TERNIENERGIA. Fuelled by sun power HOLD. Initiation of coverage

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1 TERNIENERGIA Initiation of coverage HOLD 30 March 2010 MARKET PRICE: EUR4.02 TARGET PRICE: EUR4.20 Data Shares Outstanding (m): 24.8 Market Cap. (EURm): 99.7 Enterprise Value (EURm): Free Float (%): 24.6% Av. Daily Trad. Vol. (m): Main Shareholder: 68.3% Neri Reuters/Bloomberg: TRNI.MI TER IM 52-Week Range Performance 1m 3m 12m Absolute -1.1% 136.3% 164.3% Rel. to FTSE IT -9.6% 137.8% 88.4% Financials E Revenues (EURm) EBITDA (EURm) Net Profit (EURm) EPS (EUR) CFPS (EUR) BVPS (EUR) DPS (EUR) Ratios E 0E EBITDA margin 15.5% 14.6% 14.3% ROI 42.5% 45.0% 34.2% ROAE 32.9% 49.8% 45.9% Debt/Equity Debt/EBITDA Valuation E P/E (x) P/CF (x) P/BV (x) Dividend Yield 2.5% 5.3% 6.4% EV/Sales (x) EV/EBITDA (x) EV/CE (x) Source: Centrobanca estimates Analysts Fuelled by sun power We initiate coverage of TerniEnergia with a Hold rating and a EUR4.2 target price. In our opinion, the company i) will grow its photovoltaic system integration business exploiting the booming Italian PV market (CAGR 08-13e between 74% and 85%) and consolidate its market share (around 5%) ii) will further develop its power generation business, leveraging on the industrial partnership established with EDF EN ITALIA and benefiting from the high incentive tariffs granted by the Conto Energia thereby lowering its risk profile. Following its strong performance YTD (+136%), TerniEnergia is now trading in line with our target price, justifying a neutral stance. > TerniEnergia operates in the renewable energy sector, in the photovoltaic market, as a system integrator (it realizes turnkey PV systems for third parties) and as a producer of energy from solar power (it generates electricity from its own plants) in JV with EDF EN Italia. According to TerniEnergiaÊs industrial plan (November 2009), the company aims to install an additional 80MW of capacity within the power generation business and 74MW for third parties by > Based on the assumption that the company will exceed its targets (we forecast 85MW of capacity installed for third parties), we expect revenues to grow to EUR95.1 million in 2012 (CAGR09-12E of 26.6%). The EPS should grow much faster, to EUR11 million in 2012 (CAGR09-12E of 44.1%), boosted by the positive results of the power generation business (reported below the EBIT line as JV result). > Our target price of EUR4.2 per share is based on a SOP valuation made using DCF models for both the system integration business and the power generation. Looking at the multiples, TerniEnergia is trading in 2010 and in 2011 in line on estimated EV/EBITDA but at discount on P/E (on average 15%) compared to a panel of European downstream solar energy companies, which is not justified by its prospects and the quality of the execution. > The main risks are i) an unfavourable change in the Italian regulatory framework for photovoltaic energy (i.e. a reduction in the new Conto Energia tariffs for , which could slow market growth) ii) uncertainties concerning the authorization process which reduce visibility on the development projects and increase the execution risk. Jacopo Tagliaferri Jacopo.tagliaferri@centrobanca.it Tel Website: 1

2 Key Financials (EURm EURm) E Revenues EBITDA EBIT NOPAT Free Cash Flow Net Capital Employed ShareholdersÊ Equity Net Financial Position Key Profitability Drivers E Capital Turnover Financial Leverage Net Profit Margin 7.8% 10.4% 11.3% 11.6% NOPAT Margin 10.7% 10.2% 10.0% 9.9% Free Cash Flow Margin 7.7% -6.5% 2.5% 1.8% ROAE 32.9% 49.8% 45.9% 43.2% ROI 42.5% 45.0% 34.2% 30.3% ROCE 30.8% 32.6% 24.8% 22.0% Key Valuation Ratios E P/E (x) P/BV (x) P/CF (x) Dividend Yield (%) 2.5% 5.3% 6.4% 7.3% EV/Sales (x) EV/EBITDA (x) EV/EBIT (x) EV/CE (x) Key Value Drivers E Payout 67.6% 66.0% 66.0% 66.0% Cost of Equity 8.1% 8.1% 8.1% 8.1% WACC 7.4% 6.5% 6.5% 6.3% EP Spread 24.8% 41.7% 37.8% 35.1% EVA Spread 25.2% 28.5% 19.6% 16.6% 2

3 Company profile > TerniEnergia is active in the renewable energy industry, in the photovoltaic market, where it operates as a system integrator (delivering turn-key PV systems as an EPC contractor, working from the design and construction of a plant to its maintenance and operation), and as energy producer. > Since 2006 the company has installed more than 100 PV plants, for a total installed capacity of around 40MW at the end of 2009, and it has an estimated 4-5% share of the Italian market. > Strengthened by an industrial partnership forged with EDF EN ITALIA in 2007, TerniEnergia entered the power generation business. The company has already set up four 50/50 JVs (T.E.R.N.I. SolarEnergy Srl, Energia Alternativa Srl, Energie Srl and Fotosolare Settima Srl) with total installed capacity of 20.1MW at the end of 2009, of which 13.3 connected to the grid. > TerniEnergiaÊs revenues increased 47.1% YoY, from EUR31.8 million in 2008 to EUR46.8 million in The net result reached EUR3.7 million. > The reference shareholder is the companyês founder, Stefano Neri, with a 68.3% stake. The free float is 28.1% of the outstanding shares. A company short history September 2004: T.E.R.N.I. Ricerca e Industrie is founded. 2006: T.E.R.N.I. Ricerca e Industrie focuses its activity on constructing PV plants. March 2007: Industrial partnership with EDF EN ITALIA and establishment of the first JV, SolarEnergy Srl, active in the production of electricity from solar power. October 2007: T.E.R.N.I. Ricerca e Industrie is renamed in TerniEnergia. April 2008: Establishment of the second JV, Energia Alternativa Srl, in partnership with Cogne Acciai Speciali. July 2008: Listing on the Italian Stock Exchange, Expandi market, at EUR1.3 per share. February 2009: the company issues new 800,000 new shares at EUR1.6. March 2009: EDF EN ITALIA replaces Cogne Acciai Speciali in the JV Energia Alternativa Srl. Establishment of the third JV, Energie Srl, always in partnership with EDF EN ITALIA. September 2009: acquisition of Capital Solar Srl, a company with a portfolio of 15MW of PV systems under development. October 2009: Establishment of the fourth JV, Fotosolare Settima Srl, always in partnership with EDF EN ITALIA. Acquisition of Capital Energy Srl, a company with a portfolio of 6MW of PV systems under development. December 2009: acquisition of Meet Solar Srl, a company with 8MW under development. March 2010: acquisition of the authorization to build 2 PV plants for a total capacity of 2MW. 3

4 industrial plan Last November, TerniEnergia, strengthened by the excellent results achieved during the year, presented its new industrial plan. The highlights of the plan are the following: > expansion of the power generation business through the establishment of new JVs in order to install total new capacity of 80MW over the period; > consolidation of the system integration business in order to install total new capacity equal to 74MW over the period. Figure 52: TerniEnergia new capacity installed per year (by business, in MW) MW e 2011e 2012e JV EPC Total Source: Company data We agree with TerniEnergiaÊs strategy as it is positions the company downstream in the value chain, strengthening the partnership with EDF EN ITALIA. The EPC activity concentrates on engineering and installation (often avoiding the procurement of PV modules) and is essential for funding TerniEnergiaÊs development in the power generation business. TerniEnergia is paid by the JVs for its activities, thus generating additional cash flows to be reinvested in power generation. TerniEnergia is configuring itself as an energy utility, lowering its risk profile by obtaining tariffs granted under the new Conto Energia for energy produced from solar power (which increase the visibility on the bottom line). As a result, the company has announced a dividend policy which foresees a payout ratio of 40-45% of TerniEnergia S.p.a. net result. Strategic positioning TerniEnergia is active in the downstream part of the PV business value chain where it operates mainly as a system integrator. In addition to the installation of PV plants for third parties, TerniEnergia is also active in the production of electricity from solar power through four 50/50 Joint Ventures established with EDF EN ITALIA. 4

5 With regards to the system integration business, the company manages all the phases of the process that begins with the commissioning and ends with the installation of a photovoltaic system, passing through the site identification, the filing of the application for the release of the authorization, the project development (design of the PV system) and the plant construction, up to the remote control and the maintenance phase. TerniEnergia has developed a proven business model which enables it carefully to control the entire construction process, optimizing the resources employed, leveraging on the experience of qualified personnel (75 employees) and reducing the lead times for the construction and the installation of PV systems (currently the company is working on 10 plants for a total capacity of 10MW to be completed in 60 days). When it comes to the power generation business, the four JVs had built 20 PV plants with a cumulated installed capacity of 20.1MW at the end of 2009, of which 13.3MW connected to the grid. On behalf of the JVs, TerniEnergia is responsible for the identification of sites potentially suitable for the installation of a photovoltaic system, the feasibility study, the preliminary design of the system and the filing of the documentation needed to obtain the administrative authorization to build the system. Once the authorization is granted, TerniEnergia transfers the project to one of the JVs, which contracts TerniEnergia to build, operate and maintain the photovoltaic plant. EDF EN ITALIA, which belongs to EDF EN, one of the biggest players in the renewable market, is responsible for the purchase of solar panels and for the funding of the plants, thus guaranteeing to the JVs better conditions than those available to small and medium players, lowering the Capex per MW and the financial charges. Figure 53. TerniEnergia S.W.O.T. analysis Strengths Weaknesses - Positive track record in the system integration activity - The power generation business is capital intensity -Strategic partnership with EDF EN Italia - Small size compared to leading players Opportunities Threats - Expansion of the power generation business (i.e. new partnerships) - Unfavourable changes in the Italian regulatory framework - Development of the wind business - Credit crunch Source: Centrobanca estimates 5

6 Recent Developments > In 2009, revenues showed a remarkable YoY increase (+43.6% to EUR46.8 million). The growth was driven by TerniEnergiaÊs consolidation of its market share in the booming solar energy market and by the further development of the power generation activity. The partnership with EDF EN ITALIA has been strengthened thanks to the establishment of a fourth joint venture (Fotosolare Settima Srl). > Profitability also increased, driven by increased revenues and scale benefits; the EBITDA was EUR7.3 million, up 209% YoY, a healthy 15.5% of revenues (it was 7.4% in 2008). > The results from the JVs were negative for a total of EUR0.6 million in The first JV, SolarEnergy has 5.7MW connected to the grid and, as a consequence, has been able to post a positive net result. The other three JVs, Energia Alternativa, Energie and Fotosolare Settima, with installed 14.4MW of total capacity of which only 7.6MW connected to the grid, reported marginal net losses. > The net result was positive for EUR3.7 million and higher than the net result expected by the company for full-year In 2008 it was positive for EUR0.5 million. > The net financial position was negative for EUR2.7 million, an improvement on the EUR9.4 million recorded at June 2009 as TerniEnergia managed to keep NWC under control despite the strong growth and recorded a positive one off equal to EUR3.3 million. Figure 54. TerniEnergia FY 2009 results EURm FY09 % FY08 Revenues % 31.8 EBITDA % 2.3 EBITDA margin (%) 15.5% 7.4% EBIT % 1.7 EBIT margin (%) 14.8% 5.3% JV result JV margin (%) -1.3% -1.5% Net profit % 0.5 Net margin (%) 7.8% 1.7% Net Working Capital Net Financial Position Source: Company data 6

7 Financial Projections > In 2010 we expect revenues to increase 64% to EUR76.8 million supported by the strong growth of the Italian solar market and by the positive order intake recorded by TerniEnergia so far. > The EBITDA will increase to EUR11.3 million (+55% YoY): TerniEnergia has developed a lean industrial model which allows for efficient management of the cost base and thus a good operating leverage which should compensate the price pressure expected as the Italian PV market matures. TerniEnergia tries to avoid the procurement of the PV modules (a low margin trading activity), which reduces total revenues but avoids a negative impact on margins. > Thanks to the new MW capacity installed and connected to the grid for the JVs in 2009, the power generation business should contribute positively to the bottom line: we expect a JV result of EUR0.8 million in > Net profit should reach EUR8 million, more than double the figure of > In order to install a further 20MW of capacity, we estimate TerniEnergiaÊs investments in the power generation business (the 50% equity stakes in the JVs) should be EUR4.5 million. > NWC will increase due to the revenue growth but should remain well under control (below 30% of revenues): in fact, TerniEnergia avoids providing the PV modules thus improving the cash profile of its system integration business. > NFP will increase to EUR10.2 million at the end of 2010 without putting pressure on the balance sheet: the leverage should be below 1x and the gearing 56%. Figure 55. TerniEnergia key consolidated P&L figures EURm FY09 FY10e FY11e FY12e CAGR Revenues % change (%) 47.1% 64.0% 10.5% 12.1% EBITDA % EBITDA margin (%) 15.5% 14.6% 14.3% 14.1% EBIT % EBIT margin (%) 14.8% 14.1% 13.9% 13.6% JV result Pre tax margin (%) -1.3% 1.1% 2.6% 3.1% Net profit % Net margin (%) 7.8% 10.4% 11.3% 11.6% 7

8 Figure 56. TerniEnergia key consolidated B&S figures and capex trend EURm FY09 FY10e FY11e FY12e Net working capital Net fixed assets Total Net Assets ML term funds Capital Employed ShareholderÊs funds Net financial position Gearing Capex Source: Centrobanca estimates Figure 57: TerniEnergia new capacity installed per year (by business, in MW) We forecast over the period of the industrial plan that PV plants with cumulated 85MW of capacity acity will be installed for third parties, 11MW more then the companyês target. MW e 2011e 2012e JV EPC Total Source: Centrobanca estimates 8

9 Valuation > To value TerniEnergia we have used a sum-of-the-parts (SOP) valuation adding together the EV of the system integration business (valued on a 6-year DCF plus terminal value) and the EV of the power generation business (valued on a 25-year DCF with no terminal value), net of their respective NFPs at year-end > The result gives a target price for TerniEnergia of EUR4.2 per share, in line with the current market price. Figure 58. TerniEnergia SOP 2010 EURm Per share Method EV power generation business (50%) y DCF, no TV EV system integration business y DCF + TV Total EV Net Debt power generation (50%) FY09 Net Debt system integration FY09 with pension fund EQUITY VALUE Source: Centrobanca estimates Figure 59. TerniEnergia WACC and embedded DCF assumptions for the power generation business WACC assumptions Embedded DCF assumptions Risk-free rate (10Y BTP bench.) 4.10% Forecast period 25y Cost of debt [net] (%) 3.6% Peak year 2013 Market risk premium (%) 4.0% Installed MW (at peak) 100 Beta relevered (x) 4.6 Avg. working hours per year 1,270 Cost of equity (%) 22.5% Revenue CAGR (%) 96% Weight of Debt 85% Target EBITDA margin (%) 91% Weight of Equity 15% D&A (years) 20 WACC 6.5% Capex planned (EURm) Source: Centrobanca estimates Figure 60. TerniEnergia WACC and embedded DCF assumptions for the system integration business WACC assumptions Embedded DCF assumptions Risk-free rate (10Y BTP bench.) 4.10% Forecast period Cost of debt [net] (%) 3.6% Revenue CAGR (%) 11.2% Market risk premium (%) 4.0% EBITDA CAGR (%) 8.9% Beta relevered (x) 1.3 LT EBITDA margin 13.5% Cost of equity (%) 9.3% Average NWC/revenues 31% Weight of Debt 5% Weight of Equity 95% LT growth rate 0% WACC 9.0% % Terminal Value 70% Source: Centrobanca estimates 9

10 Photovoltaic Market size and growth In 2008 the photovoltaic (PV) industry recorded strong growth with new installed capacity of 5.559MW worldwide. The industry CAGR in the period was equal to 50.1% (in terms of new MW installed per year). Two countries contributed the most to the result of the industry in 2008: Spain with 2,511 new MW installed during the year and Germany with 1,500MW. The total installed power reached 14,720GW in (Source: EPIA, European Photovoltaic Industry Association) Figure 9. PV power installed worldwide in (new & total, in MW) MW 25,000 20,000 15,000 10,000 5, ,524 14,722 9,163 6,771 6,802 5,168 5,559 3,847 2, ,052 1,321 1,603 2, Cumulated New Source: EPIA The last EPIA estimate, dated April 2009, forecast growth in the market equal to 22.4% or 6,802 new MW installed in The weak economic environment, combined with a negative change in the Spanish incentive scheme (a cap of 375 new MW installed was established for 2009) were the main threats to the industry. In Europe, Germany and Italy were expected to pull the demand thanks to their favourable incentive schemes. Preliminary figures seem to confirm the EPIA estimate: Germany should have installed more then new MW while Italy approximately 900MW. In 2013, the global PV market could reach 22,325MW of new installations per year if appropriate policies, such as the feed-in tariffs, remain in place, the CAGR of the period being 34.6%. (source: EPIA) In Italy the total installed capacity reached 269MW at the end of Preliminary figures issued by the GSE (Gestore Servizi Energetici) reported 900MW installed at the end of

11 Figure 10. Italian PV power installed in (new & total, in MW) MW 1, Cumulated New Source: GSE With regard to Italy, the EPIA forecasts a total photovoltaic installed capacity between 4,300MW (moderate scenario) and 5,750MW (policy driven scenario) by 2013; the CAGR being 74.1% and 84.6% respectively. The Ministerial Decree of February 2007, which introduced the New Conto Energia for the period , set as a non-binding target the achievement of a total installed capacity of 3,000MW in 2016 (the CAGR being equal to 35.2%). Market structure The photovoltaic industry value chain involves companies operating in the manufacturing of basic materials (silicon and wafers), in the manufacturing of PV system components (cells, modules and inverters), in the distribution and installation (system integration) of PV plants and in the energy production and sale. > Upstream: producers of silicon and wafers. The reference market is global and concentrated; there exist huge barriers to entry (i.e. economies of scale, level of Capex, financing capacity). The main players are REC, Wacker Chemie, Hemlock, MEMC, PV Crystalox and Kyocera. > Midstream: manufacturers of solar cells and assemblers of modules. The countries with a significant PV manufacturing industry are the US, Germany, China and Japan. 40% of the manufacturers are not integrated (they produce only cells, focusing on standardization and scale, to serve the global market), 60% are integrated (they produce cells and modules, invest a lot in R&D to innovate and differentiate and have local footprints). The business is capital intensive and with a high degree of automation. The main players are Q-Cells, Solarworld, Sanyo, Sharp, Suntech, First Solar and Solon. In Italy Kerself, XGroup, Solsonica and Solarday have production lines for the manufacturing of cells and modules. > Downstream: system integrators. PV systemsê integrators are in charge of the management of the authorization demand, the design of the PV system and its installation. Generally they are small and locally-based. Strong relationships with local authorities are strategic. Overall the business is not scalable (i.e. there is 11

12 low operating leverage), is characterized by high working capital needs which require good financial capabilities. Among the players with the capabilities to work as an EPC contractor (engineering, procurement, construction) on big projects (solar plants of 1MW) are Kerself, TerniEnergia, Solon, Enerqos and Sunpower. > Downstream: energy producers from solar power. The market is extremely fragmented; it comprises energy producers (both utilities and independent power producers), industrial companies with roof top surfaces and financial investors (specialized funds, Private Equity operators). The creditworthiness of the sponsor and its capacity to provide equity represent key competitive advantages. Among the Italian listed companies, several have solar plants already in operation: Sorgenia (CIR), ErgyCapital, Enel Green Power, Uni Land, TerniEnergia, Alerion, K.R.Energy, ERG Renew and Edison Energie Speciali. Suppliers The contractual power of PV components suppliers is decreasing. Demand is increasing fast, but cells and modules capacity is increasing even faster. Over capacity, which appeared in 2009, is expected to last also in Chinese manufacturers are heavily investing in new capacity. Cells and modules will increase their efficiencies because the industry benefits from a significant learning curve, driven by technological improvements and economies of scale: modules prices decrease by approx. 20% every time the total capacity doubles. As a result, prices are expected to decline in the medium term, after a reduction of 30-40% recorded in The average price is now well below EUR2 million per MW. Manufacturers of solar cells and assemblers of modules are reacting integrating their operations downstream or establishing strategic partnership with energy producers. Barriers to entry There exist many important barriers to entry in the business of electricity generation from solar power. > Limited availability of lands: non integrated systems (ground mounted) need a wide area (8-10 square meters for KW). > Administrative authorization issues. The authorization procedure is complicated and the process often carries long delays. The policy framework is unstable and the process is differentiated at regional and local levels. There exist bottlenecks connecting the PV plants to the national medium/high voltage grid. > Huge investments. The Capex to build a large PV plant is above EUR3 million per MW. > Credit crunch. The current financial turmoil is reducing the financial resources available and thus increasing the competition among the new projects proposed; it is reducing the leverage (down to 85%) of each project and 12

13 increasing the cost of debt (spreads are above 200 bps). New entrants Italy, the second market in Europe for new MW installed in 2009, has still strong growth potential ahead. It is likely that many companies will enter the market also in 2010 before the introduction of a new Conto Energia, which foresees a cut in the incentive tariffs, thereby reducing the achievable IRR. In fact today the high incentive tariffs combined with the reduced capex/mw guarantee an interesting IRR (above 10%, unlevered) on the investment. Regulatory framework In Italy the production of energy from solar power is regulated by the Conto Energia, revised with the Ministerial Decree of February 2007 which introduced the New Conto Energia. The main characteristics of the scheme are: > the incentive, known as Feed in Tariff, is based on actual production (KWh) and not on installed power (KW); > the incentive is granted for a period of 20 years; > the priority access to the electrical grid is given to renewable energy producers; > the Decree set a target of 1,200MW. The application for incentive tariffs should be submitted to the GSE ( Gestore Servizi Elettrici, Electrical Services Operator) after the plant commissioning. The electricity produced is sold to the GSE, through an Agreement, or to energy wholesalers, which buy on the basis of bilateral contracts or in the Electricity Stock Exchange. Incentive tariffs pursuant to the Conto Energia (which set the tariffs for the years ) vary according to the type and the power of the PV system installed and the year of submission of the application (to be connected to the grid). There are three types of systems subject to incentives: non-integrated systems, partially integrated systems and integrated systems. Figure 11. Conto Energia for the year 2010 System power capacity Non Integrated Partially Integrated Fully Integrated ( /KWh) ( /KWh) ( /KWh) 1 KW <_ P <_3KW 0,384 0,422 0,470 3 KW < P <_ 20 KW 0,365 0,403 0,442 P > 20 KW 0,346 0,384 0,422 Source: GSE The values of the tariffs shown in the table refer to the PV systems for which the demand to be connected to the grid was presented by December 31, This rule has been confirmed by the Legislative Decree known as Decreto Alcoa just approved. The PV marketês growth was made possible thanks to the incentive tariffs granted by the Government which are making the investments in PV systems economically 13

14 attractive and competitive with traditional non-renewable energy sources. The tariffs and the target of the Conto Energia will be reviewed in the next months. The new expected decree, which refers to the year , will lower the incentive tariffs granted to take into consideration the huge deflation which affected the price of PV components in 2009 and the physiological decrease in price driven by scale and technology that the development of the industry towards its maturity will provide in the coming years. We do not expect the changes in the regulatory framework to be unfavourable as occurred in Spain in 2008 and as seems to be happening in Germany actually. The circulated drafts of the new Decree foresee a cut in the incentive tariffs in the range of 15-20% in 2011, a further yearly cut of 6% in 2012 and in The total target should be set at 3,000MW. This new tariffs are already incorporated in our estimates. Figure 12. Draft Conto Energia January-April May-August September-December Non Non Non Integrated Integrated Integrated Integrated Integrated Integrated System power capacity ( c/kwh) ( c/kwh) ( c/kwh) ( c/kwh) ( c/kwh) ( c/kwh) 1 KW <_ P <_3KW KW < P <_ 20 KW KW < P <_ 200 KW KW < P <_ 1 MW P > 1000 KW Source: Press Authorization process The process to grant a construction authorization may change depending on the Italian Region concerned. The national Decree provides for the authorization of a PV installation to be granted according to a 6-month simplified procedure to be carried out either before the relevant Regional government or the provincial authority, if appointed. The legislative decree also requires the Ministries concerned to adopt Guidelines for the implementation of the simplified procedure outlined by the national legislation. So far however, such guidelines have not been adopted. On the one hand the Italian Regions have adopted their own rules in order to abide by the Decree, and on the other they have adopted additional provisions setting exceptions or derogations from the national rules which may be important to a PV project and which create high uncertainties to the market. In particular, the rules adopted by the Puglia Region (Law 31/2008), where the development of new PV plants concentrates in Italy, have been appealed by the Government. The Constitutional Court has ruled against the Law, adding to the uncertainty which surrounds the PV sector in Italy. 14

15 Income Statement (EURm EURm) E Net Revenues EBITDA EBITDA margin 15.5% 14.6% 14.3% 14.1% EBIT EBIT margin 14.8% 14.1% 13.9% 13.6% Net financial income /expense Associates & Others Profit before taxes Taxes Minorities & discontinued ops Net Income Balance Sheet (EURm EURm) E Net working capital Net Fixed assets M/L term funds Capital employed Shareholders' equity Minorities Shareholders' funds Net financial debt/(cash) Cash Flow Statement (EURm EURm) E NFP Beginning of Period Group Net Profit Minorities D&A Change in Funds & TFR Gross Cash Flow Change In Working Capital Other Operating Cash Flow Capex Other Investments Disposals Free Cash Flow Dividends Paid Other & Chg in Consolid. Area Chg in Net Worth & Capital Incr Change in NFP NFP End of Period

16 Financial Ratios (%) E Net Margin 7.8% 10.4% 11.3% 11.6% ROE 32.9% 49.8% 45.9% 43.2% ROIC - after tax 30.8% 32.6% 24.8% 22.0% Net Fin. Debt/Equity (x) Net Fin. Debt/EBITDA (x) NOPAT(EURm) ROACE 32.5% 35.0% 26.1% 22.9% Per Share Data (EUR) E EPS DPS Op. CFPS Free CFPS BVPS Stock Market Ratios (x) E P/E P/OpCFPS 18.8 nm P/Free CFPS 27.8 nm P/BVPS Div. Yield (%) 2.5% 5.3% 6.4% 7.3% Free Cash Flow Yield (%) 3.6% nm 2.2% 1.7% EV (EURm) EV/Sales EV/EBITDA EV/EBIT EV/Capital Employed Growth Rates (%) E Growth Group Net Sales 47.1% 64.0% 10.5% 12.1% Growth EBITDA 209.0% 54.9% 8.1% 9.9% Growth EBIT 307.9% 56.3% 8.4% 10.2% Growth Net Profit 589.7% 117.2% 20.5% 14.4% 16

17 Disclaimer Analyst Declaration The analyst who prepared this report, and whose name and role appear on the front page, certifies that: a. the views expressed on the Company mentioned herein accurately reflects his personal views. It does not represent the views or opinions of the management of Centrobanca or any other company in or affiliated to the UBI Group. It is possible that individuals employed by Centrobanca, or any other company in or affiliated to the UBI Group, may disagree with the views expressed in this report; b. no direct or indirect compensation has been or will be received in exchange for any views expressed; c. the analyst does not own shares of the Company; d. neither the analyst nor any member of the analyst s household serves as an officer, director or advisory board member of the Company; e. the analyst does not receive bonuses, salaries, or any other form of compensation that is based upon specific investment banking transactions. About Centrobanca This document has been prepared by Centrobanca Spa ( Centrobanca ), a bank authorized by the Bank of Italy to provide investment services pursuant to Article 1, Paragraph 5, letter a), b), c), c-bis), e) and f) of Legislative Decree, 24 February 1998, n 58. Centrobanca belongs to the UBI Group. General warning This document is for information purposes only. This document is not, nor may it be construed, to constitute, an offer for sale or subscription of or a solicitation of any offer to buy or subscribe for any securities issued or to be issued by the Company. The recipient should conduct his own investigations and analysis of the Company and securities referred to in this document and make his own investment decisions without undue reliance on its contents. 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The sources (press publications, financial statements, current and periodic release, as well as meetings and telephone conversations with Company representatives) are believed to be reliable and in good faith, but no representation or warranty, express or implied, is made by Centrobanca as to their accuracy, completeness or correctness. Any opinions, forecasts or estimates contained herein constitute a judgement as at the date of this document, and there can be no assurance that the future results of the Company and/or any future events will be consistent with any such opinions, forecasts or estimates. Any information herein is subject to change, update or amendment without notice by Centrobanca subsequent to the date of this document, with no undertaking by Centrobanca to notify the recipient of this document of such change, update or amendment. Organizational and a administrative arrangements to prevent conflicts of interests Centrobanca maintains procedures and organizational mechanisms (physical and non-physical barriers designed to restrict the flow of information between Equity Research Unit and the other areas/departments of Centrobanca) to prevent and professionally manage conflicts of interest in relation to investment research. For further information please see Centrobanca s website ( Meccanismi organizzativi ed amministrativi posti in essere per prevenire ed evitare conflitti di interesse in rapporto alle Ricerche. Disclosure of potential conflicts of interest On the basis of the checks carried out no conflict of interest arose. Frequency of updates Centrobanca aims to provide continuous coverage of the companies in conjunction with the timing of periodical accounting reports and any exceptional event that occurs affecting the issuer s sphere of operations and in any case at least twice per year. The companies for which Centrobanca acts as Sponsor or Specialist are covered in compliance with regulations of the market authorities. For further information please refer to Centrobanca s website Valuation methodology The Centrobanca s analysts value the Company subject to their recommendations using several methods among which the most prevalent are: the Discounted Cash Flow method (DCF), the Economic Value Added method (EVA), the Value map method, the Multiple comparison method. For further information please refer to Centrobanca s website Ranking system The Centrobanca s analysts use an absolute rating system, not related to market performance. The explanation of the rating system is listed below: Buy: if the target price is 10% higher than the market price. Hold: if the target price is 10% below or 10% above the market price. Sell: if the target price is 10% lower than the market price. Target price: the market price that the analyst believes that the share may reach within a one-year time horizon. Market price: closing price on the day before the issue date of the report, appearing on the first page. 17

18 Distribution This document is being distributed by electronic and ordinary mail to Professional Clients and Eligible Counterparties. This document may be distributed in the USA by a United States Securities and Exchange Commission ( SEC ) registered broker dealer. This document may not be distributed in Canada, Japan or Australia. Copyright This document is being supplied solely for the recipient s information and may not be reproduced, redistributed or passed on, directly or indirectly to any other person or published, in whole or in part, for any purpose without prior written consent by Centrobanca. The copyright and intellectual property rights on the data are owned by UBI Group, unless otherwise indicated. The data, information, opinions and valuations contained in this document may not be subject to further distribution or reproduction, in any form or via any means, even in part, unless expressly consented by Centrobanca. By accepting this document the recipient agrees to be bound by all of the forgoing provisions. Distribution of ratings For further information regarding quarterly rating statistics and descriptions, please refer to Centrobanca s website 18