Albioma. Investing in the core business. Core expertise offers opportunity to expand. Thermal generation the key to profitability

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1 Albioma Investing in the core business Initiation of coverage Alternative energy Privately negotiated long-term contracts underpin Albioma s key thermal generation business and provide financial visibility. The proposed investment plan, designed to expand the business in areas of core expertise, should lead to an acceleration of growth beyond In the meantime, the shares trade at a discount to 20/share, the average of our peer group analysis and DCF. Year end Revenue ( m) PBT* ( m) EPS* ( ) 12/ /13e /14e Note: *PBT and EPS are normalised, excluding intangible amortisation, exceptional items and share-based payments. DPS ( ) P/E (x) Yield (%) 6 November 2013 Price Market cap 511m Net debt ( m) at 30 June Shares in issue 28.6m Free float 59% Code ABIO Primary exchange NYSE Euronext Secondary exchange N/A Share price performance Core expertise offers opportunity to expand Albioma enjoys strong competitive positions in its major markets and is protected by long-term contracts in its thermal generation business. The company has an ambitious capital expenditure programme, which is targeted to take advantage of the expected demand growth in electricity in its core markets, and in particular the need for renewable energy. Its accumulated expertise in bagasse-fired generation will enable Albioma to enter the Brazilian market, where there is a plentiful supply of bagasse that is currently underutilised for the generation of electricity, and where we expect there to be strong growth in bagasse-fired generation. Thermal generation the key to profitability Beyond 2014 the success of the investment in Brazil could have a positive effect on the valuation of the business. In the near term, the key driver of profitability will be the performance of the thermal generation business. This business is protected by long-term contracts with EDF, under the terms of which the profitability is determined by the level of plant availability and output. Although smaller in scale, the solar and AD output is also sold under long-term contracts at guaranteed prices. Collectively these contractual arrangements provide good visibility of the business s profitability. Valuation: Upside to 20/share Our peer group analysis, using a range of market multiples, produced a valuation for Albioma ranging from 15.3 per share based on yield, to 28.5 per share using a P/E approach. We also constructed a long-term DCF valuation for Albioma using our published forecasts for 2013 and 2014 and based on Albioma s capital expenditure programme. The overall DCF indicates a valuation for Albioma of just over 22/share, and when added to the peer group analysis, provides an average valuation of c 20/share. % 1m 3m 12m Abs Rel (local) week high/low Business description Albioma is an independent energy producer active in the thermal (biomass/coal), solar and anaerobic digestion power-generation sectors. Next event FY13 results 5 March 2014 Analysts Graeme Moyse +44 (0) Roger Johnston +44 (0) industrials@edisongroup.com Edison profile page Albioma is a research client of Edison Investment Research Limited

2 Investment summary Company description: Independent energy producer Albioma is an independent energy producer active in the thermal (biomass/coal), solar and anaerobic digestion power-generation sectors. The thermal generation business is the largest of Albioma s three operating divisions in terms of installed capacity, output, revenue generation and profits. The biomass capacity is located outside France, with the majority in the overseas departments of Reunion, Guadeloupe and Martinique. The majority of the solar assets are also situated outside France, with the Caribbean (45%) and the Indian Ocean (37%) accounting for the bulk of the installed capacity. The nascent anaerobic digestion operations are focused on France. Valuation: Undervalued business To arrive at a market-based valuation of Albioma, we used average peer group multiples analysis and applied it to our forecasts for Albioma. Applying these multiples to each of the three years forecasts, we calculated an average to provide an overall valuation for each approach. The results ranged from a value for Albioma of 15.3 per share based on yield, to 28.5 per share using a P/E approach. We also constructed a long-term DCF valuation for Albioma based on our published forecasts for 2013 and 2014 and on Albioma s capital expenditure programme (WACC 5.7%, perpetuity growth rate 1%). The DCF excludes capital expenditure (c 400m) and profits associated with planned investment in Brazil. The overall DCF indicates a valuation for Albioma of just over 22/share, and when added to the peer group analysis provides an average valuation of c 20/share. We calculate that even if Albioma only earns an 11% return on capital employed (equal to the return on its thermal assets allowed under the EDF contracts) in Brazil, this could add a further 3/share to our valuation. Financials: Investing for growth Albioma s guidance is for EBITDA for 2013 of 127m and group share of net income of 36.5m. Albioma has set the objective of EBITDA of 160m and net income of 40m in We expect EBITDA of 128.4m in 2013 and We expect no increase in solar or thermal capacity during the forecast period, but 5MW of anaerobic digestion capacity to be added by the end of Selling prices are expected to show inflationary increases. We expect capex to rise to 71m in 2013 and 161m in 2014 and net debt to rise to c 590m by the end of Over 80% of debt was non-recourse at 31 December 2012 and we expect that this will remain the case in the future. We project dividends in line with Albioma s policy of distributing 50% of net income. Sensitivities: Regulation and pricing key sensitivities The main thermal business is driven by long-term contracts with EDF where the price is protected. Under the terms of these contracts the profitability is determined by the level of plant availability and output. Although the relative weighting of the two factors is not disclosed, Albioma has stated that the business would remain profitable even if it were not called on to generate, emphasising the importance of plant availability. Approximately 43% of Albioma s shares remain under the control of Apax. While timing is difficult to predict, we expect that Apax will ultimately seek to divest its holding. Albioma 6 November

3 Company description: Expertise in core markets Albioma is an independent energy producer with longstanding experience of generating electricity from bagasse (sugar cane fibre left after juice extraction) and coal, a strong competitive position in the markets in which it operates, and a business underpinned by long-term contracts. The company has an ambitious capital expenditure programme, which is targeted to take advantage of the expected growth in demand for electricity in its core markets, and the need for renewable energy in particular. Its expertise should enable Albioma to enter the Brazilian market, where there is a plentiful supply of bagasse that is currently underutilised for the generation of electricity. Independent energy producer Albioma is active in the thermal (biomass/coal), solar and anaerobic digestion power-generation sectors. The thermal generation business is the largest of Albioma s three operating divisions in terms of installed capacity, output, revenue generation and profits. The company entered the solar market in 2005 and has progressively grown the scale of the business since then. Albioma entered the market for anaerobic digestion in 2012, when it acquired 60% of Methaneo and currently it has c 3MW of operational capacity. The biomass capacity is located entirely outside France in the overseas departments of Reunion, Guadeloupe and Martinique. In these markets, Albioma sells its electricity to EDF, which also acts as the other major generator. In Mauritius, where Albioma also owns thermal assets, it sells to the local grid operator and distributor, CEB. Only 12% of the solar assets are situated in France, with the majority of the operational capacity either in the Caribbean (45%), the Indian Ocean (37%) or elsewhere in southern Europe (6% Spain and Italy). The anaerobic digestion operations are located in France. Exhibit 1: Albioma s installed generating capacity, revenue and EBITDA MW Thermal Biomass Solar Anaerobic Digestion Wind Installed capacity EBITDA Revenue m Source: Albioma, Edison Investment Research Strategic focus on biomass, anaerobic digestion and solar Albioma is focused on developing its power generation using three principal technologies: biomass, anaerobic digestion and solar. The core business is the generation of power from various forms of biomass (principally bagasse). The growth in this area will be based on partnerships with agricultural concerns and the intention over time is to replace those stations that currently operate using a mixture of coal and bagasse with bagasse and other forms of locally sourced biomass. Albioma also intends to extend the geographical spread of projects outside the existing territories of French overseas departments, with a specific focus on Brazil. The acquisition of 60% of Methaneo in 2012 (for an undisclosed price) marked Albioma s entry into the anaerobic digestion market. The company recently commissioned its first project (2MW at Deux-Sevres) and aims to develop 20MW by 2017 and 40-50MW in the next 10 years. Albioma will Albioma 6 November

4 also continue to develop its solar business principally in French overseas departments, where 80% of its existing assets are located. Investment and growth focus After a period of modest investment, Albioma is to embark on an extensive capital expenditure programme, focused on thermal biomass, anaerobic digestion and solar. We believe that demand for electricity generally, and for green energy specifically, in its core markets will create an environment conducive to the pursuit of this strategy. Outside the French overseas departments, where Albioma is already a significant market player, Albioma is targeting investment in Brazil, where the scope for expanding the scale of bagasse-fired generation is considerable. While traditional greenfield developments traditionally have long-term timeframes, acquisitions of brownfield sites in Brazil could generate returns more rapidly. Longer-term valuation approaches such as DCF suggest that Albioma could be worth c 20/share. Company background Albioma was founded in France in the 1980s as Societe Industrielle pour le Developpment de l Energie Charbon (SIDEC). As SIDEC, it commissioned its first bagasse/coal-fired plant in Reunion in the early 1990s and now has over 20 years experience of operating bagasse-fired stations. In 1994, Séchilienne, a subsidiary of Air Liquide, took an equity stake in SIDEC and the companies merged in 2001 to form Séchilienne-Sidec. In 2004 the company built its first wind farm in France and in 2005 Air Liquide sold its holding to Helios (controlled by Apax Partners). In 2012, shareholders approved a new strategy designed to focus on biomass, with a secondary offering in solar, and in May 2012 the company acquired a 60% holding in Methaneo, which specialises in the development of anaerobic digestion projects. In 2013, the company sold its wind business to EDF Energie Nouvelles, in April commissioned its first AD plant and changed its name to Albioma in May. Focused expansion strategy Albioma is focused on developing its business in three principal areas: biomass, anaerobic digestion and solar, where it sells its electricity under long-term contracts. Exhibit 2: Contract length and average selling price (2012) Business /MWh Comments Thermal 98 Sold under year PPAs to EDF. Contracts expire Solar 424 Sold under long-term agreements (20 years France and Italy, 25 years Spain). Anaerobic digestion N/A Sold under 20-year contracts. Source: Edison Investment Research After a period of minimal investment over the last two to three years, Albioma is now targeting annual capital expenditure of c 100m over the next 10 years to develop these businesses. Over the next two years, we expect capital expenditure to rise to c 150m pa. Of the c 1bn of planned capex, it is anticipated c 400m will be spent in Brazil. The dominant business is the generation of power at cogen stations using bagasse and coal in French overseas departments. Bagasse is currently an under used resource for electricity generation, with less than 10% exploited for electricity generation globally. Albioma believes that the market for bagasse-fired power is attractive, as bagasse can be stored, provides predictable baseload renewable power and utilises organic waste, for which there is no competing use. Projections made by EDF indicate that c 100MW of new baseload capacity will be required in the French overseas departments in which Albioma operates by 2020, and a further 200MW of peaking capacity by the same date. Apart from small renewable developers, Albioma and EDF are the principal players in these markets. Albioma intends to exploit the potential growth in these markets Albioma 6 November

5 by signing partnerships with agricultural concerns, to scale back the proportion of coal used to fuel its dual-fuel plants in the coming years, replacing it with locally sourced biomass. As fuel costs are passed through under the terms of its contracts with EDF, this is not expected to alter the profitability of the business materially. The strategy is to extend coverage in existing business areas by building a 38MW bagasse/biomass plant in Martinique (due to commence operation in 2016 and expected to cost 170m) and to invest around 100m to build two peak turbines in the next 10 years. In total Albioma expects to spend c 350m on new plant in its existing markets over the next 10 years. Albioma also intends to enter the Brazilian market for bagasse-fired generation and this will constitute the greatest share of expansionary capital expenditure (c 400m). Brazil is the largest producer of sugar cane in the world and its production has risen significantly over the last 20 years and is forecast to continue to grow rapidly (CAGR of 7.6% for the period , according to the 10-year energy expansion plan produced by the Brazilian Ministry of Mines and Energy). According to projections produced by the government of Brazil, the electricity market is predicted to grow at a rate of just under 5% over the next 10 years and it is envisaged that bagasse-fired cogen will increase by 7.5% over the same period. Albioma s strategy for entering Brazil is to partner with existing players and to purchase existing brownfield sites, refurbishing them to improve the efficiency of the plant. Exhibit 3: Albioma 10-year capex plan Location Plant m 10-year target French overseas departments Biomass Base MW plant in Martinique (2016) and opportunities in Reunion and French Guiana. Brazil Biomass Base 400 Purchase of existing plant from refineries for refurbishment. French overseas departments Peaking 100 Aim to construct two peak turbines. French overseas departments Solar 50 Opportunistic investment based on available returns. France AD To reach 40-50MW of installed capacity. Total 1,000-1,100 Source: Albioma, Edison Investment Research The acquisition of 60% of Methaneo in 2012 signalled an intention on the part of Albioma to expand its range of green energy services by entering the market for anaerobic digestion. The company recently commissioned its first project (2MW at Deux-Sevres) and aims to develop 20MW by 2017 and 40-50MW in the next 10 years. The company will also continue to develop its solar business opportunistically in French overseas departments, where 80% of its existing assets are located. Albioma has earmarked 50m of capital expenditure for this business over the next 10 years and is planning to participate in next year s tender for large solar panel rooftop plants to be held by the French regulator, CRE. Thermal Thermal power plants account for the majority of output, revenue and profitability at Albioma. Albioma s thermal generation portfolio consists of 10 plants with a total generating capacity of 567MW and an annual output of 3,379GWh in As shown in Exhibit 3, all the plants are located outside mainland France with an average portfolio age of just over 10 years and an average size of c 60MW. One plant operates as an oil-fired peaking plant in Martinique, with the rest designed to run on bagasse and coal. We expect the thermal business to provide the majority of growth over the next few years. Albioma possesses a significant share of the generation market in the islands on which it operates: Reunion (57%), Mauritius (43%) and Guadeloupe (35%). The other major player is EDF, which claims a market share of above 50% in all of these departments. The remainder of the electricity is generated by small renewable suppliers in solar and wind. In general, these markets remain difficult Albioma 6 November

6 for new entrants to penetrate given the dominance of the existing players and their accumulated market knowledge. The generation of electricity from dual-fired bagasse and coal power plants was an approach pioneered by Albioma in the early 1990s.The bagasse/coal-fired plants are located next to sugar refineries to use the bagasse (cellulose fibre residue from sugar cane) generated by the sugar cane crushing process to generate electricity and steam. The business model is based on the sugar refiner providing the bagasse free of charge in return for free electricity and steam, with surplus power sold into the market. However, the bagasse is only available for generation during the harvest period (generally about five months), with coal used to fire the plant the rest of the year. Burning bagasse results in fewer emissions than would be created from burning fossil fuels and bagasse is regarded as a carbon-neutral fuel, emitting only those gases absorbed during the growing process. Bagasse is not homogenous, but generally has a relatively high moisture content c 45-50% and a calorific value of 3,000-4,000Btu/lb. As a rule of the thumb, one tonne of sugar cane produces c 300kg of bagasse, which in turn can be used to generate 150kWh of electricity and 450kg of steam. Of the 150kWh of electricity generated, around 30kWh is supplied to the refiner with the remaining 120kWh sold under longer-term PPAs. The PPAs signed with EDF are of 35 years duration (c 25 years on average remaining) and allow for an initial return of 11% pre-tax and interest costs. Under the terms of the contracts, the price at which the electricity is sold comprises two components, fixed and variable, and is subject to annual indexation. Albioma receives a fixed-capacity premium, which is linked to the availability of its plants and can achieve bonuses or incur penalties (capped) depending on the level of availability. The fixed fees are subject to periodic reductions (to reflect reductions in project debt) for specific plants, and we expect 5m reduction in 2014 and a further reduction of 5m in The variable part represents the price of electricity sold to EDF and allows for the pass through of fuel, maintenance charges and other variable costs. CO 2 emission costs are met for all Albioma s plants, except for Guadeloupe, although this is expected to be renegotiated shortly. At the end of the PPAs, Albioma estimates that its plant could continue to generate for a further 20 years as the company will continue to either own the land or rent on long leases. Exhibit 4: Albioma s thermal stations showing capacity and output for 2012 Name Location Plant type Commissioned Capacity (MW) Output (GWh) Load factor (%) CTBR-1 Reunion Bagasse-coal cogen CTBR-2 Reunion Bagasse-coal cogen % CTG-A Reunion Bagasse-coal cogen CTG-B Reunion Bagasse-coal cogen % CTM Guadeloupe Bagasse-coal cogen % CCG Martinique Oil-fired peaking plant % CE Guadeloupe Coal-fired plant % Terragen Mauritius Bagasse-coal cogen % Omincane Mauritius Bagasse-coal cogen % Omincane Mauritius Bagasse-coal cogen % Source: Albioma, Edison Investment Research. Note: Output for CTBR-1 and -2 and CTG-A and -B is aggregated. Biomass generation is Albioma s core business and it intends to expand this business both within its existing areas of operation and into new territories. In the French overseas departments there is a forecast requirement for 100MW of baseload capacity and 200MW of peaking plant. It is Albioma s intention to develop new plants that will run on bagasse and wood pellets, relegating coal to the status of a back-up fuel. Albioma also intends to enter the Brazilian market for bagasse-fired generation and this will constitute the greatest share of expansionary capital expenditure. Brazil is the largest producer of sugar cane in the world and its production has risen significantly over the last 20 years, and is Albioma 6 November

7 forecast to continue to grow rapidly (CAGR of 7.6% for the period , according to the 10-year energy expansion plan produced by the Brazilian Ministry of Mines and Energy). As a consequence of the rise in sugar cane production, there has also been a rise in the production of bagasse, and we calculate that Brazil currently produces c 150m tonnes of bagasse annually. Mirroring the growth in the production of sugar cane, cogen plants using bagasse as a feedstock have been built and Brazil currently has c 8GW of installed capacity compared to total installed capacity for the electricity sector as a whole of c 121GW. According to the Ministry of Mines and Energy, demand for electricity in Brazil is predicted to grow at a rate of c 5% pa over the next 10 years, but it is estimated that the installed capacity of bagasse-fired cogen could increase at a CAGR of 7.6% over the same period. Albioma s strategy for entering the Brazilian market is to partner with existing market players and purchase existing brownfield sites, refurbishing them to improve the efficiency of the plant. Historically, the existing market participants have been sugar refiners, who have been happy to burn bagasse to establish a position of energy self-sufficiency and reduce waste disposal, but have not sought to maximise the productive capacity of the station or to export excess electricity. Significant indebtedness and a need to target investment in the upstream optimisation of the sugar harvest have led to lower productivity (50kWh/tonne of cane versus 110kWh/tonne achieved by Albioma). There is no subsidy for bagasse-based electricity in Brazil, but green energy benefits from lower sales taxes and financing new plants can be made at low interest rates using loans from development bank BNDES. We expect Albioma to target returns in excess of the 11% pre-tax earned by the bagasse plants located in the French overseas departments. Anaerobic digestion Anaerobic digestion (AD) occurs when organic materials are broken down in the absence of oxygen to give off biogas. As well as creating biogas, anaerobic digestion produces a residual digestate that can be used as a bio-fertiliser. The biogas consists of methane (c 70%) and carbon dioxide (c 30%) and can be used to generate electricity. After removing the carbon dioxide (and other trace gases), the remaining methane, known as biomethane, can be injected into the gas grid. Generating plant is normally small in scale (c MW) and we estimate a capital cost of c m/MW, which would agree broadly with Albioma s capital expenditure projections for anaerobic digestion of m expenditure over the next 10 years to reach 40-50MW ( 200m/40MW = 5m/MW). The initial target is for 20MW to be installed by 2017 at a cost of c m. When fully operational after a circa six-month ramp-up, AD plants operate at high-load factors of above 90%, so a 1MW plant should be capable of producing at least 7,884MWh/pa. The development of AD in France has lagged the market leader Germany, but as a country with a significant agricultural sector, the potential for anaerobic digestion in France is considerable. The Grenelle de l Environnment (a French government roundtable including politicians, NGOs and trade unionists) has set what Albioma regards as a highly ambitious target of 625MW by 2020 (compared to an estimated total potential capacity of 708MW in the UK by 2030 in Arup s Review of generation costs and deployment potential of renewable electricity technologies in the UK ). Assuming Albioma is successful in constructing 50MW of capacity by 2020, this would give it an estimated market share of less than 10%, with other capacity owned by the likes of Veolia and private farmers. The business is relatively capital intensive, but benefits from subsidies under French law that last for 15 years. The subsidy is split into three parts. The reference tariff allows 11.19/kWh for a 2MW plant, down to 13.37kwh for a plant under 150kW. For plants using animal slurry and with an installed capacity of under 150kW, a further 2.6kWh is payable. In total, Albioma expects 20MW of operational capacity by 2017 producing revenues of c 40m. Based on an output of 17,400MWh for a 2MW plant, as envisaged for the Deux-Sévres project implies a price of just under 230/kWh, although this figure includes revenues for biomethane and digestate sales. According to the Albioma 6 November

8 Séchilienne Sidec reference document, the tariffs for projects under development range from 14-18/kWh (based on official tariffs for 2011 excluding indexation). Albioma entered the anaerobic digestion market in May 2012 via the acquisition of 60% of Methaneo. The company s first plant, located at Thouars (France), was opened in April this year and became fully operational in September. The plant, known as TIPER, will use 75,000 tonnes waste to produce electricity that will be sold to a nearby producer of animal feed. A second 0.5MW plant is scheduled to begin operation in Saint Verant by the end of 2013, and a further four plants are planned to begin operation in Excluding TIPER, Methaneo has a portfolio of 21 projects (ranging from 0.5MW to 2MW) and has an ultimate aim of developing up to 25MW of generating capacity over the next five years and between 40-50MW in the next 10 years. Solar Albioma s first 1MW facility in Reunion commenced operation in 2006 and since then the company has steadily increased its solar capacity. The majority of the installed capacity of 69MW is still located outside mainland France, where superior levels of sunlight and more favourable tariffs make returns more attractive (25.3MW in the Indian Ocean, 31.6MW in the Caribbean, 4.4MW in Southern Europe and 8.2MW in France). By the end of 2012, the company owned 69.4MW of operational assets with an additional c 0.5MW awaiting connection. During the year output rose to 97.1GWh from 81.4GWh in 2011, generating revenue of 41.2m and EBITDA of 31.9m (+23%). The power is sold on long-term contracts (France 20 or 25 years, Spain 25 years, Italy 20 years), which offer high margins thanks to attractive purchase prices. The first agreement relates to the Reunion assets and will expire in The implied achieved average selling price for 2012 was 424/MWh, although Albioma points to an average solar selling price of 434/MWh for the French overseas territories, 30% higher than the average price for solar power on mainland France. Exhibit 5: Growth in installed solar capacity MW Annual installed capacity Cummulative capacity Source: Albioma Management Albioma s board consists of nine directors, including the chairman and CEO Jacques Petry. Three of the other eight, Edgard Misrahi, Maurice Tchenio and Patrick di Giovanni, sit as representatives of Apax, while the remaining five directors are considered independent. Below board level, a management committee of eight, headed by Mr Petry, runs the business on a day-to-day basis. Chairman and CEO Jacques Petry has over 25 years experience in the water and environmental services industry. During this period, he served in a number of high-profile roles, including chairman of SITA, CEO of Sodexo and chairman and CEO of Suez Environnement. Mr Petry joined the board of Albioma in Albioma 6 November

9 Sensitivities Availability, output and price The main thermal business is driven by long-term contracts with EDF where the price is protected. Under the terms of these contracts the profitability is determined by the level of plant availability and output. Although the relative weighting of the two factors is not disclosed, Albioma has stated that the business would remain profitable even if it were not called on to generate, emphasising the importance of plant availability. In the past two years the thermal business generated revenue of 319m and 331m at EBITDA margins of 27% and 28% respectively. Although a 3% variation in EBITDA margin would affect EBITDA by c 10m, EBITDA margins are dependent on sales, which are affected by the sales price, whereas EBITDA in absolute terms is not as it is influenced by the cost pass through mechanism. Solar and AD output is sold under long-term contracts at fixed prices. In 2012 solar generated revenue of 41.2m and output of 97GWh, with an achieved selling price of 424/MWh. A 10% reduction in solar output would reduce our forecast group EBITDA from to 124.3m (-3.2%). Regulation The thermal business derives its profits from its long-term contracts with EDF so is not subject to economic regulation. The solar and AD business also sell under long-term contracts determined by national renewable regulation. While existing capacity benefits from locked in pricing, new capacity will be subject to changes in the regulatory environment. Stock overhang Although just over half Albioma s stock is in public hand, 42.6% remains under the control of Apax. While timing is difficult to predict, we expect Apax will seek to divest its holding at some stage in the future, creating a potential stock overhang. Currency At present there is little currency risk in the business, with most areas of operation using the euro (France, overseas departments, Spain and Italy). The only exception is Mauritius, which uses the rupee. Coal costs are dollar denominated, but subject to cost pass through. In future, the exposure to currency fluctuations will increase as Albioma invests in Brazil, although this will be mitigated by the availability of project finance loans in local currency. Valuation There are few companies that can be considered directly comparable to Albioma, although we have selected a broad range of power and utility companies to include in our peer comparison. The French companies provide a domestic reference point, but we also include renewable stocks in our analysis, including Drax, a coal/biomass generator. To arrive at a valuation for Albioma, we have used the average multiple of the peer group analysis and applied it to Albioma s historic and two forecast years EPS, DPS and EBITDA. We then took the outcome for each of the three years and calculated an average to provide an overall valuation for each multiple. For yield, we also calculated a value for Albioma based on a higher payout ratio (66% rather than 50%). The results range from a value of 15.3/share based on yield, to 28.5/share using a P/E approach. Exhibit 6: Peer valuation Company Market cap (m local) P/E (hist) P/E FY1 P/E FY2 EV/EBITDA (hist) EV/EBITDA FY1 EV/EBITDA FY2 Yield (hist) Yield FY1 Yield FY2 Acciona 2, N/A EDF 48, Suez Environ. 6, Veolia 6,737 N/A N/A Drax 2, Enel Green Power 8, N/A EDP Renovaveis 3, N/A Average Source: Bloomberg. Note: Priced as at 5 November Albioma 6 November

10 We also constructed a long-term DCF valuation for Albioma based on our published forecasts for 2013 and 2014 and on Albioma s capital expenditure programme thereafter, excluding capital expenditure and profits associated with planned investment in Brazil. We assume the thermal power stations continue to run beyond the lifetime of their sales contracts with EDF and that Albioma commissions new plant in 2016, 2018, 2020 and We assume AD capacity reaches 20MW by 2017 and solar rises to an installed capacity of 74MW by the same date. The overall DCF indicates a valuation for Albioma of just over 22/share, and when added to the peer group analysis provides an average valuation of c 20/share. Sensitivity to a change in discount rate and perpetuity growth rate are shown in the table below. Exhibit 7: Sensitivity of DCF to changes in discount rate and perpetuity growth Perpetuity growth % 0.5% 1.0% 1.5% 2.0% 4.15% % % % % % % Source: Edison Investment Research WACC Exhibit 8: Albioma valuation ranges /share DCF P/E EV/EBITDA Yield (50% payout) Yield (66% payout) Valuation ( /share) Average Valuation ( /share) Source: Edison Investment Research Financials Albioma s guidance is for EBITDA for 2013 of 127m and group share of net income of 36.5m. Albioma has set the objective of EBITDA of 160m and net income of 40m in We expect EBITDA of 128.4m in 2013 and We forecast no increase in solar or thermal capacity during the period, but 5MW of anaerobic digestion capacity to be added by the end of Selling prices are expected to show inflationary increases. We expect capex to rise to 71m in 2013 and 161m in Given the rise in capex we expect net debt to increase to c 590m by the end of Over 80% of debt was non-recourse at 31 December 2012 and we expect this will remain the case in the future. We assume no issue of equity. We forecast dividends in line with Albioma s stated policy of distributing 50% of net income excluding exceptional items. We assume the payments are made entirely in cash. Albioma 6 November

11 Exhibit 9: Financial summary Year end 31 December '000s e 2014e IFRS IFRS IFRS PROFIT & LOSS Revenue 373, , ,518 Cost of Sales (148,457) (154,581) (159,758) Gross Profit 225, , ,760 EBITDA 119, , ,435 Operating Profit (before amort. and except.) 87,098 88,514 86,455 Intangible Amortisation (4,528) (4,726) (4,726) Exceptionals Other 1,970 2,683 2,754 Operating Profit 84,540 86,471 84,483 Net Interest (26,655) (24,873) (26,115) Profit Before Tax (norm) 60,443 63,641 60,340 Profit Before Tax (FRS 3) 57,885 61,598 58,368 Tax (19,952) (22,791) (21,596) Profit After Tax (norm) 42,461 43,533 41,498 Profit After Tax (FRS 3) 37,933 38,807 36,772 Average Number of Shares Outstanding (m) EPS - normalised ( ) EPS - normalised and fully diluted ( ) EPS - (IFRS) ( ) Dividend per share ( ) Gross Margin (%) EBITDA Margin (%) Operating Margin (before GW and except.) (%) BALANCE SHEET Fixed Assets 932, ,689 1,072,984 Intangible Assets 111, , ,261 Tangible Assets 764, , ,399 Investments 56,324 56,324 56,324 Current Assets 198, , ,134 Stocks 45,694 46,116 47,661 Debtors 43,379 44,158 45,318 Cash 79,387 60,830 38,477 Other 29,679 29,679 29,679 Current Liabilities (164,654) (89,120) (92,764) Creditors (85,762) (89,120) (92,764) Short term borrowings (78,892) 0 0 Long Term Liabilities (625,818) (675,819) (750,819) Long term borrowings (503,862) (553,862) (628,862) Other long term liabilities (121,956) (121,957) (121,957) Net Assets 339, , ,535 CASH FLOW Operating Cash Flow 166, , ,502 Net Interest (26,655) (24,873) (26,115) Tax (17,760) (20,287) (19,223) Capex (25,324) (71,000) (161,000) Acquisitions/disposals (1,616) 17,848 0 Financing (4,990) 0 0 Dividends (19,802) (21,899) (20,516) Net Cash Flow 70,466 10,335 (97,353) Opening net debt/(cash) 583, , ,032 HP finance leases initiated Other 9, Closing net debt/(cash) 503, , ,385 Source: Albioma accounts, Edison Investment Research Albioma 6 November

12 Contact details 22 place des Vosges, Immeuble Le Monge, La Defense Courbevoie France +33 (0) Revenue by geography CAGR metrics Profitability metrics Balance sheet metrics Sensitivities evaluation EPS 10-14e EPS 12-14e EBITDA 10-14e N/A N/A N/A EBITDA 12-14e 3.6% Sales 10-14e N/A Sales 12-14e 2.2% Management team Chairman & CEO: Jacques Petry ROCE 13e 7.8% Avg ROCE 10-14e N/A ROE 13e 13.9% Gross margin 13e 59.4% Operating margin 13e 23.3% Gr mgn / Op mgn YY 2.6x Jacques Petry joined Séchilienne-Sidec, which became Albioma, in 2012 as chairman and CEO. He has spent over 25 years in the environmental and water sector, including periods as chairman and CEO of SITA and Suez Environnement. From 2007, he advised investors in the environment and energy sectors as an MD at Royal Bank of Scotland and then as independent consultant, and served until 2011 as chairman of the supervisory board of Idex. COO: Pascal Langeron Since 2012, Pascal Langeron has served as COO in charge of operations for the France area. He is a graduate of the Université de Technologie of Nîmes. From 1991 to 1994, he worked for the Compagnie Thermique de Bois-Rouge and then joined Séchilienne-Sidec, serving in a variety of roles before assuming in his current role. Gearing 13e 0.8% Interest cover 13e 3.6 CA/CL 13e 2.0 Stock days 13e 44.2 Debtor days 13e 42.4 Creditor days 13e 62.7 CFO: Julien Gauthier Litigation/regulatory Pensions Currency Stock overhang Interest rates Oil/commodity prices Julien Gauthier is a graduate of the Hautes Études Commerciales (HEC) business school. Between 2007 and 2012, he worked at the private equity firm Apax Partners, investing in the business and financial services sectors and arranging financing for acquisitions and companies in the portfolio. Since 2012, he has served as group chief finance officer of Albioma. COO: Frédéric Moyne Frédéric Moyne is a graduate of the Hautes Études Commerciales (HEC) business school and started his career at Air Liquide, joining the energy and services division in 2000, where he specialised in the development of cogeneration projects. In 2001, he joined Séchilienne-Sidec and since 2012, he has served as COO in charge of group corporate development in Brazil. Principal shareholders (%) Apax Funds 43.0 Financiere De L Echiquier 5.8 Caisse Depots 3.2 Aviva Investors 2.9 Norges Bank 2.0 % 7% 93% Europe Other Companies named in this report EDF, GDF Suez, Veolia, Drax, Enel Green Power, EDP Renovaveis Edison, the investment intelligence firm, is the future of investor interaction with corporates. Our team of over 100 analysts and investment professionals work with leading companies, fund managers and investment banks worldwide to support their capital markets activity. 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