 16 (PLNm) 1,374 Mkt cap. (PLNm) 611 Free float (%) 14.9 No. shares o/s (m) 45 Avg vol. 3m (nb. shares) 15,773 Equity analyst Bartlomiej Kubicki bartlomiej.kubicki@sgcib.com Specialist sales Sophia Hart sophia.hart@sgcib.com We think s current share price accurately reflects the sharp drop in green certificate prices to all-time lows, as well as the regulatory changes that will limit new farm construction, the increase in property tax duties, and the lack of visibility on future auctions given the current government s willingness to support coal generation and more stable renewables generation in the Polish power system. We think the stock offers a lot of upside optionality, but for now we prefer to wait and see, downgrading the TP to PLN13.5 (was PLN34.5) and our recommendation to Hold. Regulatory changes The new wind farms act in place since mid-july limits new wind farm construction by imposing strict minimum distance rules ( wrote off 2/3 of its portfolio as a consequence). Additionally, it could increase property tax duties by redefining the property to include the turbine as well. claims the increased tax base is unjustified; however, state-controlled utilities have taken impairments on their wind capacities due to the increased tax, among other things. We estimate the new tax s impact at PLN4.7/share. Green certificates Prices are at an all-time low on the prospect that oversupply will not be absorbed in the future. Proposed redemption obligations for next year are considerably below what was expected, and as a result we find it hard to justify any green certificate price increase. Yet, we believe that both higher tax and cheap certificates will trigger a sector-wide debt restructuring process, as wind farms will unlikely be able to comfortably service their debt obligations in this environment. We calculate that each PLN10/MWh change in green certificate prices impacts the valuation by PLN1/share. Quite a lot of (upside) optionality We are adopting a wait-and-see attitude, as we think the stock price accurately reflects current operating conditions. However, there is a substantial amount of upside potential that is currently difficult to quantify due to a lack of visibility but could have a significant impact on the stock price in the future: offshore and onshore wind farm development, more lenient interpretation of the property tax, change in wind farm regulations, more restructuring, and price support for green certificates stemming from increased demand/decreased supply, among other things. Financial data 12/15 12/16e 12/17e 12/18e Ratios 12/15 12/16e 12/17e 12/18e Revenues (PLNbn) P/E (x) 18.8 NM Rev. yoy growth (%) FCF yield (/EV) (%) EBIT margin (%) Dividend yield (%) Rep. net inc. (PLNm) Price/book value (x) EPS (adj.) (PLN) EV/revenues (x) EPS yoy growth (%) EV/EBIT (x) Dividend/share (PLN) EV/IC (x) Dividend yoy growth (%) NA NA NA ROIC/WACC (x) Payout (%) Net Debt/EBITDA (x) Societe Generale ( SG ) does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that SG 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. PLEASE SEE APPENDIX AT THE END OF THIS REPORT FOR THE ANALYST(S) CERTIFICATION(S), IMPORTANT DISCLOSURES AND DISCLAIMERS. ALTERNATIVELY, VISIT OUR GLOBAL RESEARCH DISCLOSURE WEBSITE

2 Three items impacting the stock price lately Changes in the political landscape in Poland (Civic Platform losing power, Law & Justice in control of the central government since October 2015) have undermined s investment story. Following the introduction of regulations unfriendly to wind farms and a collapse of green certificate prices, s share price is down almost 50% YTD. However, we think that the current share price accurately reflects the regulatory changes, the company s ongoing restructuring, and the all-time low green certificate prices, with no potential of a rebound for the time being. We downgrade the stock recommendation to Hold from Buy. We are convinced, however, that the balance of risks is slanted to the upside (offshore wind farm development, onshore wind auctions, capacity market and the development/disposal of the Polnoc power plant project, rebound in green certificate prices, regulatory changes, business model diversification) rather than the downside (a complete collapse of green certificate valuations or a fall in power prices following the introduction of the capacity market in the future). Please note that our model shows the following sensitivity of s valuation to green certificate prices: a PLN10/MWh change in the certificate prices = PLN1/share change in the stock s valuation. s stock price performance 40 Changes in the political 35 landscape in Poland Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul (PLN) Green Certificates (PLN/MWh), rhs, Bloomberg, POLPX 12 August

3 Distribution of s risks Complete collapse of certificate prices Drop in power prices upon introduction of the capacity market Offshore wind development Onshore wind development Green certificate prices rebound Regulatory change Capacity market EU suing Poland for excessive support for hydro and biomass co-firing Green certificates The changes imposed on green certificate system in Poland from January have completely cut distribution of green certificates to hydro generation with capacities larger than 5MW (last year Poland produced more than 2TWh from hydro generation) and have cut green certificates for non-dedicated biomass co-combustion to 0.5x per 1MWh making that generation unprofitable at current green certificate pricing. As you can see from the chart below, Tauron, Energa and Enea stopped producing electricity from biomass co-firing in 1Q16. PGE continues production at its Opole plant because it has received grants for biomass co-combustion, but it no longer co-combusts biomass with lignite. Consequently, just counting those four groups, production from biomass co-firing would decline by around 1.5TWh per annum from FY16 on. Biomass co-combustion electricity production (TWh) Q1 14 Q2 14 Q3 14 Q4 14 Q1 15 Q2 15 Q3 15 Q4 15 Q1 16 PGE Enea Energa Tauron, Companies 12 August

4 Demand/supply estimates: During its last analyst meeting, Enea said it estimates the oversupply (inventories) of green certificates at c.20twh. expects the supply of green certificates to fall by 5.2TWh from 2016 on (24% of FY15 production), whereas the 1pp increase in demand (the green certificates quota is set at 15% this year vs 14% in 2015) is expected to translate into an additional need for green certificates of 1.4TWh, resulting in a balanced market (excluding inventories) this year. The hopes and forecasts that the oversupply/inventories will disappear rest on the existing RES law, which implies that in FY17 the green certificate quota will increase to 20%, effectively lifting demand for the green certificates by c.7twh and hence eliminating the oversupply in under three years ( used to say 1-2 years). Yet, the most recent regulatory adjustments have decreased the maximum redemption obligation for green certificates to 19.35%, with the remaining 0.65% being the maximum redemption obligation for green certificates coming from biogas combustion. In addition, the 1H16 obligation to redeem green certificates has been decreased to 14.35% from 15%, effective in the first half of this year. Furthermore, the Ministry of Energy s most recent proposal for the redemption obligation for 2017 assumes a 0.5% contribution from biogas combustion and 15.5% contribution from any other renewable energy source. In our view, this should quash expectations of the certificate overhang being eliminated in the near future, and green certificate prices have lately been trading at all-time lows (PLN52.73/MWh). As a result, for the time being we do not assume any rebound in green certificate prices. Some help could potentially come from an increase in the redemption obligation, production cuts at potentially unprofitable biomass-firing installations, or the gradual termination of support systems for old wind farms several years hence (the support system covers 15 years of operations, and the first farms were created in 2006). The transfer of farms from the green certificate system to auctions could also help, but we have no idea how big the future auctions will be. Green certificate prices could also get a boost from EU Commission ruling (the process is still pending) against excessive Polish support for hydro and biomass co-firing, which would theoretically eliminate some of the green certificate overhang. Note that a PLN10/MWh change in the green certificate price roughly translates into a PLN1/share impact on s valuation. 12 August

5 Green certificate price index (PLN/MWh) Opposite to what you would have expected from regulations cutting supply Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16, POLPX New wind farm regulations There are two major implications of the new wind farm regulations that took effect in mid-july this year: New wind farms must be erected at a distance of at least 10x their height (1.5-2km) from residential areas, parks, etc. As a result, most of the existing wind farm development pipeline in Poland will not be developed. For instance, has recognized an impairment of PLN55m covering slightly more than 400MW of projects out of a total pipeline of 669MW. Another example is Energa, whose pipeline portfolio has been written down from PLN86.9m to PLN11.9m, with only one farm project meeting the minimum distance criteria. Please also refer to our last note: Polish utilities earnings preview: 2Q relatively uninspiring, for additional details. The new regulations will also affect property taxes. Up until now, wind farms have paid property tax on the entire windmill except for the turbine (roughly 1/3 of the windmill s value). The tax rate amounts to 2pp. According to the Ministry of Finance, when the new regulations are implemented, the property tax will apply to the whole windmill, which basically means another c.pln90k/mw of annual tax liabilities. As we understand it, state-controlled entities have recognized impairments of their wind farm portfolios that reflect the higher tax duty., however, claims the tax is not due because the wind turbine is not property but rather technical equipment, and so the property tax should not apply. We are also aware of KPMG s opinion that the new regulations do not have any tax implications. Nonetheless, given the Ministry of Finance s interpretation and the fact Energa, PGE, Enea and Tauron (total existing wind capacities of 985MW, i.e. c.18% of the Polish total) assume the tax is due, we have factored the increased tax into s valuation. We estimate that increased property tax takes away PLN4.7/share from s valuation. Furthermore, we forecast an incremental cash flow impact related to the tax of PLN22m per annum. 12 August

6 New RES regulations concerning auctions The Ministry of Energy wants to promote stable green energy sources such as biomass and biogas, as well as energy clusters, which combine an unstable energy source such as wind with, for instance, a biomass installation. Wind farms and photovoltaic do not seem to be a priority, but biomass, onshore and offshore are included in the project. has 267MW of projects ready to be built. 195MW of that could be built, together with a 31MW biomass block (with all permits but a construction permit). We do not know when auctions for wind will be launched; we also do not know the size or how many wind farms from the old support system (green certificates) will be allowed/will participate in the auction system. Furthermore, should there be an oversupply of old wind farms in the auction (oversupply vs the auction size), we would expect some pricing pressure as a result of their low profitability, given current low green certificate prices and the likelihood that many old farms (i.e. from the green certificate system) will switch to the auction system. On the other hand, it could prove to be an opportunity for, in that the company will be able to switch its existing farms into the new system, locking in certain revenues and probably higher profits. Given the lack of visibility, we no longer include an onshore wind auction-related valuation in s SOTP. If we were to assume that the 267MW pipeline is constructed in the years , we would see a positive impact on s valuation of PLN4.3/share (assuming is able to earn a premium of 1pp above its WACC on the projects). 2Q16 review Figures were a bit weaker than we had expected and were predominantly driven by low green certificate prices. The company has also taken impairments on their wind farm portfolio due to new regulations on minimum distances: Wind farm generation: thanks to more capacity (245MW now), the company has increased its power production by 48% to 129.5GW. Yet, record-low green certificate prices resulted in a decline in the segment s EBITDA. Conventional generation (CCGT plant) is slightly below our estimates, whereas distribution is stable yoy. We see some outperformance on costs at the headquarters level, with EBITDA amounting to PLN2.7m vs what was traditionally a couple of million of PLN below zero (we suspect this stems from employment restructuring). Sales segment: the company is ramping up its gas sales activities, with 2Q16 revenues more than doubling yoy to PLN56m. Nonetheless, due to the mark-to-market of the green certificate inventories, the segment reported a negative EBITDA of PLN9.1m. currently has 267MW of wind projects ready to be built that meet the new wind farm act criteria (wind farms that already have a building permit or have started the permit application process on the date the act comes into force have a three-year exemption from the minimum distance requirements). The company had to write off c.400mw of projects that do not meet the criteria. The impairment value amounts to PLN45.6m. Additionally, the company has written off wind farm sales-related receivables (PLN9.6m) both figures had already been announced by the company. did not take any asset impairments related to the potential property tax increase (unlike all of the state-controlled utilities). 12 August

7 Net debt was roughly unchanged vs the previous quarter at PLN788m. Cash flow from operations amounted to PLN35m and the company is already running a low capex profile, with the cash flow from investments coming down to PLN11.5m. : 2Q16 figures PLNm 2Q16 2Q16e % +/- 2Q15 % +/- yoy Revenues % % EBITDA wind % % EBITDA conventional % % EBITDA distribution % % EBITDA trading % 2.0 TOTAL EBITDA % % EBIT % 23.4 Net income % 9.4, Financial forecasts We have updated our macro table with new CO2 forward curve. We also keep green certificate prices close to current spot prices vs previous expectations of a gradual rebound. : macro forecasts 2016e 2017e 2018e 2019e 2020e CO2 price (EUR/t) EUR/PLN Coal price (PLN/GJ) Clear dark spread (PLN/MWh) Baseload electricity price (PLN/MWh) Green certificate price (PLN/MWh), average We no longer include auctions in our planning model, and we assume the company will pay the incremental part of property tax (c.pln22m per annum). Furthermore, given the less friendly regulatory environment and the company s stance towards protecting its liquidity position, we no longer assume that dividends will be paid out for the time being. : new and old estimates Note that a significant share of revenues comes from trading unaffected by the regulatory change Lower green certificate prices, property tax from FY17, no more new wind farms Note the PLN55m impairment in FY16 and financial costs eating roughly 1/3 of FY17e EBITDA Revenues 2016e 2017e 2018e New 2,837 2,861 2,935 Old 2,889 2,929 3,147 % -1.8% -2.3% -6.8% EBITDA 2016e 2017e 2018e New Old % -9.2% -24.7% -47.0% Net income 2016e 2017e 2018e New Old % -128% -83% -83% 12 August

8 Importantly, despite a significant contraction in the projected EBITDA, we think will stay FCF positive (after debt servicing payments), yielding around 8% this year and 12% in FY17e and FY18e after the capex declines to maintenance levels (i.e. PLN2.5m annually). : FCF generation 14% 12% 10% 8% 6% 4% 49 8% 69 12% 71 12% % 10 0% FY16e FY17e FY18e 0 FCFE (PLNm) FCFE yield Valuation The significant revision of our EBITDA estimates and net income projections, together with the exclusion of the wind farm pipeline (previously valued at PLN7.1/share) and the gas pipeline project (previously valued at PLN0.4/share) from our valuation, results in a significant revision of our TP, to PLN13.5 from PLN34.5. The vast majority of our EV comes from the existing wind farms; however, if we adjust that particular segment s EV for outstanding debt, the implied equity valuation is probably be close to nil, and we think this is how the market currently views the company. With no dividend expected in next 12 months, TSR is 0.4%. Hence, we downgrade to Hold. We would like to underline once again that there is a lot of optionality in s investment story now, even if there is not really almost certain growth from the pipeline construction. We think a positive ruling on the property tax, more visibility on the onshore and offshore auctions, changes to existing wind farm regulations, and increased demand for (or decreased supply of) green certificates are the upside options we suggest that investors bear in mind. 12 August

9 : valuation Wind farms old RES regime Wind farms new RES regime ENS, other PEP, distribution Off-shore wind farms Gas pipeline Net debt (end project Q4 15) Value per share 12 August

10 Sales/division 15 EBIT/division 15 Sales/region 15 Major shareholders (%) Electricity sales 75.4% CHP 11.9% Distribution 5.5% Wind 5.5% Others 1.7% Wind 55.5% CHP 51.3% Distribution 8.4% Electricity sales 4.8% Others -20.0% Poland 100.0% Kulczyk Investments 50.2 CEE Equity 16.0 Aviva OFE 6.7 Valuation (PLNm) 12/11 12/12 12/13 12/14 12/15 12/16e 12/17e 12/18e Nb. of shares basic year end/outstanding Share price (average) Average market cap. (SG adjusted) (1) 1,229 1,196 1,270 1,250 1, Restated net debt (-)/cash (+) (2) Value of minorities (3) NA NA NA NA NA NA NA NA Value of financial investments (4) Other adjustment (5) EV = (1) - (2) + (3) - (4) + (5) 1,708 1,285 1,438 1,620 2,054 1,374 1,237 1,099 P/E (x) NM Price/cash flow (x) 24.5 NM Price/free cash flow (x) NM NM NM Price/book value (x) EV/revenues (x) EV/EBITDA (x) Dividend yield (%) Per share data (PLN) SG EPS (adj.) Cash flow Book value Dividend Income statement (PLNm) Revenues ,118 2,659 2,756 2,837 2,861 2,935 Gross income EBITDA Depreciation and amortisation EBIT Impairment losses NA NA NA NA NA NA NA NA Net interest income Exceptional & non-operating items NA NA NA NA NA NA NA NA Taxation Minority interests Reported net income SG adjusted net income Cash flow statement (PLNm) EBITDA Change in working capital Other operating cash movements Cash flow from operating activities Net capital expenditure Free cash flow Cash flow from investing activities Cash flow from financing activities Net change in cash resulting from CF Balance sheet (PLNm) Total long-term assets ,253 1,968 2,448 2,385 2,263 2,141 of which intangible Working capital Employee benefit obligations NA NA Shareholders' equity ,333 1,396 1,358 1,372 1,388 Minority interests Provisions Net debt (-)/cash (+) Accounting ratios ROIC (%) NA ROE (%) NA Gross income/revenues (%) EBITDA margin (%) EBIT margin (%) Revenue yoy growth (%) NA NM NM Rev. organic growth (%) EBITDA yoy growth (%) NA NM EBIT yoy growth (%) NA NM EPS (adj.) yoy growth (%) NA Dividend growth (%) NA NA NA NA NA NA NA Cash conversion (%) nm nm 88.3 nm nm nm nm nm Net debt/equity (%) FFO/net debt (%) Dividend paid/fcf (%) NM NM NM NM NM NM NM NM 12 August

11 APPENDIX COMPANIES MENTIONED Centrica (CNA.L, Sell) Enagas (ENAG.MC, Buy) Endesa SA (ELE.MC, Buy) ENEA (ENAE.WA, Hold) Energa (ENGP.WA, Hold) Iberdrola (IBE.MC, Buy) (PEPP.WA, Hold) Polska Grupa Energetyczna (PGE.WA, Hold) RWE (RWEG.DE, Buy) SSE (SSE.L, Sell) Tauron (TPE.WA, Buy) ANALYST CERTIFICATION The following named research analyst(s) hereby certifies or certify that (i) the views expressed in the research report accurately reflect his or her or their personal views about any and all of the subject securities or issuers and (ii) no part of his or her or their compensation was, is, or will be related, directly or indirectly, to the specific recommendations or views expressed in this report: Bartlomiej Kubicki The analyst(s) who author research are employed by SG and its affiliates in locations, including but not limited to, Paris, London, New York, Hong Kong, Tokyo, Bangalore, Frankfurt, Madrid, Milan, Seoul and Warsaw. Historical Price: (PEPP.WA) 2013/2014 Change 2015/2016 Change /02/15 New Rating: Buy 26/02/15 New Target: /05/15 New Target: /11/15 New Target: /02/16 New Target: /13 11/13 02/14 05/14 08/14 11/14 02/15 05/15 08/15 11/15 02/16 05/16 Price Target MA100 Change Reco VALUATION METHODOLOGY AND RISKS TO RATING, RECOMMENDATION AND PRICE TARGET Valuation Methodology Our SOTP of PLN13.5 comes from predominantly from the valuation of windfarms (EV of PLN18.4/share) and other activities driven by conventional generation (EV of PLN11.3/share), which is adjusted by per share net debt of PLN17.8. We use a WACC of 5.6% for the windfarms segment and 6% for other activities. Risks A PLN10/MWh change in the green certificate prices would impact the company's valuation by PLN1/share (upside/downside risk). No incremental property tax would raise the valuation by PLN4.7/share (upside risk). More visibility on offshore (1.2GW of projects in the pipeline) and onshore (267MW of projects) wind farms development would clearly increase the value of the company (upside risk). is also sensitive to power prices; a PLN1/MWh change in the electricity price impacts the company's EBITDA by PLN6.5m. 12 August

12 SG EQUITY RESEARCH RATINGS on a 12 month period BUY: absolute total shareholder return forecast of 15% or more over a 12 month period. HOLD: absolute total shareholder return forecast between 0% and +15% over a 12 month period. SELL: absolute total shareholder return forecast below 0% over a 12 month period. Total shareholder return means forecast share price appreciation plus all forecast cash dividend income, including income from special dividends, paid during the 12 month period. Ratings are determined by the ranges described above at the time of the initiation of coverage or a change in rating (subject to limited management discretion). At other times, ratings may fall outside of these ranges because of market price movements and/or other short term volatility or trading patterns. Such interim deviations from specified ranges will be permitted but will become subject to review by research management. Sector Weighting Definition on a 12 month period: The sector weightings are assigned by the SG Equity Research Strategist and are distinct and separate from SG equity research analyst ratings. They are based on the relevant MSCI. OVERWEIGHT: sector expected to outperform the relevant broad market benchmark over the next 12 months. NEUTRAL: sector expected to perform in-line with the relevant broad market benchmark over the next 12 months. UNDERWEIGHT: sector expected to underperform the relevant broad market benchmark over the next 12 months. The Preferred and Least preferred stocks are selected by the covering analyst based on the individual analyst s coverage universe and not by the SG Equity Research Strategist. Equity rating and dispersion relationship % 43% Updated on 02/08/ % 13% 23% 50 32% 0 Buy Hold Sell Companies Covered Cos. w/ Banking Relationship All pricing information included in this report is as of market close, unless otherwise stated. MSCI DISCLAIMER: The MSCI sourced information is the exclusive property of Morgan Stanley Capital International Inc. (MSCI). Without prior written permission of MSCI, this information and any other MSCI intellectual property may not be reproduced, redisseminated or used to create any financial products, including any indices. This information is provided on an as is basis. The user assumes the entire risk of any use made of this information. MSCI, its affiliates and any third party involved in, or related to, computing or compiling the information hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability or fitness for a particular purpose with respect to any of this information. Without limiting any of the foregoing, in no event shall MSCI, any of its affiliates or any third party involved in, or related to, computing or compiling the information have any liability for any damages of any kind. MSCI, Morgan Stanley Capital International and the MSCI indexes are service marks of MSCI and its affiliates or such similar language as may be provided by or approved in advance by MSCI. IMPORTANT DISCLOSURES Enagas SG acted as joint bookrunner in Enagas's bond issue (12yr EUR Benchmark). SG and its affiliates beneficially own 1% or more of any class of common equity of Enagas. SG or its affiliates act as market maker or liquidity provider in the equities securities of Centrica, Enagas, Endesa SA, Iberdrola, RWE, SSE. SG or its affiliates expect to receive or intend to seek compensation for investment banking services in the next 3 months from RWE, Tauron. SG or its affiliates had an investment banking client relationship during the past 12 months with Enagas. SG or its affiliates have received compensation for investment banking services in the past 12 months from Enagas. SG or its affiliates managed or co-managed in the past 12 months a public offering of securities of Enagas. SG received compensation for products and services other than investment banking services in the past 12 months from Centrica, Enagas, Enea, Energa, Iberdrola, Polska Grupa Energetyczna, RWE, SSE. SGAS had a non-investment banking non-securities services client relationship during the past 12 months with RWE. SGAS received compensation for products and services other than investment banking services in the past 12 months from RWE. FOR DISCLOSURES PERTAINING TO COMPENDIUM REPORTS OR RECOMMENDATIONS OR ESTIMATES MADE ON SECURITIES OTHER THAN THE PRIMARY SUBJECT OF THIS RESEARCH REPORT, PLEASE VISIT OUR GLOBAL RESEARCH DISCLOSURE WEBSITE AT or call +1 (212) in the U.S. 12 August

13 European Specialty Sales If a European specialist sales personnel is listed on the cover of research reports, these employees are in SG s Global Markets division responsible for the sales effort in their sector and are not part of SG s Cross-Asset Research Department. Specialist Sales do not contribute in any manner to the content of research reports in which their names appear. SG has mandatory research policies and procedures that are reasonably designed to (i) ensure that purported facts in research reports are based on reliable information and (ii) to prevent improper selective or tiered dissemination of research reports. The analyst(s) responsible for preparing this report receive compensation that is based on various factors including SG s total revenues, a portion of which are generated by investment banking activities. Non-U.S. Analyst Disclosure: The name(s) of any non-u.s. analysts who contributed to this report and their SG legal entity are listed below. 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