12m target price and methodology We obtain an enterprise value for Groupe Eurotunnel

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1 France Initiation of coverage 23 Transportation Infrastructure GROUPE EUROTUNNEL Live or let die No reco 12m target Not listed 0.23 Type of investment Debt reduction 1 year Investment case Groupe Eurotunnels (GET SA) share exchange offer for Eurotunnel closed on 14 June; the outcome will be known around 20 June. We forecast a 98% success rate. One week later, GET SA will issue several investment instruments ORA (notes redeemable in ordinary shares or NRS) I and II, warrants and shares and the former Eurotunnel shares will be delisted shortly after. We believe the new instruments could potentially be attractive investments. Investing in GET is above all an investment in a concession operator, i.e. in a business that combines strong cash generation and a very low discount rate (high debt and low beta). Moreover, as a concession operator, GET is particularly attractive: 1) with the concession running until 2086, it is the last independent listed concession operator with a 100% free float, 2) it has unique fundamental qualities (129% cash conversion, 39% EBIT margin, no tax payment before 2024, depreciation three times capex), 3) finally, the group is poised to enter a new growth phase (GAGR of +4.8% over 2008e-2012e), the strength of which could surprise the market in our view Price MA 100 Catalysts for the share price We believe the shares should be underpinned by: 1) the quality of the groups upcoming publications on operational results, 2) speculation on a potential controlling shareholder, especially as there will likely be a number of interested parties. 0.2 (m) Risk Stock vs sector Sector vs market 12m target price and methodology We obtain an enterprise value for Groupe Eurotunnel using a DCF (discount rate of 7%) of 9.2bn and an equity value of 5.2bn, or 0.23 par action (assuming 22.5bn shares). When quotation of the stock resumes, the equity value of 5.2bn should logically be divided between the different investment instruments: 1) shares (11.1% of equity value, with a target price of 0.23), 2) ORA I (29% of equity value and a target price of 217), 3) ORA II (37.4% of equity value with a target price of 207, 4) warrants (22.6% of total) or a target price of Alternative scenarios and risk to our scenario 1) Arbitrage could favour the ORA and EUROTUNNEL SA/PLC on warrants to the detriment of the shares, 2) raising interest rates could have a negative impact on valuation, 3) terrorist attacks could not be excluded. Share data Financial data 12/06 12/07e 12/08e 12/09e Ratios 12/06 12/07e 12/08e 12/09e RIC GET.PA, Bloom GET FP Revenues ( m) P/E (x) nm nm nm nm 52-week range nm EBIT margin (%) FCF yield (/EV) (%) nm nm nm nm EV 07 ( m) nm Rep. net inc. ( m) Dividend yield (%) nm nm nm nm Market cap. ( m) nm EPS (adj.) ( ) Price/book value (x) nm nm nm nm Free float (%) 100% Dividend/share ( ) EV/revenues (x) nm nm nm nm Performance (%) 1m 3m 12m Payout (%) nm nm nm nm EV/EBIT (x) nm nm nm nm Ordinary shares na na na Interest cover (x) EV/IC (x) nm nm nm nm Rel. Eurofirst 300 na na na Net debt/equity (%) nm ROIC/WACC (x) nm nm nm nm Guillaume Delaby Patrick Jousseaume David Sheppard (Sp. Sales) (33) (33) (44) guillaume.delaby@sgcib.com patrick.jousseaume@sgcib.com david.sheppard@sgcib.com IMPORTANT: PLEASE READ DISCLOSURES AND DISCLAIMERS BEGINNING ON PAGE 39

2 Group anatomy business overview GET operates in two business areas: 1) the shuttle business (56% of sales), and 2) railway services (42% of sales). The shuttle division is broken down into three sub-categories: trucks (58%), cars (39%) and coaches (3%). The railway services division consists of: 1) Eurostar (42%), 2) a fixed contribution (27%) and freight services (2%). Note that the minimum use charge (MUC), which still accounted for 29% of the divisions sales in 2006, was eliminated last November. Sales/division, 2006 EBITDA/division 2006 Shuttle sales Railway services 42.2% (56% of total): 1) trucks (58%), cars (39%), coaches (3%). Railway sales (42% of sales): Eurostar (42%), Other a fixed Shuttle services 1.8% contribution Railway services 56.0% (27%), MUC (29%), freight (2%). 56.2% Shuttle services 43.6% Other 0.2% Shuttle services account for 56% of sales but 44% of EBITDA (45% margin), while railways account for 42% of sales but 56% of EBITDA (80% margin). Source: Company data Eurostar: number of passengers e Sales by currency zone, e 08e 09e Source: Company data, SG Equity Research With more than 7 million passengers annually, Eurostar s market share is now more than 70%. Source: Company data Zone Euro 51.0% UK 49.0% Maintaining a strict parity between France and UK is an inherent characteristic of Eurotunnel. Note that 51% of sales are - denominated but that 51% of EBIT is -denominated. Revenues: organic growth (%) EBIT margin (red) and ROIC (grey) (%) The expected decrease in sales in 2007 is due solely to the end of the MUC e 09e Excluding the -3.0 MUC effect, organic growth -6.0 should reach % in Source: Company data, SG Equity Research e 08e 09e Source: Company data, SG Equity Research The end of the MUC will reduce EBIT by 19% in 2007 (34% margin); this should then increase steadily through 2011 (39.5% margin). 2

3 Contents 2 Group anatomy business overview 4 Group anatomy performance and valuation 4 Public exchange offer carried out in two phases 5 Old Eurotunnel share price not the full picture 6 Investment case 6 Initiation of coverage with a positive stance 6 A new company: Groupe Eurotunnel (GET) 6 Strong cash flow generation 6 The beginning of a new growth story 6 An unexpected victory for shareholders 7 Equity valued at 5.2bn 7 Issue of ORA I and warrants: particularly attractive in our view 7 Backdrop should remain good for the shares in the short term 7 Risk factors 8 Background 8 Creation of the channel tunnel (1986): a strict legal framework 8 A turbulent history: Financial restructuring 11 Jacques Gounons two tasks 12 The financial restructuring plan has four objectives 13 Terms of the plan 15 Senior creditors and shareholders benefit from a double transfer of value 19 A two-pronged business model 19 One company, two businesses 19 Shuttle services - Eurotunnels primary business by revenue 22 Railway services Eurotunnels second but most profitable business activity 26 Forecasts 26 Revenues 26 Income statements e 28 Cash flow statements e 28 Balance sheets e 29 Valuation 29 DCF: equity value comes out at 5,173m 32 Multiples approach 33 ORA notes redeemable in shares: characteristics and valuation 34 Valuation of the warrants 3

4 Group anatomy performance and valuation Eurotunnel SA/Plc Historical share price performance Channel tunnel opens Jacques Gounon appointed chairman and CEO 6 End of duty free Jacques Maillot appointed chairman Initiation of restructuring plan 4 First financial restructuring plan /04/89 18/04/91 18/04/93 18/04/95 18/04/97 18/04/99 18/04/01 18/04/03 18/04/05 18/04/07 Source: Datastream Public exchange offer carried out in two phases First phase: 10 April to 21 May Between 10 April and 21 May, Eurotunnel shareholders were able to exchange one Eurotunnel share for one Groupe Eurotunnel (GET) share plus one warrant. More importantly, shareholders were also invited to subscribe an issue of highly attractive GET SA notes redeemable in ordinary shares (ORA I) for 100 each. Eurotunnel said that the timetable for the first stage of the offer was unfavourable and managed to get the AMF to: Postpone the closing date from 14 May to 21 May. Lower the minimum acceptance condition from 60% to 50%. In all, 87% of Eurotunnels shares were tendered to the offer at the end of the first phase. Second phase: offer reopened from 1 to 14 June The conditions in phase two are identical to the original offer except that shareholders can no longer subscribe the ORA I notes redeemable in ordinary shares. The final results will be announced around 20 June. We project a success rate of at least 98%. The new investment vehicles will be listed about one week later (end of June/beginning of July). The shares of the former Eurotunnel group not tendered to the exchange offer will lose their value and will rapidly be delisted. 4

5 Current Eurotunnel share price may be misleading Eurotunnel shares surged on completion of first phase of tender offer Eurotunnel stock was suspended during the first acceptance phase of the offer (the last quoted share price was 0.37, giving a market capitalisation of c.950m). By contrast, the share price tripled on news of the offers success (which resulted in the free float being reduced to 13%). Some investors bought Eurotunnel shares so that they could tender shares to the offer in the second acceptance phase and thus gain a position in GET prior to its upcoming listing. On our estimates, shareholders tendered their Eurotunnel shares in exchange for a package (shares + warrants + the ORA I) the value of which we calculate to be 1,346m (refer to section on the restructuring plan, page 12), representing a theoretical value of 0.53 per old Eurotunnel share. Eurotunnel s current share price may be misleading Given how narrow the free float is, we believe the current market capitalisation of 2,190m (0.86) is entirely attributable to the lack of sellers of the stock. So we would not draw any conclusions whatsoever from this with regard to GETs future value. Eurotunnel has no sellers because: 1) would-be sellers have either already sold their shares or tendered their shares to the offer; 2) in theory, there are very few short sellers given the narrow free float and the fact that the stock is likely to be delisted in a few weeks. But shorting the stock is still possible; doing so would simply require stripping out the new GET shares so as to extract and repurchase the Eurotunnel equivalent. Note that Eurotunnel asked French stock market regulator AMF to investigate recent moves in the share price. For this reason, our positive stance on GET is not premised on Eurotunnels current share price. GET is a new company that, on our calculations, has an equity value of 5,173m (0.23 per share) and is on track to rapidly acquire a new stock market profile. We therefore believe that extrapolating GETs future stock market value from Eurotunnels current share price is premature to say the least. 5

6 Investment case Initiation of coverage with a positive stance We initiate coverage of Groupe Eurotunnel and advise investors to pay attention to the listed vehicles offered to them in late June/early July. In order of preference, investors should favour the ORA I notes redeemable in shares (target price of 212 for tranche 1, 215 for tranche 2 and 217 for tranche 3), followed by the warrants (target of 0.25), the shares (0.23) and the ORA II notes redeemable in shares (target of 207). A new company: Groupe Eurotunnel (GET) Groupe Eurotunnel (GET) is the new company slated to take over Eurotunnels operations. Apart from ensuring the entitys legal and operational continuity, GET has nothing in common with its predecessor. Indeed: 1) its equity is recapitalised and its net debt reduced from 9.1bn to 4.1bn (gearing of 137%); 2) for the first time ever, the companys FCF will cover its interest expense in 2008; and 3) the company is set to generate a net profit in 2010 at the latest. Strong cash flow generation Through the Concession Agreement, which expires in 2086, Eurotunnel operates two particularly lucrative businesses: the shuttle business, which accounts for 56% of sales, and the railways business, which accounts for 42% of sales. In 2006 EBIT margin reached a record high of 39%. This is expected to fall in 2007 due to the end of the minimum use charge (MUC), gradually returning to its record high level again in In addition to enjoying structurally high margins, Eurotunnel has two particularly attractive advantages: 1) its deprecation charges are usually three times higher than its capital expenditure; and 2) it is not subject to tax before 2024 (when it will continue to benefit from a tax reduction out through 2035). This explains why the company has an unusually high and, above all, sustainable cash conversion rate of 129%. The beginning of a new growth story We believe GET is about to enter a new phase of growth. Not only has the marketing strategy implemented in mid-2005 not yet fully paid off, GET has an undeniable competitive advantage thanks to its truck transport activity and Eurostar. We believe growth is set to accelerate thanks to the short-term effect of the rugby world cup as well as: 1) a further reduction in the time it takes to travel the Paris-London route at the end of 2007, 2) an extension of the London-Brussels line to Amsterdam in late 2008, and 3) the Olympic Games in London in Also, contrary to the more mainstream view, we believe the railway freight segment has a good growth outlook. An unexpected victory for shareholders Against all odds, and even contrary to financial logic, the restructuring story should also be seen as a victory for the shareholders of the former Eurotunnel group over bondholders. This unexpected victory has its origins in three particularly protective safeguards: 1) the option of subscribing to a first round of notes redeemable in shares (ORA I) during the exchange offer, 2) the existence of an issuer call option on the second round of notes redeemable in shares (ORA II), and 3) 55% of the warrants issues reserved to shareholders (the exercise conditions of which are probably also very favourable). In the end, by giving up on the idea of being the 6

7 sole owners of a failing company and instead becoming small co-owners (28% of the capital based on our assumptions) of an extremely profitable concession, we believe the former Eurotunnel old shareholders have been given an excellent deal. Equity valued at 5.2bn Based on a DCF analysis that covers the entire concession period (i.e. through 2086), our EV estimate comes to 9.2bn and our equity valuation to 5.2bn, or 0.23 per share (based on a fully diluted number of shares of 22,517m). This is calculated using a discount rate of 7%, which corresponds to the high end of the 5-7% IRR range required by investors specialised in this asset class. Note that this implies a 2008e EV/EBIT multiple of 32.1x, which: 1) is nearly twice the average multiple of a peer sample (16.6x), 2) is fairly consistent with our theoretical EV/EBIT multiple of 30x (cash conversion rate of 129%). Issue of ORA I and warrants: attractive in our view At a nominal value of 100 ( 68), the ORA I notes redeemable in 911 shares are particularly attractive in our view. We have a preference for the ORA I (paying a 3% coupon), especially the third tranche which will be convertible in mid We would be more cautious on the ORA II notes redeemable in shares, as we believe that the 6% coupon, while high, is not high enough to compensate for the risk of the issuer call option (at 140%). With regard to the warrants, we assume that each warrant will give shareholders the right to subscribe GET shares in This scenario, which is the most favourable for former Eurotunnel shareholders, is also the most likely in our view. Backdrop should remain good for the shares in the short term While from a strictly financial viewpoint the GET share might appear to be less attractive in the short term than the warrants or the ORA (particularly as the share could be subject to arbitrage), we believe the technical backdrop will continue to act in favour of the stock as: 1) demand for the shares will probably remain strong (thanks to financial and industrial investors specialised in infrastructure stocks, traditional managers, hedge funds, individuals, etc.); and 2) the number of shares outstanding (undiluted) will remain small (at 2,495m) until mid-2008, when the first tranche of the ORA I are converted. We therefore advise investors to have a look at the stock as well, as it could rapidly exceed our target price of Risk factors The main factors of risk are: 1) rising interest rates may have a negative impact on value even though the groups net debt is now mainly (67%) at fixed rate, 2) terrorist attacks cannot be excluded given the highly symbolic nature of the tunnel, 3) our forecasts may prove to be too optimistic, 4) arbitrage could favour the ORA and warrants to the detriment of the share, 5) the risk of an early exercise of the call option associated with the ORA II should not be excluded, 6) strong volatility of the share is likely given its penny stock characteristics. 7

8 Background Creation of the channel tunnel (1986): a strict legal framework Legal framework The concretisation of a centuries-old dream embraced by Napoleon and, more recently and for more peaceful reasons, by Georges Pompidou and Edward Heath in 1973, Eurotunnel was created on 13 August 1986 to build and operate a tunnel under the English Channel. The legal framework for the tunnel was defined several months beforehand by the signature of the Treaty of Canterbury and the Concession Agreement. The Treaty of Canterbury (12 February 1986): this treaty authorised the concession for the construction and operation of the Fixed Link by privately owned companies without tapping government funds. The French and UK governments gave Eurotunnel the freedom to determine its own marketing policy, set prices and provide services to users. Concession Agreement (14 March 1986): this agreement stipulates that the Concessionaires shall jointly and severally have the right and the obligation to carry out the development, financing, construction and operation of a fixed link under the English Channel. It states that the Concessionaires shall do this at their own risk, without recourse to government funds or to government guarantees, regardless of whatever hazards may be encountered and that the Concessionaires alone will bear any responsability there may be for damage suffered by users of the fixed link, or by other third parties arising out of the operation of the fixed link. Expiry of concession in 2086 Under these agreements, which the governments will interpret in an increasingly restrictive light going forward, Eurotunnel is not allowed to receive any subsidies whatsoever. The only action the signatory countries of the Canterbury Treaty can take is to extend the concession contract, which was supposed to last for 55 years initially but was extended to 65 years in 1994 and 99 years in A 99-year concession agreement Date Concession duration Date of expiration years years years 2086 Source: Company data A turbulent history: Financing imbalances Charged with the task of finding its own financial resources, Eurotunnel opted to take on debt rather than tap shareholders equity. This decision, which was the traditional means of financing long-term infrastructure projects, proved to be disastrous. By the end of 1990, with the tunnel far from completion, Eurotunnel had completely exhausted: 1) its initial credit line of 7,620m; and 2) the funds raised in 1986 (450m) and 1987 (1,170m). For this reason, the company: 1) took out additional debt of 2,740m (October 1990), and 2) carried out a capital increase of 1,170m (November 1990). 8

9 Eurotunnel financing policy, ( m) Date Equity financing Debt financing September 1986 Founders subscribe for 70.1m Initial credit line of 7,620m October 1986 Private placement of 380m November 1987 IPO worth 1,170m October 1990 Additional loan of 2,740m November 1990 Capital increase of 870m May 1994 Capital increase of 1,070m Additional loan of 2,740m October/November 1999 Capital increase of 200m July 2002 Loan of 1,083.4m ( 740m) September 2005 Non conversion advances + stab. bond March 2006 Conversion of revisable debt into resettable bonds Source: company data The tunnel is completed one year behind schedule Construction on the tunnel began in November 1987 and was completed in April 1994, one year behind schedule. The delay was caused by a series of technical setbacks in areas poorly conceived in the initial specifications, including: 1) the presence of underground pockets of water on the UK side, 2) extremely high temperatures in the tunnel due to poor insulation of the power equipment, and 3) pressure-related issues requiring a reinforcement of the tunnels infrastructure. In the end, the tunnel is an impressive technical achievement. With an underwater section of nearly 38km, the tunnel under the English Channel is the longest undersea tunnel ever built. The tunnel actually consists of three tunnels (two operating tunnels and one for maintenance and security) drilled 40m under the sea linking Coquelles (Pas de Calais) to Folkstone (Kent). Tunnel architecture Source: Company Commercial operations launched in June 1994 The tunnel officially started operating in June The quandary for Eurotunnel is best summed up as the coexistence between: 1) satisfactory sales and EBITDA growth, albeit three times lower than initially projected, and 2) monumental debt (already close to 10bn in 1994), resulting in an unbearable amount of interest charges. 9

10 A 10bn debt burden since 1994 Sales and EBITDA, ( m) Net debt, ( m) (M ) CA EBITDA Source: company data, SG Equity Research Dette nette (M ) FCF has never covered interest expense While the balance sheet was often shrewdly managed: 1) FCF never managed to cover interest expenses; and 2) operating cash flow was not equivalent to interest expense until Interest expense and FCF ( m) Operating cash flow Capex Free cash flow Net interest expense

11 Financial restructuring Jacques Gounon s two tasks Jacques Gounon took over from Jacques Maillot in February 2005 under intense media scrutiny and against the backdrop of a disappointing set of 2004 results (revenues down 4% and EBIT margin of 6%). A graduate of the prestigious Ecôle Polytechnique and former chief of staff for junior transportation minister Anne-Marie Idrac, Jacques Gounon immediately implemented two major changes. Task 1: overhaul the operating structure This consisted of: 1) reducing the number of employees by 900, 2) optimising tunnel capacity, and 3) a new marketing strategy. Reducing the number of employees by 900. This was carried out on a voluntary basis between mid-2005 and mid-2006, with full-year savings expected to reach over 30m : personnel expenses fell by 32m, EBITDA rose by 67m Impact of lower personnel expenses on EBITDA and EBIT ( m) Sales Other external charges Personnel expenses Other 25 EBITDA EBITDA margin 56% 53.4% 55.4% 58.9% Depreciation Underlying EBIT EBIT margin 30.6% 24.5% 29.0% 39.1% Optimising tunnel capacity by: 1) increasing the occupancy rate per shuttle, hence reducing the number of shuttles needed, 2) completing maintenance work during the week rather than on Friday and Sunday nights so as to increase the number of trains used those evenings. Once the above was achieved, adopt a new marketing strategy. This primarily involved: 1) focusing on daily tunnel users who would sign multi-annual contracts, 2) bringing the sales networks back in-house so as to retain the distribution margin (and get to know the customers better), and 3) finally implement yield management techniques. Task 2: commence negotiations with creditors and restructure the group s finances First Eurotunnel had to obtain a waiver so that interest payments could be suspended during negotiations. It was critical to begin the negotiations quickly as the group would not be able to meet its commitments in January Facing serious financial constraints and pressed for time, Eurotunnels negotiating strategy was confined to a so-called du faible au fort approach (from weak to strong). The strategy had two main thrusts: Declare Eurotunnel bankrupt and highlight the fact that creditors, especially the most junior debt holders, stood to lose their entire investment. Systematically exacerbate clashes between senior and junior creditors by alternately negotiating with one and then the other. In the process, the junior creditors (whose debt 11

12 1) Exclude bondholders from negotiations, 2) systematically exacerbate clashes between creditors expires between 2040 and 2050) were systematically excluded from the discussions. The main highlights of the negotiations are shown in the table below. Date 31 January 2006 Memorandum of Understanding between Eurotunnel and creditors on the ad hoc committee 24 May 2006 Eurotunnel and the ad hoc committee sign a preliminary agreement hotly contested by bondholders June 2006 Bondholders make a counter proposal, which is rejected by Eurotunnel 4 July 2006 First negotiations between senior creditors and bondholders 12 July 2006 Eurotunnel initiates the safeguard procedure; if seniors creditors and bondholders do not reach an agreement before the end of September, the company goes into liquidation Summer 2006 Senior debtors and bondholders agree to a tenable debt level ( 4bn) and the value of the NRS to be issued 26 October 2006 The board approves the Safeguard Plan drawn up with the receivers. The plan includes the major themes seen in the plan of 24 May. 27 November 2006 This plan is adopted by the lending institutions: 28 votes of a total of 53 senior creditors, of which just 35 were present or represented 14 December 2006 Majority of bondholders vote in favour of plan The financial restructuring plan was endorsed on 15 January 2007 by the commercial court of Paris and can therefore be implemented. The financial restructuring plan has four objectives The financial restructuring plan aims to achieve four objectives: 1) cut debt from 9,073m to 4,168m (net debt of 4,068m), 2) limit the amount of interest expense so that it is more compatible with cash flow generation, 3) reschedule debt repayments, and 4) reduce the share of adjustable-rate debt. Reduce debt from 9,073m to 4,168m by eliminating block 2 debt For the sake of clarity, we have split the existing debt load of 9,073m into two large blocks: 1) block 1 consists mainly of senior debt, with a principal amount due of 3,716m; and 2) block 2 is mostly junior debt (including bonds), with a principal amount due of 5,357m. To reduce the total amount of debt outstanding by 54% (from 9,073m to 4,168m), the restructuring plan proposes to: Refinance block 1 debt ( 3,716m), procuring a better rate and repayment schedule via a long-term loan of 4,168m. Totally eliminate block 2 debt ( 5,357m) by offering creditors a combination of ORA notes redeemable in ordinary shares, a cash payment and warrants. Pre- and post-restructuring debt, excluding ORA ( m) Before restructuring After restructuring Block 1 (senior debt) 3,716 3,716 Block 2 (junior debt incl. bonds) 5, Cash payment to eliminate block 2 debt 352 Cash available to GET 100 Total debt 9,073 4,168 Upon completion of the restructuring plan, 4,168m in debt will remain, consisting of: 1) block 1 debt (3,716m), 2) the cash payment to former block 2 debtholders (352m), and 3) an available cash reserve of 100m. 12

13 Assumption: 20m of additional interest expense on the 330m loan to purchase the ORA II Limiting interest expenses to a level compatible with cash flow generation Financial expenses should fall sharply thanks to the restructuring effort, reaching 340m in 2008e (vs 487m in 2006). Note that the financial expense: 1) will include interest paid on the ORA I and ORA II (respectively 3% and 6%), and 2) will, for the first time in the groups history, be lower than cash flow (340m vs 394m in 2008e). Financial expense forecast ( m) e 2008e 2009e 2010e 2011e 2012e Financial income Interest paid on debt ORA I ORA II Additional financial charges related to redemption of ORA Total financial expense Rescheduling debt repayment The first payment (of between 35m and 45m) has been postponed from 2007 to 2013, with the main payments due between 2018 and Risk is now limited Debt now at a fixed rate of interest To prevent a surge in interest charges due to a potential hike in interest rates, the bulk of Eurotunnels debt is now at a fixed rate (67%) instead of an adjustable rate (87%). Note that: 1) the 33% portion (1,389m) of the debt which is still at an adjustable rate of interest is fully hedged through end-2008, and 2) in the absence of any new debt, all of Eurotunnels debt should be at a fixed rate starting in Fixed- and adjustable-rate debt ( m) Pre-restructuring Post-restructuring Fixed-rate debt 1,192 2,779 Adjustable-rate debt 7,881 1,389 Total debt 9,073 4,168 Share of fixed-rate debt 13.1% 66.7% Source: company data, SG Equity Research Terms of the plan Creation of a new legal entity: Groupe Eurotunnel The newly created Groupe Eurotunnel (GET) enjoys all the rights and is subject to all of the constraints contained in the Concession Agreement, which expires in Each Eurotunnel shareholder has the right to exchange one Eurotunnel share for one GET share plus one warrant. The timetable of the offer is shown in the table below. Offer timetable Date Transaction 21 May 2007 Public exchange offer for Eurotunnel closes 25 May 2007 Results of offer announced; 87% of the shares are tendered to the offer 29 May 2007 Trading suspension lifted: Eurotunnel +91.9%. Free float now just 13% 4-14 June 2007 Re-opening of offer; second chance for 13% remaining shares to be tendered to offer Around 20 June 2007 Results of offer announced Late June/early July 2007 Listing of GET shares, warrants and ORA Source: company data 13

14 Long-term loan of 4,168m As mentioned previously, the long-term loan is to be used to: 1) refinance block 1 debt (3,716m), 2) provide some cash compensation (352m) to the holders of block 2 debt, and 3) give GET a cash reserve of 100m. Issuance of notes redeemable in shares (ORA I and II) worth 1,870m Of the 1,870m proceeds from the ORA I and II issue combined, 1,752m should be used to buy back block 2 debt. The remaining 118m should be reserved to Eurotunnel shareholders who tendered their shares to the offer and want to limit their dilution going forward. Issuance of ORA: two uses ( m) Pay off holders of block 2 debt 1,752 Subscription by former Eurotunnel shareholders 118 Total amount of ORA to be issued 1,870 Source: company data With a nominal price of 100, each ORA will be exchanged for 911 GET shares at maturity, i.e. 89.5% of them exchanged in mid The coupon on the ORA is: 1) 3% for the ORA I (i.e. 38.2% of total issue); and 2) 6% for ORA II (i.e. 61.8%). The features of the ORA are shown in the valuation section of this report, page 33). A warrant issue worth 4,537m If 98% of the former Eurotunnel shares are tendered to the exchange offer: 1) 4,537m warrants will be issued (number of shares tendered to the offer divided by 0.55), 2) shareholders will receive 55% of the warrants (2,495m) and bondholders 45% (2,042m), and 3) on our estimates, the warrants should give holders the right to subscribe to 5,092m shares in 2011, or GET shares per warrant. The details of how we calculate this are shown in the valuation section of this report, page 34). Number of warrants issued if 98% of the shares are tendered to the offer Number of Eurotunnel shares outstanding 2,546m Acceptance rate of offer 98% Number of shares tendered to offer (c) 2,495m Number of shares to be issued c / ,537m o/w warrants for shareholders (55%) 2,495m o/w warrants for bond holders (45%) 2,042m Exchange ratio Number of shares to be issued 5,092m Shareholders portion (55%) 2,801m Bondholders portion (45%) 2,291m Source: Eurotunnel, SG Equity Research 14

15 Senior creditors and shareholders benefit from a double transfer of value We start from the premise that, contrary to an industrial restructuring plan (or an acquisition), a financial restructuring plan does not create any value per se, as there are no financial synergies to be considered. That said, financial restructuring plans generally exacerbate naturally conflicting interests between the different providers of funds (shareholders, bondholders). If financial restructuring is typically a play with a nil sum, there are always some winners and losers. Remember that for the sake of clarity, we have split the initial debt load of 9,073m into two large blocks: Block 1 consists of senior debt, with a principal amount due of 3,716m. Block 2 consists of junior debt (including bonds), with a principal amount due of 5,357m. Eurotunnel pre-restructuring debt ( m) Senior debt 347 Fourth tranche of debt 186 Tier 1 A 1,085 Tier Tier 2 1,306 Total block 1 debt 3,716 Tier 3 2,599 Resettable bonds 678 Participating loan notes 1,260 Stabilisation notes 820 Total block 2 debt 5,357 Total debt (block 1 + 2) 9,073 Holders of block 1 debt see their value preserved As previously stated, block 1 debt (3,716m) was entirely refinanced by a long-term loan, preserving the integrity of the remaining principal due. The most we can say is that in terms of value: 1) the rescheduling of payments (postponed from 2007 to 2012) has a negative impact on value, 2) block 1 debt is now mainly at a fixed rate of interest and is therefore much more sensitive to a change in interest rates, and 3) above all, the debt carries far less risk than before. In all, the holders of block 1 debt have seen the value of their investment preserved. Holders of block 2 debt: a mixed bag Block 2 debt is not at all homogenous. While Tier 3 debtholders stand to benefit from the restructuring plan, the three categories of bondholders are probably experiencing some losses. To measure those value transfers, we are going to use the results obtained in the valuation section of this report: 1) 217 per ORA I, 2) 207 per ORA II, 3) 0.25 per warrant. Block 2 debt: synopsis of main exchange terms ( m) Principal Cash payment ORA I ORA II Warrants Tier 3 debt 2, Resettable bonds m Participating loan notes 1, ,429.1m Stabilisation notes m Total block 2 debt 5, ,154 2,041.5m 15

16 Holders of Tier 3 debt are getting a good deal. In exchange for the remaining principal due of 2,599m (the market value of which is probably less however), Tier 3 debt holders are getting a package with a nominal value of 1,634m whose intrinsic value is 3,176m. Tier 3 debt: the terms of the exchange are good ( m) Amount forgiven Nominal value of package Value of package Principal 2,599 Cash ORA I ( 217 each) ORA II ( 207 each) 1,109 2,296 Total 2,599 1,634 3,176 Holders of the resettable bonds are not getting as good of a deal. In exchange for a principal amount due of 678m (the market value of which is probably less however), holders of resettable bonds are getting a package whose value we estimate at 303m. Resettable bonds: terms of the exchange ( m) Amount forgiven Nominal value of package Value of package Principal 678 Cash ORA I ( 217 each) ORA II ( 207 each) Warrants ( 0.25 each) 306.2m warrants 77 Total ,06.2m warrants 303 Holders of the participating loans are getting an even rawer end of the deal. In exchange for a principal amount due of 1,260m (the market value of which is probably less however), participating loan holders are getting a package whose value we estimate at 590m. Participating loan notes: terms of the exchange ( m) Amount forgiven Nominal value of package Value of package Principal 1,260 Cash ORA I ( 217 each) ORA Ii ( 207 each) Warrants ( 0.25 each) m warrants 357 Total 1, ,429.1m warrants 590 Source: SG EquityResearch Holders of the stabilisation bonds are not getting much of a better deal. In exchange for a remaining principal due of 820m, stabilisation bond holders are getting a package whose value we estimate at 476m. Holders of stabilisation notes: terms of the exchange ( m) Amount forgiven Nominal value of package Value of package Principal 820 Cash ORA I ORA II Warrants 306.2m warrants 77 Total m warrants

17 End 2005: the residual time value can be estimated at 497m while the market cap is 688m this suggests the market is factoring in something else Shareholders score a victory The end of 2005 saw Eurotunnel shareholders in a difficult position with the group expected to default on its debt repayments in January At end 2005, Eurotunnels net debt stood at 9,137m against negative shareholders equity of 2,032m, i.e. a nil intrinsic value for the share. The difference between the nil intrinsic value and the market value of 688m (at end 2005) can be analysed as the residual time value before group goes into receivership (early 2007). On our own calculation, the time value at 2005 (using options theory) was just 497m. Thus it would appear that the market value of 688m includes not just a residual time value (497m) but something else as well Eurotunnel theoretical value at end 2005 using the theory of options ( m) Net debt end 2005 (a) 9,137 Book value end 2005 (b) -2,032 Simplified balance sheet total at 2005 (c = a+b) 7,105 Cost of debt in 2005 (d) 497 Theoretical value of debt in 1 year (debt and end 2005+cost of debt) (e =a+d) 9,634 Theoretical value of debt in 1 year discounted at the risk-free rate (4%) (f = e/ 1.04) 9,264 Value of the put (debt discounted at risk free rate net debt end 2005) (g=f-a) 127 Intrinsic value (balance sheet end 2005 value of debt in 1 year) (h=c-e) -2,528 Market value of equity at end 2005 (time value) (I = b-h) 497 Eurotunnel market cap at end June 2007, shareholders as free-riders. Financial theory defines a free-rider as an investor who wishes: 1) not to participate in an offer while hoping it will be a success, 2) to participate in a successful offer while hoping that the success rate will be as low as possible. Where the current restructuring plan is concerned, Eurotunnel shareholders are in the second situation. They have an interest in bringing their shares to the offer so that it is a success (thus rescuing the group), while it is also in their interest that it is just barely successful (to limit the number of GET shares created and to increase the exercise ratio (and thus the value) of the warrants. This mechanism is shown in the following table. Assuming a 51% success rate for the offer (theoretical today): 1) the number of GET shares created would have been 1,298m (vs 2,495m under our scenario of a 98% success rate), 2) each warrant would give the right to subscribe 2 GET shares in 2011 (vs just shares in our scenario). Free-rider effect Sensitivity of number of GET shares created and exercise ratio to the offer success rate Offer success rate a 51% 98% Nb of shares at outset b 2,546 2,546m Nb of GET created c = a x b 1,298 2,495m Nb of warrants issue = c/0.55 2,361 4,537m Warrants reserved to shareholders) 1,298 2,495 Warrants reserved to bondholders) 1,062 2,042 VT (see pg 33 section on warrants)) e m N (see pg 33 section on warrants) f 5,092 5,092m Exercise ratio = f/b Source: Eurotunnel, SG Equity Research July 2007: victory at last for shareholders. We have based our calculation on the number of fully diluted shares, i.e. 22,517m, which is the sum of: 1) shares created from the exchange offer (2,495m), 2) automatic conversion of ORA I (6,519 shares), 3) conversion of 80% of the 17

18 ORA II (8,410m shares on the assumption of issuer call exercised on 20% the ORA II in 2009, 4) exercise of warrants in 2011 (5,092m shares created via 4,537 warrants). The following table shows the development of these figures year after year. Our assumption: only 80% of ORA II are converted into shares in 2009 Number of GET shares created and % reserved for former Eurotunnel shareholders Millions e 2008e 2009e 2010e 2011e Nb of shares at outset (98% 2,546 2,546 2,495 2,495 2,495 2,495 2,495 success rate) Conversion ORA 1 Tranche Conversion ORA 1 Tranche Conversion ORA 1 Tranche 3 4,738 4,738 Conversion ORA 2 8,410 8,410 1 warrant (1.122 new shares) 5,092 Total number of shares 2,546 2,546 2,495 3,385 4,276 17,424 22,517 Of the estimated total number of GET shares in 2011 (22,517m), we calculate that 28.3% will go to former Eurotunnel shareholders. This is well above the 13% share evoked at the launch of the plan and demonstrates that, even if the success rate of the offer is 98% (51% would have been preferable), the mechanisms put in place to protect the former Eurotunnel shareholders (ORA I, issuer call on ORA II, the prerequisites for exercising the warrants) is in fact particularly effective. Protection mecanisms for existing shareholders very effective Number of GET shares owned by former Eurotunnel shareholders Millions Nb of shares at outset 2,495 Conversion of part of the ORA I reserved to shareholders of former Eurotunnel group 1,075 Shares created from the exercise of warrants 2,801 Total nb of shares owned by shareholders of former Eurotunnel group 6,371 % of shares owned by shareholders of the old Eurotunnel group 28.3% The gross value of the shares currently held by shareholders of the former Eurotunnel group is 1,346m. This is a much healthier situation than at end 2005 (688m trending to nil value). Unexpected victory for existing Eurotunnel Transfer of value in favour of shareholders of former Eurotunnel group ( m) At end 2005 At July 2007 Nb of shares (m) 2,546 6,371 % shares owned by existing shareholders 100% 28.3% Eurotunnel equity value 688 5,173 Equity value reserved to existing shareholders 688 1,464 Cost of subscribing to ORA Net value 688 1,346 Transfer of value

19 A two-pronged business model One company, two businesses Eurotunnel operates two distinctive businesses: 1) shuttle services, involving the transport of trucks, coaches and cars, and 2) railway management services, which collects toll fees from railway and shuttle service operators (Eurostar, the SNCF and the UK freight company EWS). Together, these businesses generated 2006 revenues of 829m, of which shuttle services generated the largest share at 56% and railway services contributed 42%. The profitability mix is the inverse of the sales mix. According to our estimates, in 2006 rail management services represented 56% of EBITA (42% of sales), giving a margin of 80%, while shuttle services represented 44% of EBITDA (vs 56% of sales), i.e. a 45% margin. Eurotunnel: breakdown of 2006 sales Eurotunnel: breakdown of 2006 EBITDA Other 2% Rail services 42% Transport services 56% Rail services 56% Transport services 44%, Company data Shuttle services - Eurotunnel s primary business by revenue Description The shuttle services divisions revenues come from the provision of shuttle-based transport services for: 1) Trucks (59% of division revenues) 2) Cars (38%) 3) Coaches (3%). Trucks. Eurotunnel operates a fleet of 16 truck shuttles, each of which can carry up to 30 trucks. This enables six truck shuttle departures per hour in each direction. The number of trucks carried has trebled over the past ten years. 19

20 Period of consolidation before further growth? Number of trucks using the Eurotunnel shuttle service between 1995 and 2006 Truck shuttle traffic (millions of trucks) Source: company data The growth in the number of trucks transported reflects: 1) the strong competitive advantage that using Eurotunnels service offers truck freight operators, and 2) the groups new commercial strategy. Eurotunnels competitive advantage lies in its ease of use for freight transporters. In addition to ease of use is the ability to guarantee that goods will be delivered on time, which is a critical requirement shaping a manufacturers choice of road transport. Therefore, time sensitivity more than price sensitivity is the key factor driving the choice of the channel tunnel shuttle over ferry transport. Given these imperatives, and barring exceptional cases, the truck+ferry freight formula does not appear have demonstrated its efficacy. The groups new strategy is aimed at: 1) focusing on major clients (multi-annual contracts) and forging direct links with small and medium-sized freight companies, thus cutting out intermediaries, 2) increasing the number of departures on Fridays and Sundays and performing maintenance work during the week. This strategy has reaped rewards by: 1) increasing the load factor for the truck shuttles (from 54% in 2004 to 71% in 2006), 2) increasing truck traffic revenues by 6.9% in 2006 (despite a 1% decline in the number of trucks transported). Passenger vehicles (cars and coaches). Eurotunnel has nine passenger vehicle shuttles, each of which can carry up to 180 vehicles (or 120 cars and 12 coaches). Seven of the nine passenger vehicle shuttles were in service in 2006 (8 in 2007), providing up to three departures per hour in both directions. Owing to the end of duty free shopping in 1999 and given the lack of any real competitive advantage compared to ferry services, the number of passengers transported has remained fairly stable over the past ten years. 20

21 Number of cars/passenger vehicles using the Eurotunnel shuttle service between 1995 and The downtrend may have 2006 bottomed Number of cars/passenger vehicles using the Eurotunnel shuttle service between 1995 and (millions of trucks) Source: company data In the passenger vehicles segment, the groups new commercial policy is also producing results. The number of shuttles in service has been reduced to improve the load factors and a yield management system has been introduced (ticket prices vary as a function of departure time and load factor), leading to: 1) an improvement in the load factor for passenger vehicle shuttles (from 45.1% in 2004 to 62.5% in 2006); 2) an average increase of 11% in ticket prices in Our forecasts for the shuttle services business We have contrasting forecasts for the truck and passenger vehicle segments. We are highly optimistic on the outlook for truck shuttles. We believe this segment should grow by at least 4.5% per year over the coming years (2007e-2012e) and then 3% per year over the rest of the concession period. These are conservative forecasts. Note, however, that: 1) road traffic systematically amplifies the trend in GDP (demand for transport = +2% growth in GDP if GDP growth >2%), 2) Eurotunnel benefits from a strong competitive advantage as far as truck transportion is concerned. We have a more reserved outlook on passenger vehicles (cars and coaches). Growth in car transport is expected to be strong in the short term (+4.8% between 2007 and 2012), mainly due to the groups new pricing policy (and from a low base). However, Eurotunnel has no real competitive advantage in this market and we therefore forecast 1% growth over the remainder of the concession period (2013e-2086e). 21

22 Conservative forecast: Eurotunnel offers a major competitive advantage for trucks Transport forecasts e 2008e 2009e 2010e 2011e 2085e 2086e Nb of trucks transported (m) Growth in % -1.0% 6.0% 3.0% 3.0% 3.0% 3.0% +1.5% +1.5% Unit price ( ) Growth in % 8.0% 1.5% 1.5% 1.5% 1.5% 1.5% 1.5% 1.5% Revenues for truck shuttles ( m) Growth in % 6.9% 7.6% 4.5% 4.5% 4.5% 4.5% 3.0% 3.0% Nb of cars/ passenger vehicles transported (m) Growth in % 1.2% 6.0% 3.5% 3.0% 3.0% 3.0% -0.5% -0.5% Unit price ( ) Growth in % 11.0% 2.0% 1.5% 1.5% 1.5% 1.5% 1.5% 1.5% Revenues from car /passenger vehicle transport ( m) Growth in % 9.6% 8.1% 5.1% 4.5% 4.5% 4.5% 1.0% 1.0% Nb of coaches transported (m) Growth in % -13% -1.5% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% Unit price ( ) Growth in % 2.0% -0.2% -0.5% -0.5% -0.5% -0.5% -0.5% -0.5% Revenues from coach transport ( m) Growth % -0.5% -1.7% 0.5% 0.5% 0.5% 0.5% 0.5% 0.5% TOTAL TRANSPORT REVENUES Growth in % +7.2% 7.5% 4.6% 4.4% 4.4% 4.4% 2.7% 2.7% Railway services Eurotunnel s second but most profitable business activity Description Eurotunnel derives 42% of revenues from renting out the tunnel to passenger and freight transport operators (mainly Eurostar but also SNCF and the UK freight company EWS). Until 2006, railway services revenues came from four sources: End of the minimum use charge (MUC): Eurotunnel will now have to rely entirely on its own marketing efforts Breakdown of railway services revenues ( m) e Fixed contribution Eurostar Freight Minimum use charge (MUC) 95 0 Total railway services sales Growth in % 2.0% -24.0% The minimum use charge (MUC) that was put in place to ensure Eurotunnel of a minimum revenue ended in November Eurostar: 70% market share. Founded in 1994 Eurostar is a consortium owned in equal proportions by SNCF, SNCB (the Belgian railway operator) and Eurostar UK. Eurostar UK has four shareholders: National Express Group (40%), SNCF (35%), SNCB (15%) and British 22

23 Airways (10%). Reflecting the increasing control of SNCF, Eurostar is headed up by Guillaume Pepy, CEO of SNCF. Eurostar: SNCF first among equals Eurostar: shareholder and operational structure Source: Source: Eurostar, SG Equity Research Eurostar offers between 15 and 17 departures per day (in each direction) on the London-Paris route (journey time of 2 hours and 35 minutes) and 10 departures per day between London and Brussels (journey time of 2 hours and 10 minutes). It is the uncontested leader on these routes with a more than 70% market share. Eurostar Paris-London: number of passengers and market share Paris-London (m) Market share 66% 69% 70% Source: Company data Eurostar Brussels-London: number of passengers and market share Brussels-London (m) Market share 65% 69% 72% Source: Company data Eurostar: annual revenues ( m) Nb of passengers (m) Growth in % na +2.4% +5.4% Eurostar revenues ( m) ( = ) Growth in % na +7.2% +11.6% Revenues per passenger ( ) Growth in % na +4.6% +5.9% Source: Company data The expansion in market share, passenger numbers and revenues is explained by Eurostars triple competitive advantage compared to its rivals: 1) it is less expensive, 2) it is faster, 3) 23

24 passengers using the service can work as they travel (note that 26% of the seats sold by Eurostar are in business class). Freight: still a marginal business. Revenues for the freight business were only 16.6m in 2006 and freight volumes were just over 1.5m tonnes (only the half the 1996 volume level and less than 2% of the potential market for freight transport between Continental Europe and the UK). We believe this weak performance is explained by the deterioration in the freight market in France and Europe. Note that: 1) freight traffic stabilised in France in 2006 (at 40.6 billions tonnes per kilometre), 2) this stability follows 25 years of structural decline (during which the number of tonnes per kilometre transported shrank from 65bn in 1980 to 40bn today). Eurotunnel: evolution of all types of traffic since 1990 In ton-kilometers, index 100 in 1990 High petrol prices and tougher environmental standards have hit the freight market, which we believe may have bottomed All type Road Railway Fluvial GDP ( year 2000) Source: Source: Eurostar, SG Equity Research Forecast for the railway services business Fixed contribution: this was established in the concession contract at the outset and is not normally due to be renegotiated until We understand that it is divided into two parts: 1) one part (74% of the total) is indexed to inflation (average of the inflation rates in France and the UK), 2) the other part (26% of the total) is indexed to a formula of the type inflation minus 1%. We are very optimistic on Eurostar s future development prospects. We believe growth could accelerate as a result of: 1) the reduction in the Paris-London journey time planned for November 2007, 2) the start-up of the high-speed rail link between Brussels and Amsterdam, 3) the Olympic Games in London in We forecast a minimum average annual growth rate of: 1) 6.8% over the period 2007e-2012e, 2) 4.5% over the period 2013e-2024e, 3) 3% over the remainder of the concession period. We believe the freight business could rebound strongly in This view, which runs contrary to the consensus, is based on 1) the competitive advantage of rail freight transport in a context of high petrol prices and toughening environmental standards, 2) the sustained support of the European Union within the scope of its policy on transports (White Book), 3) the arrival of new players (Veolia Transport), 4) the very high ambitions of Deutsche Bahn in this 24

25 field (strong interest shown for Spains Transfesa and Britains EWS). Following a further decline in 2007, which we forecast at -6.5%, we look for a minimum average annual growth rate of: 1) 6.1% over the period 2008e-2014e, 2) 2.7% over the remainder of the concession period. We believe that there is a strong probability that our forecasts will be exceeded. Railway services ( m) e 2008e 2009e 2010e 2011e 2085e 2086e Fixed contribution Growth in % 2.2% 2.2% 2.2% 2.2% 2.2% 2.2% 2.4% 2.4% Nb of passengers (m) carried by Eurostar Growth in % 5.4% 5.6% 5.2% 4.2% 6.0% 5.7% 1.5% 1.5% Price per passenger ( ) Growth in % 1.2% 1.5% 1.5% 1.5% 1.5% 1.5% 1.5% Eurostar revenues Growth in % 6% 6.8% 7.1% 6% 7.3% 7.4% 3% 3% Tonnes of freight transported (m) Growth in % -1.2% -7.0% 4.0% 4.5% 4.5% 4.5% 1.2% 1.2% Unit price in Growth in % 0.5% 1.5% 1.5% 1.5% 1.5% 1.5% 1.5% Freight revenues Growth in % -1.0% -6.5% 5.6% 6.1% 6.1% 6.1% 2.7% 2.7% Minimum use charge TOTAL railway services revenues Growth in % +2.0% -24.0% 5.1% 4.6% 5.7% 5.6% 2.9% 2.9% Opening of the high-speed TGV line between Brussels and Amsterdam at end 2008: growth for Eurostar set to accelerate 25

26 Forecasts Revenues Forecasts for 2007e-2013e We look for minimum average annual growth of 4.8% over 2008e-2012e. Forecast of Eurotunnel revenues 2007e-2013e ( m) 2007e 2008e 2009e 2010e 2011e 2012e 2013e Shuttle services (piggy-back) Growth in % 7.5% 4.6% 4.4% 4.4% 4.4% 4.4% 2.2% Railway services Growth in % -24.0% 5.1% 4.6% 5.7% 5.6% 5.2% 3.9% Other Growth in % 6.7% 6.3% 5.9% 5.6% 5.3% 5.0% 4.7% TOTAL revenues Growth in % -5.8% +4.8% +4.5% +4.9% +4.9% +4.7% +2.8% 2007 revenue forecasts A good Q1. Revenues reached 174.3m in Q1 07, down 8.2% reported but +8.9% like for like. The decline in the headline figure reflects the end of the minimum use charge (MUC), which represented 11% of total revenues in 2006 (95m). Revenues for the shuttle services division increased by 11.5% to 111.5m over the quarter, while railway services revenues showed an apparent decline of 43% (end of the MUC) but grew +7.3% like for like full-year outlook. We forecast total revenues of 781m in 2007 (-5.8% reported). This moderate decline over the full year is attibtuable to: 1) a more favourable seasonal effect in Q2 and Q3 mainly because of the Rugby World Cup, and 2) an easier comparison base in H2, particular in December (the minimum use charge ended in 2006). Income statements e EBITDA After hitting a peak in 2006 (487.7m, margin of 58.9%), EBITDA will be significantly impacted by the end of the minimum use charge (MUC) in We forecast it will decline by 11.7% to 430.5m, i.e. a margin of 55.2%, which we nonetheless regard as a very good performance given: 1) the end of the MUC will theoretically cut EBITDA by 95m, 2) the 55.2% margin level is similar to that for 2005 (55.4%), when the EBITDA figure included 105m of MUC. The operational leverage should be considerable in the truck shuttle business. Note that in 2006 sales for this division increased by 6.9% despite a 1% decline in the number of vehicles transported. 2008e-2012e. We understand that management is particularly determined to restore the EBITDA margin level. We believe there is high leverage potential at Eurostar. Financial expense We forecast net financial expense of 397m in 2007e, 340m in 2008e and 341min 2009e. Note that financial expenses include forecast supplementary debt of 330m in 2009 to redeem 26

27 20% of the outstanding ORA (notes redeemable in ordinary shares). In 2011, we expect financial charges to decline sharply (by 259m) once all of the ORA have been converted and we forecast that free cash flow will cover financial charges in Our forecast could be somewhat conservative Tax situation On our calculations, Eurotunnel should not have to pay corporate tax before 2024 and thereafter should pay a reduced rate of tax (18%) up to We understand that Eurotunnel has 8,100m of loss carryforwards split between France (1,400m) and the UK (6,700m). The model by which this amount will be used is: 1) France: 50% of annual pretax profit (fully used up in 2023), 2) UK: 50% of the sum of pretax profit and amortisation (fully used up by end 2034). Forecast net income The bottom line should show a profit by 2010 at the latest: we forecast a net profit of 5.6m and expect payment of a symbolic dividend. Profit & Loss account e ( m) e 2008e 2009e 2010e 2011e 2012e 2013e Revenues Growth in % -9.4% -2.9% 0.5% 4.5% -5.8% 4.8% 4.5% 4.9% 4.9% 4.7% 2.8% Other external charges Personnel costs EBITDA Margin in % 56.0% 53.4% 55.4% 58.9% 55.2% 56.0% 56.7% 57.6% 58.4% 59.1% 59.1% Depreciation & amort EBIT before exceptionals Margin in % 30.6% 24.5% 29.0% 39.1% 34.0% 35.2% 36.5% 38.0% 39.5% 40.8% 41.0% Asset impairment EBIT Margin in % 30.6% -44.3% % 39.9% 34.0% 35.2% 36.5% 38.0% 39.5% 40.8% 41.0% Net financial expense Pre-tax profit Other Tax rate Net income

28 Free cash flow will cover financial charges for the first time in the company s history Cash flow statements e Free cash flow will cover financial charges as from Aside from this, the cash flow statement calls for no particular remarks. Cash flow statement e ( m) e 2008e 2009e 2010e 2011e 2012e 2013e EBITDA Cost of net debt Tax Other Change in WCR Operating cash flow Capex Free cash flow Other Investment cash flow Change in debt Capital increase 45 Other shareholders equity -330 Other Dividend Financing cash flow Change in cash Debt reduced by half! Balance sheets e Note that: 1) Eurotunnel remains indebted, 2) we forecast additional debt of 330m in 2009 to purchase 20% of the ORA II in circulation. Balance sheet e ( m) e 2008e 2009e 2010e 2011e 2012e 2013e Fixed assets 10,624 9,951 7,286 7,141 7,141 7,141 7,141 7,141 7,141 7,141 7,141 Other assets Inventory Client receivables Other receivables Financial Investments Cash TOTAL ASSETS 11,891 10,568 7,740 7,550 7,370 7,443 7,541 7,658 7,847 7,989 8,143 Shareholders equity 1, ,032-2,225 2,978 3,042 2,800 2,907 3,081 3,144 3,197 Net financial debt 9,800 9,148 9,310 9,399 4,168 4,168 4,498 4,498 4,498 4,498 4,498 Operating liabilities Other liabilities TOTAL LIABILITIES 11,891 10,568 7,740 7,550 7,370 7,443 7,541 7,658 7,847 7,989 8,143 Net debt 9,499 8,891 9,137 9,117 4,068 4,014 4,266 4,158 3,983 3,846 3,704 Gearing 1,033.7% nm nm 137% 132% 152% 143% 129% 122% 116% 28

29 Valuation Our valuation is mainly derived from a DCF analysis over the concession period. DCF: equity value comes out at 5,173m Operational assumptions Average annual revenue growth of 4.8% over 2008e-2012e and 3.7% between 2013e and 2086e. Note that the concession contract includes an inflation minus 1% price index clause. EBIT margin of 39.5% in 2011e, rising to 44% in 2057e and then stable until the end of the concession. Depreciation generally three times higher than investment and growing at an annual 1.5% pace. Investments: average annual growth of 3%. No tax before 2024, reduced tax rate (18%) until Change in WCR: 1.3% of revenues until 2085, which is totally wrote back at the end of the concession (positive flow of 2,957m in 2086). The discount rate rate issue Comparables approach. The economic model of the concessions business is characterised by: 1) high debt (large upfront investment, strong cash generation), 2) a low beta. The table below shows that with gearing now limited to 137%, the Eurotunnel groups future beta should we weaker than the historic beta of the former Eurotunnel group. A lower beta is now expected for GET Concession operators: comparison of estimated gearing at end 2007 and historic betas Estimated gearing 2007 Historic beta (3 years) Eiffage 328% 1.0 Vinci 195% 0.70 Albertis 294% 1.23 Aéroport de Paris 53% 1.0 Average 218% 0.98 Eurotunnel group 137% 1.34 The approach used by infrastructure finance specialists in concessions/ppp. Under this approach the concession timeframe is dividend into three (sometimes four) periods construction, ramp-up, operation). To each of these periods is attributed: 1) differing levels of risk, 2) differing values, 3) differing investor profiles. As a result, the initial finance providers require an IRR of between 11% and 14% (risk premium of 7-10%), secondary investors require an IRR of between 8% and 10% (risk premium of 4-6%), while phase three investors require an IRR of 5% and 7%. 29

30 Typical life cycle and yield profile of a concession contract or a PPP-financed project The infrastructure finance approach assumes different IRR for different investors (initial and secondary). This model is the most widely used in PPP projects today. Note that since the law of 5 January 2006, PPPs are developing rapidly, particularly in the railway infrastructure field. PPPs under creation in the railway infrastructure market Project name Stage of completion Cost ( m) Southern Europe-Atlantic high speed link Concession: submission of bids 4,800 Brittany-Loire Valley high speed link Declaration of public utility in progress 2,400 Nimes-Montpellier bypass Partnership contract. Implementation in ,200 Charles de Gaulle Express Concession: call for bids launched in March Rhine-Rhone high speed link Classic public financing NC Source: La Tribune, SNCF At this stage we retain a discount rate of 7% which we believe correctly reflects: 1) the low volatility of the concession sector, and 2) the IRR required by investors on this type of project. We believe our approach is conservative as the question today is to know if the groups future investors consider themselves secondary investors (thus a risk premium of between 4% and 6% and a discount rate of 8-10%) or tertiary investors (risk premium of between 1% and 3% and a discount rate of 5-7%). Taking a rate of 7%, we obtain a valuation of 5,173m, or 0.23 per share. 30