Amadeus Global Travel Distribution, S.A. Independent Expert s Report produced by Dresdner Kleinwort Wasserstein

Transcription

1 This document together with the annex letter to the independent expert s report constitutes, in its English language version, a translation of the Informe de Experto Independiente and its annex letter, written in Spanish and dated 1 April 2005, which, in the event of any inconsistency, shall always prevail. Amadeus Global Travel Distribution, S.A. Independent Expert s Report produced by Dresdner Kleinwort Wasserstein 1 April 2005

2 Table of Contents Section Page I. Purpose and scope of our work 1 II. Generally accepted valuation methodologies 12 III. Criteria laid down under Royal Decree 1,197/ IV. Conclusions 62 Appendix I. Profit & Loss forecasts 63

3 I. Purpose and scope of our work Contents 1. Background 2. Purpose of our work 3. Scope 4. Valuation date 5. Available information 6. General limitations 1

4 I. Purpose and scope of our work 1. Background Amadeus Global Travel Distribution, S.A. (hereafter, Amadeus or the Company and, together with its subsidiaries Amadeus Group or the Group ) was established in July 1988, its corporate purpose being as follows: Data transfer from and / or through computerised booking systems, including offers quotes, bookings, fares, carrier tickets and/or similar; Provision of any other services relating to the transport and tourism industry; Provision of IT and data processing, management and consultancy services relating to information systems; Provision of services relating to the supply and distribution of any type of product by computerised means, and the manufacture, sale and distribution of software, hardware and all kinds of other equipment. For these purposes, the corporate purpose will also involve the establishment of Spanish or foreign subsidiaries, as well as setting these subsidiaries goals, strategies and priorities; the coordination and definition of their financial targets; the control of their financial behaviour and performance; and, in general, the management and control thereof. The capital stock of Amadeus consists of preferred shares of one cent of a euro ( 0.01) of nominal value each, which make up Class A, and ordinary shares of ten cents of a euro ( 0.10) of nominal value each, which make up Class B. With regard to the basic shareholders rights: Each share grants its owner the title of stockholder, granting him/her the rights recognised by Corporate Law and those stated in Amadeus by-laws. Each Class A share will provide the right to one (1) vote, while each Class B share will provide the right to ten (10) votes. 2

5 I. Purpose and scope of our work With regard to economic rights, the Class A shares grant their holders greater economic rights than the Class B shares, as follows: a) Regarding the right to share in Amadeus profits, the holders of Class B shares are eligible to receive a dividend equal to the lesser of the following amounts: (i) 1% of the total dividends that the Company agrees to distribute, or (ii) 1% of the nominal value of the Class B shares. The remainder of any dividend that Amadeus distributes will be received by the holders of Class A shares. b) In the event of Amadeus liquidation, the Amadeus net assets will be distributed in the following manner: (i) the nominal value of the Class A shares will be reimbursed first; (ii) in the event that there is a remaining value, the nominal value of the Class B shares will be reimbursed. Once the nominal value of both classes of shares has been reimbursed, (iii) the remaining portion of value will be distributed among the holders of Class A shares. There are no by-law restrictions or restrictions of any other nature against the free transferability of Class A shares; therefore they are freely transferable in accordance with the provisions of Corporate Law, the Securities Law and other regulations in force. There are also no by-law restrictions on the free transferability of Class B shares, although there are private agreements between the shareholders holding these Class B shares, which limit and regulate their transferability. Currently, three airlines (hereafter, reference shareholders ) hold significant stakes in Amadeus capital: Air France, S.A. (23.36% of Class A shares and 50.04% of Class B shares, representing 43.21% of Amadeus share capital and voting rights); Iberia Líneas Aéreas de España, S.A. (18.28% of Class A shares and 39.14% of Class B shares, representing 33.80% of Amadeus share capital and voting rights); 3

6 I. Purpose and scope of our work Lufthansa Commercial Holding GmbH (5.05% of Class A shares and 10.82% of Class B shares, representing 9.34% of Amadeus share capital and voting rights). In the course of 2004, several financial investors held discussions with the reference shareholders with the aim of carrying out a potential restructuring of the ownership of Amadeus, which would potentially lead to a Public Tender Offer for 100% of Amadeus share capital, by one or several financial investors, possibly in conjunction with the reference shareholders, with the aim of subsequently delisting of Amadeus. These discussions resulted in a formal process whereby the reference shareholders endeavoured to identify an investor or group of financial investors as partners, in order to make a Public Tender Offer for Amadeus Class A shares. On 17 August 2004, the reference shareholders and Amadeus Group itself confirmed to the Spanish Securities and Exchange Commission (hereafter the CNMV ) that discussions with financial investors were taking place by publishing a significant event filing (in Spanish Hecho Relevante ) on that date; On 25 November 2004, it was announced that BC Partners Limited, the Carlyle Group (at the time also partnered with CVC Capital Partners), Cinven Limited and Citicorp Venture Capital Limited were chosen to take part in a second round in the process; On 12 January 2005, Amadeus Group announced that it had been informed by the reference shareholders that BC Partners and Cinven had submitted a proposal to launch, jointly with the reference shareholders, through an newly formed company, a Public Tender Offer for the Class A shares at a price of 7.35 euros per share, with the aim of delisting Amadeus as soon as possible. As outlined in the Hecho Relevante filed by the Group on 12 January 2005, the consortium formed by BC Partners, Cinven and the reference shareholders (hereafter the Offeror ) aims to delist Amadeus thereafter (while this should not influence the decision of the CNMV and provided that the Offer is successful). 4

7 I. Purpose and scope of our work 2. Purpose of our work Within the context of the potential transaction described above, the Board of Directors of Amadeus has asked Dresdner Kleinwort Wasserstein ( DrKW ) to prepare an independent expert s valuation report on the value of 100% of Amadeus Class A shares that includes the assessment of the minimum criteria laid down under Section 7 of Royal Decree 1,197/1991, regarding the delisting of shares. This regulation establishes that the price offered may be no less than the price derived by taking into account jointly and with substantiation of their relative significance, at least the following criteria: theoretical book value, liquidation value, average share price over the previous six months and price offered in any Public Tender Offers launched to acquire Amadeus in the previous year. In this context, the purpose of our work has been to determine the value of the Amadeus Group by applying generally accepted valuation methodologies including Discounted Cash Flow ( DCF ), analysis of comparable listed companies and comparable transactions, as well as also considering the criteria laid down under the aforementioned Royal Decree. In this respect, it should be noted that any valuation involves not only a set of objective parameters but also a number of more subjective judgements. The valuation range derived from such an analysis is, consequently, only an estimate to be used as a reference point for the various interested parties potentially involved in the proposed transaction. 3. Scope In order to determine the value of the Amadeus Group, DrKW has considered the Group to be made up of two separate entities, Amadeus (excluding Opodo) and Opodo, to reflect the different business models and businesses relative maturities, as follows: Amadeus, including the recently acquired OPTIMS, Amadeus France and Sistemas Automatizados para Agencias de Viaje, S.A. ("SAVIA"), operating in the following business areas: Global Distribution Services (hereafter GDS ), including indirect air distribution, leisure distribution, TSP distribution and direct airline distribution 5

8 I. Purpose and scope of our work Technology solutions for airlines, such as Altea Sell, Altea Plan, Altea Fly and other technology services Other products and services, such as e-travel, API, TOPS products, V.com, etc. Pan-European travel portal Opodo, in which the Group currently has a 74.02% holding following its recent increase in holding from 55.36% (see section II.2 for further details). DrKW has applied the following valuation methodologies for each Amadeus (excluding Opodo) and Opodo: Discounted Cash Flow analysis Valuation based on comparable listed companies Valuation based on comparable transactions Subsequently, DrKW has derived an implied valuation range for the Amadeus Group resulting from the sum of the separate valuations of Amadeus and Opodo. Our work has essentially been carried out on the basis of published information, studies, analyses and reports regarding the GDS market and the Amadeus Group, which we have been able to obtain from public sources, as well as additional financial information on the Group s various businesses as supplied by the Group s management. Regarding information on the Group supplied to us or that we have obtained from public sources, we have not conducted independent verification of that information, and have assumed the accuracy of the information supplied. We have obtained a letter from Amadeus Group management whereby they confirm to us that, to the best of their knowledge, the Group has supplied us with the significant information and that we have been informed of all significant facts or circumstances, known to the Group, that might materially affect production and results of the Independent Expert s Report. On this basis we believe we have received the information we believe is required to produce the report. 6

9 I. Purpose and scope of our work As part of our scope of work, we have developed financial models to forecast the future business development of Amadeus and Opodo based on the Group s long-term plan included more current information supplied by Group management. These forecasts and the assumptions they are based upon have been provided by or agreed with the Group management. Based on the information supplied by Amadeus Group management and on the work we have done as outlined in this section, DrKW believes that the financial projections present a reasonable picture in terms of future evolution of the company. Whether these financial projections are met is dependent on the continuing validity of the assumptions upon which they are based. Forecasts, projections and estimates we have considered to produce this report are obviously subject to uncertainty, changes in circumstances and unforeseen events that might cause the Group s future development to be materially different from the situation they present. This report is intended to be considered as an independent valuation that has been undertaken for the benefit of the Board of Directors of Amadeus solely for the aforementioned purpose. This report grants no rights and does not constitute any advice or recommendation to Amadeus, its Board of Directors, its shareholders, the Offeror, the Offeror s shareholders or any other third parties regarding the position they should take regarding the Offer or regarding the advisability of taking part in, or encouraging others to take part in, the Offer or in any subsequent bid or transaction that could ensue. 4. Valuation date The reference date for the purposes of this valuation exercise is 1 January The latest unaudited financial statements supplied by Amadeus Group management are for the period to 31 December According to Amadeus Group management, there have been no major events or occurrences after the date of valuation liable to have a significant impact on our valuation and which have not been considered for the purposes of this report. 7

10 I. Purpose and scope of our work 5. Available information and applied procedures. The main assumptions used in preparing the financial forecasts of the various businesses have been confirmed with the Amadeus Group management team, to whom DrKW has had access in a number of meetings in the context of our assignment. Basic public documentation used for valuation is as follows: Unaudited Group annual accounts for financial year 2004; audit report signature expected in the near future; Consolidated accounts for Amadeus and its subsidiaries and existing audited reports for financial years 2002 and 2003; Unaudited quarterly results for Q1, Q2 and Q3 2004; Report from International Air Transport Association (hereafter IATA ), which includes a forecast of the number of air travellers for the period ; Other public information deemed relevant for the purposes of valuation regarding various business aspects, such as analysts reports, market studies, etc. In addition to public information, materials used for the valuation include the following documents made available to DrKW by Amadeus Group: Long-term Amadeus Group business plan ( ) approved by the Board; Amadeus Group presentation prepared by Group management within the context of the ownership restructuring process, which, among other documents, includes a business plan for airline IT services ( ); Vendor Due Diligence report produced by PriceWaterhouseCoopers within the context of the ownership restructuring process ("Vendor Due Diligence Report"); 8

11 I. Purpose and scope of our work Reports containing information supplied by the Group to potential investors within the due diligence process; Group s net adjusted financial debt as of 31 December 2004; Opodo s unaudited financial statements as of 31 December 2004; Updated Opodo business plan produced by Amadeus Group ( ); Commissions on TSP bookings for period; Detailed report on SAVIA s and Amadeus France s costs for ; Details of number of direct bookings (ATO/CTO) annually offset as a result of migration to Airline IT system for the period ; Current details of certain of the Group s financial and operating data for 2004; Other information supplied by Amadeus Group. Financial projections are based on Amadeus Group estimated financial results derived from the Group s long-term plan ( ), updated Opodo business plan ( ), business plan for airline IT services ( ) and additional more current information supplied by the Company. In order to complete financial projections up to 2014, revenue and cost assumptions have either been supplied by Amadeus Group or drawn up by DrKW, reviewed and approved by Group management. It should be noted that projections have been adjusted to show the pro-forma impact of Amadeus France and SAVIA as if they had been acquired on 1 January Equally, projections have been adjusted to final results for These projections and the assumptions supporting them have been supplied or approved by Amadeus Group management. 9

12 I. Purpose and scope of our work Financial projections of the airline IT services business are based on the relevant business plan provided by Amadeus Group for the period. The reference date for the Discounted Cash Flow valuation is 1 January For the purposes of our work, we consider a pro forma net financial debt as of 31 December 2004, adjusting for increased long-term debt derived from the acquisitions of SAVIA, Karavel and Quest, as outlined in section II.3. These figures have been supplied by the Group. Financial projections for Opodo are based on an updated industrial plan supplied by the Group, and on extensive discussions conducted with the Group s management team. It should be noted that the Opodo business plan was updated as a result of the delay in the acquisitions of Karavel and Quest, originally expected to be finalised before the end of 2004, but completed in The aforementioned business plan is based on an inorganic growth strategy including the acquisition of certain as yet unidentified companies. For the purposes of our work, we have developed revised financial projections that exclude the impact of any as yet unidentified acquisitions, due to their high uncertainty, whereby the only acquisitions considered are the two mentioned above (Karavel and Quest). 10

13 I. Purpose and scope of our work 6. General limitations In producing our work, we have relied on public financial information and Group information supplied by Amadeus Group management. The scope of our work does not include any review and evaluation of the tax, legal, employment, accounting, environmental, operating or other circumstances of the Group. Therefore, the risks, if any, stemming from such circumstances have not been taken into account in our valuation. Our value estimates are based on generally accepted valuation methodologies. Though we believe our estimates are reasonable and defensible on the basis of available information, we note that the valuation of businesses is not an exact science, but rather an exercise based on experience and the use of assumptions, which involve a certain degree of subjectivity. Under these circumstances, we cannot give any assurance that third parties will necessarily agree with our conclusions. This report has been prepared solely in relation to the purpose specified in Section I. As such, it may not be divulged or distributed without the prior consent of DrKW, for any other purposes, to persons other than to the Directors and Managers of the Amadeus Group or their advisors. We accept no liability to third parties for the use of this report for any other purpose than the one specified above. The only exception to the foregoing is that this document may be supplied by the addressee to the CNMV for inclusion in the Prospectus of the Public Tender Offer if the CNMV so requires. Additionally, the report may be used as an appendix to the investment agreement to be signed by BC Partners Limited, Cinven Limited, the reference shareholders and the Group. In this respect, the projections used in our valuation have been prepared solely in relation to the purpose specified in Section I. Consequently, we accept no liability to third parties for use of such projections for purposes other than the one specified above. The remaining sections in this report include a description of the basic assumptions used to arrive at the financial projections employed, as well as the valuation methods and criteria used. This report does not include a comprehensive description of the business of the various companies, as that has not been deemed necessary for the purpose of this piece of work. 11

14 Contents 1. Amadeus (excluding Opodo) valuation 1.1. Discounted Cash Flow 1.2. Comparable quoted companies 1.3. Comparable transactions 1.4. Valuation conclusions on Amadeus (excluding Opodo) 2. Opodo valuation 2.1. Discounted Cash Flow 2.2. Comparable quoted companies 2.3. Comparable transactions 2.4. Valuation conclusions on Opodo 3. Summary of valuation of Amadeus Group s Implied Enterprise Value 4. Amadeus Class A share value 12

15 As noted in Section I.3, DrKW has performed a valuation of Amadeus Group considering Amadeus (excluding Opodo) and Opodo where the Company has a 74.02% holding, as two independent entities. We believe that the differing business characteristics of Amadeus (excluding Opodo) and Opodo, and the different risk and maturity profiles of their respective businesses call for the valuation of the Group in parts. To this end we have applied generally accepted valuation methodologies including Discounted Cash Flows analysis and the application of comparable quoted companies and comparable transaction multiples to value each of them. 1. Amadeus (excluding Opodo) valuation 1.1. Discounted Cash Flow The Discounted Cash Flow (DCF) methodology uses the premise that the value of a business represents the value of the cash flows it will generate in future years. As such it incorporates more completely all factors affecting the value of the business by valuing the company as if it were an ongoing investment project. This argument becomes even more important in the specific case of Amadeus, as a result of the Amadeus rapidly evolving and dynamic business model. The DCF methodology is therefore the valuation method that best reflects the potential of a business to generate cash in the future. Application of the DCF methodology for valuation of Amadeus entailed the following stages: Estimate of the net cash flows Amadeus is expected to generate from 1 January 2005 to 31 December 2014 based on financial projections. This estimate has been produced from financial projections supplied or approved by Amadeus Group management, as outlined in section I (Purpose and scope of our work). Calculation of the discount rate, which is Amadeus Weighted Average Cost of Capital (WACC). This discount rate takes into account both the cost of equity and the cost of debt, and is calculated by weighting them according to an estimate of Amadeus target capital structure. 13

16 Application of the discount rate to the Free Cash Flows of the business through 2014 to arrive at the Net Present Value ( NPV ) of those cash flows. Estimation of the terminal value of Amadeus, calculated as the NPV at the date of valuation of the Free Cash Flows that Amadeus will generate from 2015 onwards in perpetuity. This has been calculated on the basis of the Free Cash Flow in 2014 to which a perpetuity growth rate of between 2.00% and 3.00% has been applied. Terminal value calculation Terminal value = NPV [(FCF 2014 x (1+g) ) / (discount rate - g)] Note: NPV = net present value at valuation date FCF 2014 = projected Free Cash Flow at 2014 g = perpetuity growth rate Estimate of Discount Rate The discount rate applied to calculate current values at 1 January 2005 has been determined based on Weighted Average Cost of Capital (WACC), whereby we have considered a financial structure with debt over total equity of 11.47%, equivalent to the current average financial structure of the GDS sector, for which we have used as reference the current average financial structure of Amadeus (5.73%) and Sabre (17.21%), which we believe is the sole comparable listed company (see section II.1.2 for further details on comparable companies). 14

17 The WACC used in the discounted cash flow analysis has been calculated as follows: WACC calculation WACC = Kd x (1-Tc) x (D/(D+E)) + Ke x (E/(D+E)) Note: Kd = Estimated pre-tax cost of debt Tc = Company tax rate D = Debt E = Equity Ke = Cost of equity The cost of debt before tax has been estimated at 4.19%, which corresponds to the risk free rate, assuming as such the 10 year Spanish Sovereign Bond yield, estimated at 3.74% (source: Datastream, monthly average from 1 March 2005 to 31 March 2005), plus a spread. Regarding the spread over the risk free rate which is applicable to Amadeus, in light of Amadeus strong balance sheet and cash generation capabilities, DrKW has assessed recent corporate debt issues of between 8 and 10 years to maturity by A or BBB+ rated Spanish issuers. This provides an estimated spread over risk free rate for Amadeus of 45 basis points. The marginal tax rate has been estimated at 36% for both the forecast period and the calculation of the terminal value implying a 1% spread in relation to the prevailing corporation tax rate in Spain (35%) due to the different tax rates applicable across Amadeus international markets. 15

18 The cost of equity has been estimated based on the Capital Asset Pricing Model ( CAPM ). This model calculates the cost of equity of a company as the sum of the risk free rate and a company specific equity risk premium, that latter of which represents the risk of the company in question compared to the market risk premium: Calculation of cost of equity Cost of equity = Rf + β x (Rm-Rf) Note: Rf = Risk-free rate Rm = Expected market equity risk premium Leveraged β = Measure of observed volatility compared to the market We have used a 4% market equity risk premium based on DrKW Research s current estimate for the Spanish market. The leveraged β has been calculated from the unleveraged β and the capital structure and estimated marginal tax rate during the forecast period and for the terminal value. The unleveraged β, estimated at 1.56, is based on Amadeus observed β prior to the publication of the Hecho Relevante of 17 August 2004 in which the Group informed the CNMV that several financial investors were in discussions with the reference shareholders to carry out a potential shareholding restructuring, as the Amadeus β was significantly affected by rumours of a Public Tender Offer. Our estimate of unleveraged β is based on average of coefficients obtained from Bloomberg 1 and Barra. By applying the target capital structure, we derive a leveraged β of 1.69, which we consider adequately reflects Amadeus volatility. As a result of the calculations described above, the estimated WACC for Amadeus is 9.60% 1 Historic β from Bloomberg ( Bloomberg Raw beta ) for the period prior to the publication of the Hecho Relevante on 17 August 2004 (16/08/02-13/08/04) 16

19 Financial projections As described in Section 1, we have developed a financial model reflecting the expected future development of the Amadeus business, taking the Amadeus Group financial results derived from the Group long-term plan ( ), business plan for airline IT services ( ) and additional more current information supplied by the Company as points of reference. In order to complete financial projections up to 2014, revenue and cost assumptions have either been supplied by Amadeus Group or drawn up by DrKW, reviewed and approved by Group management. It should be noted that projections have been adjusted to show the pro-forma impact of Amadeus France and SAVIA as if they had been acquired on 1 January Equally, projections have been adjusted to final results for These projections and the assumptions supporting them have been supplied or approved by Amadeus Group management. For the purpose of describing financial projections used to estimate future evolution of Amadeus, we distinguish between the GDS business and other revenues (which, among other, include the airline IT services business). Revenue The majority of the revenue from the GDS business of Amadeus is derived from flight booking commissions, which can be carried out either through direct or indirect distribution. In the case of indirect distribution, an intermediary (travel agency or similar) uses the Computerised Reservation System ( CRS ) of Amadeus. In the case of direct distribution, System User airlines generate income for Amadeus as a result of their use of Amadeus Altea Sell system (in the event that airlines have also taken up Altea Plan and Altea Fly service contracts, revenue under these headings are shown as revenue from airline IT services, grouped under other revenue to be detailed further on). Among other variables, booking distribution method (online vs. offline) affects variable costs linked to per booking commission collected by Amadeus, thus we need to distinguish between the different distribution methods. 17

20 In addition to airline reservations, Amadeus also offers GDS services for booking cars, hotels, trains, cruises, tours and other similar services. The gross revenues forecast for Amadeus in the GDS business for the period are illustrated in the following table: Gross revenues from the GDS business Euro millions Real (1) Forecast CAGR TA air online booking fees ( m) Total air bookings revenues 1,422 1,532 1,590 1,593 1,599 1,705 1,815 1,927 2,040 2,156 2, % Variation (%) N.A. 7.7% 3.8% 0.2% 0.4% 6.6% 6.5% 6.2% 5.9% 5.6% 5.4% N.A. Total revenue from indirect bookings 1,075 1,157 1,228 1,270 1,341 1,421 1,501 1,582 1,664 1,744 1, % Direct bookings (ATO) % Total non-air bookings revenues % Variation (%) N.A. 11.9% 9.9% 10.0% 11.0% 10.5% 9.9% 9.2% 8.5% 7.8% 7.0% N.A. Total 1,511 1,631 1,699 1,713 1,732 1,852 1,977 2,104 2,232 2,362 2, % Variation (%) N.A. 8.0% 4.2% 0.8% 1.1% 7.0% 6.7% 6.4% 6.1% 5.8% 5.5% N.A. (1) Breakdown provided by Amadeus. The basis for forecasting the gross revenues is the estimated growth of the gross price per booking, adjusted to reflect changes in booking volumes by type and region. We have assumed an average annual growth in gross price per booking approximately in line with global inflation estimates over the forecast period. Regarding airline booking volumes, our forecasts distinguish between the number of airline bookings by region, distribution type (direct distribution vs. indirect distribution) and distribution channel (online vs. offline). 18

21 The projections regarding the number of airline bookings by region are based upon the growth estimates of the number of airline passengers for the period provided by IATA, one of the most highly regarded sources of information on the air transportation industry. Thereafter we assume growth rates for the period from 2008 onwards, to trend towards a 3% annual growth rate in 2014 based on discussions with Group management. The following table shows the growth rates in the number of airline passengers upon which the projections are based: Growth rate in number of airline passengers (%) Forecast Total industry air bookings (% chang Western Europe 5.6% 4.5% 4.2% 4.0% 3.8% 3.7% 3.5% 3.3% 3.2% 3.0% CESE & MEA 10.3% 5.3% 5.7% 5.3% 4.9% 4.5% 4.2% 3.8% 3.4% 3.0% North America 5.4% 4.7% 3.7% 3.6% 3.5% 3.4% 3.3% 3.2% 3.1% 3.0% Latin America 5.6% 5.3% 4.2% 4.0% 3.9% 3.7% 3.5% 3.3% 3.2% 3.0% Asia Pacific 6.2% 6.3% 6.8% 6.3% 5.7% 5.2% 4.6% 4.1% 3.5% 3.0% 19

22 Regarding the type of distribution of airline bookings (direct / indirect distribution), the financial projections are based upon the following estimates: Indirect vs. direct distribution (air bookings) Real (1) Forecast % of total industry represented by In Western Europe 59.0% 56.0% 53.8% 50.2% 50.2% 50.1% 50.1% 50.1% 50.1% 50.0% 50.0% CESE & MEA 75.0% 72.7% 70.3% 66.5% 64.1% 61.8% 59.4% 57.1% 54.7% 52.4% 50.0% North America 59.6% 56.5% 53.4% 50.2% 50.2% 50.1% 50.1% 50.1% 50.1% 50.0% 50.0% Latin America 71.0% 69.9% 68.1% 66.1% 63.8% 61.5% 59.2% 56.9% 54.6% 52.3% 50.0% Asia Pacific 66.7% 66.7% 65.0% 62.1% 60.4% 58.7% 56.9% 55.2% 53.5% 51.7% 50.0% (1) Source: Amadeus With regard to the online / offline distribution channel used, the financial projections are based upon the following estimates: Offline vs. online distribution (airline passenger transportation) Real (1) Forecast Offline bookings as % of total booki Western Europe 92.0% 90.0% 88.0% 86.0% 80.9% 75.7% 70.6% 65.4% 60.3% 55.1% 50.0% CESE & MEA 98.0% 97.3% 96.7% 96.0% 90.1% 84.3% 78.4% 72.6% 66.7% 60.9% 55.0% North America 77.0% 74.7% 72.3% 70.0% 67.1% 64.3% 61.4% 58.6% 55.7% 52.9% 50.0% Latin America 97.0% 96.3% 95.7% 95.0% 89.3% 83.6% 77.9% 72.1% 66.4% 60.7% 55.0% Asia Pacific 97.0% 95.0% 93.0% 91.0% 85.9% 80.7% 75.6% 70.4% 65.3% 60.1% 55.0% (1) Source: Amadeus 20

23 Regarding Amadeus market share, in 2005 projections assume around 56% market share in indirect distribution of airline bookings for Western Europe, around 37% in CESE (Central, Eastern and Southeastern Europe), Middle East and Africa, approximately 9% market share in North America, around 37% in Latin America and around 29% in Asia-Pacific region. Projections assume general growth in the Company s market share until to 2007 in the various regions in which it operates with the exception of North America, stabilising from 2008 onwards. Other revenues All non-gds business lines are included within other revenues. These include the different IT services Amadeus offers to airlines through its Altea Sell (distribution services), Altea Plan (inventory control) and Altea Fly (departure control) products. The forecasts relating to this business line are based upon projections developed by Amadeus for the period, during which the migration of 18 airlines to these services is anticipated. This translates into strong revenue growth (CAGR of 18.4% during the period). In addition, Amadeus also generates revenues from issuing tickets, selling information systems, dynamic availability and interlink services, online solutions and subscriber revenues coming from local National Marketing Companies ( NMCs ). These other revenues show a moderate growth (CAGR of 3.3%) during the period Costs Regarding the variable costs linked to the GDS business, these can be categorised into three major groups: Distribution fees, paid both to National Marketing Companies ( NMCs ), not majority owned by the Group, and to airlines when distribution involves direct ticket sales without travel agents involved. NMCs or local distribution companies bear the cost of servicing travel agents in their markets, as well as costs linked to Group product sales, whereby compensation is paid on a fee per booking basis in the relevant market. This distribution fee is also paid to the airlines themselves for selling tickets when they use the Amadeus system at their offices or through online channels. 21

24 Incentives paid to travel agents: it is very commonplace in the industry for the GDS to pay the travel agent, normally on a unit booking basis, to incentivise them to use a specific GDS rather than others where the travel agent sees no differential value in the technology or services of the various providers. Marketing and negotiation fund agreements with airlines: this applies to agreements with airlines where they support distributing Amadeus in their key markets. It also includes reserved funds to compensate airlines that offer reduced fares on Amadeus screens, normally only accessible through their own websites. Financial projections assume a significant increase in variable costs linked to GDS revenues as a result of three factors, essentially: Higher pressure on distribution fee levels paid by the Group, mainly as a result of the growing strength of online distribution as major online operators have an increased bargaining power vis-à-vis GDS service providers compared to traditional travel agents, which are much more dispersed. Higher demand for incentives from traditional travel agents for using the Group s GDS systems. Group management believes that higher demand for incentives essentially derives from growing pressure exerted by airlines on traditional travel agent fees, which are therefore attempting to cover their falling margins at the expense of GDS service providers. Potential effects of the expected deregulation of the GDS sector in Europe, which would give airlines greater bargaining power to the detriment of GDS service providers. Fixed costs, such as administration, communications, marketing and personnel have been projected in line with historical values, adjusted for price and wage inflation, while also taking into account savings derived from the cost cutting program known as the Amazon project considered in the Company s long-term plan. Fixed costs also include those linked to airline IT services, which are rising considerably faster than the other fixed costs as a result of the development of this business line, and the the fixed costs of Amadeus France and SAVIA that Amadeus consolidates following the acquisition of those tow NMCs. 22

25 The following table shows Amadeus revenue and EBITDA projections for period: Amadeus revenue and EBITDA projections Million euros Real (1) Forecast TA air online booking fees ( m) Total gross revenues 2,033 2,181 2,287 2,365 2,469 2,666 2,833 3,011 3,176 3,354 3,532 Variation N.A 7.3% 4.9% 3.4% 4.4% 8.0% 6.3% 6.3% 5.5% 5.6% 5.3% GDS 1,511 1,631 1,699 1,713 1,732 1,853 1,977 2,104 2,232 2,362 2,493 Other revenues ,039 Total variable costs (669) (735) (791) (811) (842) (960) (1,086) (1,215) (1,343) (1,465) (1,575) Variation N.A. 9.9% 7.6% 2.6% 3.8% 14.0% 13.1% 11.9% 10.5% 9.1% 7.5% Variable costs / total gross revenues (32.9%) (33.7%) (34.6%) (34.3%) (34.1%) (36.0%) (38.3%) (40.4%) (42.3%) (43.7%) (44.6%) Margin after variable costs 1,364 1,446 1,496 1,553 1,627 1,706 1,748 1,796 1,833 1,889 1,958 Margin after variable costs (%) 67.1% 66.3% 65.4% 65.7% 65.9% 64.0% 61.7% 59.6% 57.7% 56.3% 55.4% Total fixed costs (excluding depreciation and amortisation) (794) (884) (876) (910) (979) (1,026) (1,109) (1,119) (1,164) (1,218) (1,274) Variation N.A. 11.4% (0.9%) 3.8% 7.6% 4.8% 8.1% 0.9% 4.1% 4.6% 4.6% EBITDA EBITDA margin (%) 28.1% 25.8% 27.1% 27.2% 26.2% 25.5% 22.5% 22.5% 21.1% 20.0% 19.3% (1) Source: Amadeus In establishing working capital needs, a mean collection period of 69 days has been estimated and a mean payment period of 90 days, in line with recent Amadeus financial years. 23

26 Projections assume the following level of capital expenditure, in line with investment levels in recent financial years: Amadeus capital expenditure forecast Million euros Forecast TA air online booking fees ( m) Capital expenditure Effective tax rate is considered to be 36%, both for the projected period and for terminal value purposes, thus maintaining a 1% differential in respect of current statutory Corporation Tax rate in Spain arising from the different tax regimes in force in the various markets in which Amadeus operates. Note that based on information supplied by Group management, Amadeus (excluding Opodo) has accumulated 12.6 million euros of prepaid tax assets recognised on the balance sheet in addition to a 23.5 million euro tax loss carry forward not recognised on the balance sheet. 24

27 Based upon the base case scenario of financial projections, we have derived the following Free Cash Flows for Amadeus: Break-down of Amadeus Free Cash Flows calculation Million euros Forecast TA air online booking fees ( m) EBITDA Taxes (111) (138) (171) (177) (191) (181) (194) (189) (188) (182) Capital expenditure (164) (154) (147) (154) (159) (164) (169) (174) (179) (184) Change in working capital (18) (9) (1) Free cash-flow Our implied Enterprise Value range for Amadeus (excluding Opodo) is derived from from examination of certain significant sensitivities regarding volumes, profitability, discount rate and perpetuity growth rate. To determine the higher and lower level of the valuation range, we have calculated a simple average of minimum and maximum values derived from each of the sensitivities. This method will be used in order to avoid the disproportionate weighting of any individual sensitivity in determining the implied valuation range. 25

28 The following table shows the sensitivities considered: Sensitivity analysis Enterprise value (million euros) Enterprise Value in million euros Volumes Air bookings growth rate (+1.0%) 3,459-4,210 Amadeus' market share, indirect distribution (+1.0%) 3,666-3,985 Travel agency bookings as % of total (+1.0%) 3,710-3,941 Offline bookings as % of total (+2.0%) 3,799-3,852 Margin assumptions EBITDA margin (+0.5%) 3,706-3,945 WACC and perpetuity growth assumptions WACC (+0.5%) (range from 9.10% to 10.10%) 3,582-4,105 Perpetuity growth rate (+0.5%) (range from 2.0% to 3.0%) 3,694-3,977 Average 3,659-4,002 3,000 3,500 4,000 4,500 Based on the above we have established an implied Enterprise Value range for Amadeus, (excluding Opodo), using the DCF methodology outlined above, of 3,659 million euros to 4,002 million euros. 26

29 1.2. Comparable quoted companies Comparable quoted companies multiples analysis involves estimating the value of a company using multiples derived from headline profit and loss figures such as sales, EBITDA and EBIT of comparable listed companies. Application of those multiples to the financials of the company being valued produces certain valuation ranges. Consequently, identifying comparable listed companies to the company being valued, both in business and financial terms, is highly important. Amadeus is primarily a GDS provider, supplying information on prices and availability of fares as well as the ability to make bookings for air transportation and other services to both traditional and online travel agents. Over 50% of Amadeus revenues in 2004 derived from this line of business. Currently there are four competitors operating in the GDS industry: Amadeus, Sabre, Galileo and Worldspan, whereby Sabre and Amadeus, are the only ones listed. Sabre is listed on the Nasdaq exchange. Galileo is a subsidiary of Cendant, a conglomerate with companies operating in the property and travel industries. Worldspan is a private company owned by Citigroup Venture Capital and Teacher s Private Equity through their investment vehicle Travel Transaction Processing Company. However, Sabre, in addition to providing a large number of supplementary travel services comparable to those of Amadeus, also sells airline tickets on both a retail and wholesale basis through its Travelocity business. Consequently, a significant share of Sabre s business, accounting for c. 22% of its 2004 revenues, is not comparable to Amadeus (although, these activities in principle could be comparable to Opodo). 27

30 Under the valuation method using comparable listed companies described above, we have considered the following to be the most suitable multiples: Multiples considered Multiple Reference financial years EV/Sales 2004, 2005, 2006 EV/EBITDA 2004, 2005, 2006 EV/EBITA 2004, 2005, 2006 Enterprise value = Market capitalisation + financial debt net of cash and cash equivalents + minority interests EBITDA = Earnings Before Interest, Tax, Depreciation and Amortisation EBITA = Earnings Before Interest, Tax and Amortisation As already noted, within the limited peer group of GDS providers, the only listed comparator is Sabre. 28

31 The implied values obtained for Amadeus by applying Sabre s trading multiples to Amadeus financials are shown below. EV/Sales EV/ EBITDA EV/ EBITA 2004P 2005E 2006E 2004P 2005E 2006E 2004P 2005E 2006E Sabre's multiples 1.28x 1.18x 1.15x 7.1x 6.7x 6.5x 8.6x 8.5x 8.0x Amadeus' financials (million euros) 2, , , Amadeus' implicit enterprise value (million euros) 2, , , , , , , , ,772.4 Note: (1 ) Amadeus' financials do not include Opodo's financials are actual proforma financials that incorporate the Savia and Amadeus France consolidation adjustments (19.5 and 25.5 million euros in sales and EBITDA in 2004, respectively) and are based on information supplied by Group management and 2006 financials are derived from financial projections. (2 ) Market data as of 31st March 2005 (source: Datastream). We have selected the EV/EBITDA and EV/EBITA multiples as the most relevant to determine a valuation range for Amadeus, in order to reflect Amadeus higher profitability compared to Sabre. Additionally we applied 2004 and 2005 multiples for their greater certainty and significance compared to 2006 multiples. Application of these multiples to Amadeus financials for years 2004 and 2005 derives an implied Enterprise Value range for Amadeus of 3,676 to 4,221 million euros. We have considered the comparable quoted company method merely for reference purposes bearing in mind the significant restrictions essentially derived from the small number of comparable companies (in this case only one) and their limited comparability. 29

32 1.3. Comparable transactions Valuations using comparable transactions involve applying multiples derived from completed transactions for which there is adequate information. Through the implicit equity value and enterprise value paid for the acquired company in each case, it is possible to calculate multiples such as EV/Sales, EV/EBITDA and EV/EBIT, which when applied to financials of the company being valued, result in certain implied valuation ranges. Subject to several factors, including among others, similarity of the company used as benchmark, date of acquisition or factors such as premium paid to carry out any given transaction, the resulting multiples can be used to support other valuation methodologies and estimate whether the implied valuation is in line with the price paid in similar precedent transactions. Because the majority of Amadeus revenues are derived from the business of providing distribution services to the travel industry, we believe that, given the particular characteristics of this industry, only acquisitions of GDS companies can be deemed relevant for the purposes of carrying out this analysis. Consequently, we have selected the following transactions: Worldspan s acquisition by TTPC in March Galileo s acquisition by Cendant in October It should be noted that this transaction is based on the closing price of Cendant shares on the date of completion of the transaction, which took place after the 9/11 terrorist attacks in the United States. Apollo s acquisition by Galileo in 1998, the last transaction previous to the ones mentioned above in the GDS industry, has not been considered in our analysis because the transaction occurred a long time ago. 30

33 The following table shows the net sales, EBITDA and EBIT multiples implied by the aforementioned comparable transactions and the estimated values for Amadeus obtained by applying the average of these multiples to headline figures of Amadeus: (Figures in million euros) Announcement date Acquired company % acquired Implicit value of the shareholders' equity Enterprise Value EV/ Sales EV/ EBITDA EV/ EBIT 04/03/2003 TTPC/ Worldspan 100% x 4.3x 7.4x 01/10/2001 Cendant/ Galileo 100% 1, , x 4.3x 6.8x Media 1.22x 4.3x 7.1x Amadeus' 2004 financials (excluding Opodo) (1) 2, Amadeus' enterprise value 2, , ,771.8 Notes: (1 ) Amadeus' financials do not include Opodo's financials are actual pro-forma financials that incorporate the SAVIA and Amadeus France consolidation adjustments (19.5 and 25.5 million euro in sales and EBITDA in 2004, respectively) and are based on information supplied by Group management. (2 ) Source: Datastream, company data, Factiva. We have considered EV/EBITDA and EV/EBIT as the more relevant multiples as they are more consistent than EV/Sales. By applying the multiples to Amadeus 2004 financials, we derive an implied Enterprise Value range of 2,564 to 2,772 million euros for Amadeus. For the purposes of our work, we have considered the comparable transaction method merely for reference purposes bearing in mind the significant limitations of this method due to the different financial and competitive situations of both Galileo and Worldspan in comparison with Amadeus and the limited comparability of the acquisition of Galileo because it was so close to the 9/11 terrorist attacks in the US. 31

34 1.4. Valuation conclusions on Amadeus (excluding Opodo) The following table summarises the different implied valuation ranges for Amadeus (excluding Opodo) calculated through the application of the different valuation methods being considered: Valuation methodology Enterprise Value (million euros) Enterprise Value in million euros Discounted cash-flow 3,659-4,002 Comparable trading multiples 3,676-4,221 Comparable transactions multiples 2,564-2,772 2,000 2,500 3,000 3,500 4,000 4,500 Bearing in mind the limitations of multiples of comparable quoted companies and multiples of comparable transactions outlined in sections 1.2 and 1.3, respectively, we have based our valuation on the results of the DCF method, because we consider it is the one that best reflects Amadeus value, thus establishing an Enterprise Value range for Amadeus (excluding Opodo) of 3,659 million euros to 4,002 million euros. 32

35 2. Opodo Valuation In reference to the Opodo valuation that is undertaken in this section, it is important to highlight that the business model of this company is very different from that of Amadeus. While Amadeus is a supplier of technology products and services to travel agencies, airlines and corporations, Opodo sells travel services to retail and merchant customers. Furthermore, Opodo is managed independently from the rest of Amadeus, and has not yet generated profits in a consistent manner. We have therefore valued Opodo independently from the rest of Amadeus, using the discounted cash flow analysis, analysis of comparable quoted companies and comparable transactions valuation methodologies. Regarding the Group s holding in Opodo, following the acquisition of 55.36% of Opodo in 2004 by subscribing a 62 million euros capital increase (using as basis a pre-investment valuation of Opodo of 50 million euros) with the subsequent dilution of other shareholders, the Group has gradually increased its holding in Opodo, to a current level of 74.02%. To achieve its current holding, the Group has made a cash contribution to Opodo s equity of 64.1 million euros to fund Opodo s acquisition of Quest, Karavel and eviaggi.com by paying 60, 1.69 million and 2.43 million euros in cash, respectively. In addition, the Group made a non-cash contribution of 100% of its e-commerce subsidiary for the Scandinavian market, Travellink AB, valued at 16.3 million euros. At the date of this report, Amadeus controls 74.02% of Opodo following a total investment of million euros. Additionally, Amadeus has lent Opodo 52.8 million euros. 33